Gaiam Second Quarter Margins Plunge on Weak TV Sales

The Boulder, CO-based company, which markets fitness and healthy living products, reported that net revenues fell 1.98 percent to $44.5 million in the quarter ended June 30.

 

Excluding DRTV sales, Gaiam said its net sales increased $4.0 million, or 10.8 percent during the quarter. Net revenue for the company’s business segment, which markets and distributes to tens of thousands of retailers and video outlets, reached $29.3 million, up $800,000, or 2.6 percent.

 

Excluding the DRTV business, Gaia’s total D2C revenue increased 37.8 percent. Inclusive of the DRTV business, net revenue declined 9.47 percent to $15.3 million, due largely to a $4.9 million year-over-year drop in DRTV sales of the Jillian Michaels Body Revolution media fitness program, which was introduced in 2012.

 

Gross profit for the 2013 second quarter was $23.6 million, or 53.1 percent of net revenue, compared to gross profit of $28.0 million, or 61.6 percent of net revenue, in the second quarter of 2012. The 850 basis point drop gross margin primarily reflects the nearly 60 percent year-over-year decline in the higher margin DRTV net revenue, as well as higher sales of lower margin fitness accessories.

 

Operating expenses declined $2.5 million, or 8.2 percent, to $27.5 million, or 61.8 percent of net revenue, in the 2013 second quarter, compared to $30.0 million, or 65.9 percent of net revenue, in the second quarter of 2012.

 

Operating loss for the third quarter increased $1.9 million to $3.9 million from $2.0 million in the second quarter of 2012. The increased operating loss is primarily attributable to a negative earnings comparison for the company’s DRTV business and investments in GaiamTV, as well as other unusual expenses like the branding study with IDEO. These businesses are expected to improve in the fourth quarter of 2013.

 

Gaiam, Inc.produces and markets lifestyle media and fitness accessories via a wide distribution network that consists of over 60,000 retail doors, 15,000 store within stores, and 6,000 media category management locations. It also operates a digital distribution platform and a DRTV channel that is dedicated to providing solutions for healthy and eco-conscious living.

 

“Excluding DRTV, which benefited last year from significant contributions related to the release of the Jillian Michaels Body Revolution media fitness program, the direct to consumer segment’s net sales increased year over year by 37.8 percent and 24.9 percent, in the three and six month periods ended June 30, 2013, respectively,” said Gaim CEO Lynn Powers. “With the launch of our new Firm branded infomercial in late third quarter, we anticipate the direct to consumer segment to significantly improve our fourth quarter performance, bringing our full year results in line with our expectations.”

 

Gaim was still able to post net income of $7.9 million, or 35 cents per diluted share, compared to a net loss of $2.1 million, or 9 cents per share, for the second quarter of 2012 thanks to a gain from the sale of its 6,012,500 shares of Real Goods Solar common stock for $16.4 million. Gaiam used a portion of its net operating loss carry-forwards to offset all the resulting taxable gain. Gaiam continues to own approximately 4.1 million shares of Real Goods Solar common stock. Gaiam founded Real Goods Solar (previously Gaiam Energy Tech, Inc.) as its solar subsidiary in 1999. Following the sale, Gaiam’s Chairman, Jirka Rysavy, resigned as Chairman of Real Goods Solar, a position he had held from its inception.