Fitness financials: Nautilus touts 19 percent jump in quarter's net sales

Leveraging any distress felt by competitor Icon Fitness, Nautilus Inc. reported a quarter that was better than it had expected, showing a 19 percent jump in net sales and an increase in gross margins to 49.1 from 43.4 a year ago.
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Leveraging any distress felt by competitor Icon Fitness, Nautilus Inc. (NYSE: NLS), reported a quarter that was better than it had expected, showing a 19 percent jump in net sales and an increase in gross margins to 49.1 from 43.4 a year ago.

"We're really excited about the opportunities we see," said CEO and President Gregg Hammann, "where the business is going and the strength of it."

One analyst restated his recently announced "outperform rating" for Nautilus, saying the company traded at a discount compared to its peer group.

"Over the next three years, we expect EPS to grow 25%-plus, driven by improving sales trends in the direct channel and the potential for further distribution gains in the commercial and retail channel," wrote RBC Capital Markets analyst Edward Aaron.

Aaron wasn't oblivious to the fact that Nautilus could be gaining some of what Icon is losing (See SNEWS® story, April 14, 2005, "Fitness financials: Icon's net sales and profits down" about Icon's recent quarters of red ink). He said that Nautilus is likely benefiting at the expense of Icon. Still embroiled in patent and trademark lawsuits over Bowflex infringement (one trial is set for June and another may begin in August), Icon has been forced to withdraw its Crossbow product from the market. Note that net sales for Nautilus in the last quarter ended March 31 were up $25.5 million, while Icon's reported strength sales for its quarter ended Feb. 26 were down $32.2 million.

The company, which is now officially Nautilus Inc. rather than The Nautilus Group, announced net income growth of 46 percent over the same period a year ago. Net income for the quarter was $9.4 million, or $0.28 per diluted share, up from $6.4 million, or $0.19 per share. Included in net income for the first quarter 2005 is a one-time charge of $950,000 for a settlement with the Consumer Product Safety Commission (See SNEWS® story, April 13, 2005, "Nautilus pays 'tough' CPSC fine"). First-quarter net sales were $156.4 million compared to $130.9 million for the corresponding period last year, up 19 percent.

The company finished the quarter with cash and short term investments of $123.3 million, up from $104.6 million at year end. The company has no debt.

"This quarter's results … also reflect our progress in becoming the global leader in fitness, as our diversified portfolio of brands and products are presented in more places where people shop and exercise," Hammann said, showing sales in the specialty area of $20 million, or a slight drop, with sales in the sporting goods and warehouse area at $21.2 million for a gain of 11 percent.

In other segments, the company's commercial division showed a 14 percent increase in sales, while the Internet and catalog division sales were up 34 percent. For international, the company said it is expected 25 percent growth in the next quarter, year over year. The company declined on the call to reveal net sales in all divisions for competitive reasons.

Wrote Aaron, "Similar to last quarter, strong direct sales compensated for shortfall in retail due to supply constraints. While this was again an area of scrutiny, the magnitude was far less than last quarter. We believe the company is on track to meet retailer       demand for the upcoming selling season."

Hammann also pointed out on the earnings call with analysts and media that nearly a third of its net sales are from new products.

In terms of expenses, General and Administrative costs have been about $10.5 million per quarter, up somewhat partly due to litigation costs from several lawsuits with Icon, with the company expecting those costs to be higher as lawsuits go to trial.

For the second quarter of 2005, the company estimates that earnings will grow by approximately 50 percent to $0.09 to $0.10 per diluted share, and net sales will grow 25 percent to approximately $125 to $130 million compared with the second quarter last year. Nautilus raised its full year 2005 earnings estimate to $1.17 to $1.19 on net sales growth of more than 15 percent.

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