The Nautilus Group continues on its three phase “turnaround plan”, which emphasized gaining control of the business, then stabilizing it, and lastly, moving back into growth mode. Gregg Hammann, chairman, president & CEO, said in a conference call with analysts that they will move into the growth phase in the fourth quarter.

Part of the plan was to shift more business into the company’s Commercial/Retail end of the business and become less reliant on the Direct business. In the next few years, Hammann sees the pendulum swinging the other way, with Commercial/Retail representing 65% of sales versus just 20% a few years ago.

For the third quarter, NLS got a nice boost from a land sale to post a 12.2% increase in net income to $7.4 million, or 22 cents per diluted share, compared to $6.6 million, or 20 cents per diluted share, for Q3 2003. NLS saw a one-time $1.8 million pre-tax gain from the land sale. Direct segment EPS jumped 180% to 14 cents per diluted share while Commercial/Retail segment earnings fell 52.2% to 11 cents per diluted share.

Gross margin slipped 180 basis pints in the period to 47.6% from 49.4% in Q3 last year, due to a major Costco order for the Bowflex home gym in the 2003 third quarter. GM on the Direct side was 67.7% this year, up 150 basis points from Q3 last year, while the GM for the C/R segment fell 860 basis points to 27.2% of sales in Q3 this year.

Net sales increased 6.3% to $123.2 million from $115.9 million in the year-ago period. Direct segment sales increased 19.5% to $62.0 million from $51.9 million in Q3 last year. Sales in the Commercial/retail segment actually decreased 5.1% to $61.1 million versus $64.0 million in the year-ago period. The International business was up more than 40% to $11 million.

On the product side, unit sales of Bowflex machines rose 6.1% to 52,000 units across all channels. Direct sales accounted for more than 65% of Bowflex sales in Q3 this year versus 59% in the year-ago quarter. The newer TreadClimber product accounted for $11 million in sales in Q3, up 64% versus Q3 last year.

Nautilus said they are moving aggressively on a new all-store store-in-store program with The Sports Authority that features anywhere from two to ten SKU’s per store, mostly in the Bowflex and Schwinn Fitness product lines. They also cited large programs at Costco, Sam’s Club, GI Joe’s and Canadian Tire.

The company is boasting its lowest inventory position in three years, decreasing 16.9% to $42.7 million.
As NLS moves into fourth quarter, which has historically been their strongest period, they see EPS in the 38 cents to 40 cents per share range on revenues between $155 million and $165 million. Full year earnings are still seen in the 85 cents to 87 cents per share range on sales between $510 million and $520 million.