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Columbian

By JONATHAN NELSON Columbian staff writer

Customers wanted the strength-training machines, treadmills and other fitness products made by Vancouver-based Nautilus Inc. during the holiday-focused fourth quarter.

But the company struggled to get its machines to buyers, resulting in lowered expectations for fourth-quarter sales. On Wednesday, Nautilus revised its preliminary quarterly revenue figures downward from $210 million to somewhere between $179 million and $183 million.

The news sent Nautilus' stock plummeting, hitting $13.55 a share at one point, the lowest it's been since January 2004. By day's end, the stock price rebounded to close at $14.02, a stunning 24.3 percent drop.

Wedbush Morgan Securities and BB&T Capital Markets downgraded the stock to "hold" from "buy."

Making changes

Eric Wold, an analyst for Merriman Curhan Ford & Co. that tracks Nautilus, said both magnitude of the quarter's miss and controls the company has in place concern him.

Ron Arp, Nautilus spokesman, said the company is already undergoing changes at its manufacturing plants in Tyler, Texas, and Tulsa, Okla., to increase production.

"We disappointed ourselves and Wall Street with our performance," Arp said. "However, we have tremendous confidence in the fundamentals and long-term direction of our business and fully intend to earn back the confidence of ourselves, customers and investors."

Nautilus employs 450 people at its Vancouver headquarters on Southwest 164th Avenue.

Gregg Hammann, Nautilus' CEO and chairman, said in a press release Wednesday that the company struggled to move new products through manufacturing and into the market during the three-month period.

"We are closing gaps and improving efficiencies in each stage of our go-to-market process," Hammann said.

Arp said the problems centered on Bowflex TreadClimber and a Nautilus treadmill as well as commercial versions of the Nautilus elliptical and treadmill machines. The company was unable to ramp up production of the new machines to meet demand.

Arp said changes at the two production facilities include adding new personnel, improving processes to prevent slowdowns and giving the plants more time to increase production levels before marketing hits its stride.

The delays have cost the company sales from its direct-marketing business as customers are unwilling to wait for longer delivery times.

This isn't the first time Nautilus has dealt with production issues. Jim Bellessa, analyst with D.A. Davidson & Co., said the company had production problems earlier this year with its TreadClimber.

Arp conceded Nautilus excels at innovation and marketing but is experiencing growing pains with the manufacturing and operation side of the business.

Wednesday's setback, however, won't alter the company's long- term strategy, Arp said.

Nautilus expects sales to grow 15 percent to 20 percent annually with earnings increasing 20 percent to 30 percent as set out in its 2006-2008 business plan.