Nautilus 1Q sales plummet, guidance revised, WSJ notes stock sales by insiders
In a major dive after consecutive quarters of increasing or steady sales, Nautilus has announced that its first quarter of 2007 was bleak, with most of the gloomy results coming from the retail segment.
After moving up its earnings call a week — in the middle of the busiest days for first-quarter earnings releases — the company based in Vancouver, Wash., confirmed to analysts and media on the call that it had revised guidance downward drastically. In addition, Nautilus (NYSE: NLS) was looking to new promotional programs, new products later in the year, and “necessary organizational changes,” per CEO Gregg Hammann, to help get the company back on course.
“Direct (business) is a little soft,” Hammann said on the call on April 25, “but the big driver is we didn’t get the turns we expected at retail.”
The same day as the call, the Wall Street Journal reported that insiders at six companies, including Nautilus, had sold stock in the last quarter right before those companies reported they would fall short on financial guidance, a pattern, the paper reported, “that can attract the attention of regulators and litigious shareholders.”
When SNEWS® inquired about the sales by Hammann in late February, spokesman Ron Arp said Hammann had “exercised 18,900 options to pay his 2006 tax obligations. He traded within our window, which is the middle month of the quarter beginning two trading days after our call. It reflected about 3 percent of his option position.”
The first full day after the end-of-day announcement of the revision of guidance, shares dropped from the range of $17 to $18 to a close on April 12 of $13.67 on a volume of 4,248,400.
For the three months ended March 31, 2007, net sales were $158.8 million, compared to $185.0 million for the corresponding period last year, down 14 percent. Net income for the quarter was $2.5 million, or $0.08 per share, compared to $5.2 million, or $0.16 per share for the first quarter of 2006. Gross margins reached 46.1 percent, the highest level in seven quarters.
Of those sales, $16.6 million were international, up 23 percent; 21.9 million were apparel, up 13 percent; 18.2 million where from commercial equipment, or 1 percent; and direct-to-consumer sales were 73.9 million, down 12 percent. But the biggest slap came from the retail division where sales of 27.6 million were down a whopping 45 percent.
CFO Bill Meadowcraft on the call stated that retail replenishment orders “failed to materialize.”
For the second quarter, the company said its net sales were expected to be flat or about $135 million to $140 million with earnings of $0.03 to $0.06 per share. The company estimated sales for the year would show about 5 percent to 10 percent growth because of the first-quarter shortfall.
Hammann, in the question-and-answer session with analysts on the call, said that higher price points and much lower price points still sold well, but “the one kind of ugly place for us was that middle price point range for home gyms.” He also said treadmill sales for the fourth quarter of 2006 and first quarter of 2007 were lower.
Regarding the sluggish retail sales in the first quarter, Hammann said orders were going out, but suddenly in mid- and late March, the situation changed. “It was a bit of a surprise to senior management here,” he said. “If things had been that soft at retail, we would have liked to have known about it.”
At the end of the call, Hammann closed by noting it had been “a tough quarter,… But we’ve weathered that storm well.”
“I’m very confident we’ll be able to make all of the shareholders happy,” he said. “Hopefully, all of you see the same confidence we have.”
On April 25, shares closed at $13.78 on a volume of 1,174,700. The 52-week high was $19.05 on May 4, 2006 and the low was $11.10 on Aug. 1, 2006.
Bally shares to be de-listed from NYSE, seeks noteholders’ waiver of defaults
The New York Stock Exchange has told Bally Total Fitness (NYSE: BFT) that it will suspend the fitness operator’s shares before the market opens on May 2, and move to formally delist Bally’s common stock.
Bally said the exchange cited the company’s failure to meet continued listing standards, including minimum average share price and market capitalization requirements, for the delisting decision. Bally has also been delinquent in filing its 2006 annual financial report due to errors in historical member data.
Bally added that it has been in communication with NYSE Regulation regarding the company’s noncompliance with continued listing standards, but was unsuccessful in its efforts to avoid suspension and potential delisting. The company said it does not plan to appeal the decision.
Bally said it expected its stock to be quoted on the Pink Sheets electronic quotation service (www.pinksheets.com) after the suspension.
Bally shares lost 10 cents, or 9.4 percent, to close at $0.97 on the New York Stock Exchange on April 26. During the past 52 weeks, the stock has plunged from a high of $9.61 in early May 2006 to a low of $0.50 on April 7.
The day before Bally had reported that it was seeking noteholders’ waiver of previously announced defaults. The company said it had negotiated a form of waiver and forbearance arrangements with advisors to noteholders.
