Nautilus announced on March 1 the resignation with immediate effect of its chief executive, Bruce Cazenave, who has run the American fitness equipment company for the past seven years, leading it through the acquisition of Octane Fitness in 2016 and other strategic moves. M. Carl Johnson III, chairman of the group, is taking over as interim CEO pending the appointment of a successor.
Cazenave's resignation came shortly after the company published relatively poor figures for the fourth quarter of 2018 and the full financial year. Weighed down by a 30.3 percent decline in the direct sales segment, Nautilus' total revenues dropped in the fourth quarter by 9.7 percent to $115.4 million. The decline in the direct segment partially offset by 16.1 percent increase in sales to retailers, reflecting double-digit growth in the mass retail channel and modest gains in the international specialty and commercial channels.
In the direct segment, sales were primarily affected by lower Bowflex Max Trainer product sales, partially offset by increased sales of the recently introduced Bowflex LateralX trainer and strength products.
Admitting that the results for the quarter were clearly below its expectations, the management blamed slower than expected sales of its refreshed Max Trainer product line launched in November, which incorporates a digital, personalized coaching platform called Max Intelligence. It partially attributed the reduced sales of the Max Trainer product line to low consumer awareness and understanding of this added digital capability, which it claims delivers a greatly enhanced consumer experience.
Across the group, the gross margin went down by 4.9 percentage points to 44.0 percent, with declines in both the direct and retail segments, coupled with a shift in the revenue mix to the lower-margin retail channel. Ebitda from continuing operations fell to $5.0 million from $8.9 million in the same quarter of the previous years, due in part also to higher operating expenses. The quarterly net income declined to $1.4 million from $8.3 million for the fourth quarter of 2017.
For the full year, net sales of $396.8 million were down 2.3 percent compared to 2017. The revenues of the direct segment fell by 15.7 percent to $184.9 million, reflecting declines in the Max Trainer and TreadClimber products. In the retail segment, sales totaled $208.1 million, an increase of 13.2 percent over the prior year, lifted by double-digit growth in mass retail accounts and growth in specialty and commercial accounts.
The gross margin dropped by 4.4 percentage points to 45.8 percent. Ebitda from continuing operations was off from $45.2 million in 2017 to $30.0 million. Net income tumbled down from $26.3 million to $14.6 million.
Moving forward, the management said it continues to believe that the Max Intelligence platform and the unique personalization of the fitness experience it provides will eventually resonate with consumers, as awareness continues to build up. The company will revamp the marketing message and media spending strategy with plans to relaunch the line in a significant way as soon as possible this year.
The company added that it has a healthy new product introduction schedule for 2019 across all channels. It recently acquired additional development assets, including the RunSocial platform, and secured strategic relationships with key partners, such as Samsung Electronics America, Feed.fm and Vi Technologies. It expects that these investments and partnerships will deliver significant enhancements to its digital platform with visuals, music, and voice.
A workforce reduction, broad cost containment controls, processes to improve efficiency and value engineering initiatives are expected to help improve operating margins and net earnings.