Dorel’s Sports division is to make some uncomfortable changes to ensure future profitability, the company’s Q2 results reveal.
Tucked within yesterday’s financial statement, the Cannondale parent said that it will “exit” its three US-based Cannondale Sports named retail outlets. The United States market has proved troublesome for many this year, with closures of two retail sports giants, as well as excess stock in the market slowing sales.
Dorel’s imminent restructuring process, designed to ensure future profitability, will result in 4% of the global sports division workforce being laid off, worth an annual saving of $5 million from next year.
Q2 revenue decreased by 5.8% to UD$236.5 million compared to US$251.1 million last year. After removing the impact of varying year-over-year foreign exchange rates, organic revenue declined by approximately 4.8%.
“In the independent bicycle dealer (IBD) channel, Cycling Sports Group (CSG) global revenue declined versus the prior year amid a soft and competitive North American market. While Cannondale branded bicycles’ market share increased during the first half, continued industry-wide discounting due to excess inventories at the supplier and retailer levels impacted the segment’s profitability,” offered Dorel.
Caloi’s sales declined due to the continued economic challenges in Brazil, including foreign exchange rate pressures.
Elsewhere, GT’s Chinese distribution will now go through a third party, while Pacific Cycle’s distribution operations will switch from Illinois to Savannah, Georgia. The knock on effect of this will be GT’s mass market supply stemming from Dorel’s former home furnishing facility, an off-shoot business which has now moved to a larger home. This move is expected to save $5 million annually from 2017.
The IBD segment reported an operating loss in the second quarter of US$50.0 million compared to an operating profit of US$11.1 million in 2015. Year-to-date, the segment reported an operating loss of US$44.7 million compared to an operating profit of US$22.6 million last year.
“Dorel Sports is taking the necessary steps to maintain its strong position in the face of a continuing tough market. Results have been affected by sustained discounting in North America and the reality of depressed foreign exchange rates, as IBD sales outside the U.S. are significant. Nonetheless, we remain confident and excited about our bicycle business. The recently launched Cannondale Scalpel and Quick models have been well received and are selling at traditional margins. A new emountain bike has been introduced in Europe and will be shipped in the fourth quarter and we anticipate excellent reaction. The measures we are taking are expected to benefit the segment going forward,” commented CEO Martin Schwartz.