Bally Total said the waivers related to its inability to file its annual report with the U.S. Securities and Exchange Commission on time and non-payment of interest on its senior subordinated notes.
In other company news: A federal judge has ordered Bally Total Fitness to pay $24,000 to a Sikh man who sued when the company denied him a job after asking if he was Muslim, according to the U.S. Equal Employment Opportunity Commission.
Sukdev “Devin” Singh Dhaliwal applied for a sales job with one of Bally’s five Fresno fitness centers in 2004. An interviewer reportedly asked Dhaliwal, who was born and raised in California, about his religious and ethnic background, and then denied him a job and hired non-Sikh, non-Indian applicants with less experience, according to the commission.
Under the consent decree approved by U.S. District Judge Jeffrey S. White, Bally must pay Dhaliwal $24,000 in damages and provide training in equal opportunity hiring practices to managers at its Fresno locations.
Life Fitness-parent Brunswick’s Q1 profit plunges 32 percent
Despite an 8 percent sales increase in its Life Fitness Division, Brunswick Corp. (NYSE: BC) reported a 32 percent drop in first-quarter earnings
Net earnings for the first three months of the year were $45.6 million, or $0.50 per share, down from $67.4 million, or $0.70 per share, a year earlier.
Earnings from continuing operations amounted to $34.3 million, or $0.38 per share, down more than half from a year ago but well above the consensus estimate of analysts of $0.29 per share.
Revenue was $1.39 billion, down 1 percent from $1.41 billion in the first quarter of 2006, but better than the $1.34 billion expected by analysts.
By beating analyst expectations, Brunswick’s shares went up $3.03, or 9.9 percent, to close at $33.74 on the New York Stock Exchange.
“Operating earnings were affected by lower sales, reduced fixed-cost absorption from production cuts, costs associated with previously announced restructuring efforts, as well as by increased discounts offered to spur retail demand,” said Chairman and CEO Dustan McCoy in a statement.
First-quarter sales for the company’s Life Fitness Division, which manufactures and sells Life Fitness, Hammer Strength and ParaBody fitness equipment, increased 8 percent to $145.0 million, up from $134.0 million in the year-ago quarter. Segment operating earnings were down 9 percent for the first quarter of 2007, totaling $8.1 million compared with $8.9 million for the year-ago quarter. Operating margins were 5.6 percent versus 6.6 percent a year ago.
“Sales growth was driven by strength in international markets, where growth rates exceeded those in the United States,” McCoy said in a statement. “Increased spending on research and development for a number of new products reduced operating earnings in the quarter. These investments, however, will enable Life Fitness to continue to outpace the competition with new and innovative products.”
Brunswick said it is maintaining its full-year earnings guidance due to its pipeline inventories, production schedules and early position in the marine-selling season. The company is looking for full-year net income in a range of $1.65 to $2 per share.
Cybex posts 20 percent sales increase for Q1
Cybex International (Nasdaq: CYBI) reported a 20 percent increase in first-quarter sales — $34.7 million versus $28.9 million for the corresponding 2006 period, or an increase of 20 percent.
Net income for the quarter was $1.1 million, or $0.06 per diluted share, compared to net income for the first quarter of 2006 of $0.7 million, or $0.04 per diluted share.
“We think after years of turnaround and re-growth, we are beginning a phase of reclassifying Cybex International as a growth company,” CEO John Aglialoro said on an earnings call. He also pointed out that all “legacy legal issues” have now been settled and “we have a clean balance sheet.”
The company said that the year-over-year earnings per share growth was achieved despite three offsetting factors: an 8.6 percent tax rate in the year-ago first quarter compared to a 41.5 percent rate in 2007 that resulted from the realizability of a deferred tax asset; a 12.8 percent increase in shares outstanding; and a $509,000 pre-tax charge in 2007 related to the previously announced product development agreement with eNova.
First-quarter operating income increased by 61 percent to $2.1 million versus $1.3 million in the prior year quarter. The company’s first-quarter gross margin increased to 37.2 percent versus the prior year 36.5 percent from greater overhead absorption.
On the call with analysts on April 26, CFO Art Hicks said that of the net sales, cardiovascular equipment sales accounted for 17.8 million (up 18 percent) and strength for 13.6 million (up from $10.5 a year ago). North American sales were up 28 percent in the first quarter, while internationally sales were up 2 percent due to softer sales in the United Kingdom, Hicks said.
