Nautilus Catches Downgrade After Issuing Weak Q4 Guidance

Global fitness solutions company Nautilus, Inc. NLS cautioned investors Thursday afternoon that its fourth-quarter results are likely to come in notably short of expectations.

What Happened

Nautilus told investors it expects to report earnings per share from continuing operations of 4-5 cents per share versus the Street's estimate of 56 cents per share. The company guided to revenue of $114 million to $116 million, which is also notably short of the $149.6 million expected.

The company's cautious guidance sent shares lower by nearly 40 percent Friday and prompted D.A. Davidson's Michael Kawamoto to downgrade Nautilus from Buy to Neutral with a price target lowered from $18 to $9.

Why It's Important

Nautilus' poor Q4 forecast comes at a time when the overall retail segment "was still strong" and follows the company's "robust" Q3 sell-in period, Kawamoto said in the Friday downgrade note.

It's difficult to identify any set of problems at the company level, the analyst said, giving the following potential explanations for Nautilus' weakness:

Marketing efforts that didn't resonate with consumers as expected.
Competition from rival treadmill makers, especially Peloton.
Macro uncertainties, which picked up momentum toward the end of 2018.

What's Next

Nautilus' warning included some details on how the company will resize its operations to become more profitable on a lower revenue base.

"The company will most likely continue to heavily invest in R&D and technology, but could reduce overhead in some back office functions," Kawamoto said.

The details of exact timing and areas of focus have yet to be announced.

If Nautilus issues full year 2019 guidance in conjunction with its late February earnings report, it will likely show a continuation of the issues seen in Q4, according to D.A. Davidson.

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Photo courtesy of Nautilus.

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