Dorel has told investors that it will suspend its dividend payments in reaction to the ongoing adverse effects of the U.S. China trade war.
Though talks are set to resume this week, for Dorel the impacts thus far have cut deep. According to a statement, the second round of tariff increases on Chinese imports affecting bicycles, furniture and many other goods had a far harsher impact than the first round of 10% tariffs first added a year ago.
“The impact of the increase on Dorel businesses was still unclear at the end of the second quarter. We raised prices midway through the third quarter and this has had several negative consequences. Not all competitors nor retailers raised prices at the same time or rate. Retailers have also changed their buying routines. New price points have caused some consumers to opt for different items creating a considerable product mix imbalance. As well, elevated warehousing costs are still being incurred as the shift in demand has delayed our inventory balancing program. The net result of these challenges is that Dorel Home’s expected gross margin improvement from first half levels will be delayed to the beginning of 2020,” explained Dorel President & CEO, Martin Schwartz.
The dividend announced on August 2nd will still be paid.
A further headwind for the Cannondale parent is the delay of some orders by larger customers in the U.S., alongside the rising Dollar impact, felt particularly acutely in the Dorel Sports and Juvenile divisions.
Despite factors beyond Dorel’s control, sales have been strong and the outlook in the independent bicycle dealer and sporting goods channels is considered positive.
“It is prudent to suspend the dividend until the chaotic market conditions created by tariffs are normalized,” concluded Dorel President & CEO, Martin Schwartz.
Dorel further announced that it has amended its senior secured revolving credit facilities and term loan. The amendment is intended to facilitate compliance by Dorel with its financial covenants under the credit facilities.