Dorel Sports, which owns Cannondale, Schwinn and Sugoi, again saw a sharp decline in revenues due to continued challenges in the cycling space and inclement weather, but underlying earnings improved on fatter margins.
“Disciplined cost management and better gross margins at Dorel Sports offset lower revenues, resulting in the fourth consecutive quarter of year-over-year earnings improvement,” said Martin Schwartz, president and CEO of Dorel Industries, the parent of Dorel Sports, which also includes GT, Mongoose, Caloi and IronHorse.
Dorel Sports’ sales fell 11.6 percent in the second quarter ended June 30 to $209.1 million.
Revenues were down 11.1 percent after removing the impact of varying exchange rates year over year. Organic revenue slumped 13.4 percent when removing foreign exchange fluctuations and the change in Cycling Sports Group (CSG) International’s business model, for which the revenue recognition transitioned from a licensing model to a distribution platform.
Part of the revenue shortfall in the second quarter resulted from weakness in consumer demand in the mass bike channel due particularly to the prolonged unfavorable North American weather.
CSG second-quarter revenues declined due to lower discounted sales to the Independent Bike Dealer (IBD) channel when compared to the prior year’s second quarter. CSG’s closeout sales in the quarter represented 7 percent of sales volume in 2017 compared to 21 percent in the prior year’s second quarter. Excluding these closeout sales, revenues were flat for the second quarter year over year and, as a result, gross margins were improved.
In Brazil, Caloi’s top line was affected by weak consumer demand, amid ongoing political and economic turmoil, as well as increased competitive pressure as other key brands in the market began to reduce retail price points.
For the half, revenues for Dorel Sports decreased 6.6 percent, fell 6.4 percent on a currency-neutral basis and was down 11.7 percent in constant currencies and removing the impact of CSG International’s shift to a distribution platform.
Second-quarter operating profit for Dorel Sports was $4.9 million compared to an operating loss of $50 million a year ago. Excluding 2016’s impairment losses, restructuring and other costs, adjusted operating profit rose 9.6 percent to $5.7 million from $5.2 million in 2016. The improvement was due to higher margins and a reduction in operating expenses. Gross profits improved to 23 percent from 20.7 percent
Dorel said it expects Dorel Sports will have a better second half than last year with an increased adjusted operating profit. Said Schwartz, “We are currently seeing some weakness in the mass channel which means third quarter results are likely to be lower than last year, but expect that a solid fourth quarter performance should more than compensate for this.”
Photo courtesy Cannondale