Fitness financials: Nautilus narrows Q1 loss, posts retail sales gain

Despite narrowing its loss, Nautilus (NYSE: NLS) reported a 15.6-percent drop in overall net sales for the first quarter weighted down by a 30-percent revenue hit taken by its direct sales segment.
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Nautilus narrows Q1 loss, posts retail sales spike

Despite narrowing its loss, Nautilus (NYSE: NLS) reported a 15.6-percent drop in overall net sales for the first quarter weighted down by a 30-percent revenue hit taken by its direct sales segment.

In contrast, the retail segment -- the only other segment of the company since it now has completely divested itself of all commercial interests -- showed a 27 percent increase in sales over the year-ago quarter -- a result that even CEO Edward Bramson said he found “a surprise.”

“The (retail) outlook continues to be positive,” Bramson said on a May 12 call with investors and analysts. “Retail is doing well, and our overall costs are being controlled.”

For the quarter ended March 31, net sales were $45.6 million compared to $54.1 million in the first quarter of 2009. Retail segment sales were up to $15.9 million, while direct sales dropped 30 percent to $28.5 million. The drop in direct sales was attributed to a huge drop in credit approvals by the company’s provider, Bramson said. In fact, he said, approvals alone from Q4 2009 to this quarter dropped 26 percent. Year-over-year, approvals dropped 40 percent and compared to two years ago, the percent of approvals compared to number of applications dropped 70 percent, he said. The company is looking for a new provider considering the availability of credit has in general loosened, he added.

The company posted a net loss of $7.8 million, or $0.25 per share, versus a net loss of $13.8 million, or $0.45 per share, in the same period last year. The loss was due to direct sales, which showed a drop in income of 156.1 percent from the year-ago quarter, while retail showed an increase in income of 2.3 million, or 63.4 percent. According to Bramson in answer to an inquiry from an analyst, a larger part of that income could be from retailers restocking more aggressively after retrenching a year ago.

Its operating loss was $1.9 million compared to a loss of $3.7 million for the first quarter 2009. The company attributes the 47.8 percent improvement to an increase in operating income from the company’s retail segment, company-wide cost reduction initiatives, and the impact of restructuring expenses on the first quarter of 2009.

Although the Q1 report included only continuing operations, the company noted that loss from discontinued operations in the first quarter was $5.4 million, or $0.17 per share, compared to a loss of $8.4 million, or $0.27 per share, in the first quarter of 2009. During the first quarter of 2010, the company sold its commercial product line and factory in Virginia. It said that a majority of the loss from discontinued operations in the first quarter of 2010 was attributable to operations which have now been sold.

“We now have a strong balance sheet,” said CFO Ken Fish, “and we believe we are in a good position as we emphasize profitable growth for 2010.”

Nautilus’ earnings before interest, taxes, depreciation, and amortization (EBITDA) was a negative $0.2 million compared to a negative $1.3 million in the same period of 2009.

“Our restructuring is basically done,” Bramson said, “and it’s been a relatively long process so the first quarter is our first clean quarter…. And we’re almost at breakeven EBITDA.”

--Compiled by Wendy Geister and Therese Iknoian

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