Nautilus, Inc. reported net sales of $38.5 million in the third quarter ended Sept. 30, 2010 compared to $41.4 million in the third quarter of 2009.
Continuing operations include the company’s direct and retail businesses. The company’s commercial business is reported as a discontinued operation. Unless otherwise indicated, all information regarding the company’s operating results pertains to continuing operations.
Operating loss was $3.2 million for the third quarter 2010, compared to a loss of $2.8 million for the third quarter 2009. The company said the third quarter 2010 operating loss was favorably impacted by the company’s reduction in general & administrative and research & development expenses. The favorable impact of these lower operating expenses was more than offset by lower sales and reduced margins in the direct business.
For the quarter ended Sept. 30, 2010, the company’s loss from continuing operations, net of tax, was $2.4 million, or 8 cents loss per share. Loss from continuing operations, net of tax, in the third quarter of 2009 was $1.5 million, or 5 cents per share.
Loss from discontinued operations, net of tax, in the third quarter of 2010 was $1.9 million, or 6 cents loss per share, compared to a loss of $22.9 million, or 75 cents loss per share, in the third quarter of 2009.
Net loss, including continuing and discontinued operations, in the third quarter of 2010 was $4.3 million, or 14 cents loss per share, compared to a net loss of $24.4 million, or 80 cents loss per share, in the third quarter 2009.
As of Sept. 30, 2010, the company had cash and cash equivalents of $14.5 million. The company had $0.8 million of assets of discontinued operations held for sale as of Sept. 30, 2010.
Comparative net sales by segment: | |||||||||||||
Three Months Ended | Sept 30, 2010 | Sept 30, 2009 | $ Change | % Change | |||||||||
(thousands) | |||||||||||||
Direct | $ | 21,504 | $ | 25,253 | $ | (3,749 | ) | -14.8 | % | ||||
Retail | 16,118 | 15,656 | 462 | 3.0 | % | ||||||||
Unallocated Corporate | 852 | 522 | 330 | 63.2 | % | ||||||||
Net Sales | $ | 38,474 | $ | 41,431 | $ | (2,957 | ) | -7.1 | % |
The company’s third quarter 2010 net sales in its direct business declined compared to the third quarter of 2009, primarily due to a 35.2% year-over-year decrease in the average rate of credit approvals for the quarter by the company’s consumer credit financing provider. As previously disclosed, the company experienced considerable declines in approval rates from its prior provider and has replaced that program. The company has experienced increased credit approval rates since implementation of its new consumer credit financing program with GE Money Bank in late August 2010, although approval rates have not yet returned to levels experienced during 2009.
In September, direct sales improved by 4.3% compared to September of 2009, while sales in July and August of 2010 were below those in the prior year. The company continues to optimize its credit offerings and currently expects further incremental improvement in credit approval rates in the fourth quarter 2010 and in 2011.
Net sales in the company’s retail business increased 3.0% in the third quarter of 2010, compared to the same period in 2009, primarily due to customer demand for its newly redesigned fitness bikes and sales to new customers.
As previously announced, in response to lower credit approval rates earlier in the year the company reduced advertising expenditures in its direct business pending improved availability of consumer credit. The Company expects to begin increasing advertising expenditures in the fourth quarter of 2010 and in 2011.
Comparative segment operating income (loss): | |||||||||||||||
Three Months Ended | Sept 30, 2010 | Sept 30, 2009 | $ Change | % Change | |||||||||||
(thousands) | |||||||||||||||
Direct | $ | (2,686 | ) | $ | 1,740 | $ | (4,426 | ) | -254.4 | % | |||||
Retail | 2,001 | 2,229 | (228 | ) | -10.2 | % | |||||||||
Unallocated Corporate | (2,540 | ) | (6,791 | ) | 4,251 | 62.6 | % | ||||||||
Operating (Loss) | $ | (3,225 | ) | $ | (2,822 | ) | $ | (403 | ) | -14.3 | % |
NAUTILUS, INC. | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited and in thousands, except per share amounts) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales | $ | 38,474 | $ | 41,431 | $ | 114,760 | $ | 135,588 | ||||||||
Cost of sales | 21,856 | 21,150 | 61,708 | 65,194 | ||||||||||||
Gross profit | 16,618 | 20,281 | 53,052 | 70,394 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 14,347 | 14,278 | 47,935 | 53,202 | ||||||||||||
General and administrative | 4,797 | 5,240 | 14,750 | 18,587 | ||||||||||||
Research and development | 699 | 1,283 | 2,290 | 3,917 | ||||||||||||
Restructuring | – | 201 | – | 14,046 | ||||||||||||
Asset impairment losses | – | 2,101 | – | 2,101 | ||||||||||||
Total operating expenses | 19,843 | 23,103 | 64,975 | 91,853 | ||||||||||||
Operating loss | (3,225 | ) | (2,822 |