MONTRÉAL (BRAIN) — Dorel Industries reported that second-quarter revenue was down 11 percent in its sports division, which includes its mass and IBD bike businesses, including Cannondale, Caloi, GT, Mongoose, Schwinn and Sugoi brands.
Total revenue for the quarter was down $27.5 million, to $209.1 million.
Through June 30, revenue at Dorel Sports is down $29.9 million or 6.6 percent to $423.1 million.
Organic revenue was down 13.4 percent for the quarter and 11.7 percent year to date through June 30.
Company officials pointed to weak consumer demand in the mass channel and fewer closeouts in the IBD channel for the declines.
"The bicycle market is facing continuing challenges in North America," Martin Schwartz, Dorel president and CEO, told analysts during an earnings call Friday. "But our adjusted operating profit was up despite poor weather everywhere and fundamental issues in the retail environment."
Adjusted operating profit was up 8.1 percent for the quarter, from $5.2 million to $5.6 million. For the first half, adjusted operating profit was up 44.6 percent from $10.4 million to $15.1 million. The company pointed to improvements in margins and a reduction in operating expenses for the positive results.
Schwartz said that the challenges at Pacific Cycle, which is its mass business, persisted into the third quarter. "Those inclined to buy a Cannondale will do so while those purchasing a Schwinn have delayed that or canceled the buy this season," he said.
Meanwhile, there's been considerable less discounting of inventory at its Cycling Sports Group division, which includes GT and Cannondale. Discounted product accounted for only 7 percent of sales volume this year compared to 21 percent last year.
Schwartz said that besides 2018 product introductions, which he anticipates will bolster sales in the second half, the company has improved its delivery times to the West Coast with the opening of a new warehouse in California.
Officials also noted that the company is diversifying its product range in the mass to combat slowing bike sales.
"Keep in mind we do a lot of non-bike products as well at Pacific. Bikes do sell but there's a lot more of ride-on toys and a number of other categories we're in. Those look promising. As we look forward beyond this year, we realize that bike, we can't rely just on bikes at the mass level. We've been investing in a lot of categories we haven't quite brought to market yet. The future is more categories beyond just bikes. The other areas are parts and accessories, which is doing well. But we are looking to diversify and not just rely on bikes in the mass market," said Dorel's Jeffrey Schwartz.
Schwartz noted that the company is also focusing more energy in the sporting goods channel as a third distribution option, in addition to mass and IBDs.
"We're taking some of our brands and focusing on that channel and we've had a lot of wins there," said Schwartz. "Going into next year we're going to see substantial growth in that area."
Company officials predicted that total bikes sold in the U.S. for the year will be down this year, driven by losses in the mass channel, which accounts for most of the unit business. But they predicted a bounce back in business next year.
"We're expecting a good year next year on bikes in the mass, but how big is the bounce back? We don't know. In the meantime we're diversifying in product and channel with sporting goods," Jeff Schwartz said.
