Dorel Industries Inc. said revenue rose 54.9% to $136 million and gross profits and earnings from operations more than doubled at its Recreational/Leisure segment for the first quarter ended March 31. The growth came thanks to two months of results from the recently acquired Cannondale and Sugoi cycling brands and strong sell-through of lower priced bikes to the mass merchant channel.
Cannondale accounted for 70 of the 120 point improvement in gross margins at Dorel, demonstrating why the Canadian maker of bikes, childrens products and furniture is so intent on having a presence in the independent bicycle dealer (IBD) channel.
While declining to break out numbers for Cannondale, Dorels EVP and CFO Jeffrey Schwartz said during a conference call that Cannondale had significant organic growth in the first quarter. Given the seasonality of cycling, he said he expected more strong growth in the second quarter, with growth tapering off in the slower back half of the year. By then, cost savings from combined purchasing and sourcing with Dorels Pacific Cycle unit, which sells to mass merchants like Wal-Mart, should begin kicking in.
The new premium brands juiced margins, even as their higher selling cost raised SG&A costs as a percentage of revenue to 13.1% from 10.6% in the same quarter of 2007.
Earnings as a percentage of revenues at the Recreational/Leisure segment rose 250 basis points to 10.7% thanks to the IBD channels higher margins, but also top- and bottom-line growth at its Pacific Cycle division, where sell through in advance of the spring season was particularly strong.
