MONTREAL -- Dorel Industries Inc. is closing a factory in Tiffin, Ohio, and undertaking a "significant restructuring of the its Home segment," which has reported struggling sales for multiple quarters.

In the most recent earnings report in November, Dorel reported a 14% decline in revenue in its Home segment as compared to the same period last year. At that time, it clarified its restructuring plan included simplifying its management reporting structure by combining several key management positions, leading to the elimination of certain redundant roles. This resulted in a reduction of approximately 5% in Dorel Home’s overall North American headcount during the fourth quarter of 2023, which the company expected would lead to improved operational efficiencies, simplified decision-making processes, and reduced overall costs.

Yesterday's, Jan 30, announcement pointed to "current and anticipated future industry dynamics" and the reality that revenue expectations for the Home segment require a "much smaller footprint than in the past." Implementing its plan to reduce its physical footprint and staffing levels "holds considerable relevance for both the upcoming fourth quarter results, to be released on March 11, 2025, and the expectations for the 2025 fiscal year."

The company announced several new initiatives as part of its expanded restructuring plan, including:

• Downsizing of non-manufacturing workforce
• Closure of manufacturing operations based in Montreal, Quebec
• Acceleration of a SKU reduction initiative
• Distribution footprint reduction

In addition, management is actively working on securing new financing solutions to improve liquidity to fund the growth of Juvenile and the turnaround of Home.

The industry, the company said, has struggled post-pandemic spending, along with supply chain uncertainty, inflation and higher interest costs which means consumers have de-prioritized spending on home furnishings. This has in particular impacted traditional North American furniture suppliers and retailers, resulting in a number of significant industry bankruptcies.

"Although the market is smaller today than it was during the pandemic, the current industry dynamic presents an opportunity for Dorel to succeed by focusing on its core competencies and its long-term relationships with retailers that sell moderately priced furniture," the company said. "This requires adjustments to the Dorel Home business model and a reduction in overall footprint to achieve profitability."

Restructuring Initiatives
In the third quarter of 2024, as part of its previously announced restructuring plan the Company initiated the closure of an RTA manufacturing facility, in Tiffin, Ohio, with all production being assumed by facilities in Cornwall, Ontario. This plan is already in place with the benefits expected immediately in 2025.

Following the announcement of the Tiffin factory closure, considerable progress has been made towards consolidating operations into a single facility. As of today, the equipment transfers and facility upgrades at Cornwall have been mostly completed. Additionally, we have implemented management improvements, including the filling of key management positions. We are already benefitting from this decision and with an anticipated increase in orders, these benefits will increase as we ramp up production.

The workforce reduction was completed in the fourth quarter of 2024 and will reduce the size of these functions by 30%, resulting in one-time severance costs of approximately $4 million, with the majority being paid out over the course of 2025.

Production at the Montreal manufacturing facility is expected to cease before the end of the first quarter of the current fiscal year. Over time, this facility had become dedicated exclusively to mattress production. Alternative supply sources have already been identified.

This change is a significant step towards achieving the overall footprint reduction target for the segment.

The proliferation of the number of SKUs that occurred in the past to service e-commerce has created a larger than necessary warehousing footprint, principally in the United States. With brick-and-mortar now playing a more important role in the Home segment’s channels of distribution, the focus in 2024 was to reduce the number of SKUs targeted for e-commerce, which is expected to reduce warehousing in the U.S. by approximately 1.2 million square feet by the fourth quarter of 2025.

Dorel Home will continue to serve its customers and DTC consumers from both West Coast and East Cost warehouses, providing coverage for all U.S. based sales. In Canada, a warehouse will also be maintained to service all Canadian sales.

The cash cost of these initiatives is estimated at $9 million, the majority of which will be paid in 2025. Over and above this cost, non-cash write-offs and accelerated depreciation of assets accounted for in 2024 are estimated to be an additional $9 million. The savings from these initiatives began in 2024 and are expected to continue into 2025. The Company believes that the full benefits of these actions will be realized in 2026 with an expected improvement in earnings of up to US$40 million.

Beyond achieving cost reductions, the Home segment is concentrating on leveraging its previous successes with traditional brick-and-mortar and omni-channel retailers. 

"Dorel's capability to offer real-time customer service and maintain required in-stock levels for these retailers sets the segment apart from its competitors. With a leaner and more agile organization, coupled with a reduction in the number of SKUs, the Home segment is poised to benefit from enhanced manufacturing efficiency at the RTA factory in Cornwall, Ontario. Additionally, the Home segment will focus on selling new, innovative imported items with higher profit margins. Lastly, prioritizing fewer but more successfully licensed brands, such as Novogratz, will enable better allocation of targeted marketing expenditures to drive sales and enhance both revenue and profitability."

Management changes
In January, Troy Franks assumed the role of CEO of Dorel Home. Franks returns to Dorel after an absence of one year after having spent 16 years at Dorel Home, most recently as president of Cosco/DHP. He replaces Norman Braunstein as CEO who will retire after having served Dorel for almost 22 years.