Dorel Home sees 2Q revenue fall as demand softens
MONTREAL – Consumer goods giant Dorel Industries reported much improved second quarter sales and earnings even though overall performance was hindered to a certain degree by supply chain issues and COVID-related restrictions in south-east Asia.
Revenue for the three months ending June 30, 2021, was US$765.0 million, compared to US$724.0 million, up 5.7% from the same period a year ago.
Reported net income was US$22.2 million or 67 cents per diluted share, compared to US$11.1 million or 34 cents per diluted share last year – a gain of 97.1% on a per share basis.
Revenue for the six months also ending June 30, 2021, was US$1.47 billion compared to US$1.30 billion, up13.0% from the first half of 2020.
Reported net income was US$25.0 million or US$0.76 per diluted share, reversing the comparable period’s reported net loss of US$46.7 million or US$1.44 per diluted share.
A Canadian company, Dorel operates three distinct business segments in about 25 countries around the world and therefore reports its quarterly and annual results in U.S. dollars.
“Given the continuing chaotic supply chain environment, we are very pleased with the second quarter performance of our businesses. We are reporting substantially improved earnings while dealing with record increases in container freight rates and higher product costs in many categories. Demand for our products remained robust, but we were not able to fully satisfy consumer needs due to inventory shortages from a lack of ocean container availability,” Dorel’s long-time president and chief executive officer Martin Schwartz said in his report to shareholders.
Dorel Home, the company’s furniture and furnishings segment, generated US$236.8 million in revenue for the second quarter, a 9.2% from the comparable period, which was the best-ever for the segment.
Schwartz said its revenue was significantly reduced as container issues were compounded by COVID shutdowns at suppliers in Vietnam and Malaysia. Consumer demand was also more modest compared to last year and constraints on supply were also a significant limiting factor.
“Container scarcity, supplier shutdowns at certain Asian suppliers and raw material and component shortages for domestically manufactured items all had an impact on product availability,” the company said, adding, “Cosco Home & Office was a solid contributor with its new step stool and outdoor and indoor furniture categories. Branded sales maintained their consistent growth and additional product is being developed to enhance the segment’s online offerings.”
Operating profit for the second quarter was US$14.3 million, down 23.1% from last year’s US$18.6 million, which was attributed to higher warehousing costs, a less profitable product mix and squeezed margins thanks to a significant spike in freight costs.
For the first half of 2021, Dorel Home revenue totaled US$465.5 million, an increase of 1.6% over last year’s US$458.1 million. Operating profit was US$29.1 million, essentially unchanged from last year’s US$28.9 million.
Despite the challenges, Schwartz was quick to tell shareholders, “The segment still promises to be a solid performer as these conditions ease.”
The company’s two remaining segments – Dorel Sports and Dorel Juvenile – both reported strong upticks in revenue for both the second quarter and the first half of 2021.
Looking out to the rest of the year, Schwartz is confident Dorel Industries is equipped to cope to the challenges it faces.
“As in many industries, the uncertainty of supply is as acute as it has ever been. The demand for container freight continues to push up costs and is hindering our ability to meet the continuing strong consumer demand for our products,” he told shareholders. “In addition, virus outbreaks in various parts of the world and even labour availability for Dorel and our stakeholders are risks with which we are contending. Our ability to successfully manage these issues with our vendor and retailer partners will be vital to our ability to deliver a strong second half.”
The home segment – which includes RTA specialist Ameriwood as well as Cosco Home & Office, Dorel Living and Signature Sleep – faces other additional challenges.
“In home, demand is softening versus last year’s unprecedented performance that was driven by purchases for the home during the beginning of the pandemic. We are implementing strategic price increases, but higher costs will continue to negatively impact our margins going forward,” he said, adding, “Despite this, we expect we can deliver earnings consistent with prior year.”
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