Dorel Posts Strong Third Quarter

Dorel Industries Inc. (“Dorel”) announced results for the third quarter and nine months ended September 30, 2020. Third quarter revenue was US$753.4 million, up 9.9% from US$685.7 million last year. Reported net income was US$26.2 million or US$0.80 per diluted share, compared to a net loss of US$4.3 million or US$0.13 per diluted share last year. Adjusted net income1 was US$28.7 million or US$0.87 per diluted share, compared to US$2.4 million or US$0.07 per diluted share a year ago.

Nine-month revenue was US$2.1 billion, an increase of 3.9% compared to US$1.98 billion last year. Reported net loss year-to-date was US$20.5 million or US$0.63 per diluted share, compared to US$9.8 million or US$0.30 per diluted share in 2019. Year-to-date adjusted net income was US$30.8 million or US$0.94 per diluted share, compared to US$14.5 million or US$0.44 per diluted share a year ago.

“All three of our business segments contributed to an excellent quarter for Dorel. In Sports, the second quarter trend of increased demand for bicycles continued and outpaced product availability. In spite of this, the segment was still able to achieve the highest earnings in its history. Similarly, Dorel Home had an excellent quarter despite sales being limited by a lack of supply in some of its product categories. Dorel Juvenile improved its earnings and recovered from a first half adjusted operating loss that was due to the negative impact of the COVID-19 pandemic,” stated Dorel President & CEO, Martin Schwartz.

1 This is a non-GAAP financial measure. Please refer to the “Non-GAAP financial measures’’ section at the end of this press release.

Dorel Sports

Third quarter revenue was US$305.6 million, an increase of US$55.3 million, or 22.1%. Excluding the impact of foreign exchange rates, year-over-year organic revenue1 improved approximately 23.8%. This was the sixth consecutive quarter of revenue growth for the segment. The continuing record demand for bicycles throughout the summer drove another quarter of substantial growth at the Cycling Sports Group (CSG) and Pacific Cycle divisions. Caloi’s revenue increased in local currency as IBD sales increased and mass market stores began re-opening following the COVID-19 shutdowns. Nine-month revenue was US$779.4 million, up US$103.6 million, or 15.3%.

Operating profit for the quarter was US$24.2 million compared to US$6.0 million a year ago, with the improvement at both the CSG and Pacific Cycle divisions. Operating margins were strong, helped by the lack of discounting and the curtailment of events and marketing which lowered related expenses. Caloi’s operating profit rose year-over-year and reversed an operating loss from this year’s second quarter. Excluding restructuring costs, adjusted operating profit set a record at US$27.8 million, up US$22.2 million, or 395.5%. Nine-month operating profit was US$50.4 million, compared to US$20.6 million in 2019. Adjusted operating profit was US$54.4 million, an increase of US$34.2 million, or 169.2%.

Dorel Home

Dorel Home’s third quarter revenue increased by US$29.7 million, or 14.0%, to US$242.2 million. Both e-commerce and traditional brick and mortar sales increased versus last year; strong sales at brick and mortar customers in most categories meant e-commerce sales were 58% of total segment gross sales compared to 61% a year ago. Dorel Home’s branded sales strategy had continued success with sales under the Little Seeds, Cosmo Living and Novogratz brands maintaining their upward trend. Nine-month revenue was US$700.3 million, up US$69.6 million, or 11.0%.

Third quarter operating profit was US$20.9 million, an increase of US$5.2 million, or 33.3%, from US$15.7 million last year. Warehouse and distribution costs improved from last year, both in dollars and as a percentage of sales, due to the overall sales level and efficiencies gained from inventory reductions, which was US$121.9 million at the end of the third quarter, down US$89.6 million from last year and US$63.1 million from year-end levels. Year-to-date operating profit was US$49.8 million compared to US$44.2 million in 2019. Excluding restructuring costs, adjusted operating profit was US$52.5 million, up US$8.4 million, or 18.9%.

Dorel Juvenile

Third quarter revenue was US$205.6 million, down US$17.3 million, or 7.8%. Excluding the impact of varying foreign exchange rates, year-over-year organic revenue1 decreased 7.1%. Retail customer stores re-opened in the majority of Dorel Juvenile’s markets, with the exception being certain Company-owned retail outlets in Chile and Peru. As a result, lower sales in those markets contributed to the overall revenue decline in the quarter. Nine-month revenue was US$578.4 million, down US$96.3 million, or 14.3%.

