Nautilus suffers Q4 loss, 20-percent drop in sales
Nautilus (NYSE: NLS) reported a fourth-quarter net loss as a result of more than $45 million in pre-tax charges. Its quarterly net sales also dropped 20 percent.
Net loss for the quarter was $47.7 million, or $1.51 per diluted share, compared to net income of $12.9 million, or $0.41 per diluted share, for the same period in 2006. The fourth-quarter 2007 loss from continuing operations before income taxes of $48.7 million included certain pre-tax charges totaling $45.1 million.
Net sales for the three months ended Dec. 31, 2007, were $147.3 million compared to $185.1 million for the corresponding period last year. Loss from continuing operations for the quarter was $31.4 million, or $0.99 per diluted share, compared to income from continuing operations of $12.6 million or $0.40 per diluted share, for the fourth quarter of 2006.
"There's no denying the fact that 2007 was a difficult year for Nautilus," said CEO Bob Falcone, in an earnings call Feb. 13 with analysts and media. "The year showed a loss for the first time in the company's history, a change in the company's CEO, a proxy contest, four new directors and several changes in senior management."
By category, CFO Bill Meadowcraft reported on the call that international sales were up $24.3 million (17 percent), commercial sales were up $22.3 million (6 percent), while direct retail sales were down $62.1 million (14 percent) and retail sales were down $37.1 million (or 47 percent); apparel sales were also down. He called losses "not satisfactory," pointing to a quarterly loss from continuing operations of $48.7 million before income taxes. This included certain pre-tax charges totaling $45.1 million, which included $19.4 million related to the suspended acquisition of the Land America manufacturing facility in China, and $16.9 million in warranty and inventory reserves primarily associated with the TreadClimber commercially.
Falcone explained that the popularity of the TreadClimber in clubs was a problem since its usage was higher than its original performance tolerances and it has not held up, therefore needing more frequent service than forecast. Nautilus he said has added to its warranty reserves and was going to suspend sales commercially to re-engineer it, then re-introduce the product.
The company's gross margin was 24.9 percent, which would have been about 36.3 percent, he said, without the certain warranty and inventory related charges.
"We are faced with returning the company to profitability in the face of a severe slump in the housing market," Falcone said, "the worst retail environment in 17 years, the fear of a U.S. recession as consumers pull back on discretionary spending and massive losses in the financial services industry which impacts a large cross-section of our customers."
Nautilus said it excluded results from the Pearl Izumi apparel segment, which is considered a discontinued operation because it was on the sales block. Sales for the former apparel segment were $12.4 million for the fourth quarter 2007 and $67.1 million for the full year 2007. Discontinued operations resulted in a pre-tax loss of $17.1 million in the quarter, primarily reflecting an impairment of $15.9 million in book value of the apparel segment, Nautilus said.
For FY '07, Nautilus' net sales dropped 19 percent to $502.1 million from $617.3 million in FY '06. It said loss from continuing operations for fiscal year 2007 was $45.0 million, compared to income from continuing operations of $24.9 million in fiscal 2006.
RBC Capital Markets analyst Ed Aaron said in a research note to investors that Nautilus' results were below its expectations and finds it difficult to recommend a turnaround story with such low visibility, an extremely weak consumer environment and tightening consumer credit.
RBS now expects Nautilus to report a loss of $0.20 in FY '08 versus its prior estimate of a $0.04 profit. Aaron lowered his price target to $5 from $8 to reflect the lower estimates. Aaron added, "In addition, Sherborne Investors' aggressive turnaround plan for the company will likely introduce substantial execution risk."
Said Falcone in the call, "It will be a very challenging 2008 as we turn this company around in the face of a lackluster economy. However, I firmly believe we have the right people, the right products and the right brands to get the job done."
He also added in an answer to an analyst's question that he hoped to see profitability toward the end of 2008. But he warned that most companies in this kind of situation can take up to three years for a full turnaround: "I think that anticipating anything, to see any big changes before the last couple of quarters of this year is going to be a little bit foolish to anticipate too much. It just takes a little bit of time to turn it around."
To use a baseball analogy as requested by another analyst, he said the company is in the bottom of the first inning: "We have a lot to do here."
In other company news: Nautilus reported it will lay off about 40 workers when it closes a call center in Winnipeg, Canada, and moves those operations to its Vancouver, Wash., headquarters.
The consolidation of its direct sales call centers serving North America will reduce administration, systems and training costs, according to the company. Several new positions will be added in Vancouver. The move is expected to take place during the second quarter.
Nautilus will maintain a distribution center in Winnipeg with a staff of six to eight employees. A sales team will remain in Toronto.
