Nautilus 2004 Annual Report Download - page 25

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Table of Contents
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
Net Sales
Net sales were $523.8 million for 2004 compared to $498.8 million for 2003, an increase of $25.0 million or 5.0%.
Sales within our direct segment were $262.1 million in 2004, an increase of 6.1% compared with 2003. Our direct segment accounted for
50.0% of our aggregate net sales in 2004, as compared to 49.5% of net sales in 2003. The sales growth in our direct segment occurred primarily
in the second half of the year. The growth was due to several factors, including product innovation in the Bowflex home-gym line, strong
demand for the less than two year old Bowflex TreadClimber cardio products, and the introduction of Bowflex SelectTech dumbbells, coupled
with more effective advertising placement and an increase in consumer financing approval rates.
Sales within our commercial/retail segment were $261.8 million in 2004 as compared to $251.9 million, an increase of $9.9 million or
3.9%. The increase in sales within the commercial/retail segment was primarily attributable to a $7.1 million increase in the sale of Bowflex
branded products within the retail side of the business. Additionally our international operations that handle sales outside of the America’s
performed strongly, increasing net sales by $7.6 million to $43.9 million in 2004 from $36.3 million in 2003.
Gross Profit
Gross profit decreased by $7.0 million to $244.8 million in 2004 as compared to $251.8 million in 2003, or a 2.8% decline. The gross
profit margin decreased to 46.7% in 2004 from 50.5% in 2003. The gross profit margin within our direct segment was 65.9% in 2004 compared
to 70.1% in 2003. Approximately 1.3 percentage points of the decline was due to increased promotions to drive sales growth. Approximately
1.2 percentage points of the decline was due to a change in sales mix from the higher margin Bowflex home gym products to the TreadClimber
and SelectTech products. As we continue to sell more units of the TreadClimber we believe our TreadClimber margins will increase due to the
leveraging of our costs. Additionally, approximately 1.1 percentage points of the decline was due to increased shipping costs due to the
combination of carrier rate increase and certain sales promotions.
The gross profit margin within our commercial/retail segment was 27.5% in 2004, compared to 31.3% in 2003. The decline was due to
the expansion of sales into large volume, lower margin retail customers consistent with our diversification strategy along with increased
shipping costs due to carrier rates. This decline was partially offset by the overall increase in commercial/retail sales which allowed us to
leverage our fixed costs.
Operating Expenses
Selling and Marketing
Selling and marketing expenses were $156.6 million for 2004 compared to $149.3 million for 2003, an increase of $7.3 million or 4.9%.
As a percentage of net sales, overall selling and marketing expenses remained consistent in 2004 as compared to 2003 at 29.9%.
Due to strong consumer demand for our Bowflex products and higher consumer financing approval rates selling and marketing expenses
within our direct segment remained consistent at 48.9% of net sales in 2004 and 2003. The strong consumer demand allowed the Company to
reduce the direct segment advertising expense by 6.3% while achieving the same sales volume. These savings were offset by an increase in
consumer financing fees due to stronger financing utilization by our direct consumers of 63.8% in 2004 compared to 43.0% in 2003.
Selling and marketing expenses within our commercial/retail segment were consistent at 10.9% of net sales in 2004, compared to 11.3%
in 2003.
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