Dorel Reports Q4 and 2019 Year-End Results

• Inventory reduced by US$80 million since third quarter
• Dorel Sports posts third consecutive quarter of revenue growth
• Dorel Juvenile improved operating profit in most markets, offset by Dorel Juvenile Europe performance
• Dorel Home e-commerce sales continued upward trend; margins reduced by higher operating/warehousing costs 

MONTREAL, March 11, 2020 (GLOBE NEWSWIRE) -- Dorel Industries Inc. (TSX: DII.B, DII.A) today announced results for its fourth quarter and year ended December 30, 2019. Revenue for the fourth quarter was US$653.4 million, down 4.4% from US$683.5 million a year ago. Reported net loss for the quarter was US$0.6 million or US$0.02 per diluted share compared to US$443.9 million or US$13.68 per diluted share a year ago. Adjusted net income1 was US$2.3 million or US$0.07 per diluted share compared to US$10.3 million or US$0.31 per diluted share in the fourth quarter of 2018.

Revenue for the full year was flat at US$2.63 billion, compared to US$2.62 billion the previous year. Reported net loss was US$10.5 million or US$0.32 per diluted share, compared to US$444.3 million or US$13.70 per diluted share the previous year. Adjusted net income for the year was US$16.8 million or US$0.51 per diluted share, compared to US$39.5 million or US$1.21 per diluted share last year.

“Our teams have done an excellent job bringing inventory down to more traditional levels, with a reduction of US$80 million since the third quarter. Dorel Sports revenue grew for the third consecutive quarter as our new models, particularly Cannondale, are selling well. Dorel Juvenile Europe’s challenges overshadowed progress in other geographies. In the first two months of 2020 we are seeing signs of a turnaround in Europe. Issues at Dorel Home, primarily tariff-related, are being resolved and the segment is focused on growing its top line as it prepares to enter new categories. E-commerce sales continued their upward trend, representing 70% of total fourth quarter segment gross sales.

“Our China based suppliers delayed re-opening following the Chinese New Year due to the Coronavirus, with production delayed by two weeks in most cases. This temporary lack of manpower created several weeks of supply chain disruptions. Most factories in the country are now back in operation and are shipping, but not yet at normal levels.  Operations at our main Juvenile factory in China are improving daily.  We are now at 95% production capacity. Although production was slower than normal, we have not seen any significant impact on consumer spending at retail for Dorel products during the first two months of 2020 and our three segments continue to experience increased on-line shopping. Needless to say, we are closely monitoring the situation,” 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.

* The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition method chosen, comparative information is not restated.

Dorel Sports

 * The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition method chosen, comparative information is not restated.

Fourth quarter revenue increased to US$233.2 million, up US$0.5 million, or 0.2%, from US$232.7 million last year. For the year, Dorel Sports’ revenue increased to US$909.0 million, up US$26.0 million, or 2.9%, from US$883.0 million last year. Pacific Cycle Group (PCG) and Caloi posted growth in the quarter while the Cycling Sports Group’s (CSG) revenue declined. PCG rose on the back of strong POS at key retailers and robust e-commerce sales. There has been tariff relief on children’s bicycles and this mitigated the year’s earlier impact at PCG. Caloi benefitted through the quarter from price increases on their models and improved mix on higher Cannondale sales. CSG organic revenue¹ growth was in most geographies with increased sales of Cannondale e-bikes and model year ‘20 product launches.

Fourth quarter operating profit was US$9.8 million compared with an operating loss of US$232.1 million last year. Adjusted operating profit¹ increased to US$13.6 million, up US$8.4 million, or 164.5% from last year, excluding impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs. For the year, the operating profit was US$30.3 million compared to an operating loss of US$229.1 million in 2018. Excluding impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs, adjusted operating profit increased by US$13.9 million, or 70.0%, to US$33.8 million.

In a move to support its next level of growth and to maintain the increasing momentum of the Cannondale brand, Dorel Sports is strengthening its European CSG operations, which will be centralized in the Netherlands.  The existing assembly plant in Oldenzaal is being transformed into a state-of-the-art facility to more than double its current production capacity of Cannondale bicycles and e-bikes, and allow for an increase in focus on premium quality products. All production and supply related departments are being merged into the new facility.

In addition, CSG’s European headquarters is being relocated to Woudenberg in a new, scenic campus, where an excellent working environment is being created in a setting that will bring CSG’s brands to life.  The offices in Oldenzaal and Basel, Switzerland have been closed.  The reorganization is expected to be fully completed by year-end and will result in estimated restructuring costs of between US$8 million to US$10 million, of which US$3.8 million was recorded in the fourth quarter.

“This is a major step in implementing CSG Europe’s strategic plan.  We have had excellent results in Europe in 2019 and the exciting changes we are announcing today will enable us to better serve our customers, boost our brand presence, and further develop our culture,” commented Dorel Sports President, Peter Woods.

