Before Guidance: 18 to 21 cents per share on sales of $185 to $195 million (say 19 cents on $190M).
Lower Guidance: 8 to 9 cents per share on sales of $160 million.
So with a $30M shortfall (20% less sales), they foresee a 50% drop in profit?!!!! Was home gyms sales bringing in all that profit?
You guys need to do some work. a 20% sales short fall leading to a 50% drop in profits - of course it makes no sense. You need to look at the dollars. The company missed sales by $30 million but earnings only missed by $5 million. Therefore, the company did a great job increasing product margins during the quarter. Since they issued guidance on Feb 7th, the shortfall obviously happened later in the quarter and they were unable to cut more variable SG&A expenses. As far as new mgmt, they are doing great, but it has taken longer. Gregg inherited a company with basically one product and poor manufacturing. He immediately had to deal with a big product recall. Today his products are much higher quality. That does not happen overnight. Also he wanted to diversify into new product areas to reduce risk. They were nothinh in treadmills when he arrived and now they are taking share. International is a big opportunity and it is growing. It was nothing when Gregg arrived. Retail opportinity is huge. NLS is taking big share at the large sporting goods retailers. You will notice this over time. These are the facts. The stock price will follow. This is when you should be buying.
You have definitely been drinking the cool-aid. While I agree the company is very different today than it was in 2003 (new products, channels) I wouldn't say that it is any less risky (I don't belive there have ever been earnings misses prior to Gregg that come close to the Q4 2005 miss or the Q1 2007 miss) and that change came at a heavy price. All of the $120MM in cash is gone, most of the company owned property has been sold, they are now using debt to suppport operating expenses and to pay a dividend they can't afford, and shareholders are getting a whopping low single digit net profit. This is nearly 4 years into the G team and still not back up to the profit levels when he took over. If you think it is prudent to continue to wait for this management team to turn it around you may want to invest your money in General Motors or Ford.
numbers do make sense.
If you have overhead of $50 on an item that sells for $100, you have a gross profit percentage of 50%.
If you lower your price 10%, to $90, the gross profit is now only 44%, or $40 per item. Your profit has gone down 20% when your price went down 10%.
You have to look at how these things multiply and what the denominator is.
Another example: If you lower your selling price per item by 1 percent, and your profit margin was 1.3 percent, can you have a loss?
Answer: it depends.
A number of retailers report today that their home-furnishings business was soft or sluggish because of housing. I guess you can throw in gym equipment in there too. I'll be listening in on the CC....Lucy you have some essplaining to do!
By no means were the former managment team the best in the business, but the new team isn't helping anything. As for bad acquisitions, remember that one of the acquisitions made by old management was Nautilus, which is the name the company touts today (this company used to be Direct Focus, and Bowflex, Inc. prior to that). The only thing you could say was a bad acquisition was the Nautilus Sleep System, which wasn't really an acquisition to start with but a product they marketed (unsuccessfully yes, but it wasn't a fitness product to begin with). Additionally, old management never missed on earnings either. 1Q07 was a MAJOR miss, not just a penny or two.
This has been going on for a few years now. Don't be fooled by excuses like macro-econominc factors, etc. this is entirely managements fault. This company was a cash cow with Bowflex home gyms in the Cook and Potter days, and since that time Gregg & Co. came in and spent all that cash on acquisitions like Pearl Izumi and the manufacturing plant in China. These were slight-of-hand tricks to distort the balance sheet (same thing with the multiple layoffs over the past few years) and hide the fact that sales have been slumping for some time. It's too bad. This company was once the darling of wall street.
Yeh sure, it was "the darling of Wall Street" until the summer of 2002 when the stock peaked at $45. Then ICON introduced a competitive product that was a piece of crap and the business almost failed under the wonder team of Cook and Potter. A year later under this team, the stock bottomed at $10 and Cook left, unable to manage or control the business. It was a single product company that Cook and Potter successfully milked until the lack of new product development together with a management team in over its head, led to its near collapse. I'll take Hammann's management any day even with the current issues.
You got it. Direct sales drive profits, always have. Back in the day when profits by channel were disclosed, the direct channel would account for a much larger portion of profits than net sales.
The other possibility is that costs as a percentage of sales have grown more than expected in Q1. With the debt taken on in the last year or two that would make sense. Obviously G&A must be an issue as the recent layoffs are the first since the new management team arrived in 2003.