Nautilus Inc. put the manufacturing issues that plagued its fourth quarter 2005 results behind it for the first quarter, but has yet to realize the benefits of the restructuring of its operations facilities in Texas and Oklahoma. Roughly half of the double-digit revenue increase was due to the addition of Pearl iZUMi, which was acquired in June of 2005 and contributed $19.4 million to Nautilus results. This represents an 8% increase over Pearls results last year. Earnings for the brand were said to be on-target.
Fitness equipment sales were strong through most divisions as well. Nautilus retail division, which includes sporting goods, warehouse clubs, and department stores, first quarter net sales were $29.2 million, up 38% from the year-ago quarter. Specialty retail sales were $21.2 million, up 6% from the year-ago quarter and NLS management expects 10% or better growth in this channel for the year. Commercial channel sales were up 5% to $18 million. Direct sales were on plan at $83.7 million, down about 2% over the year-ago quarter. The international equipment business net sales were $13.5 million, up 4% from a year ago.
Nautilus closure of its cardio facility in Tyler, Tex. is on-schedule and management said that not only has the Tulsa, Okla. facility been able to handle the manufacturing, but also they are able to manufacture the products more efficiently. Nautilus will also be shifting some of the Tyler facilities production to an international supplier before the end of the fourth quarter.
Gross margin was down considerably, but within the 42% to 45% gross margin range estimated for each quarter of this year. 200 basis points of the decrease was attributed to mix shift. The other 420 basis points was attributed to new products and increased distribution costs, including increased warehousing, transportation and fuel costs. Operating expenses for the first quarter as a percent of revenue dropped almost 200 basis points compared to the first quarter of 2005.
For the second quarter of 2006, NLS expects net sales of around $145 million to $150 million and earnings of 4 cents to 7 cents, including about 2 cents per share in the quarter due to the new requirement of expensing stock options.
|First Quarter Results|
|(in $ mm)||2006||2005||Change|
|GM %||42.9%||49.1%||-620 bps|
|* at quarter-end|