Just as in the first quarter, Nautilus ended the second one with a loss, as sales tumbled by 21.8 percent to $59 million, weighed down by the Direct segment. As a result, the company announced that it is reducing the workforce and other cost cuts that are expected to save the company $5 to $6 million on an annual basis.
The lower revenues and an unfavorable product mix impacted its gross margins through the first half of 2019. The financial results were also affected by a non-cash impairment of goodwill and intangible assets related to a decline in stock market capitalization.
Lower revenues from the Bowflex Max Trainer product line hit the Direct segment's turnover, which fell by 40.2 percent from the same quarter of last year. This line was recently refreshed, adding connected home digital capabilities, and the management believes that the root cause of its sluggish sales was sub-optimal advertising, which resulted in low awareness and insufficient communication of the product's differentiated digital capabilities.
It pointed out that actions are being taken, including extensive consumer insights research designed to lead to a major repositioning of the Bowflex brand and the development of a new advertising and communication campaign, which it expects will begin airing in the third quarter of 2019 across television, social media, and other digital platforms.
Meanwhile, Nautilus' retail sales were down by 4.4 percent, which the company blamed on lower order rates in anticipation of new products being introduced and shipped during the third and fourth quarters of 2019.
Across the group, the gross margin fell by 14.9 percentage points to 29.7 percent. The company incurred a net loss of $78.9 million, against a net income of $928,000 for the second quarter of 2018.
Looking ahead, the management said it is “fortunate” to have Jim Barr join as its new chief executive to lead Nautilus through its next phase. It boasted about a robust pipeline including the MaxTotalTM, which is set to be launched in late August. This new product has a built-in digital screen and includes an upgraded digital platform to deliver a customized, personalized cardio and upper body workout created by machine learning.
In the commercial channel, the Octane Commercial Max Trainer and the Octane XR6000S, a seated elliptical with a swivel seat, are already on the market. The company said they are receiving positive reviews.