In addition, the commercial Arc Trainer sales were up 17 percent while sales of the retail Arc Trainer, which began shipping in earnest again in late March after a glitch halted sales, have already totaled about $610,000 in six weeks this year.
Aglialoro told investors that the Arc would have a complete refreshing by the first quarter of 2008, and that the company will continue to move back into the retail market, with home gyms by the fourth quarter this year or first of 2008. He also said that the company knows it now needs to do a better job at marketing and will be making steps in that direction this year “to spread the word” about Cybex.
Inventories at the close of the first quarter were up 29 percent to $12.2 million versus $9.6 million at this same time last year. Cybex said the increase reflects the inclusion of $1.1 million of inventory for the new Home Arc line which utilizes outsourced manufacturing and, therefore, has a much slower turn rate than the balance of our business. Additionally, its inventory build included approximately $500,000 of audio-visual screens, which had didn’t ship until the end of the first quarter.
Separately, Cybex has hired ICR Inc., an investor relations and financial communications consultancy, to assist with all aspects of its investor relations program and deepen its reach into the investment community.
Cybex added that ICR, founded in 1998, is staffed with former institutional analysts and portfolio managers with wide experience in the capital markets. The firm represents approximately 200 corporate clients, ranging from pre-IPO businesses to a number of Fortune 500 companies, including some of the most well-recognized names in the consumer markets. Headquartered in Westport, Conn., ICR also maintains offices in New York, Boston, Santa Monica, Calif., and Beijing, China.
Precor posts solid Q1 sales for Amer Sports
Amer Sports sales took a 9 percent hit in the first quarter after an exceptionally weak winter season, while net sales for its Precor fitness division remained solid — up 9 percent in local currencies
Net sales for the company were EUR 381.8 million (USD $521.4 million) compared to EUR 417.4 million in 2006. Net sales in local currency terms declined by 4 percent. Gross profit was down 6 percent to EUR 143.9 million (USD $196.5 million) versus 2006’s EUR 153.8 million.
Earnings before interest and taxes (EBIT) posted a loss of EUR 7.8 million (USD $10.6 million), or a loss of EUR 0.15 per share (USD $0.20), versus EUR 1.6 million, or a loss of EUR 0.03 per share, in 2006.
“The beginning of 2007 has otherwise measured up to expectations, and we believe that in this respect we will achieve our full-year objectives,” said Roger Talermo, president and CEO of Amer Sports, in a statement. “Of our business segments, Salomon apparel and footwear, Precor and Suunto posted solid growth.”
For Precor, net sales were up 1 percent to EUR 73.8 million (USD $100.7 million) for the first quarter of 2007 compared to EUR 72.9 million. Sales were up 9 percent in local currencies. Of net sales, the Americas generated 83 percent, EMEA 11 percent and Asia Pacific 6 percent. Sales in local currencies were up 13 percent in the Americas and 9 percent in Asia Pacific but declined by 11 percent in EMEA.
Precor’s EBIT amounted to EUR 9.9 million (USD $13.5 million) — down 18 percent from EUR 12 million in 2006. Costs were more front-loaded in the first few months, Amer Sports said. Precor’s full-year outlook has not changed, but earnings will be spread more evenly over the current year than in 2006, it added.
Amer Sports said that Precor’s growth in 2007 is forecast to once again outpace that of the market, with the company racking up market share gains especially in the fitness club segment.
For the company as a whole, Amer Sports said it is lowering its full-year earnings forecast due to the effect of uncommonly weak snow conditions on the winter sports market. Net sales are expected to decline slightly in 2007, but EBIT is estimated to reach the previous year’s level. Net sales of Amer Sports winter sports equipment in 2007 are expected to fall about 15 percent to 20 percent short of the previous year. Cash flow from operating activities is forecasted to improve.
(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 April 25.)
Matrix announces 146-percent increase in U.S. 1Q sales, 85-percent globally
Matrix Fitness Systems has announced sales results for the first quarter ending March 31, 2007. U.S. sales for the first quarter increased by 146 percent over the corresponding 2006 period. Globally, sales grew 85 percent over the same timeframe last year.
“Much of our domestic growth can be attributed to the expansion efforts of our U.S. commercial sales team and the hiring of key personnel to support our customers,” said Chris Clawson, president, Matrix Fitness Systems. “And our 85-percent global growth shows that our commercial sales and operations teams throughout Asia, Europe and North America continue to gain momentum.
