Nautilus sees strength in 4Q retail, hints toward new products, acquisitions

Nautilus continues on its comeback trail, including a slate of new products, building back up the retail business, and possible acquisitions.
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Similar to its fitness equipment peers, Nautilus (NYSE: NLS) reported strong fourth-quarter results this week to close out 2013, reinforcing the road to recovery for the sector.

The Vancouver, Wash.-based home fitness manufacturer (it sold off its commercial division several years ago) reported sales up 19 percent to $77.1 million for the fourth quarter, led by strong retail sales. Quarterly net profit slipped to $8.5 million versus $13.6 million a year ago, largely due to discontinued operations related to the liquidation of several European subsidiaries.

Fourth quarter retail sales jumped 47 percent to $32.1 million with strong sales in both cardio (thanks to a new Schwinn line) and strength segments. The figures were a bit skewed in comparison to weaker numbers a year ago, when retailers moved up their orders prior to the fourth quarter to beat price increases.

Nautilus’ Direct-to-consumer sales rose more modestly — up 4 percent to $43 million in the fourth quarter. The segment saw particular gains in cardio, while the strength category declined, proving more successful at retail, officials said.

For the full-year 2013, Nautilus reported overall sales up 13 percent to $218.8 million and net profit up to $48 million, versus $16.9 million in 2012. Annual direct-to-consumer sales increased 9.3 percent to $136.7 million and retail sales rose 20 percent to $76.8 million. The latter is especially encouraging for the brand that had lost some retail business in past years due to increased focus on the direct-to-consumer channel.

Nautilus CEO Bruce Cazenave said the brand “remains intensely focused on continuing to introduce new products to market on a regular cadence." One successful strategy, Cazenave added, referring to its recent launch of the Bowflex Max Trainer, has been releasing new product information early to entice consumer interest before they go on sale, plus supporting those products with a hybrid of marketing campaigns from traditional television advertising to social media pushes.

"Usually everything is a secret until day one," he said. "For us, we felt like this was a product that was worthy of getting out in front of people early and starting to talk about. I believe that’s a big contributor to why we saw the [postive] results we did out of the gate." Orders are ahead of inventory for the Max Trainer, he said.

Information on the next round of new products should begin to trickle out in May, he said.

"We don't want to tip our hat too much," Chief Operating Officer Bill McMahon added on the company's conference call, "but I’d say some of the major launches that are coming this year will be in the retail space as well as products below $1,000."

Nautilus officials also hinted that the brand is likely to step up its search for possible acquisitions thanks to a healthy amount of cash and zero debt. The company ended the year with $41 million in reserves.

"On the acquisition front I would say that we are active and that comes from being more silently active," Cazenave told investors. But "there are very certain criteria that would fit with where we want to go as a company and what we need, and it’s got to fit that before we would ever consider it. And it would be in a modest kind of acquisition if there is an acquisition. It would not be something where we’re going to use all our cash or even a big portion of our cash."

Back to retail, McMahon provided some additional fodder on the sector to investors during the conference call, saying "a lot of the brick-and-mortar guys are trying to find a new way," to evolve the business. "We don't mind a little bit of turmoil in the retail space, because it gives us opportunities to talk about new ways of doing things and new product lines," he continued. "I think they’re more receptive than they have been in many years to what the consumer wants versus what [retailers and manufacturers] think we should keep putting on the floor. So it’s good opportunity for us, but so far in the retail floor space, nobody is really hitting a home run right now, but several of them are looking at what does it take to do that."

--David Clucas

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