Dorel Industries Inc. revenues in its Recreational/Leisure division rose 14.9% to $161.4 million from $140.5 million in the year-ago period. Operating earnings declined 32.6% to $10.0 million from $14.8 million a year ago.
Excluding the impact of new business acquisitions and foreign exchange variations on the segment, the organic revenue decline was approximately 2%, but was concentrated at mass merchant customers which were slower to replenish their inventory levels in bikes as compared to the other segments.
In the first quarter, inventories declined from almost $510 million to about $420 million at the end of the quarter, and the company stated it is continuing to work down that inventory. In a conference call with analysts, CEO Martin Schwartz clarified, “Between the payables declining and the receivables going up, we really didn't see the cash flow benefit of the inventory. We will. The reason payables went down is we bought a lot less because we were selling a lot of the inventory that we bought previously. That number should come back up to a normalized number as we start to buy again in Q2.”
Sales through the IBD channel and SUGOI experienced organic growth of 8% and 9%, respectively. Gross margins decreased by 170 basis points due principally to a less profitable product mix as consumers shifted to lower price point product. Expenses increased considerably as the segment continued to invest in its infrastructure and in product innovation. The closing of the order window for bikes extended further into Q1 this year than for other product lines. Schwartz said the company has seen the economic situation most noticeably reflected in bike sales this quarter, with more sales of lower priced bicycle products this season.
