Dorel Reports Bikes Sales Grew 11 Percent Organically in Q2

The Canadian company said total revenues at its Recreational/Leisure segment increased 20.2 percent to $286.3 million in the second quarter ended June 30. Total sales reached $526.6 million for the six months ended June 30, up 19.2 percent from the same period in 2013.

 

“The momentum of the first quarter in the Recreational/Leisure segment carried into the second quarter as revenue grew by strong double digits and operating profit rose significantly,” said Dorel President and CEO, Martin Schwartz. “Overall we are pleased with the earnings from operations for our three segments, however the costs related to the Caloi acquisition has resulted in our earnings to be lower than we hoped to see.”

 

 

The results were aided by improved weather conditions versus last year and the continuing rebound in most global bike markets. Both the Cannondale Sports Group (CSG) and Pacific Cycle made solid headway.  CSG benefitted from global sales growth in most independent bicycle dealer, or IBD, markets, particularly in Europe and Japan, while better weather drove the improvement at Pacific Cycle at mass merchants. While CSG manages the Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and SUGOI brands, which are sold primarily to IDBs, Pacific Cycle sells bicycles to mass merchants such as Wal-Mart Stores, Inc., Costco Wholesale Corp., Target Corp. as welll as big box sporting goods retailers such as Dick's Sporting Goods Inc. 

 

 

Sales of current model-year bicycles and the weakening of the U.S. dollar against its Euro counterpart helped boost the gross margins in the IBD channel in both the quarter and year-to-date. Gross profit in the mass market channel was tempered marginally due mainly to sales mix and was below the prior year's level in both the quarter and year-to-date.

 

 

The one disappointment continued to be Calois, a Brazilian bicycle manufacturer Dorel acquired last year. Calois’ nearly met plan during the first half of the year, producing a loss from operations at the segment level of $800,000. Executives said the company has been hurt by Brazil’s slowing economy and consumers' focus on the month-long World Cup, which shifted attention away from the bicycle business.

 

 

”Caloi is executing well and is growing its market share,” said Schwartz. “We are expecting the bulk of the earnings to come in the fourth quarter as it is both the start of summer and Christmas in Brazil. Despite the softening Brazilian economy, we expect Caloi to grow versus last year and we are confident regarding its future contributions to the segment as we firmly believe this transaction will be a good long-term investment in Dorel's future.”

 

 

The impact of Caloi decreased Dorel's earnings by $10.3 million net of tax for the six months ended June 30, which is mainly comprised of the $800,000 loss from operations at the segment level, cash interest costs and $6.0 million of non-cash charges including accretion interest and unrealized foreign exchange losses on put option liabilities.
Restructuring costs of approximately $1.7 million for the quarter and $2.2 million year-to-date were recorded in 2014, compared with $2.0 million for both the quarter and year-to-date periods of 2013. Remaining costs of approximately $900,000 are expected to be recorded in the second half of this year.

“As we look to the second half, excluding the restructuring costs, we are anticipating a slight growth in operating profit for the third quarter and a significant growth in the fourth quarter versus previous year,” Schwartz said of the segment.

 

 

 

Second Quarters Ended June 30
	2014		2013
	$	% of rev.	$	% of rev.	Change %
Total revenue	286,249		238,174		20.2%
Gross profit	67,348	23.5%	54,550	22.9%	23.5%
Operating profit	15,212	5.3%	3,681	1.5%	313.3%
Six Months Ended June 30
	2014		2013
	$	% of rev.	$	% of rev.	Change %
Total revenue	526,597		441,688		19.2%
Gross profit	127,790	24.3%	105,839	24.0%	20.7%
Operating profit	31,523	6.0%	13,222	3.0%	138.4%