Nautilus Direct Segment To Lead Turnaround

Nautilus, Inc. NLS witnessed a sharp decline in sales at its direct segment in 3Q. The segment seems “well positioned to generate a significant turnaround in revenue trends,” Wunderlich’s Rommel Dionisio said in a report. He maintains a Buy rating on the company, with a price target of $28.

Nautilus’s direct segment recorded a 21 percent decline in sales in 3Q, with management significantly cutting back on advertising due to the temporary surge in television ad rates during the Olympics and presidential election. Following these events, management gave a substantial boost to television advertising starting late November.

Turnaround In Direct Sales

Given the ramp up in television ads over the past two to three weeks and the aggressive Black Friday and holiday promotions for MAX Trainer, Treadclimber and Bowflex home gyms, there is likely to be a turnaround in revenue generation at Nautilus’s direct segment, analyst Dionisio mentioned.

Nautilus is scheduled to launch its innovative new Bowflex HVT product in Q2 2017. “This product will be the first major home gym product on the market aimed at the rapidly emerging Crossfit/P90X type of high-intensity, combination strength/cardio workouts,” Dionisio wrote.

Moreover, the company's Retail segment generated impressive high-teens organic sales growth over the past couple of two quarters, with new product launches (including the Nautilus 614 and 616 Series smart cardio machines and Bowflex SelectTech dumbbells) being well received by customers.

Shares of Nautilus declined significantly after the sharp downturn in direct sales. The selloff represents an “attractive buying opportunity,” the analyst commented.