By Eric Smith
Count Nautilus Inc. among the so-called “winners” to emerge during the time of coronavirus.
Not only did shelter-in-place orders result in closed gyms and heightened social distancing measures over the last two months, forcing people to exercise in the comfort—and safety—of their own homes, but fears of a second wave of COVID-19 are likely to further drive that trend.
And the Vancouver, WA-based maker of a range of fitness and strength training equipment both eagerly and adeptly tapped into the new demand environment.
Nautilus on Tuesday reported revenue for the first quarter of $93.7 million, up 11 percent from $84.4 million in the year-ago period, driven primarily by strong demand for strength and cardio products, including its new connected-fitness bikes. Revenue was in line with Wall Street’s expectations.
Income from continuing operations increased to $2.3 million, or 8 cents per diluted share, compared to a loss from continuing operations of $8.5 million, or 29 cents per diluted share, a year ago. EPS beat analysts’ estimates by 15 cents.
The income swing was driven by higher revenue and expense discipline and aided by the tax benefit related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
And Nautilus said it was able to capture the accelerated demand for home fitness resulting from COVID-19 stay-at-home orders in the last few weeks of March through strong omnichannel execution. March revenue, in fact, was up 9x from the same month a year ago.
“Our first quarter of 2020 started out as a good quarter and turned into a much stronger quarter thanks to the agility of our entire organization as we captured the higher demand for home fitness products, primarily due to COVID-19 stay-at-home orders,” CEO Jim Barr told analysts on Tuesday afternoon’s earnings call.
Barr, who joined then-struggling Nautilus last summer, also shared details about the company’s COVID-19 playbook—something other top executives have been doing this earnings season.
First and foremost, he said, was the safety of Nautilus employees, customers and partners. Even before governments began issuing stay-at-home orders, the company had implemented work-from-home and strict safety and social distancing guidelines at facilities where employees needed to be on-site, such as distribution centers.
“A top priority for our entire organization is to serve customers during their time of need,” Barr said. “And thanks to our company’s agility, focus and persistent hard work, we’ve been able to meet most of our customers’ needs.”
And after overcoming some early supply chain disruptions—a familiar lament for manufacturers working to meet unprecedented demand in the age of coronavirus—Nautilus’ Chinese manufacturing and logistics capabilities “are now nearly fully recovered and are near full capacity,” Barr said.
The company’s ability to keep operations intact paid off big time as the quarter came to a close and should continue to boost Nautilus’ top and bottom lines in Q2.
“As we enter the second quarter, we continue to benefit from the surging demand for at-home fitness and our company’s ability to respond,” Barr said. “Fortunately, our well-recognized brands, breadth and quality of our strong product portfolio, and omnichannel capabilities have enabled us to serve both existing customers and those who are just now learning about our company and our offerings for the first time. In a crisis, we saw a flight to our quality brands as consumers look to address their fitness needs. It was a time where we were reminded of the payoff of our long-term investment in brand reputation and brand building.”
The goal now for Nautilus: improve manufacturing and supply chain efficiencies and expand production for the company’s most in-demand products in hopes of reducing the current backlog.
However, Barr warned, “We believe the continued strong demand we are seeing for certain products could prevent us from getting fully caught up on our full backlog until the beginning of the third quarter. We are also expediting as many products as possible of balancing the cost impact to maintain proper margins.”
Nautilus’ pandemic response has been well-executed, and Barr’s arrival last July couldn’t have been better timed. He was hired, in part, because of the digital and e-commerce transformations he orchestrated at various companies, expertise he shifted to Nautilus mere months before the business world was turned upside down.
“There’s a fascinating evolution going on in fitness, and I joined because I’m excited about what Nautilus—with our brand’s product portfolio, market presence, know-how, people and strategic partners—can do for customers and consumers as we leverage our strengths and build out our digital capabilities,” Barr said on his first earnings call in July. “The ability to connect with consumers is like never before and, coupled with the right equipment, content and technology, provides a tremendous opportunity for us to deliver an enhanced, personalized, in-home experience and to better assist our consumers’ pursuit of a healthy life.”
While the digital emphasis hasn’t resulted in a huge spike in direct-to-consumer sales—this segment was flat in Q1—it did yield increases in Nautilus’ retail channel in terms of getting “products to consumers the way they choose,” Barr said.
“In normal times, consumers can experience our products in-store,” he said. “This quarter, retailers enhanced their store pickup capabilities and pivoted to online sales. We believe this is going to accelerate digital transformation at many retail partners. As a former retailer who drove digital transformations, I believe this will not only be good for them, but it could have a lasting benefit to our company as growth in the long run will be less restricted by floor space and typical in-store price points.”
As Nautilus looks forward to Q2 and the remainder of the year, which is sure to include a new normal of more people choosing to work out at home, the company continues along the transformation path to long-term success it began last year. It can do so with the benefit of short-term wins as well.
“We will continue to address the areas that need improvement,” Barr said. “We will continue to address the issues underlying the multichannel decline of our Direct business that we articulated in our last earnings call. We will not kid ourselves. The current surge in demand does not mean these issues have disappeared. Some are merely hidden, and we will relentlessly attack them. And most importantly, we will not allow the short-term sales surge to distract us from addressing the long-term future of our company. Our strategic planning process is moving ahead as expected.”