Nautilus on Thursday released preliminary results for the fourth quarter of 2018 and fiscal year ended December 31. They will not be final until the conclusion of the company’s audit and the announcement of final results in late February.
- Revenue range of approximately $114-$116 million for Q4 2018 and $395-$397 million for the full year
- Direct segment revenues of approximately $50 million for Q4 2018
- Retail segment revenues of approximately $64 million for Q4 2018
- Gross margin of approximately 44 percent for Q4 2018 and 46 percent for the full year
- Operating expenses of approximately $48 million for Q4 2018 and $161 million for the full year
- Operating Income range of approximately $2.0 – $3.0 million for Q4 2018 and $20.0 – $21.0 million for the full year
- Tax rate of approximately 46 percent for the quarter, including $0.6 million of state tax related true-ups; and 28 percent for the full year
- EPS from continuing operations in the range of $0.04 to $0.05 per diluted share for Q4 2018 and between $0.49 to $0.50 per diluted share for the full year 2018
Fourth Quarter 2018 Summary
The results for the fourth quarter of 2018 did not meet the company’s expectations or the guidance it had provided during the October 2018 update. Nautilus expected significantly stronger sales in the fourth quarter of 2018 in the Direct segment, driven by the introduction of the new digital platform Max Intelligence (MIP). The company expects that as consumers are further exposed to MIP, this unique product will help to accelerate sales across a number of products and brands in the future starting in 2019.
Retail segment revenues continued the strong growth trajectory experienced throughout 2018 with fourth quarter sales of approximately $64 million versus $55 million during the same period of 2017, a 16 percent increase.
The company saw broad-based strength with key partners in the mass retail and specialty retail channels across multiple product categories, partially offset by weaker than expected international and commercial sales. International and commercial business was impacted by service and inventory issues resulting from an ERP system transition that is now complete. The continuance of strong double-digit growth in the Retail segment underscores the resonance of the Nautilus brands with distribution and the consumer. While the overall results for the quarter are disappointing, they are not illustrative of the underlying strengths of the business.
Operating expenses were approximately $48 million for the fourth quarter of 2018 compared to $47 million in the same period of the prior year (excluding an $8.8 million intangible asset write-off in the fourth quarter of 2017). Our tax rate for the fourth quarter of 2018 increased to 46 percent versus prior guidance of 24 percent-25 percent primarily due to $0.6 million of state related true-ups and state valuation allowances.
Our cash balance at year-end was approximately $64 million with inventories of approximately $68 million. The increase in inventories of $15 million over prior year levels reflects both the sales shortfall the company experienced in the Direct segment, but also a strategic inventory buildup to mitigate supply chain uncertainties due to potential international tariffs. The company repurchased $8 million in shares during the quarter as part of an ongoing share buy-back program.
We would also like to take this opportunity to provide an update on certain organization changes that are occurring. The company is pleased to announce that Carlos Navarro has joined us as General Manager and Vice President of the Direct business. Carlos is a very accomplished executive with deep marketing, digital, and general management experience across a number of blue-chip consumer and industrial companies including Johnson & Johnson (JNJ), Bausch+Lomb, and Jarden Corporation, and most recently South Jersey Industries, Inc. (SJI).
Lastly, Bill McMahon, Chief Operating Officer, has been diagnosed with a health issue that requires a recovery period that will result in him scaling back his responsibilities as COO near term. Bill will be taking on a Special Assistant to the CEO role in which he will support Carlos’s transition into the Direct leadership role and help us drive many of the key cost improvement and other strategic initiatives on which the company are focused. Bill has been a key partner in transforming the business over the past seven years and the company wishes him well and a speedy recovery. There are seasoned and talented executives in place for Bill’s areas of responsibilities, and I will work closely with them to ensure the company executes on priorities.
2019 Outlook
As the company enters 2019, the company remains confident that the market fundamentals for business are solid and remain intact. However, there are a number of initiatives that the company is implementing to further strengthen business which include a combination of external market opportunities and internally focused initiatives.
We remain focused on investing in innovation platforms supported by robust marketing and media commitments. The company has a healthy new product introduction schedule for 2019, and in addition, have secured strategic investments with key partners which the company anticipates will drive further enhancements to digital offerings starting this year. External market opportunities remain vast given the company’s brands, marketing power, and product innovation capabilities, and the company intends to utilize those assets to capture and optimize the growth opportunities.