Dorel Juvenile

* The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition method chosen, comparative information is not restated.

Fourth quarter revenue was US$208.9 million, down US$32.7 million, or 13.6%, from US$241.6 million last year. Organic revenue decreased by approximately 11.6% excluding the impact of foreign exchange rate changes year-over-year. The negative effects of decreased sales of Europe’s older juvenile models continued during the quarter. However, current indications are that the new models introduced during the quarter such as the award-winning Coral and the Mica, a critical product in the rotating car seat category, are gaining traction.  The U.S. adaptation of the Coral is in development and is on track for third quarter 2020 release. Segment full year revenue was US$883.5 million, down US$48.5 million, or 5.2%, from the prior year. Excluding foreign exchange rate fluctuations, organic revenue decreased by approximately 2.1%.

Dorel Juvenile fourth quarter operating loss was US$4.1 million compared to US$265.8 million a year ago. Excluding impairment losses on goodwill and intangible assets, restructuring and other costs, adjusted operating profit was down US$4.0 million with an adjusted operating loss for the quarter of US$2.3 million, compared to an adjusted operating profit of US$1.7 million last year. The performance in Europe overshadowed improvements in operating profit in Dorel Juvenile’s other markets including the Dorel Juvenile China factory. Dorel Juvenile U.S. improved, driven by increasing margins and by expense control. Despite social unrest in that country, Dorel Juvenile Chile’s operational results improved versus prior year.

For the full year, the operating loss was US$13.5 million compared to US$284.5 million in 2018. Excluding impairment losses on goodwill and intangible assets, restructuring and other costs, adjusted operating profit was US$14.2 million, down US$3.4 million or 31.9% from a year ago. Inventory was reduced by US$15.1 million in the quarter and since the second quarter has decreased by US$38.4 million due to an aggressive inventory reduction program.

Dorel Juvenile’s restructuring program has been centered in Europe with the centralization and removal of certain duplicative functions as well as the closure of a secondary R&D site. R&D activities going forward will focus on innovation and on core products manufactured in our car seat facilities. Restructuring expense was US$1.8 million and US$27.4 million for the quarter and year respectively. Savings of US$5 million were realized last year.  The changes, initiated in 2019, will continue this year with overall annualized cost savings of US$12 million to US$15 million anticipated once the program is fully implemented.

Dorel Home

* The Company has initially applied IFRS 16 as at December 31, 2018. Under the transition method chosen, comparative information is not restated.

Fourth quarter revenue was US$211.4 million, up US$2.1 million, or 1.0%, from US$209.3 million last year. For the full year, revenue was US$842.1 million, up US$37.6 million, or 4.7%, from 2018. E-commerce sales continued to grow representing 70% of the segment’s total gross sales.  Brick and mortar sales were down from last year.  For the full year, e-commerce sales represented 62% of total segment gross sales, compared to 56% in 2018. Branded-product sales continued their increase during the quarter with both CosmoLiving and Novogratz up substantially year-over-year.

Fourth quarter gross profit was 12.5%, down 350 basis points, and for the full year decreased 250 basis points to 14.0%. Most of the margin decline resulted from higher operating and warehousing costs as well as promotional activity to reduce the year’s excess inventory.  Significant progress was made in the segment’s inventory reduction program with levels down approximately US$41 million to roughly US$185 million from the mid-year high of over US$226 million.

Fourth quarter operating and adjusted operating profit was US$11.9 million, down US$5.6 million, or 32.0%, from an operating profit of US$17.5 million last year and down US$5.9 million, or 33.0%, from an adjusted operating profit of US$17.7 million. For the full year, operating and adjusted operating profit was US$56.1 million, down US$14.1 million, or 20.1%, compared to an operating profit of US$70.2 million a year ago, and down US$14.3 million, or 20.4%, compared to an adjusted operating profit of US$70.4 million.

Other

For the fourth quarter and the year ended December 30, 2019, Dorel’s effective tax rates were 137.7% and 548.0%, respectively compared to 10.1% and 10.8% for the same periods in the prior year. Excluding income taxes on impairment losses on goodwill, intangible assets and property, plant and equipment, as well as restructuring and other costs, Dorel’s fourth quarter and year-to-date adjusted tax rates¹ were 68.6% and 49.8%, respectively in 2019 compared with 9.7% and 14.8% in 2018. The main causes of the variation in the reported and adjusted tax rates year-over-year are largely due to the non-recognition of tax benefits related to tax losses and temporary differences and changes in the jurisdictions in which Dorel generated its income.

Finance expenses increased by US$5.9 million to US$14.5 million during the fourth quarter and by US$17.7 million to US$50.4 million year-to-date from 2018 comparable periods. The increases are due mainly to interest expense on lease liabilities from the adoption of IFRS 16, for which the prior year figures were not restated, and by higher average borrowings and higher average market interest rates.

