Nautilus Group Q2 Profits Down 60% on Flat Sales

The Nautilus Group, Inc. reported that second quarter net sales were $100.2 million compared to $100.6 million for the corresponding period last year. Net income during the period was $1.9 million, or six cents per diluted share, compared to $4.7 million, or 14 cents per diluted share, for the second quarter of 2003.

The Company's net sales for the six months ended June 30, 2004 were $231.1 million compared to $230.1 million for the comparable period last year. Net income during the period was $8.4 million, or $0.25 per diluted share, compared to $18.4 million, or $0.56 per diluted share, in the same period last year.

Commenting on the quarter, Gregg Hammann, Chairman and Chief Executive Officer of Nautilus, said, “Our second quarter results are a clear sign that our turnaround continues to proceed as planned. We met revenue and earnings guidance estimates for the fourth consecutive quarter. We completed the gain control phase of our turnaround at the end of the first quarter and are now in the stabilize phase. We believe we will enter the third and final phase of our turnaround in the fourth quarter of 2004 when we expect to achieve year-over-year revenue and earnings growth.

“The successful progress of our turnaround is largely attributable to our investments in product innovation, sales channel development and enhancements to our management team,” added Mr. Hammann. “Over the past year, we have increased our investment in research and development and we are beginning to experience the benefits of this investment as new products now account for over 30% of our revenue. We continue to diversify our sales as evidenced by commercial and retail channel sales showing year-over-year growth for another quarter. Our percentage of floor space with retailers is less than ten percent today. We believe our quality, global brands will expand our floor space percentage in the fourth quarter and beyond and we will see meaningful growth for our business and, as importantly, for our retail partners. In addition to these developments, two experienced additions to our executive team have further strengthened our position for future growth.”

Mr. Hammann concluded, “As we have now entered the stabilize phase of our turnaround, we are now more confident in our ability to forecast our performance beyond one quarter. With respect to our outlook for the remainder of the year, we expect third quarter revenue and earnings per share to be in the range of $110 to $120 million and $0.18 to $0.20, respectively. For the fourth quarter, we expect revenue to be in the range of $155 to $165 million and earnings per share in the range of $0.38 to $0.40.”

The Company announced that its Board of Directors has declared a regular quarterly dividend of $0.10 per common share, payable September 10, 2004, to shareholders of record as of August 20, 2004.

                       THE NAUTILUS GROUP, INC.
                Consolidated Statements of Operations
           (In Thousands, Except Share and Per Share Data)
                             (Unaudited)

                          Three months ended      Six months ended
                               June 30,                June 30,
                       ----------------------- -----------------------
                           2004        2003        2004        2003
                       ----------- ----------- ----------- -----------

NET SALES                $100,179    $100,602    $231,075    $230,051

COST OF SALES              50,858      47,070     124,898     105,139
                       ----------- ----------- ----------- -----------

     Gross profit          49,321      53,532     106,177     124,912

OPERATING EXPENSES:
  Selling and marketing    36,611      35,695      72,353      75,196
  General and
   administrative           7,340       8,754      14,555      15,661
  Research and
   development              1,276       1,131       3,086       2,486
  Related-party
   royalties                  277       1,450       1,843       3,241
  Third-party royalties     1,096         337       1,799         636
                       ----------- ----------- ----------- -----------

     Total operating
      expenses             46,600      47,367      93,636      97,220
                       ----------- ----------- ----------- -----------

OPERATING INCOME            2,721       6,165      12,541      27,692

OTHER INCOME:
  Interest income             296         230         542         459
  Other - net                   6         945          (1)        578
                       ----------- ----------- ----------- -----------

     Total other
      income, net             302       1,175         541       1,037
                       ----------- ----------- ----------- -----------

INCOME BEFORE INCOME
 TAXES                      3,023       7,340      13,082      28,729

INCOME TAX EXPENSE          1,088       2,642       4,710      10,342
                       ----------- ----------- ----------- -----------

NET INCOME                 $1,935      $4,698      $8,372     $18,387
                       =========== =========== =========== ===========

BASIC EARNINGS PER
 SHARE                      $0.06       $0.14       $0.26       $0.56

DILUTED EARNINGS PER
 SHARE                      $0.06       $0.14       $0.25       $0.56