With strength in both its Direct and Retail segments. Nautilus, Inc. reported revenues jumped 21.4 percent in the first quarter, to $71.9 million.
Gross margins improved by 170 basis points to 53.5 percent, reflecting margin increases in both segments. Operating income from continuing operations reached $9.0 million, a 50.2 percent increase, reflecting the margin improvement with improved leverage of sales and marketing and general and administrative costs across higher sales volumes.
Including discontinued operations, net income was up only slightly, to $5.4 million, or 17 cents a share, from $5.2 million, also 17 cents, a year ago.
Net sales for the Retail segment were $20.1 million, an increase of 32.8 percent, reflecting strong retailer and consumer acceptance of a new lineup of cardio products launched last fall. Operating income rose 2.5 percent to $2.5 million. Retail gross margin was 25.4 percent, compared to 24.9 percent in the same quarter of last year.
On a conference call with analysts, Bill McMahon, Nautilus’ COO, said the retail business grew in all key categories, including bikes, elliptical machines, and home gyms. Said McMahon, “The success that we had with Schwinn exercise bikes and ellipticals gives us confidence that we have strong products that will perform on the retail floor. We plan to build on this foundation, and we will expand on our product offerings as we move into the selling season for Fall 2014 store placements.”
Plans call for the launch of a complete line of new Nautilus-branded cardio products “focused on fitness enthusiasts and those who aspire to make serious fitness a part of their lives.”
Nautilus will be coming back into the treadmill category at retail. McMahon noted that as management has previously noted, the category remains commoditized and “rife with competition.” But’s it’s also the largest category, accounting for about 25 percent of wholesale fitness volume in the U.S. alone. For fall, McMahon said Nautilus believes it has “developed that product that can compete in this space, and do so at reasonable margins.” Both Schwinn and Nautilus will come out with treadmill at the $799 and $999 price points. Having a complete fitness line from both will also “allow us to better compete in the global cardio fitness market.”
Direct segment revenues expanded 19.0 percent to $50.7 million. Continued strong demand for cardio products, especially the Bowflex TreadClimber and the new Bowflex MAX Trainer, offset a decline strength products, which continue to migrate to the Retail business. Operating income for the Direct segment was $10.4 million for the first quarter 2014, an increase of 50.2 percent compared to the first quarter 2013. Higher sales and higher gross margins for the Direct segment were partially offset by higher media and advertising investment. Gross margin expanded to 63.7 percent from 59.8 percent due to improved overall overhead operating efficiency and product cost improvements.
Internally, Nautilus this spring launched a new cloud-based ERP and CRM system that “will provide significant improvement in access to data by our key decision makers.” This fall, it’s also adding a second distribution center in the Midwest that will better improve delivery times to East Coast customers and also support “additional investments in finished goods inventory, especially in our high-volume, high-velocity SKUs.”