Nautilus Inc. reported net sales for the first quarter of 2019 totaled $84.4 million, a decrease of 26.5 percent compared to $114.8 million in the same quarter of 2018.
The decrease in net sales was driven by weakness in the Direct segment, down 34.4 percent from the prior year quarter, primarily reflecting a decline in sales of the Bowflex Max Trainer product. Retail sales were down 14.4 percent from the prior year quarter, primarily due to lower order volume from certain customers reducing their inventory stocking levels. Royalty revenue in the first quarter of 2019 was $0.9 million, an increase of 39.7 percent compared to the same quarter of last year, due to payment of royalties related to a new agreement executed in late 2018. Gross margins for the first quarter of 2019 were 42.5 percent versus 51.3 percent for the same period of last year, reflecting unfavorable overhead absorption related to the decline in sales and unfavorable product mix.
Operating loss for the first quarter of 2019 was $10.2 million, compared to income of $10.7 million in the same period of last year, as lower sales and gross margins resulted in a decline in gross profit dollars, which was partially offset by a decrease in operating expenses. Operating expenses for the first quarter of 2019 decreased by $2.2 million to $46.0 million compared to $48.2 million in the same period of last year as a result of lower marketing costs. As a percentage of revenue, operating expenses were 54.5 percent of revenue versus 42.0 percent in the same period of last year due to the decrease in sales.
Loss from continuing operations for the first quarter of 2019 was $8.5 million, or $0.29 per diluted share, compared to income of $8.1 million, or $0.27 per diluted share, for the same period of last year. EBITDA loss from continuing operations for the first quarter of 2019 totaled $8.1 million compared to income of $13.1 million in the prior year period.
Carl Johnson, chairman and interim chief executive officer, stated, “As anticipated, the primary factors impacting our first quarter results continued to be softness in the Direct segment as well as lower sales in our Retail segment due to certain strategic partners carrying higher than normal inventory levels. In the Direct segment, the refreshed Max Trainer product line with connected home digital capabilities continued to experience a slow ramp from its fourth quarter launch into the first quarter. Our analysis has confirmed the root cause as sub-optimal advertising creative resulting in low awareness and insufficient communication of the product’s differentiated digital capabilities. We are in the midst of working to develop effective new positioning for Bowflex, the Max Trainer line, and our digital platform, using leading edge consumer insight techniques, in time for the important fourth quarter 2019 season. In the immediate term, we have initiated a broad range of tactical digital, social media and PR programs to support the Bowflex Max Trainer, the digital platform and other select Direct products. We remain confident that this new positioning and advertising will return the Direct business to profitability led by our digital platform and its personalized fitness and performance capabilities. Turning to Retail, while sales were soft in the first quarter due to the expected higher inventory levels of certain strategic partners, we continue to see solid sell-through and expect a healthy fall and holiday season for this segment.”
Johnson continued, “Additionally, to fuel sales for the balance of the year, we have a range of new product introductions planned across all of our sales channels. These introductions include, among others, the Max Trainer M10 with a built-in digital screen and capabilities, Octane Commercial Max Trainer, and the Octane XR6000S recumbent elliptical. Our focus remains on being a differentiated player in the industry by continuing to bring new innovations to market while also growing our top and bottom lines. Improved earnings and margins will come through the implementation of the initiatives discussed last quarter: broad cost containment, workforce reduction, value engineering initiatives and simplification of processes. Supporting all these measures is our solid balance sheet. We refinanced our debt and paid down $11.5 million to end the quarter with $20.5 million of debt and $23.6 million of cash. In summary, we have a robust plan in place to work through our temporary setbacks and to position Nautilus for growth and success in the coming years. We will continue to provide regular updates throughout the year on the status of these actions and the expected improving health of the business.”
