Nautilus 2002 Annual Report Download - page 27

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001
NET SALES
Net sales increased by 60.7% to $584.6 million in 2002 from $363.9 million in 2001. Excluding our acquisitions of Schwinn Fitness and
StairMaster, sales grew by approximately 32.6% on a consolidated basis in 2002 compared to 2001. The increase in sales was driven by the
growth in our direct segment and continued expansion of our commercial/retail business.
Sales in our direct segment are comprised primarily of sales from our Bowflex product line. However, as sales from our Nautilus Sleep Systems
product line continue to grow, they have become an increasingly important component of our direct segment business. Sales within our direct
segment were $392.6 million in 2002, an increase of 34.2% over 2001. A significant reason for the increase in direct segment sales can be
attributed to the introduction of our high-end Bowflex "Ultimate" at the end of the fourth quarter of 2001. The "Ultimate" has been well
received by consumers leading to sequential growth in the average selling price of our Bowflex product line in each quarter since its
introduction. The average Bowflex selling price increased 11.5% in the fourth quarter of 2002 compared to the same period in 2001. Our
direct-marketing business is largely dependent upon national cable television advertising. We experienced changes in the advertising
environment in the second half of 2002 as costs rose for the first time in two years due to heightened demand for advertising time. As a result of
this higher advertising cost environment, fourth quarter direct segment revenue showed year-over-year growth but not sequential growth as we
managed our advertising spending to optimize profitability.
We believe two unusual events affected sales in late 2001 and the first half of 2002: the nesting effect as a result of the events of September 11,
2001 and the high availability of television advertising time. Both of these contributed very positively to Bowflex sales during the first half of
2002. As evidenced by results in the last part of 2002, the nesting effect of September 11, 2001 seems to be receding, and the advertising
environment has changed considerably.
Our direct segment accounted for 67.2% of our aggregate net sales in 2002, down from 80.4% in 2001, as we continued our strategies of
diversification into the commercial and retail markets and of introducing new direct-marketed products.
Sales within our commercial/retail segment were $192.0 million in 2002, an increase of 169.3% over 2001. A significant portion of this growth
is attributed to the acquisition of Schwinn Fitness in September 2001 and StairMaster in February 2002. Our commercial/retail segment now
accounts for 32.8% of our net sales, up from 19.6% in 2001 as we continue to execute our strategy of expanding our presence, product lines,
and brands across all our channels, especially within the commercial/retail segment. In August of 2002, we expanded our product lines with the
introduction of 16 new retail products. The new retail products branded under our Nautilus name include treadmills, stationary bicycles, an
elliptical motion trainer, home strength equipment, and heart rate monitors. We also introduced new products under our Schwinn brand name
including indoor cycling bicycles and an elliptical motion trainer. In addition to the 16 new retail products, many of our existing products were
updated and enhanced. We began shipping the majority of our new products late in the fourth quarter of 2002.
We believe our business will continue to show considerable seasonality going forward. In our direct marketing business we have found that
second quarter influences on television viewership, such as the broadcast of national network season finales and seasonal weather factors, cause
our spot television commercials on national cable television to be less effective in the second quarter than in other periods of the year.
Additionally, we have found that advertising availability during the fourth quarter is more limited due to an increase in annual holiday
advertising and political advertisements during election years. Our retail business is also highly seasonal. We believe that sales within our
commercial/retail segment are considerably lower in the second quarter of the year compared to the other quarters. Our strongest quarter for the
commercial/retail segment is generally
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2003. EDGAR Online, Inc.