Dorel Sports’ third quarter shines, forecast concerned on supply and pricing

Dorel Industries’ third quarter results place the Cannondale parent’s revenue at $753.4 million, up 9.9% from the $685.7 million recorded in Q3 last year.

Dorel Sports
Cycling continued to prove a strong performer with third quarter revenue up $305.6 million, an increase of $55.3 million, or 22.1%. Excluding the impact of foreign exchange rates, year-over-year organic revenue improved approximately 23.8%.

For the sports arm this was the sixth consecutive quarter of revenue growth for the segment, which broke records in Q2. The continuing “record demand” for bicycles throughout the summer benefitted the Cycling Sports Group (CSG) and Pacific Cycle divisions. Caloi’s revenue increased in local currency as IBD sales increased and mass market stores began re-opening following the COVID-19 shutdowns. Nine-month revenue was $779.4 million, up $103.6 million, or 15.3%.

Operating profit for the quarter tallied $24.2 million compared to US$6.0 million a year ago. Operating margins were strong, helped by the lack of discounting in the face of demand.

A curtailment of events and marketing further lowered related expenses. Caloi’s operating profit rose year-over-year and reversed an operating loss from this year’s second quarter. Excluding restructuring costs, adjusted operating profit set a new record at US$27.8 million, up $22.2 million, or 395.5%. Nine-month operating profit was $50.4 million, compared to $20.6 million in 2019. Adjusted operating profit was $54.4 million, an increase of $34.2 million, or 169.2%.

Forecast statement

“The third quarter was in line with our expectations as consumers continued to choose Dorel products in Sports and Home and our Juvenile segment rebounded from the impact of the first wave of COVID-19. However, as we enter the fourth quarter, the visibility on earnings is more difficult and the expected second wave of the pandemic is beginning to have a significant impact, particularly in Europe. While thus far, government subsidies have softened the impact on consumers in most markets, it is unknown if this will continue going forward. In fact, government restrictions, similar to those put in place earlier in the year, are back in certain markets, which will almost certainly impact our sales,” commented Dorel President & CEO, Martin Schwartz.

“In addition to these unknowns, all three of our segments are dealing with known and current challenges on transportation out of Asia due to a lack of supply and substantial cost increases. The recent strength of the Chinese Yuan relative to the US dollar, could also result in cost increases, further pressuring earnings. While we remain confident in the long-term, the fourth quarter may be challenging. While overall adjusted operating profit is forecasted to be similar to last year, there is downward risk to our projections. We believe that the challenges faced in the fourth quarter could be overcome and that 2021 is anticipated to be a good year leveraging the strengths of our three business segments.”

“Finally, I want to reiterate my sincere appreciation to all of our employees who continue to work extremely hard in sometimes difficult conditions. Your contribution to Dorel is invaluable,” concluded Mr. Schwartz.

Dorel Group

Though further ground was recovered in Q3, the group as a whole did suffer significant disruption to the business earlier in the year down to the pandemic. Dorel’s latest statement shows a year-to-date net loss of $20.5 million or US$0.63 per diluted share, 109% more than the net loss of $9.8 million or US$0.30 per diluted share in 2019 by the end of Q3.

Flipping the picture year-on-year in Q3, the Dorel group reported net income of $26.2 million or US$0.80 per diluted share, compared to a net loss of $4.3 million or $0.13 per diluted share last year.

The group’s adjusted net income was $28.7 million or $0.87 per diluted share, compared to $2.4 million or $0.07 per diluted share a year ago.

The full nine-month revenue now sits at $2.1 billion, an increase of 3.9% compared to $1.98 billion last year.

Year-to-date adjusted net income was $30.8 million or $0.94 per diluted share, compared to $14.5 million or U0.44 per diluted share a year ago.

“All three of our business segments contributed to an excellent quarter for Dorel. In Sports, the second quarter trend of increased demand for bicycles continued and outpaced product availability. In spite of this, the segment was still able to achieve the highest earnings in its history. Similarly, Dorel Home had an excellent quarter despite sales being limited by a lack of supply in some of its product categories. Dorel Juvenile improved its earnings and recovered from a first half adjusted operating loss that was due to the negative impact of the COVID-19 pandemic,” stated Dorel President & CEO, Martin Schwartz.

Earlier this month the Cannondale, Schwinn, GT, Mongoose, Caloi, and IronHorse parent announced that it will soon privatise the business thanks to a new partnership with Cerebus.

“Our focus will be on building the company not cost cutting,” said CEO Martin Schwartz making the announcement. “To be clear, we are not selling Dorel and we are not doing this due to any financial concerns. Business is strong and our financial position is sound.”