Nautilus 2009 Annual Report Download - page 29

Table of Contents
Direct business
Net sales of our direct business were $123.0 million in 2009, a decrease of $62.7 million, or 33.7%, as compared to 2008. The comparative
decrease in net sales was primarily due to a substantial decrease in customer credit approvals in 2009 through HSBC, our third-party financing
company, as well as a reduction in advertising media spending, compared to the prior year. Economic weakness was cited by HSBC as the
reason for the lower approval rates. Additionally, in 2008 we had a secondary financing program available which was not available for direct
customers in 2009.
Gross profit margin of our direct business was 61.4% in 2009, compared to 60.0% in 2008, an increase of 140 basis points. The comparative
increase in gross profit margin primarily was attributable to a decrease in outbound freight expenses and a decrease in warranty costs, each of
which represented approximately 230 basis points of gross margin improvement, partially offset by reduced supplier rebates due to lower-
volume purchases in 2009, as compared to 2008, representing approximately 180 basis points.
Retail business
Net sales of our retail business were $63.6 million in 2009, a decrease of $30.9 million, or 32.7%, as compared to 2008. We believe the
comparative decrease in retail net sales primarily was due to the reluctance by retailers to replenish inventories, in response to reduced consumer
demand, as well as our tighter credit controls in the challenging economic environment. In addition, net sales declined in 2009 due to
management’s decision to reduce the number of rod-based home gym products offered in our retail business, so as not to conflict with our direct
business, as well as a reduction of product placement with certain customers, partially offset by new business growth.
Gross profit margin of our retail business was 30.4% in 2009, compared to 24.5% in 2008, an increase of 590 basis points. The comparative
increase in gross profit margin primarily was attributable to a decrease in warranty costs, representing approximately 280 basis points, as well as
lower sales of clearance and end-of-life products in 2009, as compared to the prior year.
Operating Expenses
Operating expenses in 2009 were $125.7 million, a decrease of $67.6 million, or 35.0%, as compared to operating expenses of $193.3 million in
2008.
Selling and Marketing
Selling and marketing expenses were $75.8 million in 2009, a decrease of $31.8 million, or 29.5%, as compared to the prior year. In response to
the tighter credit approval environment, we reduced our advertising expenditures to better align with our expected revenue levels. Advertising
expenses of our direct business in 2009 decreased by approximately $18.7 million, or 27.9%, as compared to the prior year. Our selling and
marketing expenses reflect our improved advertising efficiencies, including better alignment of our expenditures with anticipated revenue,
optimized advertising placement and improved creative content. In addition, third-party financing commission fees decreased by approximately
$5.8 million, primarily due to lower credit approval rates and reduced use of financing promotions. Other selling and marketing expenses
declined by approximately $7.7 million, compared to the prior year, primarily due to the impact of cost savings initiatives.
General and Administrative
General and administrative expenses were $24.6 million in 2009, a decrease of $10.7 million, or 30.4%, as compared to the prior year. The
decrease in general and administrative expenses primarily was due to a reduction in employment costs, facilities costs, legal expenses and
various other expenses in connection with our cost-savings initiatives. General and administrative expenses in 2009 also decreased due to the
resolution of legal
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