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Sept. 24, 2020

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Vancouver-based Nautilus sees record-high Q2 sales

Home fitness equipment market booms amid virus

By , Columbian business reporter
Published:

Vancouver-based exercise equipment maker Nautilus enjoyed a record-breaking second quarter, driven by a booming market for home fitness equipment during the COVID-19 pandemic.

Overall sales were $114 million, a 94-percent increase over the second quarter of 2019, according to results released Monday.

“Despite being supply-constrained for the entire quarter, our net sales nearly doubled,” CEO Jim Barr said in a Monday conference call with investors and analysts.

Direct sales grew by 142 percent, and retail sales increased by 68 percent, resulting in the best second quarter sales numbers the company has seen in 10 years, according to chief financial officer Aina Konold.

Gross profit was $47.4 million, compared with $17.5 million in the second quarter of 2019, and the second quarter gross margin rose from 29.7 last year to 41.5 percent this year.

Cardio machines took the biggest share of the growth in both the sales segments, driven by products like the Bowflex C6, Max Trainer and Schwinn IC4. Cardio equipment sales were up by 183 percent in the direct segment and up by 88 percent in the retail segment.

Strength product sales gains were limited by inventory scarcity, the company reported, particularly for its SelectTech line of weights.

The company typically reports its biggest sales for the holiday season, Barr said, with more of a lull during the second quarter. This time around, Nautilus spent the quarter scrambling to ramp up production and speed up shipping to keep pace with demand.

Nautilus increased production output on some of its most popular products by as much as 500 percent, Konold said. The company’s shipping volume for the quarter ended up about on par with the fourth quarter of 2019, Barr said, and even so, Nautilus ended the quarter with $34 million in back orders.

The same stay-at-home orders that have shuttered commercial gyms have also impacted retailers, but Barr said many of Nautilus’s retail partners were able to switch to curbside pickup models. Online sales also grew at partners like Best Buy and Amazon, with Amazon sales accounting for 18 percent of the company’s total net sales, according to Konold.

Barr and Konold spent much of the investor call addressing the big question underlying all of the heightened sales results: How long will the boom last?

The current surge in demand is straightforward: stay-at-home orders have shuttered gyms nationwide, pushing thousands of new customers into the home fitness market. But eventually the pandemic will be brought under control, gyms will reopen and the trend will reverse.

Nautilus expects as much, Barr said, but he added that the company believes some of the changes to the fitness landscape will be permanent. According to Nautilus’s own market research, 12-15 percent of former gymgoers are saying they’re happy with the switch to home fitness and don’t plan to go back, he said.

Barr also speculated that many people who used to work out exclusively at gyms were caught off guard by the pandemic and may decide to keep investing in home fitness equipment in anticipation of the next natural disaster, even if they also return to the gym.

The period of heightened demand has already lasted longer than Nautilus had anticipated, and Barr and Konold said the company now expects strong sales to continue into the next quarter. That doesn’t mean it will be entirely smooth sailing, Konold added — the pandemic has led to a decrease in global shipping traffic, making it more expensive to ship new inventory and more logistically challenging to avoid delays in transit.

Barr also stressed that the company recognizes the temporary nature of the current situation and is continuing to implement its pre-COVID turnaround plan. Nautilus embarked on the multi-year turnaround effort last year following several years of disappointing financial results.

Barr was brought on board as CEO to help steer the effort, which includes a major focus on digital offerings such as “smart” connected fitness equipment and a new centralized online fitness platform called JRNY. Barr said the company has several additional connected fitness products in the pipeline for later this year and next year.

Nautilus’ stock, which trades under the symbol NLS, rose 2.91 percent on Monday to close at $12.36, and rose another 10.84 percent after hours.

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