Nautilus, Inc. reiterated with “sell” rating
Merriman Curhan Ford Wednesday reiterated its “sell” rating on manufacturer and marketer of branded fitness and apparel products Nautilus, Inc. (NYSE: NLS).
“We continue to question management’s growth strategy over the past few years on a number of fronts – and do not believe management is taking the appropriate steps to help stem the downturn that has apparently accelerated over the past few quarters,” wrote Merriman Curhan Ford analyst Eric Wold.
In an economic and operating environment characterized by weak consumer spending trends and increased competition, Wold says management continues to flounder.
In the face of declining sales trends on account of waning demand for Nautilus’ products, management plans to quadruple manufacturing capacity and double its debt balance, according to Wold.
The Vancouver, Wash.-based company has moved into the retail channel with a similar product mix to the direct channel and this has “cannibalized the higher-margin direct channel and confused target customers,” Wold writes.
According to Wold, sales have increased by only 7.7% annually since 2003, while EPS have declined on average by 5.8% annually. If Nautilus were to miss its second quarter results it would represent six out of the last eight quarters the retailer has missed estimates.
Wold currently forecasts earnings per share for fiscal year 2007 of $0.82 compared with $0.90 for fiscal year 2006. He estimates earnings per share of $1.07 for fiscal year 2008.
Wold’s estimates are below the EPS consensus of 12 analysts surveyed by Thompson Financial of $0.87 per share for fiscal year 2007 and the EPS consensus by 11 analysts surveyed by Thompson Financial of $1.12 per share for fiscal year 2008.
Since Gregg Hamman assumed the perch of CEO in 2003, shares have only returned 6.3% annually compared with a 12.9% annual return for the S&P 500. Shares have seen a 60% decline in the past two years. Wold says he would not be surprised if shares fell below the $10 level.
Shares of Nautilus, which have been trading in a range of between $11.10 and $18.63 for the past year, were down 2.3% or $0.29 to $12.18 in mid-day trading Wednesday.
