Mass Channel Drives Dorel Sports Q4 Growth

Dorel Industries Inc. said Pacific Cycle, which sells bicycles and parts to big-box retailers, led its Dorel Sports segment to its fourth consecutive quarter of growth in the quarter ended Dec. 31, 2014.

Revenues at Dorel Sports increased $14.6 million or 6 percent in the quarter and adjusted operating profit improved by 45.2 percent. The organic sales increase, excluding the impact of foreign exchange and acquisitions, was approximately 8 percent.

Pacific Cycle led the sales growth with sales to mass merchants increasing in both bicycles and electric ride-ons.

In Brazil, sales of the segment's Caloi subsidiary increased driven by the Cannondale and GT business launched in Brazil during the year. Those sales enabled Caloi's operating profits to grow in the double-digit range over fourth quarter 2013 levels in local currency terms.

The segment was challenged by the unfavorable effect of the drastically appreciated US dollar against all major foreign currencies. The net negative impact was approximately $4 million for Dorel Sports. Also in the quarter, Dorel Sports began operations in Chile, which resulted in costs of $0.4 million in connection with the start-up.

In addition to Pacific Cycle, Dorel Sports sells Cannondale, Schwinn, GT, Mongoose, Caloi and IronHorse bicycles and Sugoi apparel to independent bicycle dealers all over the world.

Full year

The organic sales increase after removing the impact of foreign exchange and acquisitions was approximately 8 percent. The increase was in both the IBD and the mass merchant distribution channels, driven partly by improved weather conditions with a rebound in the global bike market when compared with prior year. Overseas markets in the IBD channel, particularly in Europe and Asia continued to contribute to the organic sales increase. Further highlights were strong shipments of Pacific Cycle's battery powered ride-ons and improved sales in Canada.

The adjusted operating profit improvement was at all major divisions, led by a strong turn around in the IBD sales channel. This along with strong sales growth at all other major distribution channels and improved operating efficiencies contributed to better earnings. For the year, the net negative impact of adverse foreign exchange rates was approximately $3 million.

Outlook
“Over the last decade Dorel has truly become a global company, particularly in the Dorel Juvenile and Dorel Sports segments,” stated Martin Schwartz, president & CEO of Dorel Industries Inc., the Montreal-based parent company of Dorel Sports. “Today, just over half of our net income is derived from outside North America. We believe this is the right long-term vision for the growth of the Company. However, the recent meteoric rise in the value of the US dollar has significantly reduced our margins in our markets outside the US. This difficult situation is expected to impact us for at least the first half of 2015. We are working to adjust to these new exchange rates, which is made more challenging by continued currency rate fluctuations. Until we see some stability in the currency market, our visibility on earnings will remain difficult.

“On the positive side,” Schwartz continued, “we are experiencing sales and profitability growth in the United States in all segments due to renewed strength with our mass-market customers and on-going success in the Internet sales channel.

“For Dorel Sports we believe that the second half of the year will see growth in the independent bicycle dealer (IBD) channel. This expectation is based on the planned introduction in July of our innovative new bicycle model year line-up, as well as a stabilization of margins in our markets outside of the US. In addition, we anticipate another solid year in our mass market bike business.”