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Dorel sees bike revenue dip but operating profit surge in Q1

Published May 5, 2017

MONTREAL (BRAIN) — Dorel Inc.’s bike division on Friday reported a drop in first-quarter revenue but said operating profit almost doubled to $10.1 million as margins improved and the division’s restructuring, including a 4 percent workforce reduction, reaped benefits. 

“Dorel Sports has been working to develop a clearer strategic focus, and the benefits were evident in Q1,” Dorel Inc. president and CEO Martin Schwartz said during an earnings call.

Dorel Sports brands include Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse, Sugoi, Fabric and Charge.

CFO Jeffrey Schwartz said the improved margins were driven by price increases at Caloi, coupled with the strengthening of the Brazilian real against the U.S. dollar, as well as Pacific Cycles’ favorable product mix at mass and less discounting in the marketplace for the Cycling Sports Group IBD brands, which include Cannondale and GT.

Dorel Sports’ first-quarter revenue dipped 1.1 percent to $214 million, but Jeffrey Schwartz said organic revenue was down almost 10 percent when removing foreign currency fluctuations and the impact of the transition of the division’s international business from a licensing model to a distribution platform.

“Part of the revenue shortfall was due to lower consumer demand in the mass channel due to poor weather and a shift in the Easter holiday moving sales from the end of the quarter and into April,” he said. “In the (IBD) area, lower sales volumes were caused by retailers holding lower inventories and poor weather in North America, as well as less discounted sales. We’re not clearing items, and although that’s good for margin, it’s not necessarily good for the top line.”

CEO Martin Schwartz said the division has positioned itself for a difficult sales environment this year. “The bicycle industry is currently facing short-term challenges, therefore sales growth opportunities in 2017 could be limited. Dorel Sports has restructured to improve earnings this year, with better margins and lower operating expenses, and we expect this to more than offset the sales challenges,” he said.

While manufacturing inventories have normalized, the CEO noted, the inventory issue has shifted to retailers, who continue to deplete their inventories and hold off on further ordering. “Dealers are working down inventory and delaying replenishment orders until the season really takes off, hopefully this month,” he said.

Last month, Dorel Sports began selling its full Mongoose mass BMX and mountain line on Amazon, but CFO Jeffrey Schwartz said during the earnings call that the company has no current plans to begin selling its IBD brands direct to consumers.

“The retailers themselves add a lot of value to the shopping experience that I don’t think you can get from opening a box and putting your bike together,” he said.

 

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