Nautilus has unusually strong 2nd quarter

Focus on innovation helps boost maker of fitness equipment

By Aaron Corvin, Columbian port & economy reporter



Nautilus Inc. on Monday reported something it doesn't usually report in the second quarter: robust sales, and a decent profit, too.

Typically, the Vancouver-based manufacturer of fitness equipment sees weak financial results in the April-to-June period. That's because consumers tend to be involved in outdoor activities during the spring and summer months, according to the company, which puts a damper on sales of Nautilus' indoor fitness machines.

But there was nothing typical about the company's second-quarter results this year, Nautilus said during an earnings conference call Monday. It posted net sales of $48.5 million in the second quarter, up 33.9 percent from $36.2 million in the same year-ago period.

It also recorded a profit of $557,000 in the three months ending on June 30. Nautilus CEO Bruce Cazenave said it's "gratifying" to report such positive financial results in the second quarter, which is "historically the (company's) most profit-challenged quarter."

The positive results stem from several factors, company officials said, including Nautilus' ongoing focus on innovation, an increase in consumer credit approvals in the U.S. and the company's successful launches of new fitness equipment. They pointed to the Bowflex Max Trainer as an example. Launched earlier this year, the home fitness machine combines the attributes of an elliptical and a stair-stepper. In the first six months of 2014, there's been "strong consumer interest in and demand for the product," said Bill McMahon, the company's chief operating officer, and "positive feedback from customers" who've purchased it.

The company's $557,000 second-quarter profit compares with a profit of $32.9 million in the same year-ago period. But the massive second-quarter profit in 2013 was a rarity: It came by way of a tax benefit involving Nautilus' deferred tax assets. Take the tax benefit out of the equation, and the company experienced a net loss of $1.4 million in last year's April-to-June period.

Nautilus sells its cardio, muscle-building and other fitness machines through its direct-to-consumer channel, involving TV, social media and other advertising, and through brick-and-mortar retailers. It also derives some of its revenue from licensing its brands and intellectual property.

All three sources of revenue performed well in the second quarter, with the company's direct-to-consumer route generating the lion's share of Nautilus' sales. That channel produced net sales of $32.3 million, up 27 percent from $25.3 million in the second quarter of 2013. Net sales from brick-and-mortar outlets were $15 million in the April-to-June period. That's up 47 percent from $10.2 million during the same year-ago period.

New distribution center set to open

McMahon said the company's second U.S. distribution center, which will begin operating later this summer, will "greatly improve service levels throughout the U.S." The 250,000-square-foot complex, slated to open in Obetz, Ohio, will reduce the time it takes to ship products from 10 days to less than five days, McMahon said. The new distribution center means higher costs initially for the company, he added, but those costs will be offset over time as the facility boosts Nautilus' customer service levels and makes its operations more efficient.

The company, founded in 1986, employs more than 300 people. Nautilus' stock, which trades as NLS, closed up 38 cents Monday, at $10.42 per share. The company's shares have traded between $6.15 and $11.99 in the past 52 weeks.