MONTRÉAL (BRAIN) — During an earnings call Thursday afternoon East Coast time, Dorel executives reassured financial analysts that despite revenue losses in the cycling division, the company is working on maintaining profitability through a number of moves including price increases at Caloi, inventory reduction to improve margins, and cost cutting through restructuring.
“We’re raising our bottom line even if our top line doesn’t grow,” Dorel’s Jeffrey Schwartz told analysts. “We did a number of restructuring events in 2016 and will see an impact in 2017 in our bottom line. Without the disastrous discounting we had last year, we should be protecting our margins and should see a nice rebound in the bottom line in the bike business.”
The biggest impact to organic revenue, which was down 14.6 in the fourth quarter, was a change in North American dealers purchasing habits, Schwartz said.
“In the past dealers would stock up on inventory in Q3 and Q4 and hold it. Now they’re waiting until the season starts,” he said. “We have data that supports that. We know inventory levels at retail stores are down. We know inventory at suppliers is down significantly. Even though sales are down in the fourth quarter, things are looking brighter in this channel than a year ago today.”
Schwartz told analysts that margin improvements and cost cutting have helped offset unfavorable sales in the fourth quarter in the cycling division, which includes mass and IBD bike brands. Dorel’s cycling portfolio includes Cannondale, Schwinn, GT, Caloi and Sugoi.
Asked whether sales so far this year are on the upswing, Schwartz said, “Not a lot yet. It still hasn’t really opened. The good news for us is that we’re still maintaining our selling price. The industry has not discounted as of today. So what we are selling is going at good margins. We’re still waiting for the U.S. to open. We’re seeing that in regions where the weather has been good, but from what I understand there’s been a lot of rain in California and we’ve heard bike dealers complain about rain and even a lot of snow in key areas and found disposable income spent on bikes is being spent on ski. Those are anecdotal stories. We haven’t seen sales take off in California and it’s still too early for the Northeast.”
Schwartz said that bike sales should begin to pick up by the end of this month. He noted that Easter weekend falls in April this year, unlike last year when it was in March. And he expects that to impact sales of bikes, particularly in the mass channel.
Schwartz also reiterated that the company will continue to sell its higher-end bikes, “what we call IBD bikes,” through its dealer network and will not be going direct to consumer on its own website as other bike brands have done.
“We are doing that on the mass market bikes,” he said. “We’re working very heavily with customers like Wal-Mart and Amazon to increase that part of the business… but we’ve made a decision to back our dealer network and not go direct to consumer [in IBD].”
Dorel will report its first-quarter earnings in early May. The company’s annual general meeting is set for May 26.
To hear the webcast of the earnings call in its entirety, go to gowebcasting.com/events/dorel-industries.
