Dorel Industries Inc. reported sales of its Pacific Cycle division to mass merchants were stronger than expected in the third quarter, but said it had to delay orders for new Cannondale models due to supply constraints. Q3 orders for Cannondales 2008 models were up over last year, but the business did not earn a profit due to the normal seasonality of the business and delays in shipping 2009 models.
Sales of the company's Recreational/Leisure Segment doubled to $162.3 million thanks to the acquisition of Cannondale, Sugoi and PTI Sports since February of last year and double-digit organic growth in its Pacific Cycle business, which caters to mass merchants. Cannondale has become the core of the segments new Cannondale Sports Group (CSG), which makes higher end product for Independent Bike Dealers, or IBDs. Parts and accessories distributor PTI Sports was absorbed by Pacific Cycle, which makes Pacific, Roadmaster, Dyno, Schwinn, Mongoose and private label models for the mass merchant channel.
Gross profit for the segment rose 141.7% to $38.9 million during the quarter. That represented 23.3% of revenues, a jump of 400 basis points from the year earlier quarter. The increase was attributed to CSGs higher margins. Earnings from operations rose 23.6% to $7.4 million, or 4.5% of revenue for the quarter, compared to 7.4% of revenue in the same period a year ago. Earnings from operations for the first three quarters rose to $40 million from $27.1 million for the same period a year ago.
Dorel President and CEO Martin Schwartz said CSG was unable to supply “numerous lines of product” because of “supplier issues, parts shortages or new 2009 product that was not ready to be produced because of quality restraints.” Schwartz said the problems, which affected carbon frame bikes in particular, have now been fixed and Cannondale will be shipping all models that were delayed in the fourth quarter. He said CSGs backlog has reached a record high and the company expects to recapture most of the missed Q3 orders.
“This is the first year that we owned Cannondale that had sort of a new model year starting and for numerous reasons, I mean almost every product that was delayed had a different reason for being delayed and in addition, a lot of the product that was delayed was the higher- end, higher-margin product, which meant that our mix was really thrown off for the quarter.” In the meantime, the upward spiral in commodity prices has ended and Dorel has “been able to offset the majority of these increases,” said Schwartz. Dorel will lose some of its missed Q3 orders.
Schwartz said the glow of the Cannondale brand is starting to rub off on GT, which had failed to catch on with IBDs because of its affiliation with Pacific Cycles mass merchant brands. “We're getting a lot more listings and we're beginning to get a lot more sales in 2009 of that brand just on perception.”
He also touted Schwinns new Tailwind e-bike (MSRP $3,200), which features an ion battery that can be recharged from a residential outlet in a 30 minutes compared to the industry standard four hours. Dorel debuted the bike at the Interbike and Eurobike trade shows this year to position itself in the fastest growing segment of the US bike market: electric bikes. The company cites forecasts showing that e-bike sales will hit 220,000 units next year, up 83% from 2007. “Dorel intends to be a serious contender within the E-bike category, particularly in the United States,” Schwartz said.
