MONTREAL (BRAIN) — The bike division at Dorel Industries saw revenues grow 18 percent during the first quarter, with gross profit and operating profit also up 17 and 71 percent, respectively. Officials pointed to better sales and cost control for the improvement over last year.
Revenue in the recreational and leisure segment, which includes Cannondale, GT, Mongoose, Schwinn, Sugoi, and Brazilian bike brand Caloi acquired last year, as well as Dorel's mass-market bike brands, was $240 million, up from $203 million in the same quarter last year. Operating profit was $16 million, up from $9.5 million. Organic revenue was up about 8 percent, taking into account the impact of foreign exchange rates and acquisitions.
Martin Schwartz, president and CEO of Dorel Industries, told investors during a conference call that the company saw "dramatic improvement in the bicycle business," and that it has promoted interim president Peter Woods to group president and CEO of the recreational and leisure segment. Woods was previously the segment's chief financial officer. Over the past four months, Woods has orchestrated changes that are already driving the bottom line.
"When we made the change in December, we asked him to take over as interim president and gave him the opportunity to prove himself. And the results of the first quarter show it," Schwartz said. "He has a loyal following from the management team and people below that. Even though we've had a good quarter and are looking for a good year, there are still a lot of areas for improvement. Peter has identified them and we felt very confident he's the guy who can do it."
Schwartz pointed to an improving global bike market during the earnings call. While weather remains cold in many parts of North America, in Europe spring showed up early and that resulted in better sales abroad. Sales were particularly strong in the U.K. and Japan. He also anticipates less product discounting this year, which he said will help gross margins.
Still, the quarter was below the division's 2012 first-quarter results and Schwartz said retailers haven't bought into the same inventory levels that they did last year. "We also haven't seen as much discounting yet and hopefully we won't see it for a while," he added. "By this time last year, there was a lot of discounting going on. So we remain optimistic for the rest of the year."
Schwartz said Dorel is continuing to keep a tight grip on costs and expenses. That started last year when it announced layoffs in the second quarter, and later shuttered a production facility in Bedford, Pennsylvania.
So far this year its selling expenses are down 11 percent and general and administrative costs are down 2.7 percent, said Jeffrey Schwartz, chief financial officer and executive vice president of Dorel, as part of its efforts to "get a little bit leaner moving forward."
"Up until the first quarter of last year, we were flying down on the bike side and our spending was out of control," said Martin Schwartz. "We're spending much better now and getting more bang for our buck, as they say. We plan going forward to make sure we don't overspend again."
Also noted in the call, Caloi's factory in Brazil has started to produce Schwinn, GT, Cannondale and Mongoose bikes as part of the integration of the brands in the Brazilian market.
"As we look to the full year, we believe the rebound will continue not just in Europe but North America and not only in the IBD but mass," Martin Schwartz said, adding that Caloi's impact will be felt in the second half, as Brazil's selling season is at the end of the year, coinciding with the holidays and its summer.
Dorel Industries' total revenue, including its home furnishings and juvenile divisions, increased 9 percent to $647.7 million, from $594.2 million a year ago. Net income was $24.8 million, up 11 percent, compared to $22.3 million in the first quarter of 2013.