Outlook

“Sales at Dorel Sports remain strong and the segment is anticipating another good year.  The China supply chain is improving and product is expected to be increasingly stable as production gradually returns to normal,” stated Dorel President & CEO, Martin Schwartz.

“At Dorel Juvenile, the year is starting off well.  New products introduced in Europe during the fourth quarter are performing well and we are beginning to see signs of a turnaround.

“Dorel Home forecasts increased sales as it is planning to enter new categories and channels and anticipates growth in its European operations.  As well, with inventory under better control, warehousing and logistics costs will be reduced.

“The world economy is in uncharted waters due to the ongoing Coronavirus, the full impact of which is difficult to predict at this time. Historically, people have purchased juvenile products and personal recreation items such as bicycles during disruptions in the market and are likely to continue to do so. Supply chain interruptions in China will impact the delivery of orders in the first quarter and possibly into the second quarter.  Despite overall business improvement, the Coronavirus and related foreign exchange impacts will likely affect the first quarter,” concluded Mr. Schwartz.

Conference Call

Dorel Industries Inc. will hold a conference call to discuss these results tomorrow, March 12, 2020 at 9:00 A.M. Eastern Time. Interested parties can join the call by dialing 1-877-223-4471. The conference call can also be accessed via live webcast at . If you are unable to call in at this time, you may access a recording of the meeting by calling 1-800-585-8367 and entering the passcode 7460536 on your phone. This recording will be available on Thursday, March 12, 2020 as of 12:00 P.M. until 11:59 P.M. on Thursday, March 19, 2020.

Complete consolidated financial statements as at December 30, 2019 will be available on the Company's website, , and will be available through the SEDAR website.

Profile

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.

Non-GAAP Financial Measures 

Dorel is presenting in this press release certain non-GAAP financial measures, as described below. These non-GAAP financial measures do not have a standardized meaning prescribed by International Financial Reporting Standards (IFRS) and therefore are unlikely to be comparable to similar measures presented by other issuers. These non-GAAP financial measures should not be considered in isolation or as a substitute for a measure prepared in accordance with IFRS.

Contained within this press release are reconciliations of the non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with IFRS.

The terms and the definitions of the non-GAAP financial measures contained in this press release are as follows:

Organic revenue and adjusted organic revenue

Dorel believes that these measures provide investors with a better comparability of its revenue trends by providing revenue growth on a consistent basis between the periods presented.

Other financial information prepared under IFRS adjusted to exclude impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs

Dorel believes that the adjusted financial information provides investors with additional information to measure its financial performance by excluding certain items that the Company believes do not reflect its core business performance and provides better comparability between the periods presented. Accordingly, Dorel believes that the adjusted financial information will assist investors in analyzing its financial results and performance. The adjusted financial information is also used by management to assess the Company’s financial performance and to make operating and strategic decisions.

Caution Regarding Forward-Looking Statements

Certain statements included in this press release may constitute “forward-looking statements” within the meaning of applicable Canadian securities legislation. Except as may be required by Canadian securities laws, Dorel does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from Dorel’s expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. As a result, Dorel cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits Dorel will derive from them. Forward-looking statements are provided in this press release for the purpose of giving information about Management’s current expectations and plans and allowing investors and others to get a better understanding of Dorel’s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.

Forward-looking statements made in this press release are based on a number of assumptions that Dorel believed were reasonable on the day it made the forward-looking statements. Factors that could cause actual results to differ materially from Dorel’s expectations expressed in or implied by the forward-looking statements include: general economic conditions; changes in product costs and supply channels; foreign currency fluctuations; customer and credit risk, including the concentration of revenues with small number of customers; costs associated with product liability; changes in income tax legislation or the interpretation or application of those rules; the continued ability to develop products and support brand names; changes in the regulatory environment; outbreak of public health crises, such as the coronavirus; continued access to capital resources, including compliance with covenants, and the related costs of borrowing; failure related to information technology systems; changes in assumptions in the valuation of goodwill and other intangible assets and future decline in market capitalization; and there being no certainty that the Company will declare any dividend in the future. These and other risk factors that could cause actual results to differ materially from expectations expressed in or implied by the forward-looking statements are discussed in Dorel’s annual Management Discussion and Analysis and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors outlined in the previously-mentioned documents are specifically incorporated herein by reference.

Dorel cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to Dorel or that Dorel currently deems to be immaterial may also have a material adverse effect on Dorel’s business, financial condition or results of operations. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

All figures in the tables below are in thousands of US $, except per share amounts

Reconciliation of non-GAAP financial measures

Organic revenue and adjusted organic revenue:

Other financial information prepared under IFRS adjusted to exclude impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs:

Dorel Consolidated

Dorel Sports

Dorel Juvenile

Dorel Home

CONTACTS:

MaisonBrison Communications

Rick Leckner

(514) 731-0000



Dorel Industries Inc.

Jeffrey Schwartz

(514) 934-3034