Nautilus Reports Strongest Quarter in 18 Months Due to Increase in Home Equipment Sales During COVID-19 Pandemic

(Photo courtesy Nautilus Inc.) Nautilus CEO Jim Barr (pictured here with the company's Max Trainer) shared that the COVID-19 stay-at-home orders helped to increase Nautilus Inc.’s first quarter sales as more people purchased home fitness equipment, but the mandated temporary closure of health clubs due to the pandemic caused a decline in sales of Octane Fitness products, which are part of the company’s retail segment.

Nautilus Inc., Vancouver, Washington, reported net sales of $93.7 million in first quarter 2020, an increase of 11 percent compared to first quarter 2019, the company announced on May 5. The company attributed the growth to demand for strength and cardio products, particularly its Bowflex SelectTech weights and its new connected-fitness bikes during the COVID-19 pandemic that has closed most health clubs across the world.

The company had reported preliminary numbers for the first quarter in early April.

Sales of Octane Fitness products, which are part of the company’s retail segment, were down as gym closures affected sales of commercial-grade equipment, the company shared.

First quarter retail segment sales increased 23.9 percent to $45.6 million compared to the same period last year while direct segment sales increased by 0.9 percent to $47.1 million.

In the retail segment, strength sales were up 54.6 percent, mostly driven by demand for Bowflex SelectTech weights and Blowflex Home Gyms. Cardio sales increased 17.7 percent, driven by the Schwinn IC4 connected-fitness bikes and partially offset by declines in Octane Fitness products as gym closure affected sales of commercial-grade equipment.

EBITDA from continuing operations increased to $2.3 million compared to an EBITDA loss of $8.1 million in first quarter 2019.

As of March 31, 2020, cash, cash equivalents and restricted cash for the company were $26.5 million, and debt was $28.1 million, compared to cash and cash equivalents of $11.1 million and debt of $14.1 million as of December 31, 2019.

“Our first quarter of 2020 started out as a good quarter and turned into a much stronger quarter,” Nautilus CEO James Barr said on a call with analysts on May 5. “Thanks to the agility of our entire organization as we captured the higher demand for home fitness products, primarily due to COVID-19 stay-at-home orders. We achieved stronger-than-expected results, including revenue growth of 11 percent, realized our first positive comp since the third quarter of 2018, lowered operating expenses and dramatically exceeded our EBITDA estimates. I'm incredibly proud of how our team came together to support one another, their families, our communities and our customers, keeping our business vibrant and moving forward during unprecedented times and facing a series of challenges.”

Barr noted on the call that bike demand has remained strong since the launch of its Bowflex C6 and its Schwinn IC4 bikes in October 2019 and has continued throughout the quarter, bucking the lower seasonal trends typically seen after January. Once COVID stay-at-home orders were issued, the demand for the company’s bikes further accelerated.

Demand for strength products was unprecedented for this time of year as an alternative to going to the gym for these activities, he said.

The company’s digital personalized connected fitness investments, such as its artificial intelligence-powered JRNY platform introduced in October 2019, has offered insights into users’ habits on the Nautilus equipment, Barr said. Using the 30 days after stay-at-home orders were issued and comparing that to the preceding 30-day period, Nautilus found that people were working out significantly more often, longer and harder. Workouts per user were up 9 percent. Users were spending 14 percent more time on their machines and burning 16 percent more calories per user. On top of these per user metrics, the company saw nearly a 50 percent spike in JRNY downloads in the first 30 days of stay-at-home.

“These statistics are not only interesting to underscore the at-home fitness trend, but also energize us by showing that we are progressing in our noble mission of helping people live healthier lives through fitness,” Barr said.

The COVID-19-caused disruption in production channels in its manufacturing plants in China have mostly been resolved now as most plants are “nearly fully recovered and are near full capacity,” he said.

However, the company still faces a challenge in responding to the demand for its products. To respond, the company has worked to improve its manufacturing and supply chain efficiencies and has expanded production for many of its products, which is reducing its backlog, Barr said. Despite this, continued strong demand for certain products could prevent Nautilus from getting fully caught up on its full backlog until the beginning of the third quarter.

Products imported from China now are also subject to a 7.5 percent tariff imposed by President Trump compared to no tariff on products in first quarter 2019.

“The tariffs that were imposed in the latter half of 2019 create margin pressure that cannot always be mitigated by price increases,” CFO Aina Konold said in the call with analysts. “We know that the path to sustainable, profitable growth requires us to expand margins while continuing to manage expenses tightly.”

Barr shared in the call with analysts that although Nautilus showed strong results in the first quarter, the remainder of 2020 is filled with uncertainty because of COVID-19 and the global economy.

“We have now entered the seasonally softest quarter of the year,” he said. “The duration of the current consumer tailwind is anyone's guess and driven in part by the level of comfort with gyms and the rate at which people return to them. Though not the majority of our business, we also have exposure to the commercial fitness space through our Octane brand. And perhaps most importantly, the duration of the impending recession and subsequent shape of the recovery, factors that are very difficult to predict, will clearly impact our company.”

 

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