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Fitness financials: Nautilus Q2 sales drop 36.4 percent, considers alternatives for commercial division, plus Amer Sports, GSI Commerce, Costco, Nike

Nautilus said its Q2 sales dropped 36.4 percent, Precor's Q2 sales dragged down Amer Sports' bottom line, Brunswick said it would present a private offering and cash tender offer, GSI launched a public offering, July same-store sales dropped 7 percent for Costco, and Nike declared a quarterly dividend.

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Nautilus Q2 sales drop 36.4 percent, considers alternatives for commercial division

Nautilus (NYSE: NLS) said its net sales dropped 36.4 percent and its loss doubled partially from pre-tax restructuring charges. Also, it’s considering a “strategic” change to focus its efforts on a consumer-only business model — and, as a result, is looking at strategic alternatives for the commercial business.

On a call with analysts and media Aug. 10, CEO and Chairman Edward Bramson did not specify the details of any possible strategic alternative but said the company would be reviewing options and would report back in a few months.

For the quarter ended June 30, the company reported net sales of $60.8 million, compared to net sales of $95.6 million for the second quarter of 2008, for a decline of 36.4 percent.

Overall, the company reported a loss from continuing operations of $20.8 million, or $0.68 per diluted share, versus a loss of $9.6 million, or $0.30 per diluted share, last year. Included in the loss for 2009 were pre-tax restructuring charges of $11.8 million, which CFO Ken Fish noted were related to the change of the lease in it headquarters to downsize and cut expenses.

Excluding the restructuring charges, Nautilus’ adjusted loss from continuing operations before income taxes was $9.7 million for the quarter.

On an operating basis, Nautilus said the retail and direct businesses were profitable — called “encouraging” by Bramson on the call — while the commercial business recorded a loss.

The retail business generated income of $1.2 million compared to a loss of $0.2 million for the previous year period, and the direct business generated $0.6 million of income from operations compared to a loss of $0.6 million in the year-ago quarter. The commercial business had a loss of $7.2 million versus a loss of $1.1 million for the same period last year.

Sales by segment were:

>> Direct: $28.2 million, down 31.7 percent from $41.2 million

>> Retail: $11.3 million, down 40.2 percent from $19.0 million

>> Commercial: $20.7 million, down 39.7 percent from $34.3 million

>> Corporate: $0.5 million, down 43.1 percent from $0.9 million

“Offsetting the profitable operating results in the direct and retail businesses and across-the-board improvements in operating expenses was the lower-than-expected performance of our commercial business, primarily due to lower gross margins that resulted from discounting, in order to move out excess and discontinued inventory,” said Bramson, in a statement.

Consolidated gross profit margin decreased to 34.2 percent of net sales, compared to 35.5 percent for the same period in the previous year.

Nautilus said it has engaged Robert W. Baird & Co. to assist in the evaluation of strategic alternatives for the commercial business over the next few months. In response to a question, Bramson did not exclude options such as selling the division or shutting it down.

“In order to refocus our business model and operations, the company is considering streamlining its activities to place greater emphasis on its direct-to-consumer and retail businesses, and thus will be evaluating the strategic long-term alternatives for the commercial business,” said Bramson in a statement. “While recent results did not meet expectations, we continue to believe that Nautilus Commercial provides an attractive and under exploited asset in the commercial fitness equipment market.”

Precor brand’s Q2 sales slump drags down Amer Sports’ bottom line

Although Amer Sports’ second-quarter net sales were on par with last year’s numbers, its fitness division, comprised of Precor, continued to post among the largest sales declines within the company.

Net sales were EUR 284.7 million (USD $410.0 million) compared to last year’s EUR 285.1 million (USD $410.6 million). In local currencies, net sales decreased by 6 percent.

The group’s EBIT was a loss of EUR 29.4 million (USD $42.3 million) versus a loss of EUR 7.8 (USD $11.2 million) last year. The company said the weakened result reflects more challenging market conditions, particularly in the United States. Last year’s result includes a capital gain of EUR 13 million (USD $18.7 million) from selling the company’s corporate headquarters building.

Earnings before taxes were a loss of EUR 30.9 million (USD $44.5 million) compared to last year’s loss of EUR 15.2 million (USD $21.8 million). Earnings per share were a loss of EUR 0.34 (USD $0.48) versus a loss of EUR 0.16 (USD $0.23). Net financial expenses amounted to EUR 1.5 million (USD $2.1 million) compared to EUR 7.4 million last year (USD $10.6 million), and they included EUR 3.9 million (USD $5.6 million) unrealized foreign exchange gains.