Cybex Q4 sales, profits increase
Cybex International (Nasdaq: CYBI) said its fourth-quarter profit rose 7 percent on sales of aerobic and strength equipment -- ahead of analyst expectations.
It earned $3 million, or $0.17 per share, compared with $2.8 million or $0.16 per share, in the 2006 fourth quarter. Sales rose 17 percent to $44.5 million from $38.2 million in 2006. Analysts said they expected profit of $0.15 per share on sales of $43.7 million.
The company said it had strong sales of aerobic and muscle-building equipment and continued growth in the commercial equipment market.
For the 2007 fiscal year, the company's profits dropped 52 percent on restructuring costs at its new Minnesota plant. The company earned $9.7 million, or $0.55 per share, compared with $20 million, or $1.18 per share, in 2006.
Sales rose 15.4 percent to $146.5 million from $126.9 million in 2006.
Folowing the news, Cybex shares jumped 70 cents, or 15.6 percent, to a high of $5.18 on Feb. 13, and closed the day's trading at $4.56.
Analyst predicts weak '08 environment for Dick's Sporting Goods
An analyst said Dick's Sporting Goods' (NYSE: DKS) stock was unlikely to rise much further amid a weakening sporting-goods sector and downgraded the stock.
Susquehanna Financial Group analyst John Shanley said in a note to investors that Dick's fundamentals are "very healthy," but downgraded the stock to "Neutral" from "Positive" amid a weak retail environment.
Shanley said there is uncertainty about spending on big-ticket sporting goods by consumers in 2008, noting that spendy products like golf clubs and camping and exercise equipment are "mainstays" of Dick's merchandising mix.
The current share price "does not sufficiently account for the potentially significant impact that external economic factors might have on both store traffic and transaction levels going into the first half of 2008," Shanley wrote. "In our opinion, this slowdown is already evident from the channel checks we have conducted at a number of Dick's stores over the past month."
Shares fell $0.22 to close at $32.18. The stock has traded between $24.14 and $36.77 during the past 52 weeks.
Accell Group expects strong results for FY '07
Accell Group said it anticipates a 25-percent to 35-percent increase in net profits for FY '07. Net profits for FY '06 were EUR 18.4 million (USD $26.7 million).
Accell said the three "important product groups" that boosted the company's results were bicycles (about 72 percent), parts and accessories (about 17 percent), and fitness (about 11 percent).
For the Accell Fitness division, which includes Tunturi, Bremshey and BS&T, the company said it heavily invested in R&D and new administrative and software systems, as well as optimized logistics in 2007.
It also centralized Tunturi's production facility in Tallin, Estonia, and is planning to offer a new range for light commercial fitness equipment in 2008.
"For America and Canada, 2008 is an important year," Martijn Nelissen, Accell Fitness' CEO, said in a statement. "The relationship with strategic accounts such as Club Piscine and Fitness Holdings International Inc. will be stepped up by the offering of distinguishing concepts and new products.
"The selection of Bremshey Sport, which is so important for this market, will be expanded. In addition, the entirely new selection of small fitness products will be introduced which will allow the Bremshey Sport brand to be offered as one family brand for all fitness products," Nelissen added.
Accell Group's full-year financial results will be announced on Feb. 29.
(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Feb. 13.)
Nike declares dividend
Nike's (NYSE: NKE) board of directors has declared a quarterly cash dividend of $0.23 per share on the company's outstanding Class A and Class B Common Stock payable April 1 to Nike shareholders of record at the close of business March 10.
GSI Commerce Q4 profit plummets on costs
GSI Commerce (Nasdaq: GSIC) reported a 76-percent plunge in fourth-quarter profit as its expenses climbed higher.
The company's profit fell to $16.5 million, or $0.30 per share, from $67.9 million, or $1.33 per share, a year ago, as sales and marketing costs and product development costs increased sharply, sending the company's expenses up 51 percent. That overcame a 30-percent increase in revenue, which rose to $335.1 million from $257.2 million.
The company cut its operating profit and revenue forecasts last month, citing charges from its buyout of Accretive Commerce. Its amortization charges more than doubled to $13.6 million. GSI also received a $43.6 million income-tax benefit in the year-ago quarter.
For the full year, GSI's profit dropped to $3 million, or $0.06 per share, on $750 million in sales.
GSI Commerce also said it will lose money in the first quarter due to one-time costs. GSI forecast a loss from operations of $18 million to $19 million for the quarter due to amortization and stock-based compensation costs, among other charges. Excluding those costs, it will break even or post a loss from operations of up to $1 million on revenue of $188 million to $193 million.
For the full year, GSI expects about revenue of about $1 billion.
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