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Fitness financials: Nautilus' Q1 sales sink nearly 45 percent, deep losses at commercial; plus Puma, Crunch files for bankruptcy protection, Wal-Mart, Costco

Nautilus' Q1 sales sank nearly 45 percent, Puma said it's planning extensive cost-cutting measures, Crunch filed for bankruptcy protection, Wal-Mart posted an increase in April same-store sales, and Costco's same-store sales dropped 8 percent in April.

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Nautilus’ Q1 sales sink nearly 45 percent, deep losses at commercial

Nautilus (NYSE: NLS) reported a 44.4-percent drop in sales for the first quarter, trampled by declines in all segments of its business as consumers continued to hang on to their money, media costs rose, and the dollar gained strength over the euro.

For the quarter ended March 31, the company reported net sales of $72.1 million, compared to net sales of $129.6 million in 2008.

The company widened its loss to $13.8 million, or $0.45 per diluted share, versus a loss of $6.9 million, or $0.22 per diluted share, in the same period last year.

Included in the quarter’s loss were pre-tax restructuring charges of $3.8 million related to the closure of a Tulsa, Okla., facility and a write-off for abandoned information technology software that was acquired but never used, Nautilus said. Excluding the restructuring charges, the company’s adjusted loss was $8.3 million.

Leading the drops in sales, retail sales sank 50.3 percent to $12.5 million but remained in the black with profits of $1.4 million, albeit still down from the year-ago profit of $2.6 million. Home gym sales were down, and the company said in its quarterly call with analysts it had lower cardiovascular equipment sales due to business decisions in today’s economic times by its retail partners.

The forecast at retail is also not positive since the second and third quarters are normally the slowest.

“I think the second quarter will be tough,” Edward Bramson, chairman and CEO, said in a quarterly call with analysts May 11. That’s because retailers don’t normally buy a lot in those quarters as they plan for the fall and winter. He said that despite drops in sales the profit likely came because Nautilus didn’t have any special discounts or products it was trying to clear out.

Commercial sales, although not down as far as retail, showed huge losses: Commercial sales dropped 46.5 percent to $18.0 million, compared to sales a year ago of $33.7 million. In addition, the quarter racked up a loss of $7.1 million in the commercial segment versus a loss a year ago of $3.0 million.

“This amount of loss puts a real burden on the company,” said Bramson in the call. He noted that the company was eyeing a solution, but at this point it continued to be a drain on company resources.

Direct sales declined 41.5 percent to $40.7 million from sales in the year-ago quarter of $69.6 million.

Consolidated gross profit margin improved slightly to 43.4 percent of net sales for the first quarter of 2009, compared to 43.2 percent for the same period in the previous year — the highest margin it has achieved in a year.

The company generated $12.8 million of net cash from continuing operations compared to $20.0 million in the first quarter of 2008 — generated primarily from working capital improvements.

“We continued to right-size our cost structure in the first quarter by implementing an additional $17 million in anticipated annualized cost reductions,” said Bramson in a statement. “These actions will begin to benefit our operating results in the second quarter, and we expect to realize substantially all of the benefit from these improvements in the fourth quarter of 2009.”

Nautilus’ brand portfolio includes Nautilus, Bowflex, Schwinn Fitness, StairMaster and Universal.

SNEWS® View: Nautilus has roots as a consumer-based brand considering the company’s heritage in starting with the Bowflex gym, not to mention its brands Schwinn and Universal, both of which have consumer cache. With the kind of losses Nautilus is seeing in its commercial segment, it could be a viable realignment for the company to get out of commercial and focus on retail, indeed putting resources back into brands like Universal, which it has done nothing with since acquiring it. Simply quitting the commercial division wouldn’t seem likely since it has invested in research and development and has valuable assets, such as technology and equipment. We’re not sure if selling a single division has merit, but that would certainly allow the company to recoup some of its investment while moving ahead in its consumer arena. We’ll be interested to see what becomes of the “solution” Bramson hinted the company has up its sleeve for later this year. Indeed, the company must do something to stem the losses otherwise it could become another casualty in the bankruptcy courts — which is where it acquired most of its brands in the first place.

