Nautilus, Inc. had one other brutal quarter as gross sales tumbled 70.3 p.c within the first quarter ended June 30 to drive a steep loss. However, Jim Barr, CEO, mentioned shopper enthusiasm for JRNY, Nautilus’ digital membership platform, remained robust, and he believes Nautilus’ value-focused method positions the corporate to realize a major share because the at-home health alternative stabilizes.
Barr mentioned that whereas Nautilus had been impacted by the shift again to in-person fitness center exercises, customers have proven they’re adapting to a hybrid health, just like what they’ve completed for work places.
“Through our first quarter, we proceed to see proof that post-pandemic train habits favoring residence health are right here to remain,” mentioned Barr. “Pre-pandemic, about 40 p.c of individuals for whom health is essential labored out at residence. Even as extra individuals headed again to the fitness center, that quantity is near 70 p.c, and it has now held regular for over 15 months.”
Barr pointed to a 27 p.c development in Nautilus’ direct channel within the quarter in comparison with the pre-pandemic 2020 first quarter as an indication of wholesome demand. The enhance got here regardless of “some attainable pull-forward gross sales over the past two years.”
A “vivid spot” within the quarter was JRNY, the place membership development reached 360,000 at June 30, up 133 p.c larger than the identical interval final 12 months.
“Our first quarter outcomes present that customers will purchase health tools even in off-peak occasions of the 12 months in the event that they imagine they’re getting an excellent worth,” mentioned Barr.
Having a diversified product portfolio, he mentioned, versus having just one or two modalities is a bonus within the present surroundings as customers can select throughout a number of value factors, together with extra reasonably priced choices.
Barr added, “Similarly, not like some opponents who cost $500 per 12 months or extra, we function an attractively priced digital platform at $149 per 12 months. Together, our tools and digital platform ship an impressive comparative whole value of possession, and we spotlight this worth proposition each in promoting and on our web site.”
The firm’s tools manufacturers embrace Bowflex, Nautilus and Schwinn.
Nautilus additionally made additional progress in optimizing its provide chain through the quarter, together with negotiating decrease inbound freight prices and managing its stock all the way down to keep away from extra storage prices as required through the prior 12 months. Nautilus is exiting its Portland distribution heart in late fall and has renegotiated the price for its prime SKUs, which is able to positively influence profitability as soon as on-hand stock is bought.
Barr mentioned, “Finally, we’ve instituted tight value management, together with, for now, pausing incremental model advertising. As a lot as attainable, we’ll stay vigilant in persevering with to match variable SG&A prices of gross sales. For these causes, we imagine we’re higher positioned than some key opponents to climate short-term challenges.”
Revenues within the first quarter reached the excessive finish of its income steerage, and EBITDA was higher than anticipated. Both have been nonetheless nicely under year-ago ranges because the at-home health class continued to surge in 2021, with restrictions on gyms reopening nonetheless largely in place.
Sales within the quarter tumbled 70.3 p.c to $54.8 million from $184.6 million a 12 months in the past. Nautilus had projected gross sales to be between $45 million and $55 million.
Net gross sales have been up 11 p.c, or 3 p.c CAGR, in comparison with the identical interval in fiscal 2020, excluding gross sales associated to the Octane model, which the corporate bought in October 2020. The gross sales decline versus final 12 months is pushed primarily by the return to pre-pandemic seasonal demand.
The adjusted EBITDA loss from persevering with operations was $19.9 million in comparison with an revenue of $21.1 million final 12 months. Nautilus had anticipated an adjusted EBITDA loss between $22 million and $27 million.
The web loss got here to $60.2 million, or $1.92 per share, in comparison with a web revenue of $13.9 million, or 43 cents, final 12 months.
Gross revenue was $7.0 million, in comparison with $55.5 million final 12 months. Gross margins eroded 17.4 foundation factors (bps) to 12.7 p.c in comparison with 30.1 p.c final 12 months. The lower in gross margins was primarily as a result of elevated discounting, 8 bps, unfavorable logistics overhead absorption, 8 bps and elevated investments in JRNY, 4 bps, offset by an enchancment in different prices, 3 bps.
