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Nautilus Works Up a Sweat: Stock Climbs 17%

The Nautilus Group Inc. exhibited plenty of strength last month as the Vancouver, WA, health and fitness products marketer and manufacturer saw its stock price jump more than 17 percent from Aug. 31 to Sept. 28, rising from $19.49 to $22.83.

Among those who are bullish on the company are Mark Rupe, an equity research analyst at Adams Harkness, and Carole Buyers of RBC Capital Markets. Rupe raised his rating on the company from “buy” to “strong buy” in June. Buyers, who had rated the company “underperform,” upgraded the stock to “outperform” last month.

“There are a lot of factors driving [the increase], and we're getting close to Q4, which will be the first quarter where they'll see earnings growth again [since Q4 2002], and that should kick off a multi-year growth trend in earnings,” said Rupe, who does not own shares in the company.

Nautilus' 52-week stock price has ranged from $12.24 to $23.22.

“They are destined to take market share away from competitors,” he said. “While they were going through somewhat of a downfall, [their merchandise was] sold principally through direct [channels] and it was primarily strength-related through Bowflex. But cardio is the hot area. The market was buying cardio at retail, and they were not hitting the market. They didn't have the right product and the right channels of distribution. Now you can go into Sports Authority and find Bowflex and their treadmills. They had zero products at retail in the past.”

According to CBS MarketWatch, Buyers “came away from a meeting with the sports equipment company's management with the impression that it is on the brink of a turnaround.” Since hiring CEO Gregg Hammann from Levi Strauss a year ago, Nautilus has made changes to its distribution channel and marketing and sales team and refocused on production innovation in its core weight and cardio machine business, she told CBS MarketWatch.

In 2001, Bowflex represented 74 percent of the company's sales. Rupe estimated that figure will fall to 35 percent by 2005. He also placed the company's market share at “probably less than 10 percent” in the fitness industry.

“That's definitely going to rise,” he said. “They probably are going to add 1 percent a year at least, with a goal of reaching 15 percent market share in about two to three years. It's an aggressive approach, but very achievable.”

Nautilus sued the maker of the Crossbow and won a preliminary injunction in July preventing Icon Health & Fitness, Logan, UT, from using the Crossbow name. The two companies are expected to continue their legal battle next spring, when Nautilus will try to prove that the Crossbow design also infringed on the Bowflex patent.

New this month to the DM News Portfolio are Omnicom Group Inc., CoActive Marketing Group Inc. and Excelligence Learning Corp. They replaced Group 1 Software, Spiegel Inc. and Thane International Inc., which have been delisted. Also, Hanover Direct has been adjusted for a 1 to 10 split.

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