Nautilus Inc. is maintaining its expectations for the second half of its financial year, which include positive adjusted Ebitda and 60 to 70 percent of its annual revenues fueled by advertising support – after reporting dismal results in its seasonally slow first quarter.
Impacted by a nearly $27 million goodwill and intangible impairment charge, Q1 swung to a net loss of $60.2 million against a profit of almost $13.9 million. Sales sank 70 percent to $54.8 million from $184.6 million in the period ended June 30. Higher levels of discounting, additional investments in its JRNY platform and logistic overhead absorption contributed to a huge decline in year-over-year gross margin to 12.7 percent from 30.1 percent in Q1/22. The company said the level of discounting moderated in Q1 compared to H2 of FY22, adding it has taken measures to improve H2 gross margins. Those actions have included achieving lower inbound freight costs, exiting its Portland, Oregon distribution center this fall and re-negotiating the cost of its four top SKUs.
Direct net sales slipped 58 percent to $26.5 million, with cardio product sales down by 45.5 percent to $17.1 million as strength product sales declined by 70.8 percent to $9.3 million. Overall retail segment sales fell 77 percent to $27.4 million from $120.5 million, with the cardio segment off by 87 percent at $11.8 million and strength down by 48.9 percent to $15.6 million. Retail sales, excluding Octane, were down slightly from the Q1/20 level, driven by higher inventory positions.
The group remains bullish about the prospects for its JRNY digital platform that grew its membership base 133 percent year-over-year to 360,000+ on June 30, including 127,000 who are paying for the subscription. JRNY’s cost is $149 annually, lower than that of Nautilus competitors. Nautilus has now launched a full equipment line – cardio machines, treadmills bikes and Max Trainers – with each offering a differentiated JRNY digital platform. The company is in the process of adding automatic repo counting and phone coaching to its premium JRNY SelectTech offering.
On ongoing fitness trends, Nautilus senior management says it continues to see evidence that post-pandemic exercise habits favor home fitness. Before the pandemic, approximately 40 percent of the fitness-focused population worked out at home. The company said that percentage has now risen close to 70 percent and remained steady for 15+ months as more people have returned to the gym.