Operating bills elevated 54.5 p.c to $58.1 million, primarily as a result of a goodwill and intangible impairment cost of $27.0 million and a $3.6 million enhance in JRNY investments, partially offset by $5.7 million decrease media spending and $2.7 million decrease different variable promoting and advertising bills as a result of decreased gross sales. Total promoting bills have been $5.1 million versus $10.8 million final 12 months.
Adjusted working bills have been $31.2 million, or 56.9 p.c of gross sales, in comparison with $37.6 million, or 20.4 p.c, final 12 months. The lower was pushed by decrease promoting and partially offset by JRNY investments.
The reported working loss was $51.2 million in comparison with working revenue of $17.9 million final 12 months, primarily pushed by the goodwill and impairment cost and decrease gross revenue. The adjusted working loss was $24.2 million within the newest quarter.
In the Direct phase, gross sales declined 58.2 p.c year-over-year to $26.5 million. Sales have been up 27 p.c, or 8 p.c CAGR, in comparison with the identical interval in fiscal 2020. The web gross sales lower was primarily pushed by the return to pre-pandemic seasonal demand and better gross sales discounting.
Said Barr, “Despite shopper macro wariness and even within the sector’s off-season, we have been inspired that the buyer responded nicely to our vacation presents for Mother’s Day, Memorial Day and Father’s Day.”
Cardio gross sales declined 45.5 p.c versus final 12 months and have been up 6.5 p.c, or 2 p.c CAGR, in comparison with the identical interval in fiscal 2020. Lower gross sales have been primarily pushed by decrease bike demand. Strength product gross sales declined 70.8 p.c versus final 12 months and grew 96.7 p.c, or 25 p.c CAGR, in comparison with the identical interval in fiscal 2020. Lower gross sales this quarter have been primarily pushed by decrease demand for SelectTech weights.
Direct phase confirmed an working lack of $9.9 million towards an revenue of $6.8 million the prior 12 months. The decline was primarily pushed by a lower in gross margin to 17.2 p.c versus 38.7 p.c final 12 months tied to elevated discounting, unfavorable logistics overhead absorption and elevated JRNY investments.
Retail phase gross sales have been $27.4 million, down 77.2 p.c versus final 12 months. Excluding gross sales associated to Octane, gross sales have been down 2 p.c, or down 1 p.c CAGR, in comparison with the identical interval in fiscal 2020. The lower in gross sales to final 12 months is primarily pushed by decrease cardio gross sales and better gross sales discounting as retailers work by way of higher-than-normal stock ranges.
Barr mentioned, “We intently partnered with retailers and supported promotional actions to work down stock ranges in Q1, producing some early reorders starting to construct some backlog, all with the objective of producing extra reorders as we enter health season.”
Cardio gross sales declined 86.8 p.c versus final 12 months. Excluding gross sales of Octane, cardio gross sales have been down 28.7 p.c, or 11 p.c CAGR, in comparison with the identical interval in fiscal 2020. Lower gross sales this quarter have been primarily pushed by decrease bike gross sales. Strength product gross sales declined by 48.9 p.c versus final 12 months. Strength gross sales have been up 36.8 p.c, or 11 p.c CAGR, in comparison with the identical interval in fiscal 2020, led by SelectTech weights.
The Retail phase confirmed an working lack of $5.4 million in comparison with revenue of $22.1 million. Gross margins shrank to five.5 p.c in comparison with 25.1 p.c final 12 months. The 19.6 bps lower in gross margin was primarily pushed by: elevated discounting, 11 bps and unfavorable logistics overhead absorption, 9 bps.
As of June 30, the Retail phase’s backlog totaled $48.0 million, whereas the Direct phase’s backlog was $400,000.
Inventory was $103.9 million on the quarter’s shut, down in comparison with $111.2 million as of March 31, 2022. The lower in stock versus year-end was pushed by efforts to right-size stock ranges forward of the health season. About 8 p.c of stock as of June 30 was in transit.
Looking forward, Nautilus reiterated its second half and full 12 months 2023 steerage, together with persevering with to anticipate optimistic adjusted EBITDA within the again half of fiscal 2023. The firm expects full-year income of between $380 million and $460 million. The full-year adjusted EBITDA loss is anticipated to be between $25 million and $35 million. JRNY members are projected to exceed 500,000 at March 31, 2023.