Dorel’s Q1 Results: Gains Overall but Bike Business Sees 1% Decrease in Revenue
MONTRÉAL, QUEBEC — Dorel Industries released their first quarter results for 2017, with adjusted net income for the quarter up 15.4%. However, historically low inventory levels, North America’s long winter, and the fact that the Easter holiday sales occurred in April (second quarter 2017) combined to leave the company’s Cycling Sports Group (CSG) segment with an organic revenue decline of 9.9%.
“The bicycle industry is currently facing short-term challenges,” said Martin Schwartz, Dorel President & CEO in the media release announcing the results. “Therefore sales growth opportunities in 2017 could be limited. Dorel Sports has re-structured itself to increase earnings this year through improved margins and lower operating expenses, and we expect this to more than offset sales challenges.”
Net income drop
Total revenue for the first quarter was USD 646.7 million compared to USD 645.9 million in Q1 2016. Adjusted net income rose 15.4% to USD 22.7 million from USD 19.7 million in 2016. Reported net income decreased to USD 8.8 million compared to USD 16.7 million last year.
According to Schwartz, Dorel is meeting its expectations for 2017, noting, “In the outlook provided with our year end results, we stated that for 2017 all three of our business segments were positioned to improve earnings. In the first quarter, both Dorel Home and Dorel Sports delivered on that expectation. Dorel Juvenile had a slower than anticipated start to the year as our factory in China faced challenges on new product launches, but we are proactively managing this and will see improvements through the year.”
CSG’s organic revenue down
First quarter revenue for Dorel Sports fell US$2.5 million or 1.1% to US$214.0 million – approximately 1.3% after removing the impact of varying exchange rates year-over-year. After factoring in foreign exchange fluctuations and CSG International’s switch in its business model from a licensing model to a distribution platform, organic revenue saw an approximately 9.9% decline. Along with weather, holidays, and inventory reductions at the retailer level, lower discounted sales compared to previous years account for mass channel revenue shortfalls according to the published news release.
Over 90% rise in operating profit
Dorel Sports’ restructuring actions, which began last year, are expected to bring annualized savings of USD 5.0 million. As a result of the changes, first quarter operating profit rose by US$4.9 million, or 92.5% to USD 10.1 million as a result of the restructuring plan. Improved margins and cost control initiatives in almost all regions are also being credited for the gain. Less discounting and selective price increases in CSG as well as Pacific Cycle’s improved product mix also contributed to the improvement. Dorel’s Brazilian bicycle manufacturer Caloi also achieved higher margins through improved pricing and product mix, along with a stronger Brazilian Real.
“We still expect all three segments to exceed prior year earnings,” said Schwartz. “In addition, we made the strategic decision to amend the Company’s Credit Agreement and the related costs impacted the quarter, but this will lower our finance expenses through the rest of the year.”