Nautilus reported that second quarter sales were down slightly to $100.2 million compared to $100.6 million in Q2 last year. Net income during the period was down nearly 60% to $1.9 million, or six cents per diluted share, compared to $4.7 million, or 14 cents per diluted share, in the year-ago period. Gross margin for Q2 was down 290 basis points to 49.2% of sales, due primarily to a higher percentage of sales in commercial retail product which have a lower margin compared to consumer direct.

Nautilus is purposefully targeting retail and cardio equipment as an area of growth versus its past focus on strength equipment and direct sales.

Second quarter direct sales were 53.8 million, down 5.6% compared to the $57.0 million reported last year. Direct segment EPS was 4¢, down 64% compared to 11¢ last year. Sales through the commercial retail distribution arm in Q2 were $46.4 million, a 6.2% increase over the $43.6 million reported last year. EPS attributed to the commercial retail segment was 7¢ in both 2003 and 2004.

Gregg Hammann, NLS chairman resident and CEO, told analysts in a conference call that he and TSA’s Doug Morton have been in discussions about re-vamping TSA’s fitness floor. According to Hammann, he and Morton agreed that part of TSA’s problems with fitness was the lack of branded equipment and competition from Wal-Mart and Target. Hammann said that NLS will now be “much more aggressive” on the TSA fitness floor and is predicting that TSA will see its business start to improve as they “trade their customers up.” Hammann said he sees similar opportunity at Hibbett.

While the legal fisticuffs between NLS and ICON Health & Fitness were not discussed much on the analyst call, word came last week that NLS has filed another trademark infringement case against the maker of the Crossbow product. According to a recently filed complaint, ICON had a legal obligation to re-name “CrossBow” in such a manner that it did not further infringe on the trademark rights of Bowflex. Nautilus now seeks injunctive relief to prevent the sale of any fitness equipment that bears the trademark “CrossBar”, as well as monetary damages.

Hammann did mention that feedback from retailers implies that ICON’s Crossbow sales have slowed dramatically.

Several retailers were said to be discounting the product deeply in order to make room on the floor for equipment that does not have a court injunction barring sales. NLS would rather have retailers box up the Crossbow product and send it back, according to Hammann. He said they are “extending the olive branch,” and not enforcing the injunction against retailers in hopes they will clear out the ICON equipment quickly.

>>> Yes Gregg, it would make sense NOT to sue you customers while trying to win their business…