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BOWFLEX INC. (BFX)·Q3 2018 Earnings Summary

Executive Summary

  • Q3 2018 revenue was $91.1M, up 3.3% year over year, driven by a 14.9% increase in Retail; Direct declined 14.8% ahead of the Bowflex Max Trainer refresh and digital launch
  • Income from continuing operations was $4.5M and diluted EPS was $0.15; consolidated cash and investments were $71.1M and debt was $36M as of September 30, 2018 .
  • The company emphasized the imminent launch of the Max Intelligence Platform on new Bowflex Max Trainer models (M6/M8) as the primary Q4 catalyst; management expects Direct trends to reverse in Q4 with marketing ramp .
  • Versus non‑S&P preview consensus, Q3 missed: EPS $0.15 vs $0.17 and revenue $91.1M vs $93.5M; S&P Global consensus was unavailable in our data set and is not shown here (non‑S&P reference) .

What Went Well and What Went Wrong

What Went Well

  • Retail segment strength: net sales rose 14.9% to $61.5M on robust bikes, treadmills, and Max Trainer demand across Mass Retail and Specialty/Commercial channels .
  • Product innovation: successful launches including Bowflex LateralX in Direct and Octane MTX Max Trainer in Commercial; quote: “During the quarter, we successfully launched a number of new products including the Bowflex LateralX trainer… and the Octane MTX Max Trainer” .
  • Strategic catalyst: management showcased the upcoming Max Intelligence Platform (adaptive coaching, voice guidance) tied to the Bowflex Max Trainer refresh, positioning for improved Direct performance in Q4 .

What Went Wrong

  • Direct segment contraction: net sales down 14.8% y/y due to ~20% media spend reduction ahead of the product refresh and digital launch; gross margin compressed to 57.3% from 63.5% on higher input costs and FX .
  • Margin pressure in Retail: gross margin decreased 100 bps to 34.7% on higher product costs and mix shift to lower‑margin SKUs, partially offset by pricing and productivity .
  • Earnings quality concern: Third‑party summary noted EPS of $0.14 (vs $0.15 in management text), reflecting modest variability in reported “bottom line” across outlets, underscoring pressure from lower Direct sales and margins .

Financial Results

MetricQ1 2018Q2 2018Q3 2018
Revenue ($USD Millions)$114.2 (Retail $43.0 + Direct $71.2) $75.5 $91.1
Diluted EPS ($USD)$0.27 N/A$0.15
Direct Gross Margin (%)N/AN/A57.3 (vs 63.5 prior year)
Retail Gross Margin (%)N/AN/A34.7 (down ~100 bps y/y)

Segment breakdown:

Segment Net SalesQ1 2018Q2 2018Q3 2018
Retail ($USD Millions)$43.0 $39.2 $61.5
Direct ($USD Millions)$71.2 N/A~$29.6 (Total $91.1 minus Retail $61.5)

KPIs and balance sheet:

KPIQ3 2018
Cash & Investments ($USD Millions)$71.1
Debt ($USD Millions)$36.0
Share Repurchases ($USD Millions)$1.9 in Q3; $22 remaining authorization; $4.7 repurchased Oct 1–26

Q3 actual vs non‑S&P preview consensus:

MetricQ3 2018 ActualQ3 2018 Preview ConsensusSurprise
Revenue ($USD Millions)$91.1 $93.52 Miss ($2.4M below)
Diluted EPS ($USD)$0.15 $0.17 Miss ($0.02 below)

