Nautilus 2006 Annual Report Download - page 24

Table of Contents
International Equipment Business —The international equipment business sells and markets fitness products sold under the Nautilus,
Bowflex, Schwinn Fitness, and StairMaster, brand names through the direct, commercial, and retail channels of distribution located outside of
the Americas. Net sales for the international business improved 20.3% to $63.9 million as compared to $53.1 million last year. The increase in
net sales is a result of the growth of sales to the international distributor network which contributed approximately $5.6 million, and additional
sales in China and the western European countries where we have offices of $1.9 million and $2.1 million, respectively.
Fitness Apparel Business – The fitness apparel business is responsible for the design, production, selling and marketing of branded
apparel and footwear products sold under the Pearl Izumi, Nautilus and Schwinn Fitness brands. These products are primarily sold through four
distinct sales channels that include wholesale direct, internet direct, retail stores leased by the Company and international distributors. Net sales
for the Fitness Apparel Business improved 162.2% to $63.0 million as compared to a reported $24.0 million last year. The fitness apparel
business was created in July of 2005 from the Company’s acquisition of Pearl Izumi. From a comparability perspective, net sales of $29.7
million for the six months ended December 31, 2006 would be compared to $24.0 million in the same period of 2005, an increase of $5.8
million or 24.2%. This increase is attributed to strong sales of the core Pearl Izumi cycling and running products with domestic net sales
increasing approximately $3.4 million, and international direct and distributor net sales contributing approximately $1.4 million and $1.0
million, respectively.
Consolidated Gross Profit
As a result of our increased sales, and the full integration of Pearl Izumi, our total gross profit increased by 7.1% to $298.6 million as
compared to $278.8 million last year. As a percentage of consolidated net sales our gross profit margin decreased to 43.9% as compared to
44.2% last year. The decrease is a result of the continued
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The decrease in net sales is due to a combination of reduced advertising earlier in the year as a result of increased competition for
media space and lower conversion rates as consumer confidence was negatively affected by higher interest rates and increasing fuel
prices resulting in an overall decrease in sales of our rod-
based home gyms. This decrease was slightly offset by an increase in sales
volume for our Bowflex TreadClimbers and the Bowflex Revolution, our latest generation of Bowflex home gyms.
• In the commercial channel , net sales remained unchanged at $73.0 million in 2006 compared to $72.9 million last year. During
the year we made a decision to renegotiate terms and discounts with our commercial dealers in order to increase overall profitability
within the channel. As a result of these negotiations we realized a slight reduction in commercial dealer sales volumes. This
decrease was offset by realizing a full year of sales from the Nautilus Commercial grade TreadClimber, various new product
introductions during the last half of 2006, and a four percent price increase that was issued on a variety of products mid year.
• In the retail channel , net sales increased 4.6% to $196.1 million as compared to $187.4 million last year. Growth in the channel is
mainly due to an increase in sales volume through our existing retail partners which resulted in additional sales for our Bowflex rod-
based home gyms, SelectTech dumbbells, and launching the Bowflex Blaze home gym in the third quarter of 2006. Contributing
further to the growth was the realization of a full year of sales from products introduced later in 2005 for our Schwinn Fitness line of
cardio equipment. The overall increase was offset by a decrease in sales of our Bowflex TreadClimbers, Nautilus strength products,
and the discontinued Trimline cardio products. During the year, we also revised our supply chain strategy to increase the number of
shipments to our retail customers directly from our Asian manufacturing partners. While this contributed to a reduction in net sales
during the year, our profitability increased due to decreased distribution, freight and the U.S. customs related costs. The channel also
realized a slight decrease from the negative effect of poor sell-through in the last quarter of 2006 in our specialty retail customer base
that resulted primarily from an increasingly competitive market for specialty products and an increasingly challenging specialty retail
environment.