Nautilus 2007 Annual Report Download - page 27

Table of Contents
Consolidated Net Sales
Consolidated net sales were $617.3 million in 2006 compared to $607.3 million in 2005, an increase of $10.0 million or 1.6%. The increase is
primarily attributed to an increase in sales from our International Equipment Business of approximately $10.8 million.
Fitness Equipment Business
– Net sales for the Fitness Equipment Business were flat at $553.4 million in 2006 as compared to $554.2 million in
2005. Specific channel net sales information is detailed below:
International Equipment Business
–
Net sales for the International Equipment Business improved 20.3% in 2006 to $63.9 million as compared to
$53.1 million in 2005. 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 of $1.9 million and $2.1 million, respectively.
Consolidated Gross Profit
As a result of our increased sales, our total gross profit increased by 1.4% to $266.4 million in 2006 as compared to $262.8 million in 2005. As a
percentage of consolidated net sales our gross profit margin decreased to 43.2% as compared to 43.3% last year. The decrease was a result of the
continued shift in our sales product mix both between and within product categories and among our selling channels. This was partially offset by
a reduction in our warranty costs primarily through a recovery of a portion of such costs from our suppliers. In addition, as a result of improving
our operating efficiencies and sustained engineering efforts we have continued to focus on reducing the cost of our sourced products from our
Asian manufacturers.
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• In the
direct channel
, net sales declined 3.7% in 2006 to $283.1 million compared to $293.9 in 2005. Sales in the direct channel
consist of our Bowflex branded products and primarily include our rod-based home gyms, TreadClimber products, SelectTech
dumbbells, and the Bowflex Revolution. The decrease in net sales was due to a combination of reduced advertising earlier in 2006 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 in 2006 were $73.0 million compared to $72.9 million in 2005. During 2006 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% in 2006 to $196.1 million as compared to $187.4 million in 2005. Growth in the
channel was 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 the Bowflex Blaze home gym, which was launched 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.