Gross margin for the fourth quarter of 2012 improved 490 basis points to 48.3 percent, compared to 43.4 percent for the same quarter in 2011. The increase in gross margin was primarily due to sales of higher margin products in the Direct channel. Operating margin for the fourth quarter of 2012 improved 310 basis points to 11.8 percent compared to 8.7 percent in the same period last year.
Income from continuing operations for the fourth quarter of 2012 was $7.3 million, compared to $3.3 million for the same period last year. Income per diluted share from continuing operations for the fourth quarter of 2012 increased to 23 cents, compared to 11 cents for the same quarter a year ago.
For the full year ended December 31, 2012, net sales were $193.9 million, a 7.5 percent increase compared to $180.4 million in 2011. Income from continuing operations in 2012 was $10.6 million, compared to $2.5 million last year. Income per diluted share from continuing operations in 2012 was $0.34, compared to $0.08 last year.
Bruce M. Cazenave, CEO, stated, “We are pleased to report strong fourth quarter and full year 2012 financial results. Solid improvements in revenue, gross margins, and net income reflect our successful execution on many of the key initiatives we established for 2012. In the fourth quarter, our Direct business continued to perform very well, underscoring the steadily growing demand for our products as well as our ability to leverage certain fixed costs and improve our gross margins. Our Retail business in the fourth quarter was impacted by an overall weaker retail environment for fitness equipment and the timing of new product placements with certain key retailers. The challenging retail market environment reinforces the direction we took during 2012 to focus our product development efforts on an entirely new lineup of cardio products which are scheduled for introduction this coming fall season. Early indications are positive in terms of the potential Retailer receptivity to this new line of products. We also ended the year with a strong balance sheet which reflects the improved cash flow and provides us the financial flexibility to make strategic and selective investments in our business going forward.”
For the fourth quarter of 2012, the company reported net income (including discontinued operation) of $13.6 million, or $0.44 per diluted share, compared to $3.2 million, or $0.10 per diluted share, for the fourth quarter of 2011. Net income for the fourth quarter of 2012 included $6.2 million from the non-cash recognition of currency translation adjustments related to foreign entities of the discontinued operation. Excluding recognition of currency translation adjustments, net income for the fourth quarter of 2012 was $7.4 million, or $0.24 per diluted share.
For the full year 2012, the company reported net income (including discontinued operation) of $16.9 million, or $0.55 per diluted share, compared to net income of $1.4 million, or $0.05 per diluted share, for 2011. Net income for 2012 included $6.2 million from the non-cash recognition of currency translation adjustments related to foreign entities of the discontinued operation. Excluding recognition of currency translation adjustments, net income for 2012 was $10.7 million, or $0.35 per diluted share.
Cazenave continued, “As we begin 2013, we are encouraged by the overall position of our more efficient business platform and expanding portfolio of products. New products will continue to be a key driver of the growth and profitability improvement in the business. While it is still early, we are pleased with the initial consumer reception to our newest products and are optimistic that they will contribute to our top and bottom lines in coming quarters.”
Segment Results
Net sales for the Direct segment were $41.4 million in the fourth quarter of 2012, an increase of 30.7 percent over the comparable period last year, reflecting strong demand for the company's cardio products driven by increased advertising and call center effectiveness and higher U.S. consumer credit approval rates. U.S. credit approval rates rose to 37 percent in the fourth quarter of 2012, up from 30 percent for the same period last year. Fourth quarter 2012 sales also benefitted from sales of CoreBody Reformer following its relaunch in the third quarter of 2012.
Operating income for the Direct segment improved to $6.5 million for the fourth quarter 2012, compared to $1.6 million for the fourth quarter 2011. This improvement reflects stronger sales as well as a 330 basis point improvement in Direct segment gross margin. Gross margin for the Direct business was 58.9 percent for the fourth quarter of 2012, compared to 55.6 percent in the fourth quarter of last year. Direct business gross margins benefitted from better product mix of higher margin cardio sales and less promotional activity in 2012.
Net sales for the Retail segment were $21.8 million in the fourth quarter 2012, compared to $26.5 million in the fourth quarter last year. Fourth quarter retail sales were impacted by a soft overall retail environment for fitness equipment along with the timing of product placements with certain retail partners.
Operating income for the Retail segment was $3.7 million, compared to $5.1 million in the fourth quarter last year. Retail gross margin was 24.1 percent in the fourth quarter of 2012, compared to 25.0 percent in the same quarter of last year. Retail margins were adversely affected by less absorption of fixed costs due to the lower volumes in the quarter versus the same period last year.
Balance SheetThe company ended 2012 in a strong financial position. As of December 31, 2012, the company had cash and cash equivalents of $23.2 million and no debt, compared to cash and cash equivalents of $17.4 million and $5.6 million of debt at year end 2011. Working capital was $25.4 million as of December 31, 2012, compared to $19.4 million at year end 2011. Inventory as of December 31, 2012 was $18.8 million, compared to $11.6 million as of December 31, 2011. The company took a more aggressive inventory position than in past years which helped support the sales growth experienced in Q4. We expect inventories to decline as we move into the slower part of the year and we will continue to invest strategically to support new products and existing product opportunities.
( Source Nautilus through SportsOneSource )
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