Third quarter operating profit was US$7.6 million compared to an operating loss of US$4.6 million last year. Excluding restructuring costs, adjusted operating profit was US$7.5 million, an increase of US$4.9 million, or 189.9%. Reduced expenses partially offset the quarter’s lower revenues, contributing to the year-over-year improvement in third quarter adjusted operating profit. Dorel continued its effort to reduce expenses in people costs and discretionary spending across the segment in order to partially mitigate the continued revenue weakness experienced in the quarter. Nine-month operating loss was US$39.8 million versus US$9.3 million a year ago. Excluding the first quarter impairment loss on goodwill of US$43.1 million and restructuring costs, adjusted operating profit was US$6.6 million, a decrease of US$9.9 million, or 59.9% from last year.

Other

For the third quarter of 2020, cash flow provided by operating activities was US$29.4 million compared to US$48.8 million in 2019, a decrease of US$19.4 million. The decrease is mainly explained by the increase in income taxes paid and the negative net changes in balances related to operations, due to the timing of the collection of trade accounts receivable, which is partly offset by the timing of the payment of trade and other payables.

For the third quarter ended September 30, 2020, Dorel’s effective tax rate was 25.0% compared to (130.4)% for the same period last year. Excluding income taxes on restructuring costs, Dorel’s third quarter adjusted tax rate was 25.1% in 2020 compared with 52.1% in 2019. For the nine months ended September 30, 2020, Dorel’s effective tax rate was 409.8% compared to 1640.7% for the same period last year. Excluding income taxes on impairment loss on goodwill and restructuring costs, Dorel’s year-to-date adjusted tax rate was 48.5% in 2020 compared with 44.5% in 2019. The main causes of the variation in the effective and adjusted tax rates year-over-year for the third quarter and the nine months were largely due to the variation of the non-recognition of tax benefits related to tax losses and temporary differences in light of management’s reassessment of the recoverability of deferred tax assets considering the potential impact of the COVID-19 pandemic on the Company’s business, the variation of the permanent differences and the changes in the jurisdictions in which the Company generated its income. The variation in the effective tax rate year-over-year for the nine months is also explained by the impact of the non-deductible impairment loss recorded on goodwill during the first quarter.

Outlook

“The third quarter was in line with our expectations as consumers continued to choose Dorel products in Sports and Home and our Juvenile segment rebounded from the impact of the first wave of COVID-19. However, as we enter the fourth quarter, the visibility on earnings is more difficult and the expected second wave of the pandemic is beginning to have a significant impact, particularly in Europe. While thus far, government subsidies have softened the impact on consumers in most markets, it is unknown if this will continue going forward. In fact, government restrictions, similar to those put in place earlier in the year, are back in certain markets, which will almost certainly impact our sales,” commented Dorel President & CEO, Martin Schwartz.

“In addition to these unknowns, all three of our segments are dealing with known and current challenges on transportation out of Asia due to a lack of supply and substantial cost increases. The recent strength of the Chinese Yuan relative to the US dollar could also result in cost increases, further pressuring earnings. While we remain confident in the long-term, the fourth quarter may be challenging. While overall adjusted operating profit is forecasted to be similar to last year, there is downward risk to our projections. We believe that the challenges faced in the fourth quarter could be overcome and that 2021 is anticipated to be a good year leveraging the strengths of our three business segments.”

“Finally, I want to reiterate my sincere appreciation to all of our employees who continue to work extremely hard in sometimes difficult conditions. Your contribution to Dorel is invaluable,” concluded Mr. Schwartz.

For the full third quarter results, click here.

About Dorel Industries Inc.

Dorel Industries Inc. (TSX: DII.B, DII.A) is a global organization, operating three distinct businesses in juvenile products, bicycles and home products. Dorel’s strength lies in the diversity, innovation and quality of its products as well as the superiority of its brands. Dorel Juvenile’s powerfully branded products include global brands Maxi-Cosi, Quinny and Tiny Love, complemented by regional brands such as Safety 1st, Bébé Confort, Cosco and Infanti. Dorel Sports brands include Cannondale, Schwinn, GT, Mongoose, Caloi and IronHorse. Dorel Home, with its comprehensive e-commerce platform, markets a wide assortment of domestically produced and imported furniture. Dorel has annual sales of US$2.6 billion and employs approximately 8,900 people in facilities located in twenty-five countries worldwide.

Contact:

Jeffrey Schwartz – Media Contact – (514) 934-3034

Source: Dorel Industries Inc.