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Dorel to Sell Iron Horse in Sporting Goods

Published September 29, 2009

BY NICOLE FORMOSA

MONTREAL, Quebec—Dorel Industries will leverage the recently acquired Iron Horse brand to gain market share in the sporting goods channel where the company hasn’t previously had a position, according to Martin Schwartz, chief executive officer of Dorel.

Schwartz spoke of plans to reintroduce Iron Horse branded bicycles to the market during an August conference call with analysts to discuss the company’s second-quarter earnings.

“We’re talking to several sporting goods chains who are working very closely with us and we’re working with a couple chains in Canada. We’re very optimistic about this Iron Horse project,” Schwartz said.

Dorel Industries bought Iron Horse for $5.2 million on July 13 during an auction in bankruptcy court. The brand hasn’t been sold in the specialty channel since last September when its former president, Cliff Weidberg, opted to sell high-end bikes only through Randall Scott Cyclery, his son’s online retail outlet.

Low- to middle-end Iron Horse bikes remained in the sporting goods channel in stores like Dick’s and Sports Authority. Iron Horse pulled in $25 million last year, but Dorel doesn’t expect the brand to generate much revenue this year.

Iron Horse ended operations in January after its secured lender, CIT Group, stopped funding the company. Iron Horse was forced into bankruptcy by three of its Asian suppliers in March.

“We’ve designed new products, we’re showing the product to the customer. They’re ordering. Are we going to ship it before the end of the year? Maybe. But really it’s a 2010 play,” said Jeffrey Schwartz, Dorel chief financial officer.

Dorel Industries also recently purchased Gemini Bicycles, an Australian distributor, for $2.2 million. Plans are to combine those assets with Cannondale’s existing Australian operations to form a new division: Cycling Sports Group Australia. This, along with the addition of a new vice president to drive growth in Asia and a new manager to oversee Cannondale sales and marketing in Canada, is part of Dorel’s ongoing strategy to transform its bicycle business into a global force, Martin Schwartz said.

For the first six months of 2009 Dorel’s bike division, which includes Cannondale, GT, Mongoose, Schwinn, Sugoi, Pacific Cycle and PTI, reported revenue of $335.5 million, up 7.4 percent from the same period last year. Excluding the impact of foreign exchange variations and the acquisition of PTI, organic revenue dipped 4 percent year-to-date.

Earnings from operations declined 19 percent. Gross margin was down 140 basis points due to a less profitable product mix as consumers shifted to lower price point products.

Sales fell in the Cycling Sports Group, home to the company’s IBD brands, as consumers purchased fewer high-end bikes. “We’re carrying a lot of bikes now given it’s the end of summer. So is the whole industry. We’re watching that and trying to deal with that,” Jeffrey Schwartz said.

Although 2009 has been a challenging year, Dorel expects high-end sales to pick up next year with the publicity garnered from two Liquigas riders finishing the Tour de France in the top 10.

“Early reaction to our new IBD product line has been outstanding and our pre-delivery order level is up significantly from last year. We believe we will increase our bike sales next year to the IBD, regardless of the economic situation,” Martin Schwartz said.

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