A 14.3 percent increase year-to-date brought third quarter 2016 net sales for Nautilus Inc., Vancouver, Washington, to $80.8 million, according to financial earnings released Monday. The company’s acquisition of Octane Fitness in January, along with an uptick in retail sales, reportedly contributed to the growth, despite a decline in direct segment sales.
Net sales for the Retail segment, which includes Octane Fitness, were $46.2 million in the third quarter of 2016, an increase of 79.6 percent when compared to $25.7 million in the third quarter last year. The improvement not only reflects the inclusion of Octane Fitness (which generated $16.2 million of the $46.2 million net sales in the quarter), but also a double-digit organic growth across both the cardio and strength components of the Retail business, according to the report. For the first nine months of 2016, net sales for the Retail segment totaled $117.9 million, an increase of 83.1 percent over the same period last year.
The third quarter continues a general improvement for Nautilus, which reported second quarter sales of $78.5 million. However, direct business net sales decreased 21.4 percent from the same period last year to $33.7 million, CEO Bruce M. Cazenave said in Monday’s earnings call.
"Our focus on generating profitable growth through product innovation, channel diversification and disciplined management of expenses enabled us to achieve double-digit growth in revenue along with a 29 percent increase in operating income to $8.2 million,” Cazenave said in the earnings report. “While we faced challenging consumer response conditions that negatively impacted our Direct segment performance, we are pleased by the continued expansion of our Retail business segment. The Retail segment growth was driven by strong double-digit increases in the organic business as well as the addition of Octane Fitness, which also saw robust growth in the quarter.”
Direct business sales were negativity spurred by weak consumer responses to Nautilus’ media investments, Cazenave said in the earnings call, noting company executives made a strategic decision to defer a large amount of planned advertising spending during the period.
“At this time, we still believe the situation to be temporary and primarily media related, but recognize that other factors such as weakening consumer confidence, product lifestyle management and creative are all additional issues that may be at play,” he said.
During the same call, Cazenave highlighted the company’s newfound balance in operating expenses from $29.8 million (or 42.2 percent of revenue) this time last year to $31 million (38.4 percent of revenue) as of Sept. 30. Lower selling and marketing costs, as well as reduced media spending and administrative expenses, contributed to this percentage improvement, Cazenave said.
Additionally, Nautilus' operating income grew 28.5 percent to $8.2 million for the quarter, a result of improved net sales, gross retail margins and leveraged operating expenses, the report said.
Nautilus' annual Find What Fits showcase, held in New York City in September, was also recapped in the earnings report. At the event, the company unveiled a slew of products launching next year, such as the Bowflex HVT strength-cardio hybrid machine and the Modern Movement M-Pad balance board.
“The majority of the products will be launched in the coming months, and we are encouraged by initial retailer and consumer response,” Cazenave said. “These products re-affirm our commitment to further broaden our portfolio and to drive the business for long-term profitable growth via industry leading design and innovation."