Dorel Has Difficult 1st Quarter; Sports Division Takes Another Blow
MONTREAL, Canada – The liquidation of Toys“R”Us in the U.S. hampered listed Dorel Industries Inc in the 1st quarter of 2018. It turned Dorel Sports into a loss-making business also due to weak consumer demand at major retailers as well a “less favourable sales mix”. This should turn around in the coming months with the introduction of “exciting model year ’19 mountain and road bikes” while Cannondale will launch a complete e-bike line in Europe.
Dorel Industries’ first quarter revenue came in at USD 642.3m; slightly lower compared to the USD 646.7m a year ago. Net income as well as adjusted net income was about half of last year. Dorel’s financial report states “Removing the impact of Toys“R”Us, adjusted net income was USD 15.0m compared to USD 22.7m for the first quarter of 2017.”
Impact of Toys“R”Us liquidation
Dorel’ financial report says further “The liquidation of Toys“R”Us in the U.S. resulted in a first quarter impairment loss on trade accounts receivable of USD 12.5m, comprising of USD 2.1m within Dorel Home, USD 3.8m within Dorel Juvenile and USD 6.6m within Dorel Sports. This was in addition to the USD 3.8m recorded by Dorel in the fourth quarter of 2017.”
Dorel President & CEO, Martin Schwartz comments “The Toys“R”Us liquidation in the U.S. may cause a market disruption in the short-term, but we believe this situation will stabilize, and both the Juvenile and Sports business will shift to other retailers or other channels during the second half. While we were anticipating a slower start to the year, the first quarter was more difficult than originally expected at Dorel Juvenile and Dorel Sports. Dorel Home had a solid quarter with a slow start in January, followed by revenue acceleration in the rest of the quarter and into April. Their warehouse network processed a record number of packages in the e-commerce channel in March.”
Dorel Sports including its premium bicycle division, Cycling Sports Group (CSG), saw its first quarter revenue decline by USD7.3m, or 3.4%, to USD 206.7m from USD 214.0m last year. Dorel’s report says “Excluding the impact of foreign exchange rates, organic revenue decreased by approximately 6.2%. The revenue decline was mostly in the mass-market channel due to weak consumer demand at major retailers, and the impact of halted shipments to Toys“R”Us in March. A less favourable sales mix accounted for most of the decline in gross profit of 80 basis points. However excluding restructuring and other costs, the decrease in adjusted gross profit was only 30 basis points from 22.4% to 22.1%. Operating profit decreased by USD 10.9m to an operating loss of USD 0.8m compared to an operating profit of USD 10.1m in 2017. Excluding restructuring and other costs, adjusted operating profit decreased by USD 10.2m. This decline includes the USD 6.6m impairment loss on the trade accounts receivable from Toys“R”Us.”
For the coming months Dorel Sports expects to be able to show improved results. In particular as “Cannondale will launch a complete e-bike line in Europe in response to the growing popularity of e-bikes abroad.” Bike Europe reported earlier on the efforts the company is putting into this new e-bike line-up.