Nautilus, Inc. said sales in its Retail segment improved 10.8 percent to $26.5 million in the 2011 fourth quarter, reflecting improvements in sales of bikes and elliptical products. Operating income for the Retail segment eroded 12.7 percent to $5.1 million as lower gross margins offset lower selling and marketing expenses.

Retail gross margin was down 620 basis points to 25.0 percent of sales in the quarter, mostly due to an increase in new product launch support expenses and increased supply chain costs.

“We continue to see solid demand for our products from our retail customers,” said Bill McMahon, Nautilus COO, on a conference call with analysts. “Although we were impacted by one-time launch support expenses and ongoing product cost pressure that resulted in lower gross margins in Q4, our retail business remains a healthy contributor to our bottom line.”

McMahon said demand for NLS bikes and elliptical products “remained strong” in the quarter and continued success is expected in these categories. Said McMahon, “Last fall, we rolled out several new retail products, including a new iteration of the highly successful Schwinn upright and recumbent exercise bikes, a new home-use indoor cycling bike, our first lower-cost Airdyne recumbent bike, an adjustable ramp Schwinn-branded elliptical, and a new price point dumbbell under the Universal brand. These products will provide additional support for our retail business in 2012.”

More launches are planned for the fall. Marketing efforts specifically for the Retail business are also being tested, including new placement on QVC, as well as online marketing support for selected products.
Direct segment revenues jumped 12.4 percent to $31.7 million in Q4, reflecting continued strong demand for TreadClimber products and a positive consumer reception to the CoreBody Reformer. Strong Tread-Climber and new product sales offset decline in sales of strength products due to a decision to decrease advertising expenditures supporting home gyms.

The Direct segment posted operating earnings of $1.62 million versus an operating loss of $1.58 million a year ago, reflecting the revenue growth and more effective media advertising content that led to a significantly reduced marketing spend.

Overall, Nautilus' revenues in the fourth quarter grew 11.7 percent to $60.0 million. Net earnings doubled to $3.2 million, or 10 cents a share, from $1.4 million, or 5 cents, a year ago. The fourth quarter included a loss from discontinued operations of $0.1 million, or 1 cent per share, compared to a loss of $2.0 million, or 6 cents, for Q4 2010.

For the year, revenues grew 7.1 percent to $180.3 million, with gains of 10.8 percent in its Direct segment and 1.2 percent at its Retail segment. Net income reached $1.4 million, or 5 cents a share, against a loss of $22.8 million, or 74 cents, a year earlier. Discontinued operations contributed a loss of $1.1 million, or 3 cents per share, in 2011 and a loss of $13.0 million, or 42 cents, in 2010.