Dorel records 1Q loss
MONTRÉAL – Restructuring charges related to its juvenile segment swung consumer goods giant Dorel Industries from profit to loss for the first quarter of 2019, a result management believes isn’t indicative of its anticipated performance for the rest of the year particularly with the continued growth of its home segment.
The company said revenue for the three months ending 31 March 2019 were US$625.6 million, down 2.6% from US$642.3 million for the same period last year.
The reported net loss was US$8.3 million or 26 cents per diluted share, reversing the comparable period’s net income of US$4.7 million or 14 cents per diluted share.
The first quarter of 2019 includes US$14.4 million of pre-tax restructuring charges within Dorel Juvenile.
Dorel reports its quarterly and annual results in U.S. dollars.
“Despite not exceeding prior year earnings, we are encouraged by the progress being made across our business segments. The wide-ranging actions we are taking to respond to the changing needs of our consumers and to re-build shareholder value are gaining traction. Dorel Home continued its revenue growth trajectory and Dorel Juvenile rebounded strongly from its poor performance over the past three quarters,” Martin Schwartz, president and chief executive officer, said in a statement.
Dorel Home continued grow in the first quarter with revenue climbing 9.6% to US$210 million.
The company said organic growth was approximately 9.9%, excluding the impact of foreign exchange rate changes. E-commerce sales grew strong double digits, more than replacing reduced brick and mortar sales. They now represent 59% of total segment gross sales compared to 52% in the prior year. Branded product sales have continued to grow steadily.
However, gross profit was 14.1% year-over-year. A significant factor in the decline was distribution cost increases from carrying higher inventory in anticipation of higher U.S. tariffs in January. A less favourable sales mix and higher promotional activity also lowered margins. The company was quick to note gross margins have improved steadily since January based on an improved mix and as the cost of carrying excess inventory dissipates.
First quarter operating profit decreased 11.2% to US$14.5 million from US$16.3 million last year.
Meanwhile, first quarter revenue for Dorel Juvenile fell 5.4% to US$230.3 million as operating profit jumped 95.7% to US$7.3 million.
Dorel Sports also saw first quarter declines as revenue retreated 10.7% to US$184.5 million. Operating profit returned to the black at US$4.5 million after posting a loss of US$774,000 for the comparable period last year.
“Overall first quarter results are not indicative of our expectations for the full year which is for higher sales and improved adjusted operating profit overall,” Schwartz said, adding, “Dorel Home continues to increase sales versus last year and margins are expected to improve in the second half. For Dorel Juvenile, second quarter and full year revenues and adjusted operating profit are expected to exceed prior year results with the most significant contributions from improvements in Europe and Chile.
“We are confident in delivering improved adjusted operating profit for the year, although the currency risk of a strong US dollar in the various geographies where we operate and economic uncertainty as a result of possible increased tariffs on Chinese made goods imported into the United States are a risk,” he concluded.