Bowflex, Inc., FKA Nautilus, Inc. reported fiscal second-quarter net sales declined 25.7 percent to $48.7 million in the period ended Sept. 30, compared to $65.5 million in the corresponding quarter last year. The sales decline was said to be driven primarily by lower customer demand.

Consolidated gross margin was 20.5 percent of sales in the fiscal second quarter, up three full points compared to 17.5 percent in fiscal Q2 last year. The increase was said to be primarily due to lower landed product costs (+9 points) and a decrease in inventory adjustments (+2 points), partially offset by unfavorable absorption of JRNY COGS (-4 points), increased discounting (-3 points), and higher other costs (-1 point).

“The retail environment has remained challenging throughout our fiscal year second quarter,” said Jim Barr, CEO of Bowflex Inc. “We continued to offset the top-line softness with diligent cost management and operational excellence efforts, resulting in another quarter of year-over-year improvement in gross margin and adjusted EBITDA loss during Q2.”

Direct Segment
Direct segment sales were $20.7 million in Q2, compared to $24.5 million in Q2 last year, a decline of 15.3 percent that was said to be primarily driven by lower customer demand.

Cardio sales declined 29.9 percent versus the corresponding period in 2022. Lower Cardio sales in the second quarter versus last year’s comparable quarter were primarily driven by lower demand for Max Trainer and elliptical equipment. Strength product sales increased 14.9 percent versus the comp period last year. Higher Strength sales in Q2 were said to be primarily driven by sales of home gyms.

Segment gross margin was 13.4 percent of segment net sales in Q2 versus 12.7 percent for the comp period in 2022. Gross profit margin improved by 1 ppt because of gains from lower landed product costs (+7 points), favorable logistics overhead absorption (+3 points), decrease in inventory adjustments (+2 points), lower outbound freight (+1 ppt), and lower other expenses (+1 ppt) and were almost entirely offset by unfavorable absorption of JRNY COGs (-9 points), and increased discounting (-4 points). Gross profit was $2.8 million, a decrease of 10.2 percent versus the comp period last year.

Segment contribution loss was $7.7 million, or 37.0 percent of sales, compared to segment contribution loss of $7.9 million, or 32.2 percent of sales, for the comp period in 2022. The improvement in segment contribution loss was primarily driven by decreased media spend and lower operating expenses, partially offset by lower gross profit. Advertising expenses were $2.0 million compared to $2.6 million for the same period in 2022.

Retail Segment
Retail net segment sales were $27.8 million, compared to $39.9 million, a decline of 30.4 percent from the comparable period last year. Retail segment sales outside the United States and Canada were up 41.0 percent versus Q2 2022. The overall net sales decrease compared to last year was primarily driven by lower demand from retailers.

Cardio sales declined 24.4 percent versus last year. Lower Cardio sales in Q2 were primarily driven by lower demand for bikes. Strength product sales declined by 33.8 percent versus last year. Lower Strength sales this quarter versus last year were primarily driven by lower demand for SelectTech weights.

Segment gross margin was 25.3 percent of segment net sales versus 18.3 percent for the comp period in 2022. The 7-point increase in gross profit margin was primarily due to lower landed product costs (+10 points) and a decrease in inventory adjustments (+2 points), partially offset by increased discounting (-2 points), unfavorable logistics overhead absorption (-1 ppt), and increases in outbound freight and other costs (-2 points). Gross profit was $7.0 million, a decrease of 3.5 percent versus the same period in 2022.

Segment contribution income was $3.7 million, or 13.2 percent of sales, compared to segment contribution of $1.0 million, or 2.4 percent of sales, last year. The improvement was primarily driven by lower operating expenses, partially offset by lower gross profit.

Barr continued, “While both our Retail and Direct segment net sales declined year-over-year, we were encouraged by the growth of our international Retail business and the positive comp we delivered in our Direct Strength equipment, a testament to the deliberate product enhancements we’ve made in this area. Additionally, we recently marked a major milestone for our business with our rebranding to BowFlex Inc., reflecting our reinforced focus on our strongest brand and providing our consumers with the products and experiences that support their lifelong fitness journey.”

Consolidated operating expenses were $21.2 million in fiscal Q2, compared to $25.8 million in Q2 last year. The decrease of $4.6 million, or 18.0 percent, was said to be primarily due to a $3.0 million decrease in personnel expenses, a $0.8 million decrease in media spending, and a $0.3 million decrease in other variable selling and marketing expenses due to decreased sales. Total advertising expenses were $2.3 million this year versus $3.1 million last year.

The company’s operating loss was $11.2 million in Q2, compared to an operating loss of $14.3 million in Q2 last year, primarily driven by lower operating expenses and higher gross profit.

Income tax expense was $0.5 million this year compared to $0.2 million last year. The increase in income tax expense compared to last year was primarily driven by higher foreign-related taxes.

The loss from continuing operations was $12.5 million, or 35 cents per diluted share, in the latest quarter, compared to a loss of $15.3 million, or 48 cents per diluted share, in Q2 last year.

The company’s net loss was $12.5 million, or 35 cents per diluted share, compared to a net loss of $13.2 million, or 41 cents per diluted share, in the corresponding period last year.

The company noted several non-GAAP measures for the quarter that exclude the impact of restructuring and exit charges for the three months ended September 30, 2023.

