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Dorel's Cycling Sports Group sees growth in Europe and sporting goods channel

Published March 14, 2019
Company says $200 million-plus impairment charge in the Sports division was not related to operations.

MONTREAL (BRAIN) — Dorel Sports — a division of Dorel Industries that includes Cycling Sports Group, the parent of Cannondale and GT — posted double-digit organic revenue growth and significant operating profit improvement in its fourth quarter, the company reported Thursday. But Dorel Sports’ mass business, Pacific Cycle, struggled during the quarter as holiday brick-and-mortar sales failed to materialize.

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For the full fiscal year, Dorel Sports recorded an operating loss of $229.1 million, which the company said was due to a noncash impairment charge unrelated to operations. Excluding the impairment charge, the division had an adjusted operating profit of $19.9 million, down 9.3 percent from its profits in 2017. The impairment was related to a decline in stock value and included write-downs for goodwill, intangible assets and property, plant and equipment, restructuring and other costs.

Dorel said the fourth-quarter growth at CSG came thanks to sales growth in Europe and in the U.S. sporting goods channel.

In an earnings call Thursday, Dorel president and CEO Martin Schwartz said: “Both the Cycling Sports Group and Caloi had a good quarter. CSG turned around nicely, mainly from growth in Europe and in the U.S. sporting goods channel due to innovation and model-year 2019 products. The new Cannondale Habit has received very positive media coverage, including (Cannondale’s) best mountain bike ever by Bicycling magazine and an Editor’s Choice winner from Pinkbike, which has over 800,000 users online. Europe was up substantially on the back of success with new e-bike platforms and traditional bikes, particularly the new Habit and the SystemSix. The European market continues to move rapidly into e-bikes, and Cannondale is responding with several models.”

In constant currency, Caloi also did well with the Cannondale brand, experiencing double-digit growth, and saw strong sales of an improved Caloi-brand 29-inch portfolio during the quarter. Caloi also started supplying the bike-sharing market in Brazil, producing 20,000 units for the Yellow share service. “This is an important step, as together with investments planned over the next few years, this puts Caloi in a competitive position to be a supplier for bike-sharing companies,” Schwartz said.

The picture wasn’t so rosy at Pacific Cycle, Dorel’s mass business.

“Pacific Cycle was affected by weaker-than-expected mass-channel holiday POS on bikes and battery-powered ride-ons, and by retailer inventory reductions,” Schwartz said. However, Schwartz noted that Pacific’s e-commerce business continues to build, with double-digit growth online during the quarter, particularly on Black Friday.

COO Jeffrey Schwartz said that any weakness in Dorel Sports’ business during the quarter was “100 percent at Pacific Cycle.”

For the full year, Dorel Sports' revenue rose 2 percent to $883 million. After accounting for currency value fluctuations and the sale of its Sugoi and Sombrio divisions to Louis Garneau, Dorel Sports revenues were up by approximately 3.4 percent.

Dorel Industries’ total revenue for the fourth quarter was $683.5 million, up 1 percent from $677.1 million a year ago. For the full year, Dorel Industries’ revenue was $2.62 billion, compared with $2.58 billion the previous year.

The company said it expects to see a rebound in profits for Dorel Sports in 2019, with segment revenue forecast to grow in the mid-single digits driven by price increases related to tariffs passed on to consumers at Pacific Cycle and volume and market share growth in CSG and Caloi.

Topics associated with this article: Earnings/Financial Reports

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