Nautilus announced its overall sales and results a week ago. But its annual results document, filed with the Securities and Exchange Commission, provides more detail into its current thinking.
For instance, in it the company broke out sales by channel. The $185.7 million it generated during fiscal 2008 made the direct channel its largest. But direct sales also recorded the biggest drop from 2007’s level – a 25.4% decline from the $249.1 million it generated that year. In comparison, its retail channel’s sales fell by 7%, to $106.7 million, and its commercial channel, which includes sales to institutions such as hotels and spas, dropped by 14.4%, to $115.3 million.
Why the drop in direct revenue? During 2008, Nautilus “reduced promotions in an effort to raise the profit margin percentage” on its offerings, according to its filing. The company also changed its pricing strategy “in order to increase volume” (as in, cut prices) and discontinued two of its highest-price TreadClimber models.
Currently, the company’s direct efforts include television spots which range from 60 seconds to 30 minutes; Internet advertising; product Web sites; mailings to inquirers; catalogs and telemarketing. The majority of its direct sales are generated through its call center and Internet sites. Its goal in a significant portion of its advertising is to lead consumers to its Web site, “as we believe consumers who visit our Web site are more inclined to purchase our products,” the company wrote in the S.E.C. documents.
The company’s call center operations collect names and addresses of inquirers, but do not directly sell its products.
While it did not specify which marketing programs were affected, Nautilus reduced its media and advertising expenses by approximately $12.1 million within its direct business.
The tightening credit market has already affected Nautilus’s business practices. Roughly two-thirds of its customers take advantage of a financing program offered by HSBC Bank. The company’s arrangement with HSBC was extended by five years in December 2008.
But there have been changes in this program’s looseness. During third-quarter 2008, the company terminated a “second-tier financing program” which had allowed consumers with lower credit scores to obtain financing. Ending this program reduced the direct business’s sales by 5%, according to Nautilus’s filing.
The company also anticipates taking $12.5 million through the second quarter of 2009 in severance costs, real estate lease terminations and write-offs of leasehold improvements. Nautilus claimed 1,262 employees at the end of 2007, excluding 223 that had worked in its Pearl Izumi business, which it sold in mid-year. At the end of 2008, it employed approximately 850 individuals.
The Gossip’s Take: According to last year’s S.E.C. documents, in early 2008, Nautilus suspended sales of the commercial TreadClimber products as a result of product durability issues. In this year’s results, it announced it was pulling the TreadClimber out of its retail business (it hadn’t been marketing it via direct channels) and was limiting its sales to commercial clients. Ever get the feeling a product line had problems?
