Saying it spies a turnaround any moment, RBC Capital Markets has upgraded Nautilus Group from "underperform" to "outperform" -- a change for the company that caps a turbulent six months full of staff evolution, management changes and new products galore.
"We recently spent a half-day with the management team from The Nautilus Group in Vancouver, Wash., and walked away with the impression that the company is on the cusp of turning the corner with its turnaround initiatives," said RBC in a research report issued by senior analyst Carole Buyers on Sept. 7.
It's been two years since the same group downgraded Nautilus (NYSE: NLS) to underperform when the strength of the company's flagship brand, Bowflex, began to falter based on its maturity. It's been a year since former CEO Brian Cook brought on Gregg Hammann as CEO and president who then also took on the role of chairman when Cook announced his retirement.
Hammann didn't waste any time -- sparking consumer research and product development changes, although he waited a few months before methodically replacing most of the current management with a hand-picked team that came mostly from his past with Levi Straus and other non-fitness companies. He has also worked to differentiate product for different channels and the company has also just led the introduction of its first Bowflex-branded product (treadmills and strength) that is not the Bowflex itself. Its lawsuits charging patent and trademark infringement against Icon also continue.
Most recently, on Sept. 2, the company announced it had hired Ron Arp as senior vice president of corporate communications. Arp told SNEWSÂ® he began Aug. 23, and public relations manager Jean Suffin "moved on" Sept. 2. Arp will work out of corporate headquarters in Vancouver, instead of the fitness development facility outside Denver, Colo., in Louisville. Arp served as senior vice president and general manager of the Portland, Ore., office of public relations giant Fleishman-Hillard, where he counseled clients ranging from startups to Fortune 500 companies in manufacturing and technology.
"It's a new day here on the communication front at Nautilus," Arp said a day after the announcement. "We are trying to build a good strong communication function."
He also called Nautilus "a different-looking company" since all the management shuffles began a few months ago.
Although he has no corporate past with Hammann, his and Hammann's children go to the same school district and they met at a PTA meeting, he said.
Other changes of late, which RBC's Buyers has called indicative of a turnaround and "what turnaround CEOs do": Former president Kevin Lamar resigned in late May after officially being name as chief operations officer in March. Holly Valkama began in late May as senior vice president of manufacturing and operations. Tim Hawkins, formerly vice president of sales at Levi Strauss, came onboard in the spring as the new chief customer officer. Darryl Thomas, also coming from Levi Strauss, became Nautilus' senior vice president of strategic planning and project management in January 2004. Long-timer Randal Potter, former COO and president of the direct side, and Al Cockrill, another long-timer from the commercial side, are no longer with the company. One remaining manager is Pat Warner, who was promoted to senior vice president of product development.
"These positive changes, in our opinion, are beginning to improve the company's outlook," the RBC statement added. "As we look out over the next 12 to 24 months, we expect to see stabilized Bowflex sales in direct, continued gains in TreadClimber in direct, increased sales in the commercial channel, accelerated distribution gains at mass and sporting goods retailers, and an overall improvement in operating margin."
RBC raised its 2004/2005 price target to 30.00 from 15.00, but maintained it as a speculative risk. Nautilus stock closed Sept. 7 at 21.71, up 7.16 percent from the previous day's close on a volume of 1,139,300. The company's average daily volume in the last 10 days has been 340,000. On June 1, barely a month ago, stock closed at 15.40.
"While The Nautilus Group outlook has improved dramatically of late, it is still in a turnaround mode," the RBC report stated. "Risk factors that could result in a departure from our outlook and price target include: failure to meet our growth forecasts for Bowflex in the direct and retail channels; an inability to introduce successful products in the direct channel; and an inability to increase its distribution to mass and sporting good retailers."