Dorel Industries reported revenues in its Recreational/Leisure segment declined approximately 8 percent, excluding the impact of varying foreign exchange rates. The decline marked an end to 13 consecutive quarters of growth at the segment and was attributed to the timing of deliveries and poor weather.
The segment includes Cannondale, Schwinn, GT, Mongoose, IronHorse and Sugoi.
Dorel said the IBD and mass channels exited the quarter fully stocked with the company’s products in sharp contrast to the same period a year ago when unusually warm weather kicked off cycling sales in the first quarter.
Combined with this year’s late spring, which delayed the start of the bicycle selling season, the timing of shipments within the quarter also had a negative impact on results. In the prior year, many new models were shipped in the first quarter whereas in 2013, shipments of the new year product line began in the fourth quarter of 2012. Therefore, the comparative quarter was considerably stronger than the current year’s quarter.
Cannondale has launched the 2014 Synapse Carbon Hi-MOD. Its BallisTec carbon frame is not only remarkably strong and stiff, but is also one of the lightest in the endurance road category at just 950 grams. Input from Cannondale Pro Cycling riders played a significant role in the development process of the bicycle which is a showcase of next-generation technology. In reviewing the new Synapse, a UK bicycle publication has termed it “a truly stunning debut – one of the best all-round road machines ever created.”Recreational/Leisure Segment
| First Quarters Ended March 31 | |||||
| 2013 | 2012 | ||||
| $ | % of rev. | $ | % of rev. | Change % | |
| Total revenue | 203,514 | 220,918 | -7.9% | ||
| Gross profit | 51,289 | 25.2% | 58,440 | 26.5% | -12.2% |
| Operating profit | 9,541 | 4.7% | 21,380 | 9.7% | -55.4% |
Overall, Dorel reported total revenue dipped 4.3 percent to US$594.2 million from US$621.1 million a year ago. Net income was US$22.3 million or 70 cents per diluted share, compared to US$29.1 million or 90 cents per diluted share in the first quarter of 2012.
“As stated in our year-end results press release issued March 6, 2013, the year is off to a slower start than 2012 as was expected,” commented Dorel President and CEO, Martin Schwartz. “In Recreational / Leisure the expected lower quarter was compounded by exceptionally poor weather in both North America and Europe. In the U.S. the March-April period was the second coldest on record and in Europe some regions had the coldest spring in 50 years. Below normal temperatures and persistent rain and snow resulted in a 25 percent decrease in U.S. bicycle industry sales in March compared to last year and specifically in the IBD channel sales were off over 30 percent. This was in stark contrast to a year ago when abnormally mild weather in March drove higher POS levels at retail. We remain confident that the decline is a timing issue and still expect the full year earnings to exceed last year.
“As in Recreational / Leisure, operating profit for the quarter in Juvenile was lower than last year. There are challenges in the economy and consumer confidence in our more mature markets, but with controlled spending and enhanced gross margins the impact on earnings was mitigated. Latin America as a whole recorded increased profits as Dorel Chile’s revenues grew substantially and Dorel Brazil had its best operating results since 2010. Home Furnishings had one of its best quarters since 2011 as the continued growth in on-line sales helped deliver a substantial increase in earnings. We are a leader in this retail channel in furniture and the results are apparent in the quarter’s results.”
| Summary of Financial Highlights | |||||
| First Quarters Ended March 31 | |||||
| All figures in thousands of US $, except per share amounts | |||||
| 2013 | 2012 | Change % | |||
| Total revenue | 594,168 | 621,100 | -4.3% | ||
| Net income | 22,316 | 29,059 | -23.2% | ||
| Per share – Basic | 0.70 | 0.91 | -23.1% | ||
| Per share – Diluted | 0.70 | 0.90 | -22.2% | ||
| Average number of shares outstanding – Diluted weighted average | 32,075,575 | 32,115,862 | |||
Juvenile Segment
| First Quarters Ended March 31 | |||||
| 2013 | 2012 | ||||
| $ | % of rev. | $ | % of rev. | Change % | |
| Total revenue | 255,233 | 269,499 | -5.3% | ||
| Gross profit | 74,506 | 29.2% | 74,009 | 27.5% | 0.7% |
| Operating profit | 17,932 | 7.0% | 20,422 | 7.6% | -12.2% |
The Juvenile segment’s first quarter overall organic revenue decreased by approximately 7 percent after removing the effect of acquisitions and the impact of varying exchange rates year-over-year. In Europe, the comparative quarter of 2012 was particularly strong and the timing of certain deliveries in 2013 will push sales into this year’s second quarter. This coupled with difficult economic conditions in certain parts of Europe resulted in Dorel Europe’s organic revenue decreasing by approximately 8 percent versus the first quarter of 2012. In the U.S., operating profit increased due principally to a more favourable product mix.
