Nautilus' third-quarter results missed analysts' forecasts, despite a jump in revenues of 14.3 percent above the year-ago period to $80.8 million – well above the level of $77.8 million predicted by Wall Street. However, the company's net income topped the analysts' consensus estimate, rocketing by 105.4 percent to 7.6 million. The company said the growth was driven by its recent purchase of Octane Fitness, a complementary firm in the fitness equipment sector, along with strong organic sales growth in the retail segment.
The retail business stood out with sales soaring by 79.6 percent to $46.2 million. The improvement reflects the inclusion of Octane Fitness as well as strong double-digit organic growth across both the cardio and strength components.
The segment's gross margin jumped by 9.5 percentage points to 35.1 percent in the third quarter, reflecting improved product and channel mix in the organic retail segment, coupled with the addition of the higher-margin Octane Fitness business.
The retail segment's strong performance marks a shift in emphasis for Nautilus, which in recent years saw much of its growth coming from the direct-to-consumer (DTC) side. In this segment, revenues dropped by 21.4 percent to $33.7 million. The company's management blamed a decline in media response to cardio products, resulting in a decision to defer advertising spending during the quarter to ensure a profitable return on media investment.
For the first nine months of 2016, net sales rose by 83.1 percent to $117.9 million, but in the direct segment they inched up by 0.8 percent to $159.9 million.
Despite the weak sales in the third quarter, the retail segment's gross margin increased by 1.4 percentage points in the third quarter to 65.7 percent, reflecting a favorable product mix. However, Nautilus' overall gross margin decreased by 2.7 percentage points to 48.5 percent, reflecting an increased percentage of retail sales.
The company said that the recently introduced new strength and cardio products will be distributed through both the retail and direct channels, with the majority of them being launched in the coming months.