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Bike Business Beefs Up Dorel's Q3 Results

Published November 5, 2008

MONTREAL, Quebec (BRAIN)—Dorel Industries reported a big boost in its bike business for the third quarter of the year despite supply issues that delayed shipments of high-end Cannondale bikes.

For the three months ending September 30, the company collected $162.2 million in revenue in its recreation and leisure division, up 99.7 percent from the third quarter of 2007. Year-to-date revenue in that segment is up 69.6 percent.

Martin Schwartz, Dorel president and chief executive officer, credited this year’s acquisitions of Cannondale, Sugoi and PTI Sports for the jump, as well as strong sales of mass-market brands.

Dorel’s bike business, which falls into the company’s recreation and leisure division, is split into two segments. Cannondale Sports Group includes Cannondale, GT, Sugoi and IBD-specific models of Mongoose and Schwinn bikes while Pacific Cycle and PTI Sports fall into the mass-market category.

The third quarter is historically the weakest for Cannondale due to the seasonality of the bike industry, and this year was no different, Schwartz said. While Cannondale’s top line was down from last year, orders were up, but supply issues hampered numerous lines of high-end bikes from shipping in the third quarter, said Jeffrey Schwartz, Dorel’s chief financial officer.

“I think we have a record backlog now at Cannondale,” Jeffrey Schwartz said.

The reasons for the stalled shipments varied from parts shortages to supplier issues and 2009 product being held up by quality restraints, which have now been fixed.

Schwartz said the late product would be delivered in the fourth quarter.

“We are going to resend those orders, they’re not going to be canceled until the beginning of the season, however to be realistic, I’m not going to say that we haven’t lost anything. I mean some of those people have gone on and bought other bicycles so it’s not fully recoverable,” Schwartz said.

Across the board, Dorel reported revenues of $552.2 million for the third quarter, up 25 percent from the third quarter of 2007.

Martin Schwartz said Dorel is “prudently optimistic” about the fourth quarter given the current economic conditions, but expects 2008 to be the company’s best year ever.

Dorel also owns brands in the juvenile and home furnishings sectors.

“Obviously, we are not immune to the current situation and we have seen some retailers start to reduce inventories in some of our product lines. Therefore, we do anticipate an impact on our fourth quarter,” he said. “We believe the fundamentals of our business remain solid and Dorel’s products have traditionally done well in recessionary times.”

He added that Dorel’s banking relationships are strong and its credit facilities are secured into 2010.

For more on Dorel’s third quarter results, including details on the progress of integrating Dorel’s IBD brands, be sure to read the December issue of Bicycle Retailer and Industry News.

—Nicole Formosa

Topics associated with this article: Earnings/Financial Reports

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