Vancouver-based home exercise equipment maker Nautilus reported what its CEO called “phenomenal” third-quarter results Monday, with record sales fueled by ongoing, heightened consumer demand amid the COVID-19 pandemic.
Net sales were reported at $155.4 million, a 151.8 percent year-over-year increase and the company’s highest quarterly sales result in the past decade. Gross profit was $67.9 million — a 256.3 percent increase from the third quarter of last year — with a gross margin rate of 43.7 percent.
Year-over-year retail segment sales more than doubled, from $44.8 million in the third quarter of 2019 to $93.2 million in the most recent quarter. Direct sales nearly quadrupled, from $16.2 million to $61.2 million. The company saw seven times as many new customers in the third quarter compared with the prior year, CEO Jim Barr said during a Monday afternoon conference call with investors and analysts.
“In the third quarter, it became increasingly clear that the first sprint had turned into a 10K and now in its eighth month (of the pandemic), a marathon,” he said.
The company has worked to increase its production and supply chain capacity this year, Barr said, more than doubling its strength equipment output and increasing its bike production five-fold. Even so, Barr and Chief Financial Officer Aina Konold said factory capacity and global shipping challenges made it difficult to keep up with demand.
The company’s direct sales segment ended the quarter with $23 million in back orders, compared with $20.6 million at the end of the second quarter. The retail segment backlog grew from $13.6 million at the start of the quarter to $49.8 million at the end of it.
Nautilus plans to continue investing in inventory for the next few quarters, Barr said, focusing on “key products that we believe will be perennial bestsellers.” The goal is that by the second quarter of 2021, the company will no longer be supply-constrained, he said.
Barr didn’t shy away from the role of the COVID-19 pandemic in turning 2020 into a rebound year for the company, but he stressed that he believed at least part of the shift in the fitness market would become permanent.
“More states reopened gyms as the (third) quarter progressed, but home fitness demand did not waver,” Barr said.
The company expects net sales for the full year 2020 to land between $540 million and $565 million. For comparison, Nautilus’ full-year net sales were $309.3 million in 2019 and $396.8 million in 2018.
Barr was brought on board as Nautilus’ CEO in 2019, at a time when the company had been struggling to reverse sluggish sales. The slump was blamed, in part, on the company’s failure to keep up with changing trends in the fitness market, such as the rise of “smart” fitness platforms, and Barr was hired due to his experience with retooling companies for the modern digital landscape.
On Monday’s call, Barr announced that Nautilus had completed work on a long-term internal road map to overhaul its product lineup and return to profitability. Nautilus will begin executing the plan in the fourth quarter, Barr said, but will not discuss it publicly until 2021.
However, he stressed that development of the plan began before the pandemic, and he expressed confidence that the plan would be enough to turn things around even without the surge in home fitness demand.
“COVID only accelerated those plans,” he said.
Nautilus’ stock, which trades under the symbol NLS, plunged in the early hours on Monday and closed at 21.86, a drop of 21.37 percent over the course of the day. Nautilus released its third-quarter report after the markets closed, and its stock rose 5.1 percent in after-hours trading.
It’s worth noting that the markets were shaken up by drug maker Pfizer’s announcement that its COVID-19 vaccine had proven to be 90 percent effective in early testing. The overall stock market surged Monday morning, but several companies that have enjoyed strong sales during the pandemic saw their stocks fall, including Netflix and video conferencing company Zoom.
