ICONs sales decline was precipitated by the discontinuation of ICONs “Jump King” business, a 22.7% decline in sales of strength training equipment, and an 8.1% drop in cardiovascular equipment. All the above, coupled with a sharp drop in margins pushed the company into the red for its fiscal second quarter.
Climbing raw materials costs for steel, wood, and plastics caused gross margins to drop 650 basis points. ICONs consumer direct business, which realizes higher margins, was a smaller percentage of overall sales, bringing margins down further. ICON did manage to cut general and administrative expenses by $300,000 by decreasing legal fees. This was partially offset by “increases in salary and wages related to the amended employment contracts for Scott Watterson and Gary Stevenson during their leave of absence.”
ICON recently sold off its spa division to Keys Fitness Products in a deal that will increase Keys annual sales by more than $100 million. The spa company’s entire product line will become part of a new leisure products division known as Keys Backyard. Production will remain in Mesquite, Texas. Financial terms were not disclosed. Mike Dolder, previously VP of Sales for Image Spa, will head Keys Backyard. The owner of Keys Fitness, Tim Chen, will serve as CEO of both divisions.
In related ICON legal news, the United States District Court for the District of Utah granted ICON’s motion for summary judgment that an advertising statement made by The Nautilus Group relating to its Bowflex exercise machine was false. The Court found that Nautilus had falsely advertised that the resilient rods for the Bowflex exercise machine were “manufactured with patented technology” when Nautilus “does not have any patents on the manufacturing process for the Power Rods.”
This is the latest decision in several legal battles surrounding the two manufacturers. Previously, Nautilus alleged that ICON made false advertising statements about its “Gold’s Gym Power Flex.” In the latest ruling for that case, the Court found that Nautilus allegations are without merit and do not constitute false advertising as a matter of law.