Nautilus 2014 Annual Report Download - page 28

time, as management determined that television advertising spending on this mature product category was generating suboptimal returns. We
continue to market and sell rod-based home gyms through more cost efficient online media and through the Retail channel.
Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers were 41.4% in 2014
compared to
36.1% in 2013 and 31.6% in 2012 .
The increase in Cost of Sales in our Direct business in 2014 compared to 2013 , and in 2013 compared to 2012
, was almost entirely related to
the growth in Direct Net Sales.
The 360 basis point increase in the gross margin of our Direct business for 2014 compared to 2013
was primarily driven by improvements in
product mix coupled with lower product costs related to expired royalty expenses.
The 240 basis point increase in the gross margin of our Direct business for 2013 compared to 2012
was primarily due to greater absorption of
fixed supply chain costs resulting from the higher sales volume.
Retail
The 21.4% increase in Retail Net Sales in 2014 compared to 2013
was driven primarily by increased sales of our cardio products. Net Sales of
strength products in the Retail business decreased 7.8% in 2014 compared to 2013 , primarily driven by lower sales of home gyms. The
53.3%
increase in Retail cardio sales for 2014 compared to 2013
was primarily due to the strong acceptance of our new line of cardio products
introduced in the third quarter of 2013, along with additional cardio products launched in the third quarter of 2014.
The 20.2% increase in Retail Net Sales in 2013 compared to 2012
was primarily driven by increased sales of our strength products, which
increased 44.8% , primarily due to higher sales of selectorized dumbbells and home gyms. The 1.3%
increase in sales of Retail cardio products,
including indoor bikes and ellipticals, was primarily due to the introduction of our new line of cardio products in the third quarter of 2013.
The increase in Retail Cost of Sales for both 2014 compared to 2013 , and 2013 compared to 2012 , was due to the increase in Retail Net Sales.
The 10 basis point improvement in Retail gross margin in 2014 compared to 2013
was primarily due to greater absorption of fixed supply chain
costs due to higher sales volume, partially offset by higher allowances related to discontinued inventory and a less favorable product mix.
Gross margins in our Retail business increased by 280 basis points in 2013 compared to 2012
, as a result of the Retail price increase we
implemented in the third quarter of 2012 and greater absorption of fixed supply chain costs due to higher sales volume.
Selling and Marketing
The increases in Selling and Marketing in 2014 compared to 2013 , and in 2013 compared to 2012
, were primarily due to increases in media
advertising of $6.8 million and $4.9 million , respectively, as well as increased incremental variable sales expenses and program costs of
$4.8
million and $2.6 million , respectively. In addition, production costs for creative media increased $1.6 million in 2014 compared to 2013 .
Selling and Marketing as a percentage of Net Sales is affected by the mix of Direct sales compared to Retail sales. Selling and Marketing
expenses are generally higher as a percentage of Net Sales in the Direct segment and lower as a percentage of Net Sales
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Dollars in thousands
Year Ended December 31, Change
2014 2013 $ %
Selling and Marketing $81,059 $66,486 $14,573 21.9%
As % of Net Sales 29.5% 30.4%
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%