Puma plans extensive cost-cutting measures

Battered by the recession, Puma (PUMG.DE) intensified cost-cutting measures, saying it would cut back on the variety of its shoe and apparel offerings and streamline operations.

Puma said it plans to save costs of up to EUR 150 million (USD $200.2 million) in 2011. It’ll lose EUR 110 million (USD $146.8 million) out of its first-quarter earnings before interest and tax for the restructuring efforts, leaving just EUR 4 million (USD $5.3 million) — 97 percent less than last year. It expects to show first positive effects from 2010.

Puma already spent EUR 25 million (USD $33.3 million) in restructuring charges in the fourth quarter. The company has already cut this year’s investments and is looking into closing unprofitable stores, writing down the value of inventory and renegotiating athletes’ promotion deals.

After this, no further cost-cutting charges in the quarters ahead are expected.

The company did not provide a 2009 forecast, but said it does not anticipate a dramatic decline in sales and expects to generate a significant profit this year.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of May 8.)

Crunch files for bankruptcy protection, acquisition imminent

Hit by slowing membership and overpriced leases for some locations, Crunch Fitness, a gym operator with more than 20 clubs in six U.S. cities, filed for bankruptcy protection in the U.S. Bankruptcy Court, Southern District of New York (Manhattan).

The petition for Chapter 11 protection listed $102.4 million in both assets and debts.

Crunch is looking to sell its assets, through an auction under court protection, to New Evolution Fitness Company, formed by CH Fitness, a joint venture of entities formed by fund manager Angelo, Gordon & Co., and a private equity fund called NEFC Crunch, according to court filings.

The sale permits other interested parties to make competing offers. Subject to the approval of the bankruptcy court, the sale is expected to close in approximately 60 days.

In the filing, CFO Michael Jacobs said Crunch gyms have “suffered operating losses as a result of deficient membership sales” and the inability “to divest themselves of certain unprofitable club locations that are saddled with overpriced long-term leases.”

CH Fitness bought out all of Crunch’s first lien debt from Goldman Sachs Credit Partners for $46.2 million in December.

In a court filing, Crunch listed 2008 sales of $84.5 million with operating losses of $11.2 million. Crunch also listed $2.8 million in losses since the beginning of the year.

As of April 30, the company had $56.7 million outstanding under its Goldman Credit Facility, which is listed as a claim from CH Fitness Investors. It also has $22.7 million outstanding under second-lien notes, a claim from AG Super Fund, an Angelo, Gordon & Co. entity.

Angelo, Gordon & Co. bought Crunch from Bally Total Fitness for $45 million in 2005, much less than the $90 million that Bally had purchased Crunch for in 2001. (Click here to see the Sept. 19, 2005, SNEWS® story, “Bally takes beating by media, enters agreement to sell Crunch.”)

Crunch, which has more than 1,700 employees and 73,000 members, operates clubs in New York, Miami, Chicago, Los Angeles, Atlanta and San Francisco.

Wal-Mart posts April same-store sales rise

Wal-Mart (NYSE: WMT) said sales of Easter merchandise and higher traffic boosted April same-store sales by 5 percent.

Same-store sales rose 5.9 percent at its namesake U.S. stores and 0.3 percent at Sam’s Club warehouse stores. Same-store sales rose 4 percent including fuel.

Total sales for the four-week period that ended May 1 rose 2 percent to $29.85 billion.

Wal-Mart also said it will stop reporting monthly same-store sales, saying the move will reduce volatility related to things like calendar shifts. Reporting sales quarterly also places the company in line with most other large retailers, it added.

Costco same-store sales drop 8 percent in April

Costco Wholesale (Nasdaq: COST) said its April same-store sales dropped 8 percent, hurt by a shift in the timing of the Easter holiday.

Domestic same-store sales fell 7 percent, while international same-store sales slipped 12 percent. Excluding lower gas prices and the stronger dollar, same-store sales were flat. U.S. same-store sales fell 2 percent, excluding gas deflation. International same-store sales climbed 7 percent, excluding the stronger dollar.

Total sales for the period ended May 3 declined 6 percent to $5.18 billion.

The current period included one less sales day due to Easter’s shift, which Costco estimated lowered total and same-store sales by about 2 percent to 3 percent.

–Compiled by Wendy Geister

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