CFO Corner: Craig Storey, CFO Helping Heelys Get a Second Chance in the Market

What was the biggest challenge your company faced over the last 12 months, and how were you able to overcome it with financial leadership? Our biggest challenge has been and continues to be reluctance of U.S. retail buyers to give Heelys a second chance.

When Heelys was at its peak from 2005-2007, we didn’t do a very good job of managing our distribution channels. As the economy took a serious turn for the worse in 2008, we had a product with sagging demand in too many retail doors and with a limited number of style options. Store sales started to slow, and retailers – without any way to differentiate their product from the other outlets – began to reduce the price of our product, negatively impacting retailer profits for the Heelys brand. Eventually, most of our retail partners abandoned us.

We have responded by broadening our style offerings in order to create more customized retail programs; providing new product offerings, starting with our Hx2™ two-wheeled shoe and Nano™ inline footboard; working patiently with retail buyers on store tests to prove the continued viability of the product in the marketplace; and making a commitment to retailers that we will not over-distribute the product as we have in the past.

Financially, we have supported this by working with our manufacturing partners to ensure that we can give customers and consumers a broader product offering at the same price without a drop in gross profit and right-sizing the business so that we are able to get through this period of brand reconstruction without significant cash burn. The process has taken longer than we had hoped, but we are starting to see improved retail placement – higher retail sell-through than we’ve seen in years at the highest profit-margin percentages we’ve ever had at Heelys.

What has made your company stand out and be successful financially? Our company has received a fair amount of media attention – unfortunately it is primarily for past mistakes. We are a long way from achieving “financial success” by anyone’s definition, but by collaborating to create easily communicated strategic goals and putting in place processes and systems to support those goals, we feel we are laying solid groundwork that will ultimately result in success.

What is the most important thing you’ve learned in your position? Change management starts with culture. It is completely natural to fear change, and if the purpose and anticipated outcome of the change is not clearly understood and embraced, then it is likely to fail. That starts with clearly stated objectives and timelines, collaboration at every level, reinforcement of the benefits of the change and listening to team members who are struggling with the challenges that change brings.

When I came to Heelys in July of last year, the team had been through a lot, including significant management turnover and a number of failed initiatives. Everyone was a bit cynical when we first started having discussions about significant proposed changes to our IT and supply chain infrastructures. Through collaboration, planning, clear communication and a little bit of “lively discussion” and hand wringing, we have made great improvements in how we run our business, including overhauling the way we source product in China that will net in over $600k in savings, the creation of a new forecasting and factory demand planning process, and the implementation of a new ERP system.

How do you prepare for board meetings, and what information is most important for you to present? The groundwork for board meeting prep is a steady stream of regular communication in between formal meetings. Nothing sets the tone for a bad meeting like surprises. Because Heelys management regularly communicates with the board on issues as they arise, we are free to make strategic issues the focus of our meetings.

Tom Hansen, our CEO, typically brings the senior management of Heelys in to discuss agenda items six weeks in advance of the meeting. We then divide responsibility for pulling together the necessary information. Before distributing meeting packets to the board, senior management does a final run through of the book, which is then distributed to the board a minimum of three business days before the meeting.

Typically our board meetings are 5 percent administrative, 10 percent financial (results and financial forecasts), 10 percent updates (sales, marketing, etc.) and 75 percent strategic. Our board is forward-thinking and incredibly supportive, and I believe they do an excellent job of assessing, challenging and helping shape our strategic plans. In addition, Barb Nagy – our Director of External Reporting – does a terrific job of working with the various board members and committee heads to ensure that nothing is missed.

What advice do you have for other CFOs? Tough one. I wouldn’t pretend to provide any enlightenment as most of the readership is likely smarter than me.

In talking with other CFOs, I notice that we tend to slip into conversations in which we proudly share stories of being fiscal policemen. “Our CMO tried to run by a 10 percent increase in ad spending from the prior year based on forecasted sales increases of 6 percent. I told him there was no way we could justify that kind of increase.” That sort of thing.

While I agree that we are the fiscal gatekeepers of the company, I’ve never understood why we tend to revel in this adversarial role. I’ve always worked best in environments where there is a true partnership between departments and in taking the time to understand the perspective of the other department head. In the end I may wind up playing policeman, but it’s from a place of better understanding and creates a long-term relationship in which ideas can be freely exchanged.

Craig D. Storey is Chief Operating Officer and Chief Financial Officer of Heelys, Inc. He has been with the company since June 7, 2010.

Prior to joining Heelys, Storey was Chief Executive Officer and Chief Financial Officer of Sprig Toys, a preschool toy company he cofounded and later sold to Wham-O in February 2010. Before starting Sprig, he spent 12 years with Radica Games, a NASDAQ-traded electronic toy and game company headquartered in Hong Kong with offices in Dallas, Pasadena, Hertfordshire, UK and Dongguan, China.

Storey began his career at Radica as the Assistant to the President in 1995, providing financial analysis and implementing process controls. He rose quickly through the company – with promotions to Controller of the U.S. Division in 1996 and Chief Accounting Officer for the parent company in Hong Kong in 1999. In 2002, he was named Worldwide Chief Accounting Officer and Vice President of Finance and Operations, U.S. Division, a position he held until Radica was sold to Mattel in 2006. He remained with Mattel until he joined Sprig in 2007.

A graduate of Arizona State University with a Bachelor of Science in finance, Storey is a certified public accountant in the State of Nevada. He continues to serve on the board of directors for Sprig Toys.