Nautilus upbeat despite small net loss

Vancouver fitness equipment maker's net sales rose in 2Q

By Aaron Corvin, Columbian port & economy reporter

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No company wants to see a financial loss, however small. But Nautilus, Inc. took its $164,000 shortcoming in the second quarter ended June 30 practically in stride as officials pointed to higher overall sales and planned new product launches during an earnings conference call Monday.

The latest financial results of the Vancouver-based manufacturer of fitness equipment also reflected the April-to-June period — seasonally and traditionally the company's slowest and weakest financial quarter of the year.

Bruce Cazenave, CEO of Nautilus, said it's "gratifying" to see the company generate strong net sales — $39.6 million, up 14 percent year-over-year — during the company's weakest financial quarter.

He also said Nautilus improved its gross margin -- the percent of total sales revenue a company keeps after incurring the costs of making its products — to 43.4 percent. That's up 150 basis points, or 1.5 percentage points, from 41.9 percent in the second quarter of 2011.

Altogether, the company's net loss of $164,000 -- which Cazenave described as nearly reaching "break-even profitability" — compared favorably to its net loss of $3.26 million during the same three-month period a year ago.

Challenges ahead

During Monday's earnings call, company officials also highlighted the company's performance for the first half of the year, noting Nautilus posted a profit of $2.35 million, 8 cents per share, for the first six months of 2012. That compares with a net loss of $1.66 million, 5 cents per share, during the first six months of 2011.

Yet, Nautilus faces threats. Bill McMahon, the company's chief operating officer, said the company

faces challenges from competitors to its "bike and elliptical machine offerings." And given the "uncertainties in the broader economy," Cazenave said, retailers who sell Nautilus' fitness offerings are acting cautiously about how much inventory they'll take on.

Still, the company's net sales in its retail segment -- where it offers everything from cardio products to strength machines through brick-and-mortar outlets — were $14 million in the second quarter, up roughly 23 percent year-over-year. And the company's new Bowflex BodyTower — a strength machine it introduced earlier this year — "has now been picked up by a national retailer and will displace two competing products on their floor," said McMahon, who did not name the retailer.

Net sales in Nautilus' direct-to-consumer segment — through which it sells products by way of TV, social media and other advertising — were $24.7 million in the second quarter, up 10 percent year-over-year.

The company's CoreBody Reformer — a T-shaped device combining Pilates, dance and yoga — helped drive sales in Nautilus' direct-to-consumer business, McMahon said, and he expects sales of the device to "accelerate in the second half of 2012 with new promotional support."

New products coming

Meanwhile, the company plans to launch more new products later this year in both its direct-to-consumer and retail divisions, McMahon said.

The new products include a move into DVD exercise programming, he said, and an update — the first "in many years" — of the company's Schwinn bicycles.

"We're not content with our current position," McMahon said, adding the company has new market research it will use to increase its competitiveness and to boost its existing brands.

Cazenave said that research "did validate a number of our operating assumptions in terms of what our brands mean and the power of our brands." But the research will really pay off as the company integrates it into new product development, Cazenave said. "That's where you're really going to see some power coming out going forward."

The company employs 240 workers in Vancouver, 30 at its distribution center in Portland and 20 in Shanghai, China, In September, it will move into a new building near its present site in the Columbia Tech Center.

Nautilus stock, which trades as NLS, closed up 10 cents Monday, at $3.35 per share. The company's shares have traded between $1.32 and $3.64 in the past 52 weeks.

Aaron Corvin: http://on.fb.me/AaronCorvin; 360-735-4518; aaron.corvin@columbian.com