Dorel Industries, parent company to Pacific Cycle and the Schwinn brand, was able to ride the Sting Ray to relatively large sales and earnings increases for several quarters, but the momentum behind the product appears to have died out. The company reported that its Recreation/Leisure Segment sales declined 35.8% during the fourth quarter to $80.2 million compared to $125.0 million last year. Gross margins declined from 22% to 18% during the quarter. Earnings from operations dropped 58.6% to $6.5 million from $15.7 million.
The revenue and earnings decline in Q4 was due exclusively to lower sales of the Sting-Ray bicycle. Excluding sales of this model, revenues for the period increased 10% over 2004 levels. During a conference call with analysts, Dorel CFO Martin Schwartz said that the Sting Ray is now “just a bike,” with retailers placing orders, but no where near the levels seen last year.
For the year, revenue was down 11.5% to $344.7 million from $389.5 million last year. Gross margin declined 140 basis points to 20.6%. Full year earnings from operations were down 29.5% to $34.9 million from $49.4 million last year.
For the year, 2005 sales include US$12.3 million from an extra month's sales. Therefore, as 2004 only included eleven month's results, true organic revenues actually declined by 14.7% from the prior year. Sales of non-Sting-Ray products increased 9% over 2004.
Looking forward, Dorel expects 5% to 9% revenue growth in the Recreation/Leisure division, excluding Sting Ray sales. The division is entering the metal swing set market, and expects to capture 30% market share within the next year.
Other growth is expected from this years product extension into motorized scooters and organic growth from the non-motorized bicycle business. Overall, Recreation/Leisure sales are expected to be “somewhere between” 2004 and 2005 numbers, or between $389.5 million and $344.6 million in revenues.