Note: S&P Global consensus estimates were unavailable for BFX/Nautilus Q3 2018 in our dataset; preview consensus references are non‑S&P sources.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2018$431M–$440M (raised in Q2 2018) No quantified update in Q3 release/call; management signaled Q4 Direct rebound tied to Max Intelligence launch Maintained directional (no numeric change)
Operating IncomeFY 2018$42M–$45M (Q2 2018) Not reiterated numerically in Q3 materials N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2018)Previous Mentions (Q2 2018)Current Period (Q3 2018)Trend
Direct segment momentumDirect $71.2M; mixed results in Max Trainer; focus on back‑half launches Direct weakness from Max/TreadClimber, planning new product/digital platform to drive H2 Direct down 14.8% from reduced media ahead of product refresh; expecting Q4 reversal Stabilizing with Q4 catalysts
Retail channel strengthRetail $43.0M; strong Mass Retail growth Retail $39.2M (+5.7%); double‑digit Mass Retail expansion Retail $61.5M (+14.9%) with strength across categories/channels Improving
Digital/AI platform (Max Intelligence)Strategy forming; emphasis on connected coaching Guidance raised partly on new digital platform to be integrated onto Max Trainer Launch imminent on M6/M8; adaptive coaching, voice guidance; key Q4 focus Accelerating
Cost/mix/FX headwindsNot highlightedMargin headwinds from costs/mix Direct GM down to 57.3% and Retail GM down 100 bps on commodity inputs and FX; mix shift to lower‑margin SKUs Persistent
Capital allocation (buybacks)Not highlightedNot highlighted$1.9M repurchases in Q3; $22M remaining; +$4.7M in Oct; priorities unchanged Ongoing

Management Commentary

  • CEO overview: “Third quarter results were in line with our expectations with net sales increasing 3% over prior year to approximately $91 million.”
  • COO on Max Intelligence: “The Max Intelligence Platform is Nautilus’ groundbreaking cloud‑based adaptive coaching technology… learns their capabilities and customizes new workouts every day… initially available on the new Bowflex Max Trainer M6 and M8.”
  • CFO detail: “Net sales for the third quarter totaled $91.1 million… Retail segment increased 14.9%… Direct declined 14.8%… Direct gross margin declined to 57.3% compared to 63.5% last year due to higher product cost and FX.”

Q&A Highlights

  • Direct trajectory: Management reiterated expectation of a Q4 reversal in Direct driven by the Max Trainer refresh and digital platform with increased marketing support .
  • Capital deployment: Buybacks accelerated in October; priorities remained intact with balanced approach to growth investments and shareholder returns .
  • Channel dynamics and product mix: Discussion of mix shifting to lower‑margin SKUs and retailer strength in bikes/treadmills and Max Trainer products .

Estimates Context

  • S&P Global consensus estimates were unavailable for BFX/Nautilus Q3 2018 in our dataset; therefore, we do not present S&P comparisons.
  • External preview consensus (non‑S&P): EPS $0.17; revenue $93.52M. Actuals missed both: $0.15 EPS and $91.1M revenue. Expect estimates to be revised down modestly on Direct margin pressure and the lower Q3 base, partially offset by anticipated Q4 Direct recovery tied to product/digital launch .

Key Takeaways for Investors

  • Retail momentum offset Direct weakness in Q3; watch for a potential inflection in Q4 as the Bowflex Max Trainer refresh and Max Intelligence launch receive full‑quarter marketing support .
  • Margin headwinds (commodities, FX, mix) pressured both segments; near‑term trading should focus on gross margin trajectories and SKU mix associated with new launches .
  • Liquidity and buybacks provide support: $71.1M cash/investments, $36M debt, ongoing repurchases; potential downside cushion while executing Q4 initiatives .
  • Guidance framing: FY18 revenue/operating income ranges raised in Q2 and not numerically updated in Q3; monitor Q4 delivery against implied H2 ramp to validate the back‑half thesis .
  • Short‑term: Expect volatility around Q4 launch execution and holiday demand; a clean beat on Direct would be a positive catalyst. Medium‑term: Success of Max Intelligence adoption could structurally improve Direct mix and LTV, partially mitigating margin pressures .
  • Note: S&P Global consensus estimates were unavailable for this period/ticker in our data; non‑S&P preview consensus used where indicated .