  • Adjusted operating expenses were $19.8 million compared to $25.2 million in Q2 last year. The $5.3 million, or 21.1 percent, decrease was primarily due to a $3.0 million decrease in personnel expenses, a $0.8 million decrease in media spending, and a $0.3 million decrease in other variable selling and marketing expenses due to decreased sales.
  • Adjusted operating loss was $9.9 million compared to $13.7 million last year, primarily driven by lower operating expenses and higher gross profit.
  • Adjusted EBITDA loss from continuing operations was $5.9 million compared to $9.8 million last year.

Balance Sheet
Cash, cash equivalents, and restricted cash were $10.3 million at quarter-end, compared to cash, cash equivalents, and restricted cash of $18.3 million as of the previous fiscal year-end. The decrease was primarily due to lower sales in the slow season combined with inventory purchases in anticipation of our busy season, which occurs in the third and fourth quarters of our fiscal year.

Debt and other borrowings were $15.8 million, a reduction of $12.1 million, compared to $27.9 million as of March 31, 2023. Bowflex said $29.0 million was available for borrowing under the Wells Fargo Asset Based Lending Revolving Credit Facility compared to $14.9 million as of March 31, 2023.

Free Cash Flow, defined as net cash used in operating activities minus capital expenditures, was an outflow of $6.3 million for the three months ended September 30, 2023, compared to an outflow of $7.7 million for the same period last year.

Inventory was $66.1 million at quarter-end, up 42 percent compared to $46.6 million at the previous year-end, and down 33 percent versus the end of the corresponding quarter last year. The increase in inventory in the second quarter versus the fiscal year ended March 31, 2023, was driven by inventory purchases in anticipation of the company’s busy season, which occurs in the third and fourth quarters of Bowflex’s fiscal year. About 40 percent of inventory as of September 30, 2023, was in-transit.

Trade receivables were $24.2 million, compared to $21.5 million at the previous year-end. The increase in trade receivables was due to increased Retail sales offset by cash collection efforts in the second quarter of fiscal 2024.

Trade payables were $63.2 million, compared to $29.4 million at the previous year-end. The increase in trade payables was primarily due to inventory purchases in advance of our busy season, which occurs in the third and fourth quarters of our fiscal year.

Capital expenditures totaled $1.9 million for the six months ended September 30, 2023, compared to $7.5 million for the six months ended September 30, 2022. The decline is primarily related to lower investments in JRNY as the company completed the integration of Vay.

Barr concluded, “Coming into our fiscal third quarter, we see the difficult macroeconomic landscape persisting, with retailers maintaining a highly conservative approach to inventory reorders. In this environment, we are delivering on our operational excellence initiatives, successfully controlling our costs and optimizing our inventory position. These initiatives resulted in improvements to adjusted EBITDA loss in the first half of the year and we believe will drive continued adjusted EBITDA loss improvement in the second half of the year. Looking further ahead, we are strategically positioned to capitalize on the long-term shift to connected at-home fitness with a strong pipeline of new strength and cardio products and continued momentum on scaling JRNY.”

Outlook
Bowflex is adjusting full-year fiscal 2024 guidance.

  • The company now expects full-year net revenue to be in the range of $215 million to $240 million, compared to previous guidance of a range of $270 million to $300 million.
  • The company now expects full-year royalty revenue to be $1.1 million, compared to previous guidance of $1.8 million.
  • The company now expects a full-year Adjusted EBITDA1 loss of between $15 million to $25 million, compared to previous guidance of a $15 million loss to break even.
  • Bowflex now expects to cross 650,000 JRNY Members by March 31, 2024, compared to previous guidance of targeting 625,000 JRNY Members by March 31, 2024.

JRNY Update
Bowflex continues to enhance and refine existing JRNY features that are popular with customers, including its personalized recommendations and differentiated, adaptive workouts.

As of September 30, 2023, Members of JRNY reached 596,000, representing approximately 51 percent growth versus the same quarter last year. Of these Members, 143,000 were Subscribers, representing approximately a 1 percent increase over the same period last year. BowFlex defines JRNY Members as all individuals who have a JRNY account and/or subscription, which includes Subscribers, their respective associated users, and users who consume free content. A Subscriber is a person or household who paid for a subscription, is in a trial subscription period, or has requested a “pause”‘ to their subscription for up to three months.

Earlier this year, Bowflex introduced the JRNY app with Motion Tracking offering personalized coaching and feedback, automatic rep tracking, form guidance, and adaptive weight targets to all JRNY memberships. Accessible via iOS or Android tablets and mobile devices, these embedded features are available to all JRNY members with their existing membership and without the need for additional equipment. Leveraging proprietary technology and machine learning expertise from the Company’s acquisition of VAY, these new features bring enhanced value to the JRNY platform, which BowFlex expects to drive JRNY membership growth. We have seen early success, as workouts with motion tracking are chosen by consumers 70 percent more frequently than other workouts in the JRNY platform.

A JRNY Mobile subscription, priced at $11.99 per month or $99 per year, is designed for Members who like using a mobile device with a compatible BowFlex or Schwinn connectable product. Members also benefit from a range of whole-body workouts both at home and on the go. A JRNY All-Access subscription, priced at $19.99 per month or $149 per year, expands a Member’s usage to any Bowflex built-in touchscreen cardio products.

Photo courtesy Bowflex