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Strong U.S. dollar softens Dorel Sports' revenue

Published March 10, 2016
Challenging currency rates, sluggish fourth-quarter sales hurt profits.

MONTREAL (BRAIN) — Dorel Industries reported that its bike business, Dorel Sports, saw revenues drop by $6.4 million or 2.5 percent to $253 million in the fourth quarter of 2015. Removing the impact of foreign exchange rates, organic revenue was up about 3 percent, the company said.

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

For the full year, bike revenue dropped $53 million or 5 percent to $1 billion last year, compared to $1.05 billion a year ago. Organic revenue was up 3 percent as well for the year.

Growth in organic revenue was primarily in the IBD channel, driven by demand of new model year 2016 bikes and in the U.S. mass channel where sales of "battery powered ride-on" products also showed growth.

Dorel noted that all its major divisions were negatively affected by the strong U.S. dollar, and net negative impact on the bike division's operating profit was about $5 million for the quarter and $29 million for the year. Operating profit dropped $1.2 million for the quarter or 12.2 percent compared to a year ago. For the year operating profit was down $10.9 million.

Dorel expected to exceed prior year's numbers in both revenue and operating profit.

The company said a number of factors affected the fourth quarter results. One of its largest customers unexpectedly reduced purchases late in the year. Also, while sales to IBD customers were up double digits in the second half, the company expected to do even better during the fourth quarter, so results were well below expectations.

Companywide, accounting for its home furnishing and juvenile divisions, Dorel Industries posted $668.9 million in revenue in the fourth quarter, down 4.6 percent from a year ago. Organic revenue, adjusted for foreign exchange rates and acquisitions, was up about 4 percent. Adjusted net income was $14.1 million, up from $11 million the previous year, despite a net negative after-tax impact of $9 million due to the appreciating dollar.

Revenue for the full year remained flat at $2.68 billion, with an organic revenue increase of about 4 percent. Adjusted net income for the year was $58 million, compared to adjusted net income of $84 million in 2014.

The net negative after-tax impact year-over-year of the strong U.S. dollar versus the prior year was about $35 million, companywide.

"2015 was characterized by good performances in many of our markets overshadowed by challenging currency rates. Overall for the year, these adverse exchange rates impacted our earnings by approximately $43 million pre-tax. Excluding this impact we would have exceeded prior year earnings for the year. Each of our foreign-based divisions responded to these currency challenges over the course of the year, as reflected in our fourth quarter results, which exceeded last year," said Martin Schwartz, Dorel president and CEO.

Schwartz added about the bike business, "We expect to expand our market share in the IBD sales channel by leveraging the early sell-in success of the model year 2016 bikes and the expansive and exciting upgrade of our product line in model year 2017. This should help fuel sales in the second half. In an attempt to clear excessive inventory, some of Dorel's key IBD competitors have initiated early season discounting. We are taking the appropriate pricing measures within this environment. An early spring could also help mitigate the situation. Business is good in our mass and sporting goods channels and we anticipate surpassing last year's results in these channels."

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