As numerous gyms temporarily closed due to Covid-19, Nautilus experienced strong year-over-year sales increases in the third quarter with customers shifting to home equipment. New customer acquisition was up seven times during the quarter, leading the demand for many of the company’s home fitness products to continue to outpace the available supply.
The company posted net income of $33.8 million in the third quarter, versus a net loss of $8.8 million in the year-ago period, as sales soared by 152 percent to $155.4 million. Excluding Octane Fitness, which was sold on Oct. 14, 2020 for $25 million, revenues were up by 132 percent. Nautilus recognized a gain on its disposal of $8.3 million.
The management attributed its performance to the popularity of the Bowflex and Schwinn brands, recent strategic and operational changes, disciplined execution, and the trend toward home fitness. It said a key focus in this quarter was continuing to improve the flow of inventory in the supply chain, but the demand still outpaced supply. Nautilus entered the fourth quarter with an order backlog of nearly $68 million.
The management noted that the sale of Octane Fitness allowed it to be laser-focused on growing and enhancing its at-home connected fitness experiences. It hired a chief digital officer who has implemented large-scale digital experiences at some of the world’s top technology companies to lead its e-commerce teams and accelerate the ongoing digital transformation.
In the Direct segment, Nautilus’ quarterly sales reached $61.2 million, compared with $16.2 million for the year-ago quarter, driven by strength in cardio products including the Schwinn IC4 and Bowflex C6 connected-fitness bikes. Strength products such as SelectTech weights and Bowflex Home Gyms also performed well, along with the newly introduced Bowflex VeloCore. The gross margin jumped by 18.9 percentage points to 57.2 percent, driven by increased full-priced sales and a favorable leverage on fixed costs, partially offset by higher transportation charges.
In the Retail segment, the company’s sales soared by 108 percent to $93.2 million. Cardio sales doubled, led by bikes, particularly the Schwinn IC4 connected-fitness bikes, and ellipticals. Strength product sales more than doubled, led by SelectTech weights and benches. The gross margin in this segment rose by 7.2 percentage points to 34.3 percent thanks to a favorable customer mix.
Overall, the gross margin surged by 12.8 percentage points to 43.7 percent. Nautilus delivered an operating income of $44.0 million, the highest quarterly operating income in its history, compared with an operating loss of $8.2 million last year. It also generated $37.1 million of adjusted Ebitda, versus a negative $5.5 million in the third quarter of 2019.
Looking ahead, the company expects full-year 2020 net sales of between $540 million and $565 million and full-year adjusted Ebitda of between $90 million and $100 million. The group doesn’t expect the shift from gym to home fitness to stabilize until early- to mid-2022.
