Dorel Industries reported its Dorel Sports’ segment posted an operating profit of $4.5 million in the first quarter, rebounding from a loss of $774,000 a year ago. The prior year’s first quarter included a $6.6 million impairment loss recorded on Toys “R” Us trade accounts receivable and a $1.5 million operating profit related to Toys“R”Us shipments prior to the U.S. bankruptcy.
Dorel Sports brands include Cannondale, Schwinn, GT, Mongoose, Caloi and IronHorse. Results are in U.S. dollars.
Gross margins in the segment eroded to 21.3 percent from 22.1 percent a year ago.
First quarter revenue decreased 10.7 percent to $184.5 million. Excluding foreign exchange rate changes year-over-year and the divesture of the Sugoi performance apparel line of business, organic revenue decreased by approximately 5.2 percent. Operating profit was $4.5 million compared to an operating loss of $0.8 million last year.
The prior year’s first quarter included a $6.6 million impairment loss recorded on Toys “R” Us trade accounts receivable and a $1.5 million operating profit related to Toys“R” Us shipments prior to the U.S. bankruptcy.
Excluding the impact of foreign exchange and the performance apparel line of business divestiture, CSG posted higher sales in all major markets. This was driven by new products and increased sales of e-bikes in Europe and growth in the U.S. independent bike dealers (IBD) channel, challenging the industry’s negative trend. In Brazil, Caloi revenue grew significant double digits in local currency due to several factors, including a better mix, sales to the country’s bike sharing program and price increases implemented last year. The bulk of the operating profit in the quarter was derived from CSG, which posted its fourth consecutive quarter of improvement, excluding impairment losses on intangible assets and property, plant and equipment, and restructuring and other costs, with the Cannondale line demonstrating excellent momentum.
Offsetting CSG improvement was Pacific Cycle, which accounted for most of the revenue decline and reduced the increase in operating profit for the segment as a whole. This was due to high retailer inventory remaining from the fourth quarter and poor weather in certain regions. April sales have rebounded with strong POS at all retailers. This will be reflected in the second quarter results as two-thirds of the first quarter revenue loss in the mass channel was already recouped in April.
Companywide, revenue was $625.6 million compared to $642.3 million a year ago. Reported net loss was $8.3 million, or 26 cents per diluted share, compared to net income of $4.7 million or 14 cents per diluted share last year. The first quarter of 2019 includes $14.4 million of pre-tax restructuring charges, $14.1 million after tax within Dorel Juvenile, compared to $1.1 million, $0.8 million after tax in the prior year.
Excluding these amounts, adjusted net income, was $5.8 million or $0.18 per diluted share compared to $5.5 million or $0.17 per diluted share for the first quarter of 2018. The prior year also included an impairment loss on trade accounts receivable of $12.5 million, or $0.29 per diluted share related to the liquidation of Toys“R”Us in the U.S. Without this impact, adjusted net income for the first quarter of 2018 was $14.9 million or $0.46 per diluted share.
“Despite not exceeding prior year earnings, we are encouraged by the progress being made across our business segments. The wide-ranging actions we are taking to respond to the changing needs of our consumers and to re-build shareholder value are gaining traction. Dorel Home continued its revenue growth trajectory and Dorel Juvenile rebounded strongly from its poor performance over the past three quarters. Dorel Sports’ Cycling Sports Group (CSG) businesses had a very good quarter in all of its markets, with only Pacific Cycle showing declines at mass, a trend that has already reversed in April,” commented Dorel President & CEO, Martin Schwartz.
“We are actively working on the restructuring program announced in March to optimize Dorel as a more focused global consumer products company. Decisive actions are either underway or under consideration at Dorel Juvenile which is restructuring operations in several markets in order to re-assert its position as the world’s leading juvenile products company. Plans include simplifying and streamlining the organization and further building competencies in an omni-channel world where consumers are increasingly digitally engaged. We are confident the measures this year and next will bring the desired results.”