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Editor's note: A previous version of this article incorrectly listed Nautilus' sales decline as 48.4% instead of 8.4%. We regret the error.

What: Shares of Nautilus (NYSE:NLS) were getting crushed today, falling 27% after releasing a disappointing second-quarter earnings report.

So what: The gym equipment maker said that sales fell 8.4% to $36.2 million, badly missing estimates, but gross margin improved 440 basis points in the quarter. Still, the company's $0.05 EPS loss missed analyst estimates at breakeven as Nautilus's retail segment was a major drag on sales. The larger direct segment grew by 2.5%, helping to offset the slump. Despite the loss, CEO Bruce Cazenave sounded confident, noting that the second quarter is traditionally slow and adding that the "underlying process on key initiatives remains positive."

Now what: Oddly enough, Nautilus won an upgrade from neutral to buy from investment research firm B. Riley after the report came out, though the upgrade seems to be as motivated by today's price drop as anything else. Focusing on the higher-margin direct segment seems like a wise strategy as it will help drive profitability. However, a 27.5% decline in retail segment sales is concerning. Management seemed to imply that the decline was not structural and more the result of accelerated sales last year, but analysts expect a 10.4% growth rate for the year. With high revenue targets to hit, I'd wait to see sales moving in the right direction before becoming a believer.