Vancouver-based home exercise equipment company Nautilus released its third-quarter financial results Thursday, detailing year-over-year declines across the board as the company continues to grapple with flagging sales.
Net sales were $61.7 million, a 32.2 percent decrease from the $91.1 million reported in the third quarter of 2018. Gross margins were 30.9 percent, compared with 42.3 percent a year ago. Loss from continuing operations totaled $10.6 million, or $0.36 per diluted share.
Sales in the company’s direct-to-consumer segment dropped 44.1 percent year-over-year, and retail sales were down 27.1 percent. Nautilus attributed the direct sales decline to lower sales in its Max Trainer product line, as well as a reduction in ad spending as the company prepares to launch in new campaign in the fourth quarter.
The decline in retail sales was due to shipment delays in October due to the imposition of new tariffs, as well as a decline in Bowflex product sales. In a Thursday conference call with investors and analysts, company officials said the tariffs left them scrambling to renegotiate terms for product shipments that were already en route, and some of those shipments ended up being pushed back into the fourth quarter.
During the call, Nautilus’s new CEO, Jim Barr, offered a lengthy statement about the company’s current situation and the path he planned to chart to recovery. Barr stepped into the role on July 29, coming from a background in digital operations.
“I’m convinced we have the right raw materials for a good comeback story,” he said.
At the same time, he cautioned that the company’s fortunes would not reverse overnight, citing years of declining sales numbers.
“I do not expect it to recover in just a few quarters,” he said.
The company is prioritizing consumer insight work to develop a new advertising approach, he said, and pointed to the recent launch of Nautilus’s “Stronger Every Day” ad campaign as an example.
Barr’s history includes several “digital transformations” — leading legacy companies as they update and transition their products and services to the digital age. His appointment at Nautilus is intended to spur the same transition for the exercise equipment company, and it was a major focus of Barr’s statement on the call.
Barr emphasized the growing importance of “connected fitness” apps and software that allow users to track their exercise and monitor their progress toward personalized fitness goals. Nautilus is moving to integrate digital features and connectivity into its lineup of products, all of which will be able to connect to the company’s new centralized fitness software platform.
Last week, the company announced that it would rebrand its Max Intelligence digital platform under the name JRNY, with artificial intelligence algorithms to provide “adaptive coaching” for personalized workouts. The company also announced two new digital-connected products earlier in October, the Schwinn IC4 Bike and the Schwinn 810 Treadmill.
“I wish we were further along in getting the platform on more products in our broad portfolio,” Barr said, adding that he plans to work to accelerate that transition.
The app will also soon feature an “Explore the World” feature that allows users to travel through virtual courses in places like the Irish countryside and the beaches of Australia. That functionality is scheduled to launch later this year, Barr said.
Barr said he expects retail sales to remain profitable and continue to grow while the company works on improving direct sales, starting with the new advertising push in the fourth quarter. The company also undertook “right-sizing” measures earlier this year including staff reductions, and those changes are expected to save $6 million in workforce and shared support costs in 2020.
Nautilus is also working on a companywide assessment and developing a new multiyear strategic plan, Barr said, which he plans to unveil in 2020.
This story has been updated to clarify when Nautilus undertook workforce cost reduction measures.
