ICON Fiscal Q1 Loss Jumps; CV and Strength Sales Both Decline

ICON Health & Fitness reported that net sales for the first quarter of fiscal 2005 decreased 13.9% to $170.3 million from $197.8 million in the comparable period in fiscal 2004. Sales for the first quarter of fiscal 2004 were historically high, and therefore the Company expected a softer first quarter in fiscal 2005. Due to soft consumer demand in a challenging economic environment through the summer, results were lower than anticipated. Sales of our cardiovascular and other equipment in the first quarter of fiscal 2005 decreased $15.3 million, or 9.6%, to $143.4 million. Sales of our strength training equipment in the first quarter of fiscal 2005 decreased $12.3 million, or 31.4%, to $26.8 million.

Gross profit in the first quarter of fiscal 2005 was $35.4 million, or 20.8% of net sales, compared to $63.6 million, or 32.2% of net sales, in the first quarter of fiscal 2004. This decrease was due in part to increased commodity prices; particularly steel, plastics, wood and paper products, increases in transportation costs and unfavorable manufacturing variances.

Selling expenses decreased $1.3 million, or 3.8%, to $33.0 million in the first quarter of fiscal 2005. This decrease reflected lower advertising and bad debt expenses offset by an increase in freight charges. Expressed as a percentage of net sales, selling expenses were 19.4% in the first quarter of fiscal 2005 compared to 17.3% in the first quarter of fiscal 2004.

Research and development expenses in the first quarter of fiscal 2005 were $3.3 million, compared to $3.3 million in the first quarter of fiscal 2004. Expressed as a percentage of net sales, research and development expenses were 1.9% in first quarter of fiscal 2005 and 1.7% in the first quarter of fiscal 2004.

General and administrative expenses increased $2.3 million, or 10.8%, to $23.5 million in the first quarter of fiscal 2005. This increase for the period can be attributed to increased legal fees due to ongoing litigation, the cost of insurance plans and rent and lease expenses. Expressed as a percentage of net sales, general and administrative expenses were 13.8% in the first quarter of fiscal 2005 and 10.7% in the first quarter of fiscal 2004.

As a result of the foregoing factors, the loss from operations was $24.4 million in the first quarter of fiscal 2005 compared to income from operations of $4.8 million in the first quarter of fiscal 2004.

As a result of the foregoing factors, EBITDA (as defined under “Seasonality”) was a negative $18.6 million in the first quarter of fiscal 2005 compared to EBITDA of $10.2 million in the first quarter of fiscal 2004.

Interest expense, including amortization of deferred financing fees, increased $0.3 million, or 5.0%, to $6.3 million in the first quarter of fiscal 2005. Expressed as a percentage of net sales, interest expense, including amortization of deferred financing fees, was 3.7% in the first quarter of fiscal 2005 and 3.0% in the first quarter of fiscal 2004.

The benefit from income taxes was $9.9 million in the first quarter of fiscal 2005, compared to a provision of $0.4 million in the first quarter of fiscal 2004. This decrease in income taxes for the period can be attributed to the income tax benefit from the net operating loss for the period.

As a result of the foregoing factors, the net loss was $20.8 million in the first quarter of fiscal 2005, compared to a net loss of $1.7 million in the first quarter of fiscal 2004.