Nautilus, Inc. said net sales from continuing operations for the fourth quarter ended Dec. 31 fell 16.0% to $53.7 million from $63.9 million in the year-ago period. Continuing results include the companys direct and retail businesses but exclude the company’s commercial business which is considered a discontinued operation.
Comparative net sales by segment:
| Three Months Ended | |||||||||||||||||||
| ($ thousands) | Dec 31, 2009 | Dec 31, 2008 | $ Change | % Change | |||||||||||||||
| Direct | $ | 28,876 | $ | 36,047 | $ | (7,171 | ) | – 19.9 | % | ||||||||||
| Retail | 24,037 | 26,539 | (2,502 | ) | – 9.4 | % | |||||||||||||
| Unallocated Corporate | 759 | 1,317 | (558 | ) | – 42.4 | % | |||||||||||||
| Net Sales | $ | 53,672 | $ | 63,903 | $ | (10,231 | ) | – 16.0 | % | ||||||||||
Net sales declined in the direct business compared to the fourth quarter 2008, primarily due to a decrease in credit approvals through the Companys finance partner, as well as a reduction in media spending in response to the weaker economic environment. The Companys fourth quarter 2009 net sales in its retail business declined primarily due to reduced consumer spending and reluctance of retailers to replenish inventory levels in the current economic environment. These factors were partially offset by a sales increase from new product introductions and new retail accounts.
For continuing operations, consolidated gross profit margin in the fourth quarter 2009 increased 380 basis points to 48.7% of net sales, compared to gross profit margin of 44.9% for the same period in 2008. The improvement in gross margin is attributable to a decrease in warranty costs, decreased outbound shipping costs, improved product mix, and lower return rates, as well as other cost saving initiatives. Gross profit margin in the direct business was 60.7% for the fourth quarter 2009, compared to 58.0% for the same period in 2008. Retail business gross profit margin was 32.6% in the fourth quarter 2009, compared to 26.3% for the same period in 2008.
The company incurred a pre-tax loss from continuing operations of $8.4 million for the fourth quarter 2009. Included in the loss are non-cash impairment and restructuring charges of $3.9 million. The majority of the impairment expense pertains to intellectual property related to retail products. The pre-tax loss from continuing operations also includes $5.2 million of expenses for advertising and the development of creative content incurred in advance of any significant sales of the Companys new cardiovascular product, the Nautilus Mobia. The Company plans to incur high levels of marketing expenses for Mobia and expects these costs to exceed gross profits from such products until later in 2010. In the fourth quarter of 2008 the Company incurred a pre-tax loss from continuing operations of $35.1 million which included non-cash restructuring charges and goodwill (principally related to the acquisition of the Schwinn Fitness assets in 2001) impairment provisions totaling $30.3 million.
The Company reported income from continuing operations of $3.0 million, or $0.10 per diluted share in the fourth quarter 2009, which included an income tax benefit of $11.4 million, primarily arising from the carry back of a 2008 net operating loss under a newly enacted law. This compares to a loss from continuing operations of $19.1 million, or $0.62 loss per diluted share, in the fourth quarter 2008, which included an income tax benefit of $16.0 million.
The Company reported 2009 fourth quarter income from discontinued operations of $2.7 million, or $0.09 per diluted share, primarily due to the impact of a $8.9 million adjustment to reduce the loss previously estimated in connection with the planned sale of the assets of our commercial business. The loss from discontinued operations was $22.1 million in the fourth quarter of 2008.
Net income in the fourth quarter 2009 was $5.7 million, or $0.19 per diluted share, compared with a net loss of $41.2 million, or $1.35 loss per diluted share, in the fourth quarter 2008.
Full Year 2009 Results
For the year ended December 31, 2009, the Company reported net sales of $189.3 million, compared to $283.7 million for 2008. The decline is a reflection of the challenging economic environment, reduced credit approvals in the direct business, and retailers reluctance to replenish inventory levels.
The loss from continuing operations before income taxes was $29.5 million in 2009, compared to $58.5 million in fiscal 2008. These results include aggregate pre-tax charges for goodwill and other intangible asset impairments and restructuring charges of $20.1 million in 2009 and $43.7 million in 2008.
Loss from continuing operations was $18.6 million, or $0.61 loss per diluted share, in 2009, compared to a loss of $52.6 million, or $1.69 loss per diluted share, in 2008, after income tax benefits of $10.9 million and $5.9 million, respectively.
Loss from discontinued operations was $34.7 million, or $1.13 loss per diluted share, for the full year 2009, compared to a loss of $38.0 million, or $1.22 loss per diluted share, in 2008. Loss from discontinued operations in 2009 includes an estimated $9.0 million after-tax loss accrued in connection with the disposition of the assets of the commercial business.
The Company generated net cash from operating activities of $14.8 million for the full year 2009 compared to $4.4 million for the comparable period in 2008. The improvement is primarily the result of increased accounts receivable collections, inventory reductions and receipt of a U.S. federal income tax refund.
As of December 31, 2009, the Company had no borrowings and unrestricted cash and cash equivalents of $7.3 million. An additional $4.9 million of restricted cash serves as collateral for outstanding letters of credit. Subsequent to year-end the Company received $12.9 million of income tax refunds that were in the receivables balance at 2009 year end. In addition, the Company had $10.8 million of assets held for sale associated with the divesture of the Companys commercial assets at year end, a portion of which were subsequently sold in February 2010.
At December 31, 2008, the Company had net borrowings of $12.4 million, which consisted of $5.5 million of cash and $17.9 million of borrowings.
Edward Bramson, Chairman and Chief Executive Officer of Nautilus, Inc., stated, “During the year we have made significant progress in restructuring Nautilus as a more focused, consumer based business with a more competitive cost structure. Our financial position is much stronger than it was a year ago and this provides us the ability to invest in new products and marketing initiatives in order to restart our growth in the consumer market. While our near-term performance will be influenced by trends in overall consumer spending and the availability of consumer credit, we believe that our team, our brands and our strategies have us well positioned for longer term profitable growth.
Quarterly Sales by Segment
The table below reflects the Companys sales by quarter for 2009 and 2008.
($ thousands) | |||||||||||||||
Retail Sales | |||||||||||||||
Q1 | Q2 | Q3 | Q4 | Full Year | |||||||||||
2009 | 12,548 | 11,356 | 15,656 | 24,037 | 63,597 | ||||||||||
2008 | 25,236 | 19,000 | 23,723 | 26,539 | 94,498 | ||||||||||
Change | (12,688 | ) | (7,644 | ) | (8,067 | ) | (2,502 | ) | (30,901 | ) | |||||
% Change | -50.3 | % | -40.2 | % | -34.0 | % | -9.4 | % | -32.7 | % | |||||
Direct Sales | |||||||||||||||
Q1 | Q2 | Q3 | Q4 | Full Year | |||||||||||
2009 | 40,716 | 28,200 | 25,253 | 28,876 | |||||||||||
