Dorel Industries lowered earnings at its bike segment, saying growing discounting by competitors in the independent bike dealer *(IBD) channel was eroding the top and bottom lines at Cycling Sports Group, which sells Cannondale, GT, Mongoose and Schwinn bikes and Cannondale and Sugoi footwear and apparel.
Dorel had warned of slower bike sales in early May, when it reported first quarter revenues at Cannondale Sports Unlimited (CSU), also known as Dorels Recreational/Leisure Segment, declined 8 percent.
Dorel attributed the decline to unfavorable comparisons to the prior year, when unusually warm weather and later shipments of new-year models boosted results. Last week, Dorel executives said the impact of less favorable weather in the first quarter was being compounded by widespread discounting in the second quarter as dozens of bike brands vied for scant IDB replenishment orders.
As a result of the soft first half, full year earnings in bicycles will not, as previously indicated, exceed 2012 levels, the company said in a statement.
“These issues in bicycles are mainly related to matters beyond our control,” stated Martin Schwartz, president and CEO of Dorel Industries, which is based in Toronto, Canada. “The reality is that we are now into mid-June and the weather has not improved sufficiently, which means that we will be unable to make up the accumulated year-to-date sales shortfall. With the cost reductions being implemented, we are optimistic that bicycle earnings in the second half will increase double digit over last year.”
Dorel said CSU had initiated significant cost reductions, including the elimination of 50 positions worldwide, or roughly 5 percent of its workforce. As a result, Dorel will record a second quarter one-time charge of approximately $2 million for severance.
The bulk of the cost cutting will likely occur overseas and within Cycling Sports Group (CSG), which design and sources Cannondale products and markets the Cannondale, GT, Mongoose and Schwinn and Sugoi brands to IBDs, according to a Rick Leckner, a spokesman at Dorel Industries headquarters in Toronto, Canada. Leckner said cuts will not affect CSGs plans to relocate from Bethel, CT to a larger and newer facility in Wilton, CT or its plans to open its first company-owned store in New York City. Cannondale Sports will sell Cannondale, GT, Schwinn and Mongoose bikes as well as Cannondale and Sugoi apparel, parts and accessories.
Nobody likes to do these things, Leckner said of the job cuts. But this is short-term pain for medium- to-long-term gain. We expect the second half of the year will be good.
Dorel said performance at its Juvenile and Home Furnishings segments remain on track to hit targets outlined in early May. Dorel will announce second quarter results on Aug. 9, 2013.
