MONTREAL - Dorel Industries Inc. (TSX: DII.B, DII.A) today announced results for the second quarter and six months ended June 30, 2013. Total revenue for the three month period was US$600.5 million, down 5.2% from US$633.7 million for the same quarter last year. Net income was US$13.2 million or US$0.41 per diluted share, a decrease of 56.4% from US$30.3 million or US$0.95 per diluted share reported for the second quarter a year ago. Year-to-date revenue was US$1.2 billion compared to US$1.25 billion last year. Net income for the six months was US$35.5 million or US$1.11 per diluted share compared to US$59.4 million or US$1.85 per diluted share.

"As we announced in June, second quarter earnings in the Recreational/Leisure segment continued to be affected by the late spring across the U.S., Canada and Europe. The resultant global slowdown in the bicycle category lowered sales in just about all markets, creating higher bicycle inventories and industry-wide discounting, particularly in the independent bicycle dealer ("IBD") channel. This discounting, combined with foreign exchange losses and one-time severance costs significantly affected the segment's second quarter profits," explained Dorel President and CEO Martin Schwartz.

"To be clear, these are matters beyond our control. Dorel's bicycle products are proven and our brands remain strong. We have continued to invest strategically in sports marketing to maintain our brand strength. Cannondale's Pro Cycling Team has once again proven beneficial with Peter Sagan winning the Green Jersey in the recent Tour de France for the second consecutive year. The Green Jersey is the race's second most important award. On another positive note, the introduction of Cannondale to the Chinese market last year has been above our expectations. While still a small component of the overall bicycle business, we see further potential in this important market.

"Juvenile's performance was down year-over-year due mainly to reduced profitability in Europe where economic conditions remain difficult and are pressuring earnings. New product development remains a key focus and innovative new introductions are planned for later this year. Dorel Chile continued to post strong top and bottom line numbers. While there was a slight decline in Home Furnishings' sales to the in-store channel, the segment had another solid quarter registering improved earnings, as sales to its e-commerce customers continue to grow significantly," said Mr. Schwartz.

 

 
Summary of Financial Highlights
Second Quarters Ended June 30
All figures in thousands of US $, except per share amounts
  2013 2012 Change %
Total revenue 600,449 633,711 (5.2%)
Net income 13,224 30,345 (56.4%)
  Per share - Basic 0.41 0.95 (56.8%)
  Per share - Diluted 0.41 0.95 (56.8%)
Average number of shares outstanding -      
Diluted weighted average 32,223,810 32,046,443  
       
       
Summary of Financial Highlights
Six Months Ended June 30
All figures in thousands of US $, except per share amounts
  2013 2012 Change %
Total revenue 1,194,617 1,254,811 (4.8%)
Net income 35,540 59,404 (40.2%)
  Per share - Basic 1.12 1.86 (39.8%)
  Per share - Diluted 1.11 1.85 (40.0%)
Average number of shares outstanding -      
Diluted weighted average 32,152,285 32,080,033  

Juvenile Segment

 
Second Quarters Ended June 30
  2013 2012  
  $ % of rev. $ % of rev. Change %
Total revenue       243,412       254,781   (4.5%)
Gross profit         68,761 28.2%       69,391 27.2% (0.9%)
Operating profit         15,811 6.5%       17,118 6.7% (7.6%)
           
           
Six Months Ended June 30
  2013 2012  
  $ % of rev. $ % of rev. Change %
Total revenue       498,645       524,280   (4.9%)
Gross profit       143,267 28.7%     143,400 27.4% (0.1%)
Operating profit         33,743 6.8%       37,540 7.2% (10.1%)

 

 

The organic revenue decline in the Juvenile segment was approximately 6% both in the second quarter and year-to-date. For the quarter, the main cause was a revenue decline in the low double digits at Dorel Juvenile Group ("DJG") USA. This was partially offset by strong gains in Latin America where sales increased by 35%. Despite the decrease in sales at DJG USA, the combination of a mix of higher profit items and effective input-cost management maintained their profit at levels similar to the prior year. The growth in Latin America was mainly fueled by the opening of new retail stores in Chile and Peru as well as the contribution of Dorel Colombia, acquired in late 2012. A total of four new stores were opened in both Chile and Peru, bringing the overall number of stores in operation to 76. Latin American operating profit also improved on this strong sales growth. In Europe, organic revenue was down slightly, as the economic situation there has not improved. Operating profit decreased in Europe with the major causes being less favourable exchange rates on its US dollar purchases and a less profitable sales mix.

Significant product launches late in the quarter in the U.S. included the versatile Safety 1st Elite 80 Air + 3-in-1 car seat, for children in 3 modes of use, infant, convertible and booster. The Elite 80 Air + incorporates both Air Protect® and GCell HX technology— a patented foam designed by Dorel for superior protection around the child's body providing the ultimate in safety. Also introduced was the newly designed Maxi-Cosi Mico AP infant car seat which is now equipped with patented Air Protect technology which provides unparalleled side impact protection. The Mico AP is also the lightest weight car seat in its class on the market.

