Nautilus, Inc. reported sales for the first quarter of 2015 totaled $96.2 million, a 34 percent increase compared to $71.9 million in the same quarter of 2014. The strong growth was driven by higher sales in both the Direct and Retail segments. Gross margins for the first quarter improved by 250 basis points to 56 percent, reflecting margin increases in the Direct segment as well as a favorable mix between segments.

Operating income from continuing operations for the first quarter of 2015 was $17.6 million, a 96 percent increase over operating income from continuing operations of $9.0 million reported in the same quarter of 2014. The increase in operating income primarily reflects higher sales and gross margins in the Direct segment, as well as improved leverage of sales and marketing and general and administrative costs across higher sales volumes.

Income from continuing operations for the first quarter of 2015 was $10.9 million, or $0.34 per diluted share compared to income from continuing operations of $5.7 million, or $0.18 per diluted share for the first quarter of last year.

For the first quarter of 2015, the company reported net income of $10.7 million, or $0.34 per diluted share, which includes a loss from discontinued operations of $0.1 million. In the first quarter of 2014, the company reported net income of $5.4 million, or $0.17 per diluted share, which included a $0.4 million loss from discontinued operations.

Bruce M. Cazenave, Chief Executive Officer, stated, “We are pleased that the strong momentum established over the last few years continues, and the first quarter results give us a solid start to continuing that positive momentum throughout fiscal year 2015. The Bowflex Max Trainer® product line continues to perform well and helped drive strong sales growth of 46 percent for our Direct segment, as well as significant improvements in gross margin and operating income. Our Retail segment sales increase of 6 percent underscores our ability to continue to meet the evolving demands of our retail partners with new products, including our recently launched treadmill line.”

Cazenave continued, “Our improved financial performance and market success over the past few years has been driven by continued focus on product innovation, margin discipline, and realizing operating leverage. I am proud of how our team is achieving a healthy balance between advancing long-term initiatives, such as diversifying our revenue stream and building further operational capabilities, combined with strong execution of near-term priorities, such as planned launches of new products staged in the pipeline for later this year.”

Segment Results

Net sales for the Direct segment were $74.1 million in the first quarter of 2015, an increase of 46 percent over the comparable period last year. Direct segment sales benefited from continued strong demand for cardio products, especially the Bowflex Max Trainer® product line, partially offset by a decline in Direct sales of strength products. U.S. credit approval rates rose to 44.5 percent in the first quarter of 2015, up from 41.3 percent for the same period last year. The company attributes the increase in approval rates to the launch of the Bowflex Max Trainer®, which has thus far attracted consumers with better credit scores, along with its media strategy focused on driving quality consumer leads.

Operating income for the Direct segment was $19.6 million for the first quarter 2015, an increase of 89 percent compared to the first quarter 2014. Operating income benefited from higher gross margins as well as improved leverage of selling and marketing expenses as a percentage of sales in the first quarter of 2015. Gross margin for the Direct business improved 150 basis points to 65.2 percent for the first quarter of 2015, compared to 63.7 percent in the first quarter of last year, reflecting inventory write-downs for discontinued product in the prior year.

Net sales for the Retail segment were $21.3 million in the first quarter 2015, an increase of 6 percent when compared to $20.1 million in the first quarter last year. The improvement in Retail net sales reflects strong retailer and consumer acceptance of the company’s new lineup of cardio products including the recently launched treadmill line. Retail sales were negatively impacted by the port slowdown situation, as extended delivery schedules adversely affected Retail sales and replenishment orders.

Operating income for the Retail segment was $1.5 million for the first quarter 2015 compared to $2.5 million in the first quarter of last year. Retail gross margin was 22.0 percent in the first quarter of 2015, compared to 25.4 percent in the same quarter of the prior year. Retail gross margins for the first quarter of 2015 were negatively impacted by unfavorable product and customer mix along with increases in overhead. The company has plans in place starting in the back half of the year to mitigate the recent Retail margin loss.

Royalty revenue in the first quarter of 2015 was $0.9 million, compared to $1.1 million for the same quarter of last year.

Balance Sheet

As of Mar. 31, 2015, the company had cash and investments of $82.1 million and no debt, compared to cash and investments of $72.2 million and no debt at year end 2014. Working capital of $96.8 million as of March 31, 2015 was $13.7 million higher than the 2014 year-end balance of $83.1 million, primarily due to growth in cash and investments of $9.9 million during the quarter. Inventory as of March 31, 2015 was $20.0 million, compared to $24.9 million as of Dec. 31, 2014 and $13.5 million at the end of the first quarter last year. The increase in inventory compared to the first quarter of last year is due to higher revenues, new product introductions, and the addition of a new distribution center. The company utilized $2.0 million during the quarter to repurchase shares as part of the $15.0 million share buyback program it announced in November 2014.