Nautilus, Inc. net sales for the first quarter of 2006, were $185.0 million, compared to $156.4 million for the corresponding period last year, up 18.3 percent. Net income for the quarter was $5.2 million, or 16 cents per diluted share including about 1.5 cents for stock option expensing, down from $9.4 million, or 28 cents per diluted share, for the first quarter of 2005.
“Our net sales and earnings were on plan with our guidance and we continued to gain market share with our leading fitness brands,” said Gregg Hammann, Chairman and Chief Executive Officer. “Furthermore, our balance sheet and cash flow improvements were better than projected. Inventories were down about $20 million from year-end levels to $76 million, and short-term borrowings net of cash down about $30 million to $1.5 million.
“The manufacturing issues that slowed our performance in the fourth quarter are behind us, with all six new cardio products now in production. Our enterprise resource planning system conversion is in the business implementation phase this year for our commercial, specialty, retail and portions of our direct business. Although we are still getting used to the new system, it is helping identify additional areas for operational improvement and we expect it to improve our accounting close process.
“Our Company is focused on achieving leverage through operating excellence. To achieve that goal, we have put in place an initiative called QC2 to take costs out of the system and improve margins. It stands for quality, customer service, and cost takeout.
“The quality component includes increasing the number of on-floor quality engineers in our domestic plants and improving first-time yield. The customer service element includes self-service order status capabilities and delivery improvements. The cost take-out elements consist of six focus areas: streamlining our domestic manufacturing; reducing the number of distribution centers and improving product flow; moving packaging upstream to our suppliers; direct shipping products to customers bypassing our distribution centers; continuing to look for cost savings in partnership with our suppliers, and; discontinuing older and redundant product SKUs in our line.
“These initiatives already are being activated and had some positive impact in the first quarter. We are continuing to refine them in the second quarter as we prepare for a strong back half of the year.”
For the second quarter of 2006, the slowest quarter of the year due to seasonality, the Company estimates that net sales will be in the $145-150 million range, with expected earnings of 4 cents to 7 cents per diluted share, including about 1.5 cents per share for stock option expensing as required by FAS 123R in 2006.
NAUTILUS, INC.
Consolidated Statements of Income
(Unaudited, in thousands, except per share amounts )
Three months ended
March 31,
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2006 2005
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NET SALES $184,990 $156,388
COST OF SALES 105,678 79,615
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Gross profit 79,312 76,773
OPERATING EXPENSES:
Selling and marketing 52,154 44,922
General and administrative 13,650 13,436
Research and development 3,268 2,803
Royalties 1,579 1,474
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Total operating expenses 70,651 62,635
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OPERATING INCOME 8,661 14,138
OTHER INCOME (Expense):
Interest income (expense) (451) 517
Other income 15 51
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Total other income (expense), net (436) 568
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INCOME BEFORE INCOME TAXES 8,225 14,706
INCOME TAX EXPENSE 3,024 5,277
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NET INCOME $5,201 $9,429
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BASIC EARNINGS PER SHARE $0.16 $0.28
DILUTED EARNINGS PER SHARE $0.16 $0.28
Weighted average shares outstanding:
Basic shares outstanding 32,796 33,168
Diluted shares outstanding 33,025 34,039
