Dorel was again able to leverage the acquisition of Pacific Cycle to boost both sales and earnings in the fourth quarter of 2004. Total company sales increased 42% during the quarter to $457.4 million, compared to $322.1 million last year. Pacific accounted for roughly 90% of the company’s revenue growth for the quarter.

Dorel’s Recreation and Leisure division, consisting primarily of Pacific Cycle, accounted for 27.1% of sales, or $123.9 million. Dorel provided neither last year’s sales numbers nor the division’s growth rate. Gross margin was 22.5% for the quarter giving the company earnings from operations of $15.6 million or 12.6%.

For the year, which includes eleven months of activity, Recreation and Leisure Division revenues were $385.9 million and earnings reached $49.4 million, or 12.8% of revenues. Upon acquisition, it was expected that this new segment would account for revenues of $350 million to $375 million with earnings from operations of 12% to 13% of revenues.

Gross margins were dampened by higher steel and aluminum costs. The company said that some of this increased cost was passed on to its clients, but without the higher steel and aluminum costs, margins would have been higher.

It seems that Pacific is realizing that the Sting-Ray trend is beginning to slow. During a conference call with analysts and the media, Dorel CFO, Jefferey Schwartz, said, “it's a great business, although we're not looking for growth in the Sting-Ray category…”

Even though the trend may be slowing, Pacific has already sold an estimated 700,000 Sting-Ray bicycles in various sizes. Going into the Christmas season, Pacific was initially having trouble keeping up with demand, but was able to shift production and fill orders for all of their customers. The problem now is that the company may have manufactured too many.

“Cash flow did come in less than we anticipated. It's very simple, the difference is all sitting in a build-up of inventory that we were not expecting throughout the year,” said Mr. Schwartz. “The inventory was built up primarily — I would say Pacific Cycle would be the biggest area and within Pacific Cycle it's Sting-Ray. The Sting-Ray business took off.”

Dorel management is still confident that they can sell the inventory, but the company may have to hold on to it a month or two longer than expected.

Dorel’s next big move with the Schwinn brand is the launch of a four-stroke motor scooter line. Three 50cc models were unveiled at an Indianapolis trade show, and additional models in the 80cc or 125cc engine categories will be launched later this year. The company is also trying to sell to new accounts in the existing bike business, and expects this to be a growth driver for Pacific.