TRU hits Dorel hard
MONTRÉAL – The bankruptcy of Toys ‘R Us (TRU) in the United States severely impacted the first quarter profit picture for Dorel Industries, the consumer goods giant has reported. The blow was felt across all three of Dorel’s operating segments.
For the three months ending 31 March 2018, total revenue was US$642.3 million, a slight decline of 0.7% from the US$646.7 million for the same period last year.
Adjusted net income was US$5.5 million or 17 cents per diluted share compared to US$22.7 million or 69 cents per diluted share for the first quarter of 2017 – a drop of 75.4% on a per share basis.
Removing the impact of the Toys ‘R Us bankruptcy on Dorel’s performance, adjusted net income climbs to US$15.0 million or 46 cent per diluted share – a fall of 33.3% on a per share basis.
In a statement, the company said the liquidation of TRU in the U.S. resulted in a first quarter impairment loss of US$12.5 million or 29 cents per diluted share. It was comprised of a US$2.1 million loss within Dorel Home, US$3.8 million within Dorel Juvenile and US$6.6 million within Dorel Sports. This is in addition to the US$3.8 million recorded in the fourth quarter of 2017.
“As we reported in March, all of our business units are being affected by the Toys ‘R Us situation. We estimate that company-wide sales were reduced by approximately US$7 million in the quarter. The Toys ‘R Us liquidation in the U.S. may cause a market disruption in the short-term, but we believe this situation will stabilise, and both the juvenile and sports business will shift to other retailers or other channels during the second half,” Martin Schwartz, president and chief executive officer of Dorel Industries, said in a statement.
“While we were anticipating a slower start to the year, the first quarter was more difficult than originally expected at Dorel Juvenile and Dorel Sports. Dorel Home had a solid quarter with a slow start in January, followed by revenue acceleration in the rest of the quarter and into April,” he continued. “Their warehouse network processed a record number of packages in the e-commerce channel in March. There are numerous exciting new products being launched through 2018 and we feel that these introductions, coupled with our strong brand recognition, will find traction with consumers.”
First quarter revenue for Dorel Home decreased 5.8% to US$192.3 million. Within the segment’s sales channels, e-commerce continued to grow and represented 50% of total segment revenue. “This growth did not fully make up for a shortfall in brick and mortar sales, compounded by the TRU liquidation,” the company said.
However, gross profit was improved at 17.7%, up 80 basis points, due to the higher proportion of dot.com sales with higher margin items. Offsetting the margin improvement were higher operating costs required by on-going investment in people and technology necessary to support the growth of the business. As a result, operating profit declined 17.7% to US$16.3 million, including the US$2.1 million impairment loss on the trade accounts receivable from TRU.
Dorel Home includes ready-to-assemble furniture specialist Ameriwood, as well Altra Furniture, Cosco Home & Office, Dorel Home Products, Signature Sleep and Dorel Living.
Revenue for Dorel Juvenile – which produces car seats, monitors and other safety equipment for the baby and child market – climbed 6.4% to US$243.3 million although adjusted operating profit fell 75.7% to US$3.7 million.
Dorel Sports – which produces bicycles, athletic gear and similar products – saw its first quarter revenue fall 3.4% to US$206.7 million and saw its adjusted operating profit swing from US$9.4 million for the 2017 period to a loss of US$774,000.
However, Schwartz is confident company sales and profits will improve as the year progresses and the impact of the TRU bankruptcy lessen.
“While 2018 started with lower sales and earnings than initially expected, we still expect improvements over last year as the year progresses. We are confident that much of the lost Toys ‘R Us sales will be recovered commencing in the second half,” he said. “At Dorel Home, since a slow January, sales have bounced back and as such, we remain committed to further growth in revenue and higher operating profit in 2018.”
He also noted both Dorel Juvenile and Dorel Sport have an aggressive slate of new product introductions lined for 2018, which should also contribute to improved sales and earnings over the balance of the year.