A weak euro and softer demand in the mass channel in the United States slowed sales and earnings growth at Dorel Industry’s Recreational/Leisure segment in the second quarter.
The decline in the value of the Euro versus the U.S. dollar shaved segment revenue growth by 2 points to 1.1 percent, resulting in sales of $251.9 million. Gross profit increased 4.3 percent, reaching 25.1 percent of revenues, up 80 basis points from the same quarter a year ago. Selling expenses increased 15.1 percent to $48.0 million, while general and administrative costs declined 2.9 percent to $28.3 million. Operating profit rose 1.6 percent to $21.6 million. The segment remains on track to increase profits over last year.
The segment’s Cycling Sports Group (CSG) CSG, which sells half its bikes outside the United States, was hardest hit by the falling euro. Gross margin dollars fell at CSG. Which sells Cannondale, GT, Mongoose and high-end Schwinn bicycles and Sugoi gear to independent bike dealers, or IBDs, fell by approximately $2.5 million in the quarter.
Organic sales growth, excluding the impact of foreign exchange variations on the segment's non-US based businesses, was approximately 7 percent year-to-date. That growth came primarily from the IDB channel and was driven by multiple bike categories.
The only weakness in the bike business came at the Pacific Cycle unit, which sells lower-priced Schwinn and other bikes under private label to mass merchants such as Target and Costco. Sales to those customers, tapered off in June as they focused on selling through their existing toy inventory, said Dorel’s CEO Martin Schwartz.
“We are trying the best we can to show our customers that they have to pay attention to bikes independently of toys,” Schwartz said of Pacific’s mass customers. “Constantly we hear about the toy inventory and not getting bike orders. That’s a self-fulfilling prophecy, because what happens then is they don’t order bikes and then the bike inventory gets very low at the store, so POS drops. And when POS drops they say let’s not have inventory. There is always a bit of a challenge on that and that’s a constant, constant event at our company.”
Dorel Leisure/Recreation also reported continued progress at its apparel division, which retuned to profitability in the first half in a big change from a year ago. The division markets cycling apparel, footwear and accessories under the Sugoi, Cannondale, Schwinn and other brands.
At CSG, intense branding of the premium Cannondale line, including sponsorship of the Liquigas-Cannondale pro cycling team, continues to drive results, particularly in Europe. “In the recently completed Tour de France, Peter Sagan won the prestigious green jersey as well as three stages in the overall tour and Vincenzo Nibali placed third overall,” said Schwartz. “We are pleased with the sponsorship of the team and intend to maintain Dorel's commitment to the promotion of our brands.”
To drive its mountain biking sales, Cannondale is further segmenting its over- mountain category into big mountain, tall mountain and cross mountain. It has also created a research lab at its headquarters in Bethel, CT to research new retail concepts in cooperation with select dealers.
“This is a significant change for our industry,” Schwartz said of the retail initiative. “It improves CSG’s previous point-of-purchase efforts, taking its queues not from the cycling sports industry but from the apparel and consumer electronics.”
