Operating income for the Direct segment improved to $6.5 million for the fourth quarter 2012, compared to $1.6 million for the fourth quarter 2011. This improvement reflects stronger sales as well as a 330 basis point improvement in Direct segment gross margin. Gross margin for the Direct business was 58.9% for the fourth quarter of 2012, compared to 55.6% in the fourth quarter of last year. Direct business gross margins benefitted from better product mix of higher margin cardio sales and less promotional activity in 2012.
Net sales for the Retail segment were $21.8 million in the fourth quarter 2012, compared to $26.5 million in the fourth quarter last year. Fourth quarter retail sales were impacted by a soft overall retail environment for fitness equipment along with the timing of product placements with certain retail partners.
Operating income for the Retail segment was $3.7 million, compared to $5.1 million in the fourth quarter last year. Retail gross margin was 24.1% in the fourth quarter of 2012, compared to 25.0% in the same quarter of last year. Retail margins were adversely affected by less absorption of fixed costs due to the lower volumes in the quarter versus the same period last year.
For further information, see "Segment Information" attached hereto.Balance Sheet The Company ended 2012 in a strong financial position. As of December 31, 2012, the Company had cash and cash equivalents of $23.2 million and no debt, compared to cash and cash equivalents of $17.4 million and $5.6 million of debt at year end 2011. Working capital was $25.4 million as of December 31, 2012, compared to $19.4 million at year end 2011. Inventory as of December 31, 2012 was $18.8 million, compared to $11.6 million as of December 31, 2011. The Company took a more aggressive inventory position than in past years which helped support the sales growth experienced in Q4. We expect inventories to decline as we move into the slower part of the year and we will continue to invest strategically to support new products and existing product opportunities.