 

Recreational/Leisure Segment

 
Second Quarters Ended June 30
  2013 2012  
  $ % of rev. $ % of rev. Change %
Total revenue       238,174     251,911   (5.5%)
Gross profit         54,550 22.9%     63,183 25.1% (13.7%)
Operating profit           3,681 1.5%     21,606 8.6% (83.0%)
           
           
Six Months Ended June 30
  2013 2012  
  $ % of rev. $ % of rev. Change %
Total revenue       441,688     472,829   (6.6%)
Gross profit       105,839 24.0%   121,623 25.7% (13.0%)
Operating profit         13,222 3.0%     42,986 9.1% (69.2%)

 

 

Organic revenue decreased by approximately 5% in the quarter and 6% year-to-date, which excludes the impact of varying foreign exchange rates. The revenue decline is attributed to the weather related ongoing global decrease in the bicycle market. For the quarter, gross margins decreased by 220 basis points to 22.9% from 25.1% recorded in 2012. With key IBD competitors carrying heavy amounts of model-year 2013 product, and to make room for 2014 models, competitor discounting activity is rampant and as a result the Company has also offered increased discounts, thus hurting margins. Unfavourable foreign exchange rates have also contributed to depressing gross profit as the US dollar has appreciated against many core currencies driving up the global cost of goods.

Significant cost reductions have been implemented across the segment. This includes a headcount reduction of some 50 positions worldwide, roughly 5% of the segment's workforce. A one-time charge of approximately US$2.0 million was recorded related to severance as a result of these restructuring activities. These cost reductions are across most areas and will have a positive effect going forward.

 

Home Furnishings Segment

 
Second Quarters Ended June 30
  2013 2012  
  $ % of rev. $ % of rev. Change %
Total revenue 118,863   127,019   (6.4%)
Gross profit 17,145 14.4% 16,574 13.0% 3.4%
Operating profit 7,201 6.1% 6,694 5.3% 7.6%
           
           
Six Months Ended June 30
  2013 2012  
  $ % of rev. $ % of rev. Change %
Total revenue         254,284       257,702   (1.3%)
Gross profit           35,225 13.9%       32,304 12.5% 9.0%
Operating profit           15,149 6.0%       12,485 4.8% 21.3%

 

 

The segment's revenue decrease, both for the quarter as well as year-to-date, was mostly in imported upholstery and domestic ready-to-assemble furniture. This was partially offset by the sustained growth of the Internet sales channels. The segment's drop ship vendor program continued to drive the significant growth in on-line sales. The number of products offered on-line continues to grow as well as the ability to efficiently distribute these products throughout North America. The bedroom category, including mattresses and youth oriented beds, has been an area of significant growth as the product offering continues to expand. The segment has also seen an expanded share of the step stool and ladder channel with a growing presence at do-it-yourself and mass retailers under the category-leading brand Cosco. Operating profit improved versus last year despite the drop in sales helped by overhead cost control, a more profitable sales mix and a more favourable rate of exchange on the Canadian dollar.

Other
The 2013 second quarter tax rate was 21.1% and year-to-date was 14.3%. This compares to 16.5% for the quarter and 15.4% year-to-date in 2012. The main reason for the variation was a change in the jurisdictions in which the Company generated its income year-over-year. The Company has stated that for the full year it expects its annual tax rate to be between 15% and 20%, and despite the rate recorded in the second quarter, this expectation remains.

Quarterly dividend
The Board of Directors of Dorel declared its regular quarterly dividend of US$0.30 per share on the outstanding number of the Company's Class A Multiple Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units. The dividend is payable on September 5, 2013 to shareholders of record as at the close of business on August 22, 2013.

Outlook
"As we had announced on June 13, 2013 the Recreational / Leisure segment results were still being severely impacted by the weather and this was being compounded by competitor discounting in an attempt to reduce industry-wide inventory backlogs. While discounting is continuing, Dorel's situation will improve as the year progresses. With our strong product portfolio and superior brands, along with the restructuring actions that we have taken, we expect to recover accordingly. Some of this recovery will be in the third quarter and our earnings for the period are expected to be close to prior year levels. As we head into the fall, we are confident that in the fourth quarter, we will return to improved profitability versus the prior year and for the second half we expect Recreational / Leisure earnings will increase over last year," commented Mr. Schwartz.

"In Juvenile, the anticipated improved earnings did not materialize as soon as expected and as in Recreational / Leisure, we expect improvement in the fourth quarter. We have several significant new product introductions scheduled and we will be unveiling several of these at the upcoming Juvenile show in September in Cologne, Germany. Others are also due in North America near the end of the year. In Latin America, growth in earnings will be weighted to the fourth quarter with a strong Christmas retail season anticipated with our expanding number of retail locations in Chile and Peru. For the year we now expect Juvenile earnings to be flat with 2012. In Home Furnishings, we expect that segment's solid performance to continue and its operating profit for 2013 is anticipated to exceed last year's results," concluded Mr. Schwartz.

Profile
Dorel Industries Inc. (TSX: DII.B, DII.A) is a world class juvenile products and bicycle company. Dorel creates style and excitement in equal measure to safety, quality and value. The Company's lifestyle leadership position is pronounced in both its Juvenile and Bicycle categories with an array of trend-setting products. Dorel's powerfully branded products include Safety 1st, Quinny, Cosco, Maxi-Cosi and Bébé Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose, IronHorse and SUGOI in Recreational/Leisure.  Dorel's Home Furnishings segment markets a wide assortment of both domestically produced and imported furniture products, principally within North America. Dorel has annual sales of US$2.5 billion and employs 5,400 people in facilities located in twenty-four countries worldwide.

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