Forbes says look closer at Nautilus and "and things get ugly"

After getting torn up by one financial columnist earlier this year, things seem to calm for The Nautilus Group (NYSE: NLS). But then out comes a November story in Forbes magazine titled, “Fiscal Fitness: Nautilus Group is tearing up the track in sales growth. But take a closer look and things get ugly.” Author Elizabeth MacDonald wrote that despite solid third quarter results and a planned stock buyback, prices dropped 43 percent on the heels of the report and several investment houses downgraded the stock. “What’s not to like?” she wrote. “Try ballooning inventory, inaccuracies in its financial reports, and an odd related-party deal involving its chief executive.” MacDonald says that inventory is up 212 percent over a year ago, which CEO Brian Cook said was stockpiling in anticipation of a dockworkers strike. However, she researched customs manifests and found “only negligible growth” in imports. The question raised: Are products not moving off the shelf as quickly as planned? She also points out what is by now older news — that the patent on the Bowflex power rods expires in April 2004. (The company has told SNEWS it has so much manufacturing and engineering invested in their development that no one else can do what they’ve done.)

Then, as the kicker, she points to the Nautilus credit card which finances purchases by customers who want to pay $25 upfront and finance the remainder of the $1,500 or so. The SEC reports filed by Nautilus, she wrote, shows its credit card customers are “bumping up against” the credit limit. Cook says the SEC figures are incorrect — an internal error — but the company hasn’t corrected them. The final point she says is one that was raised last spring, and that’s the odd arrangement that pays the Bowflex inventor royalties based on net sales, but then he has to pay Cook 20 percent of any royalties he gets above $90,000. That gave Cook an extra $1.3 million last year. The full article is in the Nov. 11 issue of Forbes on page 80.