In back-to-back-to-back announcements, three of the industrys leading fitness companies reported difficulties and setbacks that impacted earnings for the final months of 2005. Icon Health & Fitness, Cybex, and Nautilus all reported problems stemming from various sources.
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Icon Health & Fitness saw their net sales decline 6.4% to $265.4 million during the companys fiscal second quarter, which ended on December 3. However, in spite of the slow sales, the company improved their bottom line considerably. Icon posted a $5.9 million net loss compared to a net loss of $18.1 million during the same quarter last year. EBITDA also saw a considerable improvement, increasing 50% to $19.2 million compared to $12.8 million in 2004. Icon said that the decrease in product sales was primarily due to lower customer demand for certain products and available product mix.
The first and fourth quarters of every year are generally the company's weakest periods in terms of sales. During these periods, the company builds product inventory to prepare for the heavy demand anticipated during the peak season. Because of this seasonality, accounts receivable increase due to the coming peak periods for sales. Inventory also increased as a result of peak period production, changes in inventory mix and transportation costs.
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The Superior Court of Pennsylvania affirmed the previously reported $2.5 million judgment against Cybex International in the Kirila v. Cybex International, Inc. litigation.
Cybex said it continues to believe that the basis for that judgment was in error, and it intends to file a Petition for Allowance of Appeal with the Supreme Court of Pennsylvania. Cybex is in the process of analyzing whether any net adjustment to its litigation reserve is required, including in connection with the Kirila judgment and related costs and expenses, including interest. The company anticipates that, if a litigation charge is necessary, the impact on fourth quarter 2005 pre-tax operating income will not exceed $900,000.
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Finally, Nautilus Inc. revised its fourth quarter guidance downward and now expects net sales in the range of $179 million to $183 million, compared to previously issued guidance of $210 million. Because of this sales shortfall and “growing pains in ramping innovation” the company now expects earning to fall well short of previously issued guidance. Nautilus now expects earnings per share to come in at the 7 cents to 12 cents range. The company's previous fourth quarter 2005 guidance called for earnings per share in the 44 cents to 48 cents range.
NLS CEO and Chairman, Greg Hammann contends that the company was able to generate increasing consumer interest but delay in manufacturing and delays in the introduction of new products impacted fourth quarter sales.
“We are continuing to make progress in improving our manufacturing and operational capacity as we adjust to a fast pace of product innovation,” Hammann said. “We are closing gaps and improving efficiencies in each stage of our go-to-market process.”
NLS did not increase next years guidance to make up for the shortfall in this fiscal year. The company continues to expect 15% to 20% annualized sales growth, and 20% to 30% percent annualized earnings growth, through its 2006-08 strategic business plan.
NLS shares fell more than 22% for the week to close at $14.99 on Friday.
