Dorels Second quarter Recreational / Leisure division revenue increased by 2.1% to $199.1 million compared to $195.1 million during the same quarter last year. Revenues within the segments core bicycle business at the mass merchant level were down from the prior year, but these declines were offset by the contribution of the parts and accessories business that was acquired late in June of 2008.
Sales at Dorels Cycling Sports Group, which caters to independent bike dealers and sporting goods customers, were down as consumers are purchasing less of the company's higher-end products and trading down to lower-priced items.
Dorel has been busy with acquisitions during the quarter. The company completed the acquisitions of the assets of Iron Horse bicycles and Australian-based distributor Gemini Bicycles. The Iron Horse transaction of $5.2 million consisted of inventory, various trademarks, trade names and patents, including the well recognized Iron Horse brand. Plans are to market this brand in the sporting goods channel where to date Dorel has not had a significant position. IronHorse revenues were about $25 million in 2008 but management would not give any guidance on what the brand would do going forward. Dorel is looking to distribute the brand through sporting goods chains in the U.S. and Canada with mid-tier price points.
“We bought a brand out of bankruptcy, so there isn't really a business. We're going to recreate a business — recreate a product line, so I don't know that there is a run rate right now,” said Martin Schwartz – Dorel Industries president and CEO.
At a cost of $2.2 million, the assets acquired in the Gemini purchase will be merged with Cannondale's existing Australian operations under a new division, Cycling Sports Group Australia. It will be dedicated to serve the IBD channel.
Management said that the early reaction to the new IBD product line has been “outstanding” and pre-delivery order level is up significantly from last year at this time. Based on this, management believes Dorel will increase sales next year to the IBD channels “regardless of the economic situation.”
Management said Cannondale's revenue was down in Q2, but the brand actually sold more units than last year. This is a clear indication that IBD consumers are trading down to lower price points. Earnings from operations for the quarter declined by $1.3 million or 7.2% to $16 million compared to $17.3 million in 2008.
“We're still making a lot of day-to-day changes. I think, we're hoping to execute better. I mean, if people remember, we — last year in Q3, we had some issues in which we couldn't get some of our high margin bikes made on time. Even in Q1 of this year, we had some quality issues that didn't allow us to ship certain products that we had orders for. So I think those things, as we put those things behind us, we're going to start to see sales going up a little bit, but I think margins going up even more,” said Martin Schwartz – Dorel Industries president and CEO.