Nautilus 2012 Annual Report Download - page 23

Table of Contents
The following table compares the net sales of our major product lines within each business segment for the years ended December 31, 2012 and
2011 (in thousands):
Direct
Net sales of our Direct business were
$125.0 million in 2012 , an increase of $17.9 million , or 16.7% , compared to Direct net sales of $107.1
million in 2011 . Revenues of cardio products in our Direct channel increased by 32.5% in 2012 , compared to 2011 , reflecting strong consumer
demand for our cardio products, especially the Bowflex TreadClimber, which we believe was driven by increased advertising effectiveness,
improved call center effectiveness and higher U.S. consumer credit approval rates. Combined consumer credit approvals by our primary and
secondary U.S. third-party financing providers increased to 32% in 2012 from 25% in 2011. We expect U.S. consumer credit financing approval
rates in 2013 approximately consistent with the 2012 level.
The increase in Direct sales of cardio products was partially offset by a 21.8% decline in Direct sales of strength products, primarily rod-based
home gyms. The decline in sales of rod-based home gyms is attributable in part to the cessation of television advertising for these products, as
management determined that television ad spending on this mature product category was generating unsatisfactory returns. We have marketed
rod-based home gyms through more cost efficient online media since early 2011.
Cost of sales of our Direct business increased by 8.0% to $53.4 million in 2012 , compared to $49.4 million in 2011 . Of this $4.0 million
increase in cost of sales, approximately $7.3 million was due to higher sales volume, partially offset by a $2.9 million decrease in cost of sales
primarily attributable to a shift in product sales mix and a $0.4 million reduction in supply chain costs, including freight.
Gross margin of our Direct business was 57.3% in 2012 , an increase of 340 basis points compared to 2011
. Gross margin of our Direct business
in 2012 benefited from greater absorption of fixed supply chain costs due to higher sales volume, compared to 2011.
Retail
Net sales of our Retail business were
$63.9 million in 2012 , a decrease of $4.7 million , or 6.9% , compared to Retail net sales of $68.6 million
in 2011 , primarily due to lower sales of certain cardio products, including indoor bikes and ellipticals. Total Retail sales of cardio products
decreased by 17.2% , compared to 2011 . In 2012 , Retail sales of strength products increased by 11.3% , primarily due to higher sales of
selectorized dumbbells, compared to 2011 .
Cost of sales of our Retail business declined by $3.0 million, or 5.7%, to $49.5 million in 2012 , compared to $52.5 million in 2011 , almost
entirely due to the decline in Retail sales volume.
18
Year Ended December 31,
2012 2011 Change % Change
Direct net sales:
Cardio products
(1)
$
100,677
$
75,982
$
24,695
32.5
%
Strength products
(2)
24,301
31,079
(6,778
)
(21.8
)%
Total Direct net sales
124,978
107,061
17,917
16.7
%
Retail net sales:
Cardio products
(1)
36,209
43,718
(7,509
)
(17.2
)%
Strength products
(2)
27,682
24,873
2,809
11.3
%
Total Retail net sales
63,891
68,591
(4,700
)
(6.9
)%
Royalty income
5,057
4,760
297
6.2
%
Total net sales
$
193,926
$
180,412
$
13,514
7.5
%
(1)
Cardio products include treadclimbers, treadmills, exercise bikes, ellipticals and CoreBody Reformer.
(2)
Strength products include home gyms, selectorized dumbbells, kettlebell weights and weight benches.