Dorel Sports reported an operating loss of $20.2 million in the third quarter as currency headwinds, a restructuring at its Sugoi and Cannondale apparel business and impairment charges at its Brazilian bike company battered the bottom line, according to parent company Dorel Industries Inc. (NYSE: DII).
Operating income was weighed down by $4.5 million pre-tax in restructuring charges, including $3.5 million to reflect costs of folding Cannondale's apparel business into Sugoi and lower earnings expectations at Caloi, a Brazilian bike manufacturer and distributor acquired in 2013.
DII said it expects Dorel Sports to record an additional $1 million charge in the fourth quarter when it expects to relocate Sugoi to a new location. The restructuring initiative is expected to deliver annual cost savings of $4 million.
Dorel Sports decision to lower projected earnings at Caloi resulted in $26.5 million in pre-tax, non-cash impairment losses on goodwill and customer relationships during the quarter.
On an adjusted basis, third quarter operating profit declined $9.3 million, or 46.3 percent, to $10.8 million. Currency exchange rates reduced operating profit of approximately $10 million.
Revenue at Dorel Sports came in flat at $266.5 million in the quarter, but was up approximately 9 percent in currency-neutral terms. The growth came primarily from Cycling Sports Group, which saw increased demand of higher margin, model year 2016 bicycles from independent bicycle dealers. Caloi saw sales of lower priced bikes grow as Brazilian consumers reacted to the continuing devaluation of the real.
Despite challenges through much of 2015, DII President and CEO, Martin Schwartz said Dorel Sports will turn the corner in the fourth quarter with increases over last year in both sales and earnings.
“Considerable changes have been made in the segment, new pricing has been implemented on 2016 model year bicycles and Dorel Sports has launched its largest ever number of new bicycle platforms,” he said. “These new investments will pay off with the start of a new positive trend going forward. Foreign exchange remains unpredictable, however the segment is in a stronger position to face this issue.”
–Charlie Lunan
