Dorel Industries Inc. reported that revenues in its Recreational/Leisure segment, which includes the Schwinn, Cannondale, Sugoi and other cycling brands, increased 17.2% to $205.9 million in the fourth quarter ended Dec. 31. Organic sales rose by almost 19% after excluding the impact of varying exchange rates relative to the U.S. dollar.
Sales increased in the mass market category by almost 20%, supported by a $5 million Schwinn brand marketing campaign initiated earlier in the year and repeated in November. Sales to IBD customers also grew by approximately 20% thanks to new models that were well received in both Europe and North America. The gains came across the majority of the brands sold to IBD customers and not just Cannondale. Dorel’s other IBD brands include Schwinn, GT and Mongoose. The segment is on track to improve year-over-year performance again in 2011.
SG&A costs rose 19.4%, to $33.2 million due to higher promotional activity, including sponsoring Cannondale cycling teams, and increased infrastructure created in anticipation of further growth. Segment gross profit rose 15.0% to $6.5 million, while earnings from operations rose 17.8% to $10.6 million. That pushed gross margins up 60 basis points to 22.6% of revenue and operating margins up 10 basis points to 5.2% of revenue.
The one weak spot was the Apparel Footwear Group (“AFG”), which is being built on the Sugoi and Cannondale platform Dorel acquired in 2008. AFG was forced to write down inventory last year when imports arrived late, in part because of delays firing up its newly renovated 70,000-square-foot plant in Vancouver, B.C. AFG spent $3 million renovating the former Sugoi plant last year as part of a plan to triple sales of custom cycling apparel to teams and clubs by 2015. Schwartz said AFG expects to improve its performance this year by moving more production to Vancouver from offshore. Although relatively small, AFG’s write downs reduced segment earnings by $2 million and segment margins by 150 basis points.
The strong performance of Dorel’s bicycle business contrasted sharply with that of its Juvenile and Home Furnishing segments, where sales to Wal-Mart Stores, Inc. and other mass retailers dropped off causing the company’s overall revenues to dip 1.1%.
“Point-of-sale levels at these customers slowed in the second half and as a result the retailers reacted by not only reducing replenishment orders, but also by aiming to further cut their own in-store inventory levels,” said CEO and President Martin Schwartz. “This left us with a lot of inventory at year end that we had anticipated selling in the fourth quarter.”
