Dorel continues to outperform Wall Street’s expectations for both sales and earnings with much of the top line growth coming from the acquired Pacific Cycle, which makes up Dorel’s Recreation and Leisure Division. Total company sales for the first quarter rose 19% to $465.6 million, compared to $391.1 million posted a year ago. Earnings for the period increased 40.2% to $27.2 million or 83 cents per share, fully diluted, compared to $19.4 million or 59 cents per share for the first quarter last year.

The Recreation and Leisure Division was acquired during the first quarter last year, and only posted two months of sales and profits under Dorel’s ownership. Therefore, the division is operating with a lost month. In an apples to apples comparison of the 2004 and 2005 two-month periods, Pacific Cycle revenues grew 30% over the prior year. Gross margins were up 30 basis points from 22.0% to 22.3% and operating margins dropped 140 basis points from 12% down to 10.6%. Total earnings from operations grew 42% from $6.5 million to $9.2 million.

Martin Schwartz, Dorel’s president and CEO, told analysts and the media that Dealers reacted favorably to Schwinn's new introductions, initial orders for the brand’s new gas scooters were booked, and first orders of “the electric Sting-Ray” were delivered.

While Pacific is currently running about 30% ahead in revenues over last year, management does not expect the momentum of its Sting Ray to continue through to the end of the year. Total organic sales growth for 2005 is expected to be in the 5-10% range.

“We are up in the first quarter but we don't expect to have as strong sales in the second half with Sting-Rays as we had last year,” said Martin Schwartz. “We do have other items that hopefully will take over for that. But at this stage we are still at a 5 to 10% (organic growth rate).”

Pacific is holding more inventory this year; management said that it was evident last year that the company was too lean and was not able to supply the customers at the times they needed bicycles. As a result, this year Pacific has been able to sell “a lot more regular bicycles,” but inventory levels are above normal. Part of the increase is also due to a component shortage last year that artificially deflated Pacific’s inventory level.

“We still have Sting-Rays. They are going down every week, obviously. We're not very concerned about it in a sense that we brought in a lot for Christmas,” said Dorel’s CFO Jeffrey Schwartz. “It's been a relatively cool second quarter, but still bikes in general have been okay. Overall we'll go through them. I'm not concerned that we are going to get stuck with anything; all of the inventory is good.”

Dorel is still pursuing the four-stroke motor scooter line. Three 50cc models have been launched 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.

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