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Dorel announces layoffs as CSG revenue declines

Published August 4, 2016
Company points to lower IBD sales in North America and reduced margins from discounting for revenue losses.

UPDATED

MONTRÉAL (BRAIN) — Dorel Industries announced Thursday it is trimming the payroll at its Dorel Sports division — which includes its mass market and IBD bicycle businesses. The company said it would reduce its global workforce in the division by about 4 percent. Officials declined to comment any further on the number of people laid off or what areas of the company are affected. 

Dorel also said it would "exit" its three Cannondale Sports retail outlets. Two of the stores are in the Boston area and one is on Long Island.

"We've exited retail and other areas that were distractions. We're a bike company first and let's be really good at that before we start getting into other areas like retail," Dorel's Jeffrey Schwartz told investors during a conference call Thursday. "We're really just focusing."

Dorel Sports' second quarter revenue decreased by 5.8 percent to $236.5 million, compared to $251.1 million last year. After removing the impact of foreign exchange rates, organic revenue declined by approximately 4.8 percent.

Schwartz noted during the call that declines during the period are explained by decreases in sales in North America and reduced margins from discounting. "We experienced lower IBD sales in North America. Consumers shifted toward opening price point bikes and and there was a decline in Caloi sales as economic challenges in Brazil hurt us and raised prices there significantly. We protected margins, but that's coming at the cost of declining sales. That was partially offset by increased sales in Europe to our IBD accounts as that business is picking up," he said. 

Dorel Sports' IBD division, Cycling Sports Group, saw global revenue decline in the quarter and in the first half. The company said the North American market was "soft and competitive," with continued high inventory at the wholesale and retail levels. However, the company said Cannondale market share increased in the first half.

"Even though we increased our market share in North America, according to industry statistics, we've been affected by industrywide discounting due to significant inventories at the supplier level and that's caused us to have a serious impact on our margin," Schwartz said. 

The company said it has begun restructuring activities including the layoffs and store closings. The restructuring also includes switching GT's China market distribution to a third-party distributor and relocating Pacific Cycle's mass market and distribution operations from Illinois to Savannah, Georgia. The mass bicycle business will take over Dorel's former home furnishing facility there and home furnishing will move into a larger facility, officials said. 

The company said the moves would save it $5 million a year, starting next year.

"The goal of these activities is to refocus the business to deliver enhanced profitability during all business conditions," the company said.

The IBD segment reported an adjusted operating profit during the second quarter of $5.2 million, down from $10.7 million the year before. Through the first six months of the year, adjusted operating profit was down $11.5 million to $10.54 million from $22 million a year ago. 

"Dorel Sports is taking the necessary steps to maintain its strong position in the face of a continuing tough market," said Martin Schwartz, Dorel's president and CEO.

 

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