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Dorel reports 2Q loss

 20 August 2018     HGO Staff 

MONTREAL – The bankruptcy of Toys R Us in the United States, as well as the uncertainties created by that’s countries new tariff walls were among the factors leading to profit reversals for Dorel Industries for both the second quarter and the first six months of 2018, the consumer goods giant reported last week.

For the three months ending 30 June 2018, Dorel’s revenue was US$623.2 million, up 2.0% from the US$611.3 million for same period a year ago. Reported net loss was US$14.8 million or 46 US cents per diluted share, compared to reported net income of US$11.4 million or 35 cents per diluted share in the second quarter of 2017.

Revenue for the six months also ending 30 June 2017 was US$1.27 billion, an increase of 0.6% compared to US$1.26 billion last year. Reported net loss was US$10.0 million or 31 cents per diluted share, compared to reported net income of US$20.3 million or 62 cents per diluted share a year ago.

“Across our segments, Dorel Sports rebounded strongly after a tough start to the year, posting solid adjusted results. Dorel Home continued to grow on-line sales and maintained its strong earnings performance. Dorel Juvenile had a disappointing quarter, principally due to a difficult system implementation in Europe that caused us to miss sales. This and the fact that our Chilean business is in the middle of its turnaround plan masked our outstanding performance in the U.S.,” Martin Schwartz, Dorel’s veteran president and chief executive officer, said in a statement.

“We overcame the impact of the Toys R Us bankruptcy earlier in the year as Dorel Juvenile U.S. had its best year-over-year revenue growth quarter in nine years,” he continued. “We are encouraged by the markets’ reaction to our new bicycle and juvenile products. Sell-through has been good over the past few months and more new products are set to launch through the second half, providing optimism for the balance of the year.”

Dorel Home
The company’s smallest operating segment – which includes ready-to-assemble specialist Ameriwood as well as Signature Sleep, Costco Home & Office and Little Seeds, a baby furniture specialist – Dorel Home revenues fell 1.6% in the second quarter to US$181.3 million although operating profit climbed 1.1% to US$16.9 million.

For the six months, revenue was down 3.8%, to US$373.6 million from US$388.2 million in 2017. Operating profit fell 9.1% to US$33.2 million, mainly due to an impairment loss related to the Toys R Us bankruptcy in the U.S. (it’s retailer’s Canadian division was sold to an investor and continues to operate).

“For the quarter, e-commerce sales accounted for 55% of total segment gross sales compared to 52% a year ago, and increased for the majority of Dorel Home’s divisions,” the company reported. “Brick and mortar sales were down and this was partially offset by strong direct-to-customer on-line sales.”

Schwartz also noted Dorel Home has landed a number of new opportunities, the most significant of which is a licensing agreement it recently signed with Cosmopolitan magazine. CosmoLiving, a new furniture collection developed jointly by the magazine and the company will be available primarily online sometime fall. Cosmopolitan is the world’s largest selling young woman’s magazine with 36 global editions; 128 million brand touch points across all platforms globally and over 17 million readers in the U.S.

“We are excited to be partnering with such an immensely strong brand and expect this line will resonate very well with our target customers. This will clearly set us apart from others,” Dorel Home president Norman Braunstein said.

Cosmopolitan is a champion of fashion and beauty in every form, and with this new line of furniture, beautiful and functional design is at the heart of every piece allowing ‘Cosmo Girls’ of all ages to express themselves through home décor inspired by their fun, fearless lifestyles,” Steve Ross, global chief brand licensing officer for Hearst Communications, the magazine’s publisher.

Dorel’s outlook
Meanwhile, Dorel Juvenile – which produces car seats and a range of other products for the baby and youth market – reported a 0.3% revenue decline in the second quarter to US$217.4 million while its operating profit fell 14% to US$56.1 million.

For the six months, revenue was up 3.1% to US$461.1 million but showed an operating loss of US$19.8 million.

Dorel Sports had a revenue advance of 7.4% to US$224.5 million with an operating loss of US$3.3 million for the second quarter.  Revenue was also up for the first half to US$431.2 million with an operating loss of US$4.1 million.

Schwartz told analysts he’s looking for improvements during the second half of 2018.

“As stated after the first quarter, Dorel’s overall second half outlook is for higher revenue and improved adjusted operating profit versus prior year,” he said, adding, “We expect Dorel Home to build off a solid first half and deliver improved revenue and operating profit by the fourth quarter.”

He has similar expectations for the other segments, as both are planning several new product launches he believes will be well received by consumers not only in North America but in Europe and South America as well. But there is one potential obstacle.

“In all three of our segments, proposed tariffs recently announced in the U.S. would impact a significant number of our product categories and is creating business uncertainty,” Schwartz noted, adding, “However, our competition will be similarly affected as we will all be required to adjust pricing upwards and higher costs will ultimately be passed on to consumers.”

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