MONTREAL (BRAIN) — Dorel Industries reported Thursday that third-quarter revenue in the division housing its mass-market and IBD bikes businesses plunged 18 percent due to factors including hurricanes and other extreme weather in North America, the bankruptcy filing of mass customer Toys R Us in September, and overall weakness in the global bicycle market.
"This was a particularly tough quarter for lots of small reasons that added up to a point where we had a revenue decrease of 18 percent. We don't believe that the business isn't that bad overall, and we've already seen a Q4 bounce-back starting in October," CFO Jeffrey Schwartz said during Dorel's earnings call Thursday.
Third-quarter revenue at Dorel Sports — which includes Cannondale, Caloi, Pacific Cycle, Schwinn, GT, Mongoose and Sugoi — totaled $205.5 million, down $45.2 million from $250.7 million a year earlier. For the nine months through September, Dorel Sports' revenue is down 10.7 percent to $628.6 million.
The division's operating profit also declined during the quarter, down $5.6 million to just $200,000. For the nine months through September, operating profit is up $54.1 million to $15.2 million after Dorel boosted margins and cut operating expenses during the first half of the year.
But the third quarter was "probably the worst quarter we've had ever in our sports business," Schwartz said.
Martin Schwartz, Dorel Industries' CEO, said: "It was a disappointing quarter for Dorel Sports, which became caught up in the continued weakness in the global bicycle market. As a major player in the bike sector, Dorel Sports is not immune to the disruption in the North American retail environment, which this year was amplified by persistent inclement weather across the United States and Canada.
"This was particularly true in the mass channels where Pacific Cycle has a leading position. Sales of bikes overall were down in both units and dollars at several of the large retailers," he added.
Revenue also declined at Cycling Sports Groups, Dorel's IBD business, but the CEO said that decrease is largely attributable to a reduction in discounted sales as CSG improves its inventory management.
Brazilian bike brand Caloi increased its sales volume for the first time this year during the quarter, fueled by the mass market, Martin Schwartz noted. "The fourth quarter is crucial for Caloi, and we believe we are positioned in mass to have a strong quarter," he said.
In North America, Dorel Sports halted shipments of Pacific Cycle mass bikes and other Dorel products to Toys R Us after the retailer filed for bankruptcy in September. Dorel resumed that business during the fourth quarter.
"In addition to bikes, we also ship a lot of battery-powered ride-on toys during the season. We have resumed shipping and we should see most if not all of that delayed stuff from Q3 going into Q4, so we don't know that we're going to actually miss anything for the year. But certainly it was just another headwind in Q3," Jeffrey Schwartz said.
U.S. shipments not only of bikes, but also of Dorel home and juvenile products, were also negatively affected by storms that shuttered Dorel's Eastern distribution center in Savannah, Georgia, for a week, company officials noted.
For Pacific Cycle, the reduced volume squeezed margins during the quarter, Jeffrey Schwartz said. "Our margin dropped, and it's strictly related to overhead absorption because of the sales volume," he added.
