Benefitting from restructuring actions introduced last year, Dorel Sports saw operating profits jump 92.5 percent in the first quarter to $10.1 million.
“Dorel Sports improved materially as restructuring efforts and more cost-efficient cost structure are now bearing fruit,” stated Martin Schwartz, president and CEO of Dorel Industries, on a conference call with analysts.
Dorel Sports’ brands include Cannondale, Schwinn, Mongoose, GT, Caloi and Sugoi.
A combination of less discounting and selective price increases in Cycling Sports Group (CSG) as well as Pacific Cycle’s improved product mix also contributed to the improvement. Caloi achieved higher margins with its improved pricing and product mix as well as from the strengthening of the Brazilian Real.
Gross profit rose by 100 basis points to 22.9 percent. Excluding restructuring and other costs and the impact of the CSG international revenue recognition change, adjusted gross profit increased 270 basis points to 24.6 percent. The increase in margin is caused by Caloi again achieving higher margins with improved pricing and product mix as well as the strengthening of the Brazilian currency.
The profitability improvement came despite first-quarter revenue decreasing 1.1 percent to $214 million and approximately 1.3 percent after removing the impact of varying exchange rates year over year.
Organic revenue declined 9.9 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 mass channel was due to unfavorable North American weather and a shift in Easter holiday sales moving from the end of the first quarter to April 2017. Lower first-quarter CSG sales volumes were also caused by inclement weather, lower discounted sales than prior year and continued reductions in IBD retailers’ inventories, which reached historically low levels.
Schwartz added, “We have succeeded in adapting their business model with an adjusted cost base and then offering exciting products in order to profit even during this challenging time. The global bike remains tough through the beginning of the year as poor weather in March and a later Easter push the start of the cycling season into April, this effective sales at both CSG and Pacific Cycle as we did with the entire bike industry.”
He said manufacturing inventory levels are normalized, but the inventory issue has now shifted at the retailers, who continue to deplete their inventory. Levels are currently the lowest they had been in over three years. Added Schwartz, “Dealers are working down inventory and delaying replenishment orders until the season really takes off all three months.”
In North America, sales also have been impacted by “considerable retail consolidation.” U.S. comparable brick-and-mortar same-store sales are also “struggling while e-commerce sales continue to grow,” Schwartz added.
The CEO said innovation in product development remains key. Cannondale launched the new 2018 Jekyll and Trigger mountain bikes, a new version of the brand’s high performance mountain bike platforms. Said Schwartz, “Both have been extremely well received by retailers with strong sell-through so far and media reviews have been excellent.”
A new version of the popular Bad Boy urban bike was also introduced, and its GT line has become the official bike of the Whistler Blackcomb area. The cycling segment’s 400 GT series sanctioned and Force models will also be among Whistler’s rental fleet for the year. The Schwinn Lemon Peeler was successfully launched on Amazon with all 500 limited edition bikes selling out. Schwinn was also voted as most recommended brand by women across America in the women’s 2017 Choice awards.
“The bicycle industry is currently facing short-term challenges, therefore sales growth opportunities in 2017 could be limited,” concluded Schwartz. “Dorel Sports has re-structured itself to increase earnings this year through improved margins and lower operating expenses, and we expect this to more than offset sales challenges.”
Photo courtesy Cannondale
