Nautilus Inc. reported first quarter sales slipped 15.6%, but strength from the company’s Retail segment helped cut losses nearly in half as compared to the year-ago period.

 

Management for the Vancouver, WA –based fitness equipment manufacturer said a lagging Direct segment crippled revenues for the first quarter ended March 30th, which suffered from a 37% year-over-year decrease in the rate of credit approvals through it’s consumer credit finance partner. CEO Edward Bramson said the company is looking for a new third-party consumer finance provider. Also hampering results in the Direct segment was continued weakness from Nautilus’ Bowflex home gym, which management said was more impacted by reductions in credit approval than strong-performing cardio products.

 

“The key issue that remains for us is the availability of credit to our customers,” Bramson said in a conference call with analysts. Bramson added that consumer credit approval dropped by 26% from the fourth quarter of 2009 through the current quarter, a decline he said was the “largest quarter-over-quarter drop I can remember seeing.”

 

Direct segment sales fell 30.0% for the quarter.  The operating loss for the Direct segment in Q1 was $1.5 million compared to an operating income of $2.7 million a year ago, a swing management attributed to lower sales volume.

 

For the company’s Retail segment, sales surged 27.0% on strong sell-through of newly-designed bikes and existing elliptical offerings.

 

Operating income for the retail segment was $2.3 million, up 64.3% from an operating income of $1.4 million in the year-ago period. Along with sales growth, management said successful cost control efforts, including costs associated with the distribution center, general and administrative costs and R&D costs.

 

Gross margin decreased 570 basis points for the quarter due to the decreased proportion of revenues represented by the higher margin Direct business .

 

On a GAAP basis, including the company’s recently-sold commercial business, Nautilus reported a net loss of $7.8 million, or 25 cents per diluted share, compared to a loss of $13.8 million, or 45 cents per share, in the year-ago period.