Nautilus: Layoffs mostly corporate, product goes forward

The Nautilus Group is reducing its workforce "to lower expenses in response to the current business environment," the company announced in a brief statement issued Friday. It added that the layoffs would be through attrition, elimination of contract workers, and not filling vacancies.

The Nautilus Group is reducing its workforce "to lower expenses in response to the current business environment," the company announced in a brief statement issued Friday. It added that the layoffs would be through attrition, elimination of contract workers, and not filling vacancies.

The statement -- a rather stunning one to industry observers and the first action announced under new CEO Gregg Hammann -- said the company (NYSE: NLS) expects to record a restructuring charge in the third quarter of approximately $200,000. When fully implemented, the company said the workforce reduction is expected to mean approximately $4 million in annual pre-tax cost savings, which equates to approximately 8 percent of current labor costs.

Nautilus Health & Fitness President Kevin Lamar told SNEWS that the changes would not affect the operations, service or product of the Nautilus company or its brands, nor would its retail customers or consumers see any change. Most changes would be in the corporate office in Vancouver, Wash., he said, rather than in the Health & Fitness offices in Louisville, Colo.

"It doesn't affect the operation of the business. It doesn't affect our go-forward plans. It doesn't affect time-to-market of any product," Lamar said. "It doesn't affect any marketing plans."

One of the first tasks of Hammann, who began at Nautilus just two months ago, was to take a look at the company structure. During that analysis, Lamar said, he noted that many of the extra contract employees needed to work through all the company changes in the last two years, including the integration of Nautilus (1999), Schwinn Fitness (2001) and StairMaster (2002), were near the end of their duties. So Hammann opted to tie it all up quickly and trim the staff all at once.

In addition, with the company shifting from a primarily direct-to-consumer business to more of a retail/commercial focus -- with some of its direct business now at retail -- that department also had some reductions, Lamar said.

"While the company enjoys a very strong financial position, we continually review the performance of our business segments, facilities and products. We believe today's action is a necessary response to the current business environment and will enhance long-term value for our shareholders," Hammann said in the statement.

Wall Street also reacted as expected on Friday, with share trading halting briefly at $12.28, down 13 cents or 1 percent, before resuming trading. Shares closed Sept. 12 at $12.05 or down 36 cents (2.9 percent) from the previous day's close of $12.41. The price of shares has slowly dropped since its high a year ago of just over $30, with a low in July of about $10. For the third quarter, analysts polled by Thomson First Call projected earnings of 19 cents a share based on a survey of six analysts. A year earlier, the company earned 71 cents a share. Nevertheless, the mean recommendation of analysts remains 3.5 on a scale of 1 to 5, with 1 meaning "strong buy" and 5 being "strong sell."


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