Nautilus' revenues gained 9 percent to $278.4 million in the third quarter. The Retail segment saw sales grow by 15.8 percent to $53.5 million, reflecting strong seasonal sell-in with key traditional and e-commerce partners, partially offset by weakness in specialty and commercial customers. The gross margin in this segment advanced by 0.6 percentage points.
In the Direct segment, the successful launch of the new Bowflex Hybrid Velocity Trainer was offset by ongoing declines in the TreadClimber range. The division's sales inched up by 0.8 percent to $34 million. The gross margin dropped by 2.2 percentage points due to a shift in product mix and increased discounting of the TreadClimber product line, coupled with select promotional offers on other products.
Overall, Nautilus' gross margin was down by 1.6 percentage points to 46.9 percent, but the operating margin jumped by 5 percentage points to 15.2 percent and net income rose by 8.5 percent to $8.2 million.
The weaker-than-expected progress in the Direct business, which will not pick up in the fourth quarter, caused the value of Nautilus shares to tumble by 20 percent. The management cited “very challenging” market conditions, but claimed that Nautilus continued to gain market share with traditional and e-commerce customers. The recent introduction of new products by Octane Fitness should help drive further growth in the rest of the year.
The company now expects to achieve full-year revenues of $405 million to $410 million, roughly equivalent to 2016. Operating income is projected at between $44 million and $46 million, which would represent a decrease of 13 to 18 percent from the previous year. Prior expectations had been for a growth of 5 to 7 percent in revenues and operating income.