The Company’s stated objective of diversifying its geographic markets remains on track with Latin American revenue growth of approximately 37 percent versus last year’s first quarter. This was fueled by the opening of new retail stores in Chile and Peru, the contribution of Dorel Colombia and a strong quarter from Dorel Brazil as its broader product line was met with good reaction from retailers.
A number of significant new products are being launched through the second quarter in the U.S. and Europe. Among them is the Safety 1st Advance Air+ convertible car seat incorporating Dorel Juvenile’s Air Protect® Technology and patented foam, which when combined, lessens the impact of forces in a crash and provides superior head to toe side impact protection for children. Dorel Europe is rolling out the newly designed Maxi-Cosi and Bébé Confort Loola stroller. The Loola has been a highly successful platform and this next generation is expected to retain its strong market position.
Home Furnishings Segment
| First Quarters Ended March 31 | ||||||
| 2013 | 2012 | |||||
| $ | % of rev. | $ | % of rev. | Change % | ||
| Total revenue | 135,421 | 130,683 | 3.6% | |||
| Gross profit | 18,080 | 13.4% | 15,730 | 12.0% | 14.9% | |
| Operating profit | 7,948 | 5.9% | 5,791 | 4.4% | 37.2% | |
The revenue increase in Home Furnishings was derived primarily from imported upholstery and bedding and folding furniture, as well as from the sustained growth in the Internet sales channels. The segment’s drop ship vendor program continued to drive on-line sales. In addition, the earnings were aided by a more profitable sales mix and as a result the segment recorded one of its best quarters since 2011.
Over the course of the past several years, the segment has been focused on servicing the Internet retail sales channel and putting into place both the technology and the infrastructure to outperform its competition. Consumer trends in furniture shopping clearly indicate that the Internet is an important channel and home deliveries are becoming an expected part of the shopping experience. Beyond pure Internet retailers, traditional brick and mortar chains are capitalizing on this trend and are looking to Dorel to service its on-line shoppers.
Other
The 2013 first quarter tax rate was 9.6 percent versus 14.3 percent in the prior year. The Company has stated that for the full year it expects its annual tax rate to be between 15 percent and 20 percent, and despite the lower rate recorded in the first quarter this expectation remains.
Quarterly dividend
The Board of Directors of Dorel declared its regular quarterly dividend of US$0.30 per share on the outstanding number of the Company’s Class A Multiple Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units. The dividend is payable on June 6, 2013 to shareholders of record as at the close of business on May 23, 2013.
Outlook
“Our results for the first quarter do not reflect our expectations for the full year. In March, when we issued our year-end results, we were aware that the year would have a slow start, but clearly could not have predicted the negative impact of the unusual weather on our bicycle business. Our market share is intact and growing. Both we and our bicycle retailers remain positive about our product offering and fully expect sales to rebound with the improving weather. We have seen some of that rebound already in Europe and certain parts of North America, but weather remains a variable that is beyond our control. Nonetheless, we still believe that our Recreational / Leisure segment will exceed last year’s earnings,” commented Schwartz.
In Juvenile our first quarter was as anticipated. The timing of our sales is different from last year, but for the year we have not changed our expectations for improved earnings. In Home Furnishings, we have had a good start to the year and continue to benefit from our solid retail relationships. For the Company as a whole, we expect our key input costs to remain stable in the foreseeable future, and we remain confident that 2013 will exceed last year’s overall results,” concluded Schwartz.
