Nautilus 2013 Annual Report Download - page 28

Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers were 36.1%
in 2013 compared to
31.6% in 2012 and 25.0% in 2011.
The increase in Cost of Sales in our Direct business in 2013 compared to 2012 was almost entirely related to the growth in Direct Net Sales and
was partially offset by the improvement in gross margin.
Of the increase in Cost of Sales of our Direct business in 2012 compared to 2011, approximately $7.3 million was due to higher sales volume,
which was partially offset by a $2.9 million decrease in Cost of Sales attributable to a shift in product sales mix and a $0.4 million reduction in
supply chain costs, including freight.
The 240 basis point and 340
basis point increases in the gross margin of our Direct business for 2013 compared to 2012 and 2012 compared to
2011, respectively, were primarily due to greater absorption of fixed supply chain costs due to the higher sales volume. We are no longer
required to pay royalties on certain expired patents covering aspects of our Treadclimber
®
products. The impact of this on our Direct segment
gross margins is uncertain.
Retail
The 20.2%
increase in Retail Net Sales in 2013 compared to 2012 was driven primarily by increased sales of our strength products. Net Sales of
strength products in the Retail Segment increased 44.8%
in 2013 compared to 2012, primarily driven by higher sales of selectorized dumbbells
and home gyms. The 1.3%
increase in Retail cardio sales for 2013 compared to 2012 was primarily due to the introduction of our new line of
cardio products in the third quarter of 2013.
The 6.9% decline in Retail Net Sales in 2012 compared to 2011 was primarily due to a 17.2%
decline in sales of cardio products, including
indoor bikes and ellipticals, partially offset by an 11.3% increase in sales of strength products, primarily selectorized dumbbells.
The increase in Retail Cost of Sales in 2013 compared to 2012 was due to the increase in Retail Net Sales, partially offset by improvements in
Retail gross margin. The decrease in Retail Cost of Sales in 2012 compared to 2011 was due to the decrease in Retail Net Sales, partially offset
by a decline in Retail gross margin.
The 280
basis point improvement in Retail gross margin in 2013 compared to 2012 was primarily due to the positive impact of a Retail price
increase implemented in the third quarter of 2012 and greater absorption of fixed supply chain costs due to higher sales volume.
Gross margins in our Retail business declined by 90
basis points in 2012 compared to 2011, as the Retail price increase we implemented in the
third quarter of 2012 was more than offset by less absorption of fixed supply chain costs due to lower sales volume.
Selling and Marketing
The increases in Selling and Marketing in 2013 compared to 2012, and in 2012 compared to 2011, were primarily due to increases in media
advertising, which also contributed to the improvements in Net Sales in 2013 compared to 2012, and in 2012 compared to 2011. In addition,
finance fees payable to our consumer finance providers, as a result of increased Net Sales in those periods, increased by $1.6 million in 2013
compared to 2012 and $0.9 million in 2012 compared to 2011.
Selling and Marketing as a percentage of Net Sales is affected by the mix of Direct sales compared to Retail sales. Increasing Direct sales as a
percentage of total Net Sales increases the percentage of Selling and Marketing as a percentage of Net Sales and vice versa.
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Dollars in thousands
Year Ended December 31, Change
2013 2012 $ %
Selling and Marketing $66,486 $58,617 $7,869 13.4%
As % of Net Sales 30.4% 30.2%
Dollars in thousands
Year Ended December 31, Change
2012 2011 $ %
Selling and Marketing $58,617 $54,494 $4,123 7.6%
As % of Net Sales 30.2% 30.2%