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Sketchy Business

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August 13, 2008 – Comments (2) | RELATED TICKERS: HLYS.DL , SKX

Most of you probably don't pay much attention to Heelys anymore, since its share price has plummeted from when it was a wall street darling at $30.00/share, way down and back up to its current level of $4.50/share. In fact I would guess that most of you are more worried about getting run over at the mall by kids on wheels then news about Heelys. I however will always have a twisted place in my heart for Heelys, having used the buying opportunity at $12.00 to drive the lesson aboout catching falling knives very deeply home. A lesson I will not forget untill I forget the lesson and try again with a different company. And I did some due diligence before I bought. I read the lawsuit about injurys, and learned the prosecutor included data pointing how much more dangerous football and skateboarding is and so I was not afraid. I read the posts warning about how overstocking the stores would lead to having no sales until inventory was used up (are you listening homebuilder longs?) and I was willing to wait unaware of how long would take. I read posts calling Heelys trendy, comparing them unfavorably to an "enduring" concept like plastic shoes with holes to let pebbles in. I watched 10yr olds go heeling around and it looked cool to me, and the 10yr old knew he was cool too, heeling around the school hallway with his friends watching him and the janitor upset and wishing he had Heelys too.

 I believe in the Heelys story. I believe kids will want wheeled shoes because I would have wanted wheeled shoes. And I believe parents will buy wheeled shoes for their kids. Especially in an economic downturn. How else will parents give a kid shoes for Christmas and make her happy. They have to buy her shoes, right?

Now I have cringed while they messed up expanding into Europe, and I have smiled when Disney decided to put on a Heelys show. And I have waited, believing that somehow, someway management would get their act together and restore profitability to this once maligned brand. That time is probably upon us. They have had a year to move old inventory, forget some bad ideas and move on to brightly decorated wheeled shoes. And through all of this at $4.50/share they have held on to 98mil. dollars in cash. $3.50/share in cash making the hope that they would someday sell shoes profitably worth only $1.00/share. I believed in wheeled shoes and I added more to my position.

Now I learn that Sketchers has offered $5.25/share (142mil) for the whole company. Presented to the board in secret. I am wondering if it was when the shares moved up from $4.00 to $5.00 this month. Or the month before when I held on after they had moved to $5.50 for a short time. Fortunately, whenever it happened the board turned them down. Now Sketchers can decorate a shoe. I've seen them dangling on feet on tv. And I bet Heelys can learn to decorate a shoe too. Hopefully not like a malfunctioning game console again. But with 98mil we can be daring and make a few mistakes. But Sketchers cannot put wheels in shoes. Heelys won a lawsuit that says so. And wheeled shoes are way cooler than unwheeled shoes. And much cooler than pebble collecting shoes. And cooler than any brightly colored flatty unwheeled shoes.

Now if I was Sketchers I would try to buy Heelys and their 98mil in cash for $142mil. But if I am Heelys (and I am) I wouldn't take it.

So to Richard and Charles and Roger and the rest of the board, if Sketchers want to buy our shares today insist on $400mil. If they want to wait until after Christmas, thats ok with me too, but the price I want then might be $500mil. It will not be less than $400mil. Even if this Christmas selling season stinks too.

Wheeled shoes. Still very cool.

2 Comments – Post Your Own

#1) On August 14, 2008 at 8:55 AM, Tastylunch (29.19) wrote:

NOw if only they could join togther with CROX and make wheeled CROX , then you may have the ultimate fad shoe. :-)

hope yyou gte your money back.

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#2) On August 14, 2008 at 11:24 AM, devoish (98.60) wrote:

Hope I do too. I really would be dissappointed if this gets sold out. I think they could easily return to an EPS of .75 and with a marginally successful expansion into Europe (as opposed to the failed one) and S America and China they could easily command a P/E of 20, and at least they have enough cash to try.

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