“Helping to fuel continued growth in 2007 will be our innovative new products, including the Ascent Trainer and the Hybrid Cycle, which have been very well received,” Clawson stated. The Ascent Trainer is a total-body cardiovascular machine that features a unique motion, adjustable incline and variable stride length. The Hybrid Cycle, introduced last year, combines the feel of both upright and recumbent cycles.
Life Time Fitness Q1 income jumps 36 percent
First-quarter income for Life Time Fitness (NYSE: LTM) rose 36 percent, driven by increases in membership dues and in-center sales.
First-quarter net income increased to $14.1 million, or $0.38 per share, from $10.4 million, or $0.28 per share, in the prior year. Revenue grew 33 percent to $153.1 million, from $115.4 million a year ago.
First-quarter membership dues grew 33 percent and enrollment fees increased 12 percent. In-center sales jumped 36 percent. Same-center revenue increased 7.5 percent in the first quarter.
First-quarter operating costs also grew 32 percent to $124.4 million, from $94.3 million a year ago, due to added expenses to support new centers, and increase membership and in-center revenue. Net income margin was 9.2 percent, compared with 9 percent in the prior year.
Life Time said it now expects fiscal 2007 earnings in a range of $64.8 million, or $1.72 per share, to $65.8 million, or $1.75 per share. The company previously expected net income in a range of $64.3 million, or $1.71 per share, to $65.3 million, or $1.74 per share. The company reiterated its revenue outlook of $640 million to $650 million.
Everlast’s Q1 sales up 24 percent
A record bump in sporting goods sales increased Everlast Worldwide’s (Nasdaq: EVST) net revenue 24 percent for the first quarter.
Net revenues increased 24 percent to $12.4 million, compared to $10.0 million in the same period in 2006. Growth in net revenue resulted from a 30 percent increase in sporting goods sales to a record $9.0 million, the third consecutive quarter of more than 30 percent year-over-year sales growth, the company said. The increase resulted from expanded distribution and continued strong sell-through for the Everlast brand, it added.
Net licensing revenues increased 11 percent to approximately $3.3 million vs. $3.0 million in the first quarter of 2006. Everlast said the growth was driven by organic increases in licensing income by our worldwide licensees, particularly in the United Kingdom, South Korea, and Chile.
First-quarter operating income grew 53 percent to $2.2 million, or 17.9 percent of net revenues, versus the year-ago level of $1.5 million, or 14.6 percent of net revenues.
Adjusted earnings per diluted share for the first quarter of 2007, adding back approximately $0.04 of non-cash expense associated with stock-based compensation, was $0.20 per diluted share, 43 percent increase over adjusted earnings of $0.14 per diluted share in 2006.
The company increased its guidance for fiscal 2007, saying it expects to report net revenues in the range of $58 million to $60 million versus its prior guidance of $56 million to $58 million.
Winmark reports Q1 profit decrease due to expenses from leasing companies
First-quarter profit for Winmark (Nasdaq: WINA), parent of Play It Again Sports, dropped nearly 41 percent as expenses from its leasing companies offset a revenue increase.
The company reported net income of $662,200, or $0.12 per share, for the quarter ended March 31, compared with $1.1 million, or $0.18 per share, in the year-ago period. Last year’s first quarter included a $360,000 non-operating gain.Sales rose to $7.6 million from $7 million in the first quarter of 2006.
John Morgan, chairman and CEO, said in a statement, “Our results in the first quarter continue to be impacted by the ramp up of our two leasing companies Wirth Business Credit and Winmark Capital. Our franchise business performed adequately despite getting off to a slow start. The first quarter of last year included a $360,000 non-operating gain included in interest and other income.”
GSI Commerce narrows Q1 net loss
GSI Commerce (Nasdaq: GSIC) narrowed its net loss for the first quarter to $2.3 million, or $0.05 per share, compared to a net loss of $4.4 million, or $0.10 per share, for the same period last year.
Net revenue for the quarter increased 28 percent to $146.3 million from $114.2 million. Merchandise sales increased 69 percent to $322.5 million from $191.0 million. Loss from operations was $4.8 million compared to a loss of $3.9 million. Adjusted EBITDA increased 45 percent to $3.8 million from $2.6 million.
“I am very pleased with our first quarter performance. We executed well against our plan and our business maintained a healthy pace coming off a strong fiscal 2006,” said Michael Rubin, chairman and CEO of GSI, in a statement. “Net revenues and merchandise sales grew 28 percent and 69 percent, respectively, and we exceeded the high end of our first quarter guidance on all of our key profitability metrics. I am optimistic about the balance of the year based on underlying momentum and a robust pipeline of prospects.”
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