Nautilus (NYSE: NLS ) is a fitness product company that offers cardio and strength products such as treadmills, ellipticals, benches, dumbbells, and more to consumers. The company, founded in 1986, only has about 310 full-time employees . Just a few years ago, Nautilus was definitely not the type of company I would recommend for an investment. But its turnaround has been fantastic thus far, and it is likely to continue. The chart below shows just how big of a turnaround the company was able to make over the course of five years.
As you can see, the transformation was not a small one. The company managed to grow its revenue while it kept expenses under control, which turned it into a profitable and successful company, rather than one operating at a net loss of more than $50 million .
A few companies and products could potentially stand in the way of Nautilus's success. Most of its competitors are private companies that offer fitness products, such as Beach Body, which sells P90X. Financial information is very difficult to find on these companies, but Nautilus has a very real and different type of competitor in the public markets as well. Many people will choose to go the way of dieting and overall lifestyle changes rather than buying some Nautilus equipment for a home gym, or heading to a local gym to use Nautilus products.
Companies like Weight Watchers (NYSE: WTW ) and Nutrisystem (NASDAQ: NTRI ) offer meal plans and approaches to getting in shape rather than actual exercise equipment. These companies, though, pose just as much of a threat to Nautilus. When people choose to spend money on one of these programs to try to get in shape, that was money that could have been spent on a Nautilus product. Let's examine these companies' performances :
|Revenue||$231.49 M||$374.93 M||$1.64 B|
|Levered Free Cash Flow||$15.26 M||$17.57 M||$201.04 M|
|Debt To Equity||No Debt||No Debt||-1.63|
|Return on Equity||66.38%||15.91%||-11.64%|
As you can see, Nautilus might not be as large as these competitors, but it sure is earning some impressive returns. It has high margins, impressive efficiency, and no debt. This positions Nautilus for exceptional growth and success going forward.
Why the turnaround isn't over
This turnaround has only just begun, thanks largely to the company's financial health . It has no debt and over $55 million in cash, as well as $27.6 million in net deferred tax assets. With capital expenditure projections that only fall between $2 million-$4 million, the company will be able to finance growth initiatives via "internal cash generation."
Nautilus has three revenue streams that it relies on: direct sales, retail, and royalty. In direct sales, the company has been doing very well and growing rapidly. This is, of course, in part due to its innovative and effective products, such as the Bowflex TreadClimber. This unique machine is a treadmill, elliptical, and stepper all in one. Although the company launched the first version of this in 2004, it is still doing a solid job of addressing the growing demand for consumer cardio products. Also, the marketing for this product has remained strong and will drive a lot of the sales that Nautilus will see in the future. In 2013, Nautilus invested over $20 million in TV advertisements which led to over 5 billion impressions. Also, it invested more than $10 million into online media and gained 3 billion impressions . This strong marketing and brand exposure will lead to higher sales in the future.
The retail revenue stream is looking encouraging as well. First of all, the company has tremendous room for growth through some existing customers. Currently, the company only holds a 2% share of the "North America Wholesale Consumer Fitness Equipment" market. If the company can negotiate better contracts with companies such as Amazon, Sports Authority, and Wal-Mart, it will see increased market share in the future.
Also, the company estimates that the EMEA, Asia Pacific, and Latin America market is about $4.5 billion. Despite this, the company only had international revenue of $3.3 million in 2013. This is another area where the company can capture growth through brand exposure, high-quality products, and untapped markets. The royalty channel is not as strong and produces less revenue, but has still been growing at an impressive rate, as shown by the chart below.
Final Foolish thoughts
All of this company's revenue streams seem to be showing encouraging signs. Its growth over the past few years has been excellent as well, especially considering the tremendous struggles the company faced just a few years ago. With strong financials, an edge over competitors, and great opportunities for growth, it might be worth it to take some time and look into Nautilus.