DM News Portfolio: Direct Focus Stock Stays Up Due to E-Commerce Sales

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Direct Focus Inc.'s stock reached a 52-week high of $47.38 on Nov. 8, topping off a gradual increase during the year that resulted from an increased focus on online sales as well as the expansion of the fitness and lifestyle marketer's product line.


During the quarter that ended Oct. 17, the company reported net sales of $52.7 million, representing an increase of 66 percent compared with the same quarter in 1999, as well as net income of $11.1 million, an increase of 102 percent over the same quarter in 1999.


Direct Focus markets four products: Bowflex Fitness, a direct-marketed home fitness system; Nautilus Sleep Systems, a direct-marketed high-end air mattress; Nautilus Human Performance System, which includes fitness systems marketed to physical fitness centers; and Nautilus Home Fitness Products, which are home fitness equipment and accessories available at retail fitness locations.


Direct Focus attributes a portion of its success to its online sales.


"We began to develop Web sites to sell our products in late 1997, and today, because of enhancements, the sites are substantial sources of sales," said Randal Potter, chief operating officer and president of the Direct Division at Direct Focus Inc., Vancouver, WA.


The company uses short- and long-form infomercials to direct consumers to the Web sites for Bowflex Fitness and Nautilus Sleep Systems, www.bowflex.com and www.greatsleep.com.


"We do not advertise on the Web and expect people to find us," Potter said. "We explain our products through infomercials and send consumers to the site once they are familiar with the products."


Direct Focus also uses e-mail marketing and print advertising to market its consumer product line. Potter said Direct Focus targets its direct-marketed fitness products to people older than age 35.


"By driving more and more consumers to the Web site, Direct Focus is able to sell more product at a lower cost by not having to pay a salesman," said James Bellessa, an analyst at D.A. Davidson & Co., Boise, ID. "The online consumer spends more on the Web on product upgrades, they have more time to research the product and are not intimidated by a salesman."


E-commerce sales during the quarter that ended Oct. 17 totaled approximately $11.5 million and accounted for 25 percent of the company's $46 million in direct sales.


In March the company added third-party financing of up to $3,500 on its consumer sites through a partnership with Household International.


Direct Focus also attributes its growth to the acquisition of national brand-name fitness company Nautilus in January 1999. The company plans to acquire and market additional brand names in the health and fitness arena, said Potter, who added that there are no definite companies lined up currently. He added that the company is redesigning its Web sites to make navigation faster for consumers.


Direct Focus closed at $45.88 on Nov. 28, representing an increase of $1.38 from its closing price Oct. 31 as reported in the previous DM News Portfolio.


In other news, Hello Direct was acquired last month and replaced in the Portfolio by Gentner Communications Corp.
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