With double-digit growth in the direct and retail segments as home fitness trends show no signs of slowing, Nautilus Inc. delivered record results for the second quarter in a row, making it the top-selling quarter in the company’s 35-year history.

For the quarter ended March 31, revenue rose 120 percent to $ 206 million. Excluding the divested Octane business, revenue for the period increased 143 percent year over year. The period represents a transition quarter as the company’s fiscal year shifts to March 31.

In February, Nautilus announced guidelines for 55 to 75 percent growth.

“The results were driven by leveraging the continued strong demand for fitness at home, as well as the team’s impressive efforts to solve unprecedented challenges in global logistics and bring supply much closer to demand,” said Jim Barr, CEO. in a conference call with analysts. “Our contributions to growth and profitability were again broadly based on brands, segments, products and regions.”

Barr added: “Strong sales of our new connected fitness cardio machines, VeloCore bikes, the new treadmills and Max Sports shoesIn combination with the sustained dynamism of our SelectTech strength products, these record numbers were achieved. The market reception for our new connected products has been enormous and we are proud to have introduced our brands to hundreds of thousands of new customers and to have gained almost 340,000 new customers in the last 12 months. “

At the end of March, Nautilus had almost four times as many members on its JRNY platform as in September when it launched its first embedded screen product.

Direct segment sales up 115 percent
The direct segment grew 115.4 percent in the quarter to $ 102 million, breaking the $ 100 million mark for the first time in segment history. Across the categories, strength increased 178.6 percent due to Bowflex SelectTech weights and home gyms. Cardio grew 95.5 percent, powered by connected fitness bikes, the Bowflex VeloCore and C6, Schwinn IC4 and new Bowflex connected fitness treadmills. The latest addition to the Max Trainer line, the M9, also contributed to the segment’s growth.

Direct’s backlog at the end of the transition period declined from $ 46 million last year to $ 27 million as supply approaches demand and consumers get their products faster.

Gross margins in the Direct segment decreased 120 basis points to 50.3 percent, driven by higher land costs due to inflationary increases in raw material prices, foreign exchange and increased transportation costs. Gross profit increased 110 percent to $ 51 million. Segment contribution was $ 27.8 million compared to $ 1.8 million a year ago, driven by higher gross profit and lower media spend. Advertising expenses were $ 10.1 million compared to $ 13.2 million a year ago.

Sales in the retail segment Vault 183 percent
Retail revenue was $ 103.4 million, the second-best quarterly revenue in segment history, ranking second from $ 106.3 million in the most recent quarter. Revenue increased 126.8 percent, or 182.6 percent, year-over-year excluding the Octane Fitness business sold last year. Sales in the retail segment outside of the United States and Canada, excluding Octane, grew 200 percent, or 340 percent.

Strength increased 243.5 percent, powered by Bowflex Home Gyms and SelectTech weights and benches. Cardio increased by 96.2 percent, powered by Schwinn and Bowflex fitness bikes and the new Bowflex fitness bands. Similar to Direct, the Retail segment was able to reduce its order backlog. At the end of the transition period, retail backlog was $ 179 million compared to $ 209 million last quarter.

Retail gross margin rose 340 basis points to 26.0 percent, mainly due to the favorable customer mix and leverage on fixed costs, which more than offset higher product landing costs. Segment contribution income was $ 20.3 million, or 20 percent, compared to $ 2.4 million, or 5 percent, for the same period last year, mainly driven by higher gross profit.

The leverage effect on operating costs increases the result
Company-wide gross margin increased 40 basis points to 38.4 percent for the quarter. The improved leverage of fixed costs in the retail segment offset the pressure on margins due to inflationary price increases for raw materials and foreign exchange as well as the sustained increase in transport costs due to global logistics disruptions.

Operating expenses increased by 8.9 percent, primarily due to increased general and administrative costs. Due to the leverage effect of sales, operating costs as a percentage of sales were reduced from 38.6 percent in the previous year to 19.1 percent.

Operating income was $ 39.7 million compared to a loss of $ 560,000 for the same period last year. EBITDA was $ 40.4 million compared to $ 2.3 million in the same period last year.

Income from continuing operations improved to $ 30.6 million, or 94 cents per share, compared to $ 2.3 million, or 8 cents, for the same period last year. Net income was $ 30.4 million, or 93 cents, compared to $ 2.2 million, or 7 cents, for the same period last year.

For the first quarter, Nautilus expects:

  • Net sales are expected to increase between 40 and 50 percent year over year or between 51 and 62 percent without Octane Fitness.
  • Gross margins will continue to be under pressure from higher raw material prices, exchange rates and ongoing disruptions in global logistics. In addition, given the global scarcity and increasing investment in JRNY and supply chain, extremely high prices for microchips will continue to put gross margins under pressure in the short term.
  • Media spending is returning to a normalized level, reaching around 7 percent of sales compared to 2 percent of sales in the previous year. and
  • The operating margins should be between 6.5 and 8 percent.

Home fitness growth opportunity
Barr also provided information on the implementation of his North Star strategy, which was unveiled on March 18th on Investor Day. The strategy was mostly to capitalize on the home fitness trend by moving Nautilus from a product driven hardware company to a consumer driven digital company.

He said the company still sees that 25 percent of ex-athletes don’t plan on going back to the gym after experiencing home fitness. during the pandemic with the home shift at least doubling the SAM (serviceable addressable market) of the company. Barr said, “As many have found, they prefer the convenience and safety of training at home, which now has the added benefit of a more digital offering with a lot of variety.”

He added, “We also believe that the emerging work-from-anywhere model will be widespread and help maintain demand for our products and services. Studies show that two-thirds of US workers prefer a hybrid workplace, and many of the world’s largest employers are already committed to hybrid and remote work alternatives. Because of this, we believe that a significant number of athletes will continue to exercise at home on dates they work from home. Plus, they’ll keep their gym membership and balance home and gym depending on their work schedule. “

Some of the strategies under the North Star Plan include using more digital tactics to efficiently target consumers, improving Bowflex’s branding of connected cardio and strength products, bringing marketing spend back to pre-COVID levels, and expanding its offering of networked fitness to address these demands for “varied, hyper-personalized one-on-one adaptive workouts”.

Nautilus’ updated full year 2026 financial targets under the plan include:

  • Nautilus reiterated its goal of total sales of approximately $ 1 billion by fiscal 2026, which translates into a 5-year CAGR of 10 percent.
  • Operating margins are expected to be well above the previously stated minimum of 10 percent and closer to 15 percent.
  • Operating margins for the existing equipment business are expected to be depressed due to the return to normalized ad spend and additional costs related to a higher product mix with embedded screens, which will be partially offset by improvements in the cost structure.
  • The rapidly growing digital subscription business, JRNY, is projected to have operating margins in the 20-25 percent range, and JRNY margins are expected to continue to grow as membership increases and fixed costs are leveraged beyond 2026, leading to expansion of contributes to overall operating margins; and
  • The company continues to believe that the digital subscription business will account for around 20 percent of the company’s total revenue and aims to have 2 million members by 2026.

Photo courtesy of Nautilus