Nautilus overcomes problems

By Courtney Sherwood, Columbian freelance writer

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Back in 2003, Vancouver-based Nautilus seemed to be on a steady path.

Brian Cook, had founded Bowflex in 1986 and grown it to into Nautilus, a publicly traded business that at the time employed more than 1,200 people. Now Cook was ready to retire. But Gregg Hammann, Cook's hand-picked successor, brought big ambitions that never seemed to align with economic reality.

Manufacturing problems began to plague the company, with production glitches keeping products from consumers during critical sales periods. Profits fell, and despite some concerns about Nautilus' cash levels, the company decided to buy a Chinese manufacturer so it could have more control over production.

Before Hammann could complete that transaction, a group of outsiders swooped in. Sherborne Investors bought a quarter of Nautilus' shares and gained enough seats on the company's board to force Hammann out. In 2007, Nautilus appointed Robert Falcone as interim CEO. In 2008, Sherborne's founder, Edward Bramson, stepped in as the new executive.

Under Bramson's watch, Nautilus slashed and sold in an attempt to turn the business around. He cut staffing from more than 1,200 to the roughly 340 employees at the business today. The company also sold off several product lines, including Pearl Izumi, and cancelled its purchase of the Chinese manufacturer. Nautilus remained publicly traded, but its stock value plummeted. Shares that had sold for more than $18 in early 2007 traded for less than $4 a year later.

And profits did not rebound as quickly as Sherborne Investors had hoped. In 2011, Sherborne picked Bruce Cazenave to take over as CEO, then distributed its Nautilus shares to investors.

Under Cazenave's watch, Nautilus has returned to profitability. After posting a net loss of $9.8 million in 2010, it made a $2.5 million profit in 2011 and a $10.6 million profit in 2012.

The company's stock has rebounded as well, from $2.51 per share when Sherborne cashed out in May 2011 to roughly $8.50 by late July. According to a survey by Thompson/First Call, analysts expect shares to reach $10.

Nautilus has outperformed expectations, according to a report issued by Zacks Investment Research, which in July upgraded its rating on the company to a "strong buy."

"This consumer fitness products company turned around from a loss-making entity to deliver profits," Zacks analysts wrote."The company has a new lineup for cardio products ready for shipment this fall. This category of products is quite popular and is likely to boost company sales in the near term."

With Nautilus scheduled to report its second-quarter financial results on Monday, Cazenave is legally prohibited from disclosing details about the immediate results the company will report. But he says that strong employee morale is up, new products are in the pipeline, and many of the problems that have held Nautilus back are now behind it.

"We have a lot of exciting things in the works right now," Cazenave says.