Dorel Industries Inc. warned investors that continued discounting and delayed orders at its bicycle business will cause it to report 2013 fourth quarter consolidated earnings below 2012 levels, but first quarter sales are on track to surpass year ago levels by as much as 25 percent.
The Canadian company said fourth quarter earnings at its Leisure/Recreational divisionwill be substantially below prior year levels due to “top line weakness and a poorer product mix.”
Sales volumes to Pacific Cycle's mass merchant customers such as Walmart Stores Inc, Costco Wholesale Corp. and Academy Outdoor + Sports, were lower during the fourth quarter than last year due to lower holiday traffic. Cycling Sports Group (CSG) sales of Cannondale and higher prided Schwinn, GT and Mongoose bikes to the IBD channel were more profoundly affected as dealers were reluctant to increase inventories going into the new year.
Dorel said industry discounting continued deep into the year, resulting in a higher number of 2013 model year bicycles being sold at lower margins than anticipated. In addition, supply for firm customer orders for more than $10 million of CSG 2014 models did not arrive in time for fourth quarter delivery and are being shipped during the current first quarter.
Another negative factor during the quarter was unfavourable foreign exchange.
“We had felt that things were improving at the end of the third quarter but the issues outlined above had more of an impact than originally expected,” said Martin Schwartz, Dorel President and CEO. “With January completed, normally the quietest month of the year and barring any disasters in weather, Recreational/Leisure earnings for the first quarter should improve by at least 20 percent to 25 percent over the corresponding quarter last year. There are now several positive trends working in our favour. Dealer orders are being driven by a firming consumer demand with new models selling at full margins, new SKUs at some of our largest customers, increased licensing revenue, strict cost controls and foreign exchange benefits. Management at the Recreational/Leisure segment is invigorated and is confident about the year ahead.”
Schwartz emphasized that restructuring and associated charge announced last month are not related to the fourth quarter's poor performance, but undertaken to enhance Dorel's overall competitiveness in the bicycle industry. Those moves are expect to improve profit through 2014 and 2015, Schwartz said.
Dorel will announce year-end results on March 4, 2014.
