As Nautilus gains ground with direct-to-consumer, can it regain favor with retailers?

Nautilus continues to build its comeback on direct-to-consumer sales. First-quarter earnings are up, but retail sales lagged.
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Nautilus (NYSE:NLS) continues to build its comeback on increased direct-to-consumer sales.

The Vancouver, Wash.-based home fitness manufacturer, also parent to the Bowflex and Schwinn Fitness brands, reported first-quarter 2013 revenue up 15.5 percent to $59.2 million, while its quarterly profit rose to $5.2 million versus $2.5 million a year ago.

Gains were led by Nautilus’ direct-to-consumer channel — up 26.4 percent, in the first quarter, to $42.6 million in sales, reflecting strong demand of the company’s cardio products, particularly the Bowflex Treadclimber, officials said. And that’s good news for profits, as the gross margins on direct-to-consumer sales are nearing 60 percent for Nautilus, versus 25 percent margins for the company when selling to retailers.

While good for Nautilus, the direct-to-consumer success hasn’t necessarily been music to the ears of specialty retailers. Nautilus retail sales continued to slip — falling 9 percent to $15.1 million in the first quarter.

Despite the increasing shift toward direct-to-consumer, Nautilus officials said they remained committed to the retailers, noting improved margins for the channel, despite the overall sales decline.

“We have been focused on the development and successful placement of a new lineup of cardio products for shipment during the next retail planning and sales cycle starting this fall,” Nautilus CEO Bruce Cazenave said. “We advise caution in comparing interim period results for our retail business with prior year periods until the second half of the year, when these products have fully launched and the level of consumer acceptance can be evaluated.”

Nautilus has been on the comeback march since late 2010, just as Cazenave took over the reigns. Sales and profits have since risen, there’s $28.7 million in the bank with no debt, and investors are happy, sending the stock up 12 percent in after-hours trading Monday to $7.62 per-share — a level not seen since 2008.

As fitness retailers make a comeback of their own — the latest 2012/13 SNEWS FitBiz Report shows the first net gain of fitness specialty stores since 2007 — we’ll watch to see if Nautilus can regain ground in the channel in 2013, beyond just good news in direct-to-consumer sales.

Click here for Nautilus' full fist-quarter 2013 results, issued May 6, 2013.

--David Clucas

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