Fitness equipment manufacturer Nautilus Inc. reported its sales jumped 32 percent for the second quarter 2016 as its recent acquisition of Octane Fitness, plus growth from its existing direct and retail segments, fueled gains and a larger profit.
Net sales for the second quarter of 2016, ended June 30, totaled $78.5 million, a 31.6-percent increase compared to $59.7 million in the same quarter of 2015. Gross margins for the second quarter increased by 190 basis points to 53.3 percent due to margin increases in both channels, partially offset by shift in channel mix reflecting higher retail sales growth as well as a $300,000 non-cash inventory step-up charge related to the Octane Fitness acquisition.
Operating income for the second quarter of 2016 was $6.6 million, a 67.2-percent increase over operating income of $3.9 million reported in the same quarter of 2015. The increase in operating income primarily reflects higher net sales and gross margins. Excluding the non-cash inventory step-up charge referenced above, operating income for the second quarter of 2016 was $6.9 million, a 74.6-percent increase over the same quarter in 2015.
For the second quarter of 2016, the company reported net income of $3.5 million, or $0.11 per diluted share, which includes a loss from discontinued operations of $0.2 million. In the second quarter of 2015, the company reported net income of $2.4 million, or $0.08 per diluted share, which included income of $0.2 million from discontinued operations.
For the first six months of 2016, net sales were $199.5 million, an increase of 27.9 percent over the same period last year.
Bruce M. Cazenave, CEO, stated, “We are very pleased with our overall performance in the second quarter. Solid revenue growth and increased gross margins in both the Direct and Retail business segments resulted in operating income growth of over 67 percent. The organic Retail business grew 19 percent and when including revenue from Octane Fitness, Retail revenue increased 89 percent. Our disciplined approach to revenue and operating income growth continues to pay dividends.”
Cazenave continued, “As we enter the back half of the year, we are well positioned for more growth with a number of new product introductions and increased market penetration secured in the retail segment. Our focus on product innovation and channel diversification will provide the foundation for continued growth in market share both domestically and internationally. The integration of Octane Fitness is also progressing as expected and the early receptivity of Octane’s commercial Zero Runner, launched late in the second quarter, has been very positive. We look forward to showcasing the commercial Zero Runner along with several other new Nautilus products at our annual September product showcase event in New York.”
Net sales for the direct segment were $44.9 million in the second quarter of 2016, an increase of 7.9 percent over the comparable period last year. Direct segment sales benefited from continued strong demand for cardio products, especially the Bowflex Max Trainer product line. For the first six months of 2016, net sales for the direct segment were $126.2 million, an increase of 9 percent over the same period last year.
Operating income for the direct segment was $7.5 million for the second quarter of 2016, an increase of 47.4 percent compared to the second quarter 2015. Operating income benefited from higher net sales and gross margins. Gross margin for the Direct business improved 490 basis points to 67.1 percent for the second quarter of 2016, compared to 62.2 percent in the second quarter of last year. Gross margin improvement reflected favorable product mix and lower reserve requirements.
Net sales for the retail segment were $32.9 million in the second quarter of 2016, an increase of 89.1 percent when compared to $17.4 million in the second quarter last year. The improvement in Retail net sales reflects the inclusion of Octane Fitness, as well as strong double digit organic growth across both the cardio and strength components of the retail business. For the first six months of 2016, net sales for the retail segment totaled $71.7 million, an increase of 85.3 percent over the same period last year.
Operating income for the retail segment was $4.1 million for the second quarter of 2016 compared to $1.2 million in the second quarter of last year. The increase in retail operating income was primarily due to improvement in the organic Retail business revenue and margins reflecting the leveraging of supply chain costs and lower reserve requirements, coupled with the addition of Octane Fitness. Retail gross margin was 33.5 percent in the second quarter of 2016, compared to 23.5 percent in the same quarter of the prior year. Retail gross margins were negatively impacted by a purchase price inventory step-up charge related to the Octane Fitness acquisition of $0.3 million. Excluding this charge, retail gross margins would have been 34.4 percent, up 10.9 percentage points versus gross margin of 23.5 percent for the prior period last year.
Royalty revenue in the second quarter 2016 was $0.7 million, compared to $0.6 million for the same quarter of last year.
As of June 30, 2016, the Company had cash and marketable securities of $73.5 million and debt of $72 million, compared to cash and marketable securities of $60.8 million and debt of $80 million at year end 2015. Working capital of $78 million as of June 30, 2016 was $8.7 million higher than the 2015 year-end balance of $69.4 million, primarily due to growth in cash and marketable securities of $12.7 million. Inventory as of June 30, 2016 was $43 million, compared to $42.7 million as of December 31, 2015 and $28.4 million at the end of the second quarter last year. The increase in inventory compared to the second quarter last year was primarily due to the acquisition of Octane Fitness.
Photo courtesy Nautilus Inc.
