Nautilus Shrinks Loss in Q3

The significant improvement in results from continuing operations was
primarily due to a 16.8 percent reduction in operating expenses achieved
principally through more efficient advertising expenditures. Selling
and marketing expenses for the 2011 third quarter, as a percent of net
sales, declined to 30.8 percent from 37.3 percent for the comparable
2010 period.

Bruce M. Cazenave, Chief Executive Officer, stated, “Despite a continued challenging consumer sales environment, we are pleased that revenues in our direct business continue to grow, reflecting solid demand for our products. Improvement in overall profitability during the quarter resulted from achieving further operating expense efficiencies through disciplined cost controls and more efficient and effective media expenditures. Given our management team's refocused efforts to bring more new and innovative products to market, we made a number of moves during the quarter to expand our product development resources and capabilities.”

The company reported a net loss of $0.1 million for the third quarter ended September 30, 2011, compared to a net loss of $4.3 million for the third quarter of 2010. Diluted net loss per share for the third quarter of 2011 was breakeven $(0.00), compared to diluted net loss per share of $(0.14) for the same quarter a year ago. Net loss for the 2011 third quarter included a loss from discontinued operation of $0.4 million, or $(0.01) per diluted share, compared to a loss of $1.9 million, or $(0.06) per diluted share for the 2010 third quarter.

For the nine months ended September 30, 2011, loss from continuing operations was $0.8 million, compared to loss from continuing operations of $11.8 million for the same period in 2010. Diluted loss per share from continuing operations for the first nine months of 2011 was $(0.03), compared to $(0.38) for the same period a year ago.

The company reported a net loss of $1.8 million for the nine months ended September 30, 2011 compared to a net loss of $22.8 million for the same period a year ago. Diluted net loss per share for the first nine months of 2011 was $(0.06), as compared to diluted net loss per share of $(0.74) for the same period a year ago. Net loss for the first nine months of 2011 included a loss from discontinued operation of $1.0 million, or $(0.03) per diluted share, compared to a loss of $11.0 million, or $(0.36) per diluted share, for the same period in 2010.

Net sales for the Direct segment increased 5.3 percent for the 2011 third quarter over the comparable period last year. This sales increase was largely driven by continued strong demand for the company's TreadClimber® products, attributable partly to increased advertising effectiveness and higher consumer credit approval rates, which rose to 27 percent in the 2011 third quarter, from 21 percent for the same period last year. The improvement in Direct net sales, led by strong growth in TreadClimber® products, was partially offset by a decline in net sales of strength products due to sales promotions during the third quarter 2010 and the maturing product life cycle for home gyms.

Net sales in the Retail segment for the 2011 third quarter totaled $13.7 million, compared to $16.1 million for the same period last year, primarily due to a third quarter 2010 sales promotion of certain cardio products that was not repeated in the third quarter this year, as well as a shift in the timing of customer orders to the fourth quarter.

Third quarter 2011 operating results for the Direct segment improved by $2.8 million over the same quarter last year, primarily due to a 5.3 percent increase in sales and more effective media advertising content, which enabled more efficient ad spending. Gross margin percent for the Direct business was 52.0 percent of net sales for the third quarter of 2011, a decrease of 310 basis points compared to the comparable 2010 period, as improved product margins were more than offset by increased freight and warranty expenses.

Third quarter 2011 operating results for the Retail segment declined $0.7 million from the same quarter a year ago, primarily due to a decline of 14.9 percent in sales and lower gross margin, offset in part by lower selling and marketing expenses. Retail gross margin percent of 21.6 percent declined by approximately 280 basis points from the 2010 third quarter, primarily due to higher supply chain costs combined with lower sales volume, partially offset by improved product margins.