Home fitness equipment maker Nautilus (NYSE: NLS)
shares were a pandemic
winner as stay-at-home restrictions and gym closures bolstered the demand for in-home gym and workout equipment. As the Covid-19 vaccinations
accelerate, the reopening of gyms
and loosening of capacity restrictions will naturally cause a reversion in the home gym business
. While the Company still enjoys double and triple digit growth in its financial metrics, the question is how much of it will remain sticky in the new normal? Nautilus has grown it’s connected equipment segment as an alternative to Peloton (NASDAQ: PTON)
. Connected fitness is a part of the new normal and Nautilus has been able to transition itself to be a strong player. However, markets are always forward thinking. Valuation and price discovery is what the markets are trying to establish moving forward. Prudent investors looking for a key player in the connected fitness industry moving forward can watch for opportunistic pullback levels to gain exposure.
Q4 2020 Earnings Release
On Feb. 22, 2021, Nautilus released Q4 2020 results for the quarter ending in December 2020. The Company reported earnings per share (EPS) of $0.90, excluding non-recurring items, versus consensus analyst estimates of $0.75, a $0.15 beat. Revenues grew 87% year-over-year (YoY) to $189.3 million, shy of analyst estimates for $191.73 million. Full-year revenues rose 79% YoY to $553 million. The Q4 operating income of $41 million, up 1,160% YoY, and was the second highest since the Company started in 1986. The Q4 2020 EBITDA rose 578% YoY. Sales growth was primarily driven by its connected-fitness bikes from its Schwinn, Bowflex and VeloCore brands as well as its SelectTech and Bowflex Home Gym equipment. While supply chain restraints were greatly improvement in the quarter, nearly $16 million of revenues didn’t ship in December due to the shortage of shipping containers and global logistics disruptions. Factory capacity constraints resulted in $91.5 million in backlog. The Company expects Q1 2021 revenues to rise 55% to 75% YoY. Nautilus CEO Jim Barr stated, “The demand for in-home fitness has not abated in early 2021, even in the face of a vaccine roll-out.”
Conference Call Takeaways
Nautilus CEO, Jim Barr, set the tone, “Our fourth quarter was not just good, it was the best quarter in the Company’s 35-year history by both top, and bottom line measures.” Direct was up 129% and Retail was up 96%. Warehouses held $16 million in completed and sold inventory at the end of the quarter to be picked up, factor fulfilled orders (FFO). While typical, the magnitude of the FFOs are not normal, “Under this FFO arrangement, retailers are responsible for arranging transportation, finding containers and picking them up at our factor at the while titles passes and our revenue is recognized.” The Company ended the quarter with $94 million in cash and short-term investments. CEO Barr further elaborated on the connected-fitness improvements with media impressions up 400% YoY and its social media influencer program producing 8X reach YoY. The focus on connected-fitness segment launched JRNY, the individualized connected-fitness digital platform powered by one-to-one AI driven personalized experience “providing a virtually unlimited number of suggested workouts.” The monthly connected membership comes at a fraction of the $40 price point that competitors charge.
Driving Future Growth in the New Normal
The Q4 2020 revenue shortfall was primarily due to supply and logistics constraints, not demand. The extra $16 million of FFO orders won’t be applied to revenues until they are shipped out. If they were shipped, out, then revenues would have beaten the $191.73 consensus estimates by nearly $15 million. Demand was evidenced by the $91.5 million in backlog. The Company has completed its long-term strategy called North Star, which is the operational plan to parlay and leverage its reputable portfolio of fitness brands to drive growth moving forward. Polling results indicate more than 20% of former gym goers have stated they “will never return to the gym” for safety and convenience reasons but also having the ability to replicate through connected-fitness at home.
NLS Price Trajectories
Using the rifle charts on monthly and weekly time frames provides a broader view of the landscape for NLS stock. The monthly uptrend has stalled out after peaking and pulling back from the $31.48 Fibonacci (fib) level. The monthly 5-period moving average (MA) support has now become the resistance as it slopes down at $20.30. The monthly stochastic mini inverse pup signals the potential channel tightening sell-off towards the monthly 15-period MA at $12.90. The weekly rifle chart formed a market structure low (MSL) trigger above $19.49 and a market structure high (MSH) sell trigger below $17.59. The weekly rifle chart is a make or break but the weekly stochastic has crossed down which sets up a potential for a breakdown. Prudent investors can monitor for opportunistic pullback levels at the$17.59 weekly MSH trigger, $16.41 fib, $13.89 fib, $12.39 fib, and the $10.24 fib. Keep an eye on PTON as a leader indicator on price moves. Upside trajectories range from the $22.98 fib up to the $27.98 fib.
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