Dorel Industries Inc. Recreation & Leisure Division reported that sales declined 6.1% to $518.5 million compared to $552.2 million last year. Excluding the impact of the new business acquisitions and foreign exchange variations on the segment's non-US-based business, the segment's organic revenue decline was approximately 10% for the quarter, and 6% year to date. Management said that the decline was due to revenues within the segment's core bicycle business at the mass market.
Sales at Cycling Sports Group (CSG) to Independent Bike Dealers and specialty sporting goods customers increased over last year's third quarter and management said that all of this growth was organic due to the CSG being “very, very good” at opening new doors in North America and Europe.
However, consumers are purchasing fewer higher-end products and are trading down to lower priced items, which carry lower margins. Management said that this is causing some discounting on higher-end products, but sales are down in units and dollars.
In spite of this trend towards lower margin product, gross margins in the division increased 60 basis points to 23.3% compared to 22.7% for the same period last year because the proportion of sales from IBD and apparel products were greater than that of last year. However, earnings from operation for the division fell 26.8% to $4.9 million compared to $6.6 million last year. As a percentage of sale, earnings from operations also declined, falling 80 basis points to 3.3% of sales compared to 4.1% of sales last year.
Management said that DIIB is currently carrying some excess inventory on the bicycle side of the business, but also highlighted that the “whole industry still has some excess bikes.” Dorel’s inventory is not dated and the company does not expect to take any inventory write-downs.
Dorel is working toward building its bike business into a global force and has executed selective tuck-in acquisitions. After purchasing the assets of an Australian bike distributor, Dorel followed that up by buying the assets of UK-based Hot Wheels, and Circle Bikes, UK's distributor of the Mongoose and GT brands. Dorel has established a new subsidiary, to be known as the Cycling Sports Group of UK.
Dorel’s purchase of the Iron Horse brand has yielded a new line of bikes in the Sporting Good channel and the company is looking in to an expansion of the Iron Horse brand outside bikes, and in to high-margin parts and accessories, as well as bike apparel.
The new Apparel Footwear Group, which was announced last month will incorporate SUGOi Performance Apparel, as well as the apparel lines of Cannondale GT, Schwinn, Iron Horse, and Mongoose, in both custom and its regular offerings. Plans include an investment in new equipment, facilities, and additional employees. A new 70,000 square foot Vancouver manufacturing facility will open in January with new high-speed equipment that will permit increased custom apparel capacity and offer lead times well below the industry standards.
Overall, Dorel reported net income for the third quarter rose 11.1% to $30.2 million, or 91 cents a share, from $27.2 million, or 82 cents, a year ago. Revenue was $518.5, down 6.1% from $552.2 million a year ago.
