As obesity accelerates, society is becoming health conscious, and more people are embracing fitness equipment. A great player in this industry is Nautilus Inc. (NLS, Financial).
The company has posted excellent quarterly results, including a 15.0% increase in total revenue. Consumer demand for the Max Trainer product line was robust in the year 2015. Further, for fiscal 2015, Nautilus’ operating income increased 33.6% compared to the prior-year period.
Headquartered in Vancouver, Washington, Nautilus provides innovative solutions that make fitness more attainable and motivate people to live healthier lives. With a brand portfolio, including Bowflex, Nautilus, Octane Fitness, Schwinn and Universal, Nautilus develops innovative products to support healthy living for consumer use, primarily in the U.S. and Canada. The company operates through two business segments: Direct and Retail.
Nautilus’ Direct business markets and sells its products, principally Bowflex cardio and strength products, directly to consumers. It is a direct marketer of strength products in the U.S. and sells cardio products, especially the Bowflex TreadClimber and Bowflex Max Trainer. In its Retail business, the company markets and sells a line of consumer fitness equipment under the Nautilus, Schwinn, Universal and Bowflex brands.
Strong fourth-quarter results
On Feb. 22, Nautilus reported unaudited operating results for the fourth quarter and full year ended Dec. 31, 2015. The company’s total revenue increased 15% to $109.1 million, compared to $94.9 million for the prior-year period. Gross margins for the fourth quarter declined by 300 basis points to 48.1%, and adjusted gross margins increased 120 basis points to 52.3%. Further, Nautilus’ adjusted operating income increased 32.2% to $19.2 million.
Nautilus’ net income for the reported quarter was $9.7 million, or 31 cents per diluted share, and includes a loss from discontinued operations of $100,000, compared to $10.4 million, or 33 cents per diluted share, including a loss from discontinued operations of $100,000. Income from continuing operations was $9.9 million, or 32 cents per diluted share, compared to $10.5 million, or 33 cents per diluted share, for the comparable prior-year period.
The chart below shows the company’s segmentwise performance.
Factors that contributed to fourth-quarter and full-year success
- Net sales increased due to higher sales in both the Direct and Retail segments.
- Adjusted operating income increased due to improved leverage of general and administrative costs across the higher sales volumes.
- Inventory increased primarily due to the acquisition of Octane, higher revenues, new product introductions and the addition of a new distribution center.
Fiscal 2015 results
For fiscal 2015, Nautilus’ income from continuing operations was $26.8 million, or 85 cents per diluted share, compared to $20.4 million, or 64 cents per diluted share, in the prior year. Adjusted earnings per share from continuing operations were 93 cents per diluted share. Gross margin increased to 51.6% compared to 51.2% for the comparable prior year period. Further, a chart has been provided to show Nautilus’ fiscal 2015 metrics compared to fiscal 2014.
Growth and acquisitions
Nautilus has a multichannel growth strategy that includes unique, innovative products, market share growth opportunity with strong brand awareness and media penetration and conversion strategy.
Since 2010, the company has been delivering solid financial results. Nautilus’ strong revenue growth coupled with improving profitability resulted in a robust cash generation. From 2010 to 2015, revenue grew at a CAGR of 12.25%. Further, from 2011 to 2014, net cash grew at a CAGR of 83%.
Nautilus’ growth drivers are:
- Retail.
- Specialty and light commercial.
- Innovation.
- International.
- Strategic opportunities.
To strengthen its global footprint, the company has announced the availability of its products such as Bowflex Max Trainer and Schwinn Airdyne AD 8 Total Fitness Bike in Australia, New Zealand and the U.K. Further, Nautilus announced the availability of the Bowflex Max Trainer in Switzerland.
On Jan. 4, Nautilus signed an agreement to acquire Octane Fitness LLC. The acquisition will diversify Nautilus’ portfolio, expand its channels of distribution and will increase its access to international markets.
A peek into the fitness equipment industry
Increasing obesity across the world and rising fitness awareness and health concerns are driving the market for fitness equipment. North America is the largest market for fitness equipment. Europe and Asia Pacific hold the second position. As per Allied Market Research, the fitness equipment market worldwide is expected to reach $11.9 billion by 2020, registering a CAGR of 3.89% from 2015 to 2020. Therefore, there is enough room for Nautilus to grow.
(Source: Company website)
On a concluding note
Nautilus is a rock-solid company with strong financials, scalable platform and infrastructure, experienced management team, solid sales and earnings growth followed by significantly improved profitability and unique and innovative products.
The fitness equipment industry is booming. With the recent agreement with Octane, Nautilus is aiming for a better future and is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
