Dorel Industries Inc. reported that its Dorel Sports segment increased 43.6 percent in the first quarter as continued strong global demand for bikes offset supply chain challenges.
Dorel Sports brands include Cannondale, Schwinn, GT, Mongoose, Caloi, and IronHorse.
First-quarter revenue increased to US$270.3 million from US$188.2 million last year. Excluding the impact of foreign exchange rates year-over-year, organic revenue improved by approximately 41.5 percent.
Continued momentum in all three divisions resulted in the eighth consecutive quarter of revenue growth. The demand for bicycles continued unabated, as people continue to choose cycling for physical activity and leisure. The segment overcame supply chain challenges characterized by a lack of shipping availability out of Asia and shortages of bicycle components, major headwinds that will continue going forward. Cycling Sports Group’s gains were driven by significant double-digit growth in almost all countries as demand for Cannondale models was unprecedented. Pacific Cycle’s revenues increased in line with retail POS throughout the quarter but saw a contraction in core margins due to ongoing cost headwinds. Demand was strong for Caloi in all channels with product mix improvement and growth in both IBD sales and e-commerce. However, supply shortages resulted in a slight sales decline in Brazil.
Gross margins were pressured by increases in ocean and domestic freight, rising costs of raw materials and bicycle components and the impact of a weakening USD versus the Chinese Yuan. Despite these increases, gross profit margin improved by 390 basis points to 22.9 percent from 19.0 percent in 2020 due to the favorable volume absorption on the increase in units shipped and positive foreign exchange impacts in international markets. As a result of higher sales and better margins, its first-quarter operating profit was US$21.8 million, compared with an operating loss of US$0.6 million last year. Excluding restructuring costs, first-quarter adjusted operating profit1 was US$21.8 million, compared with an adjusted operating loss1 of $0.5 million last year.
Companywide, revenue was US$708.9 million, up 22.1 percent compared to US$580.8 million a year ago. Reported net income was US$2.7 million or US$0.08 per diluted share, compared to a reported net loss of US$57.8 million or US$1.78 per diluted share last year. Adjusted net income1 was US$12.2 million or US$0.37 per diluted share compared to an adjusted net loss1 of US$13.6 million or US$0.42 per diluted share a year ago.
In its other segments, first-quarter revenue at Dorel Home was US$228.7 million, up US$31.3 million, or 15.8 percent, from US$197.4 million last year. At Dorel Juvenile, first-quarter revenue was US$209.9 million, up US$14.7 million, or 7.5 percent, from US$195.2 million last year.
“In the first quarter, we overcame significant headwinds and each of our three segments outperformed our expectations upon which our guidance was issued at the end of fiscal 2020. Strong sales of our products offset supply chain challenges out of Asia and we delivered substantial earnings improvement. However, looking forward, higher input costs and supply chain issues are expected to pressure earnings for all our businesses,” commented Dorel President & CEO, Martin Schwartz.
“Dorel Sports’ sales remain very strong and the second quarter is expected to be similar in earnings to the prior year. Demand remains high, and sales are expected to be at a record level. Bike component availability will remain an ongoing issue.
“Dorel Home demand also remains strong, but we expect earnings to be lower than the prior-year second quarter as higher input costs will pressure margins until we are able to implement needed price increases.
“In Juvenile, the second quarter is expected to be significantly better than the prior-year which was heavily impacted by the COVID-19 pandemic. We continue to deal with COVID-19 in 2021 and this is limiting sales in the key markets of Europe, Chile/Peru and Canada. This has continued into April, and May will likely be similar. This is being offset by better sales in other markets, but overall is limiting our expected performance. In addition to the higher costs on imports, Dorel Juvenile’s domestic manufacturing capabilities in North America and Europe are also not immune to higher costs, with car seat resin double what it was for most of last year.
“The combination of supply chain challenges and cost increases are an issue for all industries worldwide and are unprecedented in the history of Dorel. Though we believe we can overcome most of these challenges through a combination of higher sales, cost reductions and price increases, they do pose a risk to our earnings going forward,” concluded Schwartz.
Photo courtesy Cannondale