“Market conditions in the sporting goods industry during the second quarter remained as difficult as during the start of the year. The U.S. market continued to suffer more than the European market and in general, there is less demand for high-ticket items. This was evident in both our Fitness and Golf businesses that saw the largest sales decline within Amer Sports,” said Roger Talermo, Amer Sports’ president and CEO, in a statement.

For the second quarter, the fitness category’s net sales dropped 15 percent to EUR 42.4 million (USD $61.0 million) compared to EUR 49.6 million (USD $71.4 million) for the same period last year. In local currency terms, sales were down 23 percent.

EBIT decreased to a loss of EUR 2.2 million (USD $3.1 million) versus a loss of EUR 0.4 million (USD $0.57 million) last year. The company said the significant fall in sales and lower gross margins, resulting from a lower capacity utilization rate and pricing pressure. Precor will continue to focus on cost savings to return to profitability, it added.

The market situation is unchanged since the first quarter of the year with the general economic climate being the largest driver of Precor’s performance, Amer Sports reported.

Amer Sports said in a statement, “The commercial business decline is driven by tight credit markets, which are making it more difficult for small customers to lease equipment. Reports from customers suggest that gym membership has not declined dramatically; however, clubs are seeing reduced revenue due to lower spending by members on extra services such as personal training. This revenue shortfall is driving a ‘wait and see’ attitude toward new equipment purchases as clubs are looking to reduce expenses. Additionally, many customers are putting new projects on hold, which is restricting the available business to replacement sales rather than the new facility sales that have driven the industry in the last few years. Price competition between manufacturers has remained fierce.”

It added that consumer sales are affected by both the overall withdrawal from discretionary spending by many families and by a significant reduction in the number of specialty dealers compared to the prior year.

In June, Precor began equipment programs with Costco and to broaden the reach of the brand’s consumer products.

Construction is underway on a new strength equipment production facility in North Carolina, said Amer Sports, noting that this facility will provide needed capacity for the recently launched strength product lines and it will reduce manufacturing costs.

Looking forward, the company said its market outlook has not materially changed during the second quarter and the market will remain challenging during the rest of the year.

Amer Sports said its EBIT for the full-year 2009 would be below last year’s level. The expected improvement in winter sports equipment business due to previously implemented cost efficiency measures is more than offset by weakness in its other businesses, it added. The company had already announced in June that its full-year result would weaken from last 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 Aug. 6.)

Brunswick to present private offering, cash tender offer

Brunswick Corp. (NYSE: BC), parent of Life Fitness, said it is preparing a private offering of $250 million aggregate principal amount of senior secured notes due 2016.

It’s also launching a cash tender offer and consent solicitation for its outstanding 5 percent notes due 2011. As of July 4, $150 million aggregate principal amount of the 2011 notes was outstanding.

Brunswick said it intends to use the net proceeds from the private offering to fund the tender offer for the 2011 notes.

GSI launches public offering

GSI Commerce (Nasdaq: GSIC) said it and its stockholders are launching a public offering of 10 million shares of common stock. The company is offering about 1.8 million shares, while the stockholders, including Softbank Capital Partners, are offering roughly 8.2 million shares.

The company has also granted the underwriters the option to purchase another 1.5 million shares to cover any overallotments.

GSI said it plans to use the proceeds from its offering for working capital and general corporate purposes. It will not receive any proceeds from the stockholders’ sale.

The company has not yet determined an offering price, but at Aug. 6’s close of $18.30, 10 million shares would net GSI and the stockholders about $183 million.

Bank of American Merrill Lynch and UBS Investment Bank are joint bookrunning managers for the offering. Co-managers are Morgan Stanley, Janney Montgomery Scott and Thomas Weisel Partners LLC.

July same-store sales drop 7 percent for Costco

Costco (Nasdaq: COST) said its same-store sales dropped 7 percent in July, pressured by lower gas prices and the stronger dollar.

Costco posted an 8 percent drop in its U.S. same-store sales, while international same-store sales were off 5 percent. Excluding lower gas prices, U.S. same-store sales dipped 2 percent. International same-store sales rose 6 percent taking out the impact of the stronger dollar.

For the period ended Aug. 2, total sales slipped 5 percent to $5.41 billion.

Nike declares quarterly dividend

Nike’s (NYSE: NKE) board of directors has declared a quarterly cash dividend of $0.25 per share on the company’s outstanding Class A and Class B Common Stock payable on Oct. 1 to shareholders of record on Sept. 8.

–Compiled by Wendy Geister

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