ericvann -- FWIW I think that both have had an impact and that competition really was the bigger factor.
I think improving consumer sentiment coupled with Nautilus' fast and effective response to retail competition will quickly restore revenues to the over-600-million level. So yeah, I view a slice of the 2003 earnings dip as an immaterial "blip".
But I think that competition was a larger and permanent change. Not nearly the world-shattering disaster that the shorts claimed, but it sets them back. Nautilus can easily and profitably compete with visibly crappy knock-off Bowflexes in the retail stores ... but it knocks their prices down. They can't switch off the low end anymore. The $1600 Bowflex Emasculator is not gonna determine the net margin anymore.
Just to give the picture, here's my own crude "most likely" forecast:
2002 net margin: 17% 2003 net margin: 8% 2004+ net margin: 8% (competition: live with it)
Calculated from rev*margin above: 2002 earnings: $99M....eps: $2.70 (diluted) 2003 earnings: $37M....eps: $1.13 (options sumberged) 2004 earnings: $48M...eps: $1.35 (diluted) 2005+ dunno, but steady at $1.40 not a bad bet
So in my view, a dollar or more of the earnings hit was "permanent" in the sense that the company now needs twice the revenues to get back to $2.50 per share, and the ROE available to fund that growth internally is also cut from 40% to 20% (after dividends, 12%).
Anyway I think the competition whining was on target: cost cutting has made life less profitable for the Flex.