Nautilus Q3 Profits Up on Land Sale; Sales Up 6.3%

The Nautilus Group, Inc. reported that third quarter net sales increased 6.3% to $123.2 million compared to $115.9 million for the corresponding period last year. Net income during the period was $7.4 million, or 22 cents per diluted share, compared to $6.6 million, or 20 cents per diluted share, for the third quarter of 2003. Included in the third quarter of 2004 was a one-time pretax gain of $1.8 million from the sale of land.

“Our third quarter marks the fifth consecutive quarter of meeting or exceeding our revenue and earnings guidance and we are very pleased with our progress to date,” said Gregg Hammann, chairman and chief executive officer. “This quarter demonstrates that we have stabilized our business and are now positioned to return our company to revenue and earnings growth.

“We began to turn around our business operations approximately one year ago, and even though we still have a number of areas for improvement, we are on track with our goals,” Hammann said. “We are in the very early stages of experiencing the long-term benefits from leveraging our portfolio of leading health and fitness brands and our pipeline of innovative products across multiple distribution channels.

“We continued on our track of channel and product diversification, including the introduction of Bowflex SelectTech dumbbells marketed through the direct channel, and expanding our product assortment in selected sporting goods retail chains. We will be further expanding our product assortment in select sporting goods chains in the fourth quarter, and we will be shipping Bowflex treadmills and Nautilus treadmills in the fourth quarter. Looking beyond the fourth quarter of 2004, we are very excited about our new line of innovative products that we will be introducing across multiple brands and channels throughout 2005.”

Rod Rice, Chief Financial Officer, stated, “We generated $14 million in cash from operations and ended the quarter with $100.0-million in cash and equivalents, a 57-percent increase from when we began our turnaround plan at the beginning of the third quarter in 2003.

“As we have now entered the growth phase of our turnaround plan, we are confident we will achieve year-over-year revenue and earnings growth during our fourth quarter. For the fourth quarter, we expect revenue to be in the range of $155 to $165 million and earnings per share of $0.38 to $0.40. For the full year, we expect revenue to be in the range of $510 to $520 million and earnings to be $0.85 to $0.87.”

The Company announced today that its Board of Directors declared a regular quarterly dividend of $0.10 per common share, payable December 10, 2004, to shareholders of record as of November 20, 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,
                       ----------------------- -----------------------
                             2004        2003        2004        2003
                       ----------- ----------- ----------- -----------

NET SALES                $123,182    $115,958    $354,257    $346,009

COST OF SALES              64,577      58,671     189,475     163,791
                       ----------- ----------- ----------- -----------

Gross profit               58,605      57,287     164,782     182,218

OPERATING EXPENSES:
Selling and marketing      38,039      34,492     110,393     109,688
General and
 administrative             6,540       9,339      21,095      24,999
Research and
 development                1,697       1,739       4,783       4,245
Related-party royalties         -       1,597       1,843       4,838
Third-party royalties       1,051         333       2,849         969
                       ----------- ----------- ----------- -----------

Total operating
 expenses                  47,327      47,500     140,963     144,739
                       ----------- ----------- ----------- -----------

OPERATING INCOME           11,278       9,787      23,819      37,479

OTHER INCOME:
Interest income               371         134         914         593
Other - net                    (1)        459          (3)      1,037
                       ----------- ----------- ----------- -----------

Total other income, net       370         593         911       1,630
                       ----------- ----------- ----------- -----------

INCOME BEFORE INCOME
 TAXES                     11,648      10,380      24,730      39,109

INCOME TAX EXPENSE          4,193       3,737       8,903      14,079
                       ----------- ----------- ----------- -----------

NET INCOME                 $7,455      $6,643     $15,827     $25,030
                       =========== =========== =========== ===========

BASIC EARNINGS PER
 SHARE                      $0.23       $0.20       $0.48       $0.77

DILUTED EARNINGS PER
 SHARE                      $0.22       $0.20       $0.47       $0.76