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Tickers in this Article: NLS, DKS, NKE, RSH
Shares of fitness-equipment maker Nautilus (NYSE:NLS) have been sagging like a flabby bicep in recent months due to a lack of potential revenue and margin catalysts. The new year could change all this, however, thanks to an expanding relationship with Dick's Sporting Goods (NYSE:DKS), moves by an activist investor to gain seats on its board and management's plans to revitalize earnings.

The Dick's Opportunity

Nautilus equipment isn't new to Dick's. The rapidly growing chain has stocked Nautilus' strength training equipment for some time, but in the latter part of 2008, Dick's will stock a greater assortment of premium branded home fitness equipment, along with merchandising and marketing support for Nautilus.

It's too early to tell what this will mean in terms of dollars and cents; however, with 340 stores scattered across some 36 states the benefits could ultimately prove to be quite large. The downside is that we can't expect any real benefit to hit Nautilus's bottom line until some time in the beginning of 2009.

Activist Activities

In an article I penned in September, I pointed out that 20% stake shareholder, Sherborne Investors, was seeking to obtain several seats on the board of directors. I also suggested that I thought this could be a positive for investors given Sherborne's reputation and mission with its investments to, as it website indicates, "work with management and the board to implement an aggressive turnaround plan." (For more on Sherborne Investor's interest, see Nautilus Set To Flew Its Muscle.)

On December 7, Sherborne sent a letter to Nautilus shareholders asking that they vote for its slate of directors at the December 18, 2007 special shareholder meeting. Then, on November 15, Nautilus sent out a letter to shareholders that implies that Sherborne is inexperienced and lacks a positive track record (To read the letter, click here). It's become a real brouhaha.

Some of the major proxy voting service organizations do have some concerns with Sherborne. However, in my mind it doesn't really even matter if Sherborne gains control of the board. In my mind this is about keeping pressure on management and letting them know that they are being watched. And Sherborne's involvement seems to do just that. (For related reading on the quest for shareholder value, see Activist Hedge Funds.)

Happy New Year

It's almost the new year, and new year's resolution time. I'm hoping that this will translate into increased sales and possibly an increased share price. A couple of months back, the company rolled out a fairly ambitious plan to save precious shareholder capital. It announced it was laying off roughly 140 employees and implementing other restructuring measures. The moves are expected to save about $10 million a year.

Going forward, I also expect its new chief executive, Robert Falcone, to shake things up with additional cost-saving announcements. Falcone is experienced in the world of retail. He is a board member at RadioShack (NYSE:RSH) and has served as CFO at Nike (NYSE:NKE).

Bottom Line

I think the shares are a bargain at these levels. Right now the stocks are worth serious consideration. If nothing else, the stock pays a dividend with a current yield around 5.7%.

Nautilus shareholders have been struggling as of late. However, activist involvement in the stock, management's cost reduction efforts and an expanding relationship with Dick's Sporting Goods could turn things around.

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