Nautilus Inc. reported its net sales increased 23.0 percent to $59.7 million in the second quarter ended June 30, 2015 thanks to higher sales in both its Direct and Retail segments.
Gross margins for the second quarter improved by 40 basis points to 51.4 percent, reflecting margin increases in the Direct segment as well as a favorable mix between segments. Operating income from continuing operations was $3.9 million, a 65.3 percent increase over operating income from continuing operations of $2.4 million reported in the same quarter of 2014. The increase primarily reflects higher sales and gross margins in the Direct segment, as well as improved leverage of general and administrative costs across higher sales volumes.
Income from continuing operations for the second quarter of 2015 was $2.2 million, or $0.07 per diluted share, compared to income from continuing operations of $1.5 million, or $0.05 per diluted share, for the second quarter of last year. Net income reached $2.4 million, or $0.08 per diluted share, including income from discontinued operations of $0.2 million, compared with $0.6 million, or $0.02 per diluted share in the second quarter of 2014, which included a $0.9 million loss from discontinued operations.
CEO Bruce M. Cazenave said he was pleased to report another quarter of strong financial results, including solid double digit sales increases for both the Direct and Retail segments, overall gross margin improvement and robust operating income growth.
He noted that the Direct segment benefited from strong consumer demand for a number of product offerings, including the Bowflex Max Trainer. The Retail sales increase reflects continued positive response from retail partners across a broad base of cardio and strength products, including a treadmill lineup introduced in the second half of last year.
“We are well positioned going into the second half of 2015,” Cazenave said. “There is good momentum in the base business plus we are launching a number of exciting products in the coming months, including new bikes, smart SelectTech dumbbells, and a refreshed TreadClimber line. We will be previewing many of these introductions in late September at our new product showcase event in New York.”
Direct segment results
Net sales for the Direct segment were $41.7 million in the second quarter of 2015, an increase of 28.8 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.
Operating income for the Direct segment was $5.1 million for the second quarter of 2015, an increase of 31.3 percent compared to the second quarter 2014. Operating income benefited from higher revenue and gross margins. Gross margin for the Direct business improved 50 basis points to 62.2 percent for the second quarter of 2015, compared to 61.7 percent in the second quarter of last year. Gross margins improved primarily due to leveraging supply chain costs.
Retail segment results
At the Retail segment, net sales grew 15.7 percent to $17.4 million compared to $15.0 million in the second quarter last year. The improvement reflects strong SelectTech dumbbell sales coupled with continued retailer and consumer acceptance of the company’s new lineup of cardio products including the recently launched treadmill line.
Operating income for the Retail segment was $1.2 million for the second quarter 2015 compared to $1.3 million in the second quarter of last year. Retail gross margin was 23.5 percent in the second quarter of 2015, compared to 24.4 percent in the same quarter of the prior year. The decline was attributed to unfavorable product and customer mix.
Royalty revenue declined by half to $0.6 million due to the expiration of certain patents in specific jurisdictions.
As of June 30, 2015, the company had cash and investments of $87.2 million and no debt, compared to cash and investments of $72.2 million and no debt at year end 2014. Inventory was $28.4 million, compared to $23.2 million at the end of the second quarter last year. The increase in inventory compared to the second quarter of last year is due to higher revenues, new product introductions, and the addition of a new distribution center.
The following summary contains information from our consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 (unaudited and in thousands, except per share amounts):
Three Months Ended
|Six Months Ended
|Cost of sales||29,039||23,766||71,389||57,189|
|Selling and marketing||20,052||15,690||48,451||37,463|
|General and administrative||4,293||4,959||9,871||10,762|
|Research and development||2,379||1,752||4,686||3,655|
|Total operating expenses||26,724||22,401||63,008||51,880|