Dorel Re-Organizes Instantly Due to Declining Profits
MONTREAL, Canada – A nearly 300% drop in the operating profit between January and July for its sports division made Dorel promptly decide to reduce its workforce and restructure its activities in the third quarter of this year.
Dorel Sports’ 2016 first half year revenue decreased by US$ 27 million or 5.6% to US$ 453 million compared to US$ 480 million last year. After removing the impact of varying year-over-year foreign exchange rates, organic revenue declined by approximately 3.7%. This was reported by the Canadian holding at the presentation of its 2016 first half results.
Discounting due to excess inventories
The company also reported an operating loss in the first half of US$ 44.7 million compared to an operating profit of US$ 22.6 million last year. The adjusted operating profit decreased by US$ 11.5 million, or 52.5% to US$ 10.5 million from US$ 22.0 million in 2015.
Slow and competitive North American market
For Dorel’s Cycling Sports Group, which includes brands like Cannondale and GT, the global revenue declined versus prior year amid a very slow and competitive North American market. At the same time Cannondale increased its market share during the first half, but continued industry-wide discounting due to excess inventories at the suppliers and retailers had its impact on the profitability.
Foreign exchange rate pressure on the Brazilian real in combination with the continued economic difficult situation in the country resulted in a decline in sales at Caloi as well.
Responding to these setbacks Dorel Sport reports, “already started restructuring of activities as of immediately which are estimated at US$ 9.5 million to simplify and focus its business with a view to bolstering the bottom line.”
For this major cost saving operation Dorel Sports will move the distribution of GT at the Chinese IBD market to a third-party, similar to the distribution of the brand in many other countries across the world. By the end of this year the majority of Pacific Cycle’s mass market and distribution operations will be relocated from Illinois to Savannah, in the state of Georgia. Finally Dorel Sports will be exiting its three U.S. “Cannondale Sports” retail outlets.
In total, all restructuring actions will result in an reduction of approximately 4% in Dorel Sports’ global workforce. “The goal of these activities is to refocus the business to deliver enhanced profitability during all business conditions,” the company stated.
Dorel Sports is taking the necessary steps to maintain its strong position in the face of a continuing tough market. Results have been affected by sustained discounting in North America and the reality of depressed foreign exchange rates, as IBD sales outside the US are significant. “Nonetheless, we remain confident and excited about our bicycle business,” commented Dorel CEO Martin Schwartz.