The Nautilus Group, Inc. saw third quarter net sales fall 24.1% to $116.0 million compared to $152.9 million for the corresponding period last year. Net income plunged 73.7% during to $6.6 million, or $0.20 per diluted share, compared to $25.1 million, or $0.71 per diluted share, for the corresponding period in the previous year.
The Company's net sales for the nine months ended September 30,
2003 were $346.0 million compared to $429.2 million for the same
period last year. Net income during the period was $25.0 million or
$0.76 per diluted share, compared to $74.8 million, or $2.10 per
diluted share, for the same period last year.
Gregg Hammann, President and Chief Executive Officer, commented,
“Two months ago The Nautilus Group embarked upon a very rigorous three
phase turnaround plan that is targeted to improve operational
efficiencies, reposition some of our underperforming brands and expand
our channels of distribution. We believe this plan will be very
rewarding for our shareholders over the long-term.”
“We continue to pursue opportunities to maximize our brand
potential by differentiating our brands and offering unique products
to meet consumer needs,” Hammann continued. “During the first quarter
of 2003, we introduced products utilizing the Bowflex Power Rod
resistance technology in the retail market. With 80% of our targeted
consumers purchasing fitness equipment through retail, we plan to make
more of our brands available through this channel. We are also
introducing several new products to the cardiovascular market, which
represents over 70% of the dollars spent on exercise equipment and is
an underserved market for us. We began marketing our new StairMaster
2100 commercial treadmill at the end of the third quarter, and we
expect to introduce a new StairMaster commercial elliptical by the end
of this year. In addition, we are gaining momentum with direct sales
of our TreadClimber(R) product line and expect to achieve sales of $16
to $18 million for the year through planned restrained demand. This
approach ensures that when we rollout new or repositioned brands our
manufacturing, marketing and operations are all performing in unison
before we expand our marketing efforts.”
Rod Rice, Chief Financial Officer, stated, “During the third
quarter, we undertook restructuring initiatives to lower our cost of
operations, including reducing our workforce. As our management team
worked to contain costs and improve operating performance, we also
maintained our focus on leveraging our research and development and
sales expertise to open new market channels, such as the recently
announced strategic alliance with Amazon.com. These initiatives will
continue to improve our long-term financial strength. Our cash and
cash equivalents grew to $63.8 million, we have no debt and
stockholders' equity is $218.9 million, placing the Company in an
ideal position to pursue our targeted growth opportunities in the
health and fitness industries.” Rice continued, “We will closely
monitor our cost structure and use our operating cash flow to build
upon our industry leading position. We will also use our cash flow to
increase shareholder value through our regular quarterly dividend.
Today, the Board of Directors has declared a regular quarterly
dividend of $0.10 per common share, payable December 10, 2003, to
shareholders of record at the close of business on November 20, 2003.”
The Company reiterated full year 2003 guidance of $450 to $470
million in revenue and earnings per share of $1.00 to $1.10. Operating
cash flow is expected to be approximately $35 million to $40 million
for the year.
Hammann concluded, “Despite the current challenging conditions, we
are excited about Nautilus' long-term prospects. We have an
unparalleled combination of leading brand names, multiple distribution
channels, product development capabilities and a broad range of
cardiovascular and strength products that will enable us to deliver
both sales and earnings growth over the long-term–and we have the
infrastructure, balance sheet and management team to support this
growth. We will continue to build on our solid foundation by
increasing our brand equity, expanding our distribution network and
introducing innovative new products.”
The Company also announced today that the United States Federal
District Court for the Western District of Washington entered an order
of Final Judgment, dismissing The Nautilus Group's patent infringement
case against ICON Health and Fitness, Inc. As the Company has
previously disclosed, the court entered summary judgment in favor of
ICON on our claim for patent infringement. Today's ruling makes the
dismissal of our patent infringement claim final in the District
Court. The Nautilus Group plans to appeal this decision to the Federal
Circuit Court of Appeals.
The Company's Trademark Infringement case against ICON is
proceeding separately and is not impacted by today's court order. The
Trademark Infringement case is currently awaiting a trial date in
2004.
THE NAUTILUS GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
NET SALES $ 115,958 $ 152,865 $ 346,009 $ 429,187
COST OF SALES 60,508 64,435 168,144 179,687
----------- ----------- ----------- -----------
Gross profit 55,450 88,430 177,865 249,500
OPERATING EXPENSES:
Selling and
marketing 34,492 40,654 109,688 106,345
General and
administrative 9,241 5,634 24,891 19,338
Related-party
royalties 1,597 2,531 4,838 7,092
Third-party
royalties 333 384 969 717
----------- ----------- ----------- -----------
Total operating
expenses 45,663 49,203 140,386 133,492
----------- ----------- ----------- -----------
OPERATING INCOME 9,787 39,227 37,479 116,008
OTHER INCOME
(EXPENSE):
Interest income 134 333 593 1,260
Other -- net 459 (408) 1,037 (326)
----------- ----------- ----------- -----------
Total other
income
(expense), net 593 (75) 1,630 934
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 10,380 39,152 39,109 116,942
INCOME TAX EXPENSE 3,737 14,093 14,079 42,099
----------- ----------- ----------- -----------
NET INCOME $ 6,643 $ 25,059 $ 25,030 $ 74,843
=========== =========== =========== ===========
BASIC EARNINGS PER
SHARE $ 0.20 $ 0.72 $ 0.77 $ 2.14
DILUTED EARNINGS PER
SHARE $ 0.20 $ 0.71 $ 0.76 $ 2.10
