Dorel's recreational and leisure business rebounded from a disappointing second quarter, officials told investors Thursday morning during a third-quarter earnings call.
"However, the IBD channel is being cautious on preseason inventories given last spring's weather," Dorel president and CEO Martin Schwartz said. "The IBD business was solid in Q3. What we're seeing in Q4 is a lot of dealers are nervous given the weather situation that happened last year to fully commit to as large opening orders as they have in the past. It's a matter of timing. If the weather is fine, we're going to see those replacement orders coming in Q1 and Q2 [of 2014]."
Third-quarter revenue in the segment—which includes Cannondale, GT, Mongoose, Schwinn, Sugoi and its mass-market brands—was up $2.6 million to $231.5 million, a 1.2 percent increase from 2012's $228.9 million.
The company attributed the slight bump in the quarter to new model-year introductions from its Cannondale Sports Group brands. But its mass-market sales were negatively affected by a timing shift that will move some shipments into the fourth quarter.
Operating profit was up 12.7 percent compared to the same quarter a year ago and Dorel attributed this boost to the Aug. 22 acquisition of Caloi, Brazil's largest bike brand. The Caloi acquisition contributed $1.3 million to operating profit, which was up $1.6 million for the quarter. New Cannondale, Mongoose and GT bikes are being launched this week at a major trade show in Sao Paolo, Brazil, Schwartz noted.
Caloi contributed $16 million in revenue for the quarter to the rec/leisure segment.
"We're excited by the prospect of increasing our business in Latin America," Schwartz said. "The acquisition of 70 percent of Caloi has already shown positive results to the recreational and leisure segment. Brazil will become Dorel's production center, assembling key items for that market."
The fourth quarter should be particularly good for the Brazilian brand as it's typically the strongest quarter in that market, coinciding with the beginning of summer in Brazil as well as the holiday season, Schwartz said.
In addition to the Caloi acquisition, Dorel increased its marketing spend in Cannondale during the third quarter, buying a majority interest in the Cannondale Pro Cycling team and Brixia Sports.
Gross margins in the bike business were down 80 basis points, which officials said was due to product mix, unfavorable exchange rates and continued pressure on discounting its 2013 line, which started earlier this year.
Bike revenue through the first nine months of the year is off 4.1 percent, totaling $673.2 million, down from $701.7 million for the same period in 2012.
Dorel reported company-wide revenue for the quarter, including its juvenile and home furnishings business, of $607.3 million, down from $613.3 million a year ago. Net income for the period was $11.1 million, down from $20 million last year. Through Sept. 30, the company saw revenues of $1.80 billion, compared with $1.87 billion in 2013. Net income for the first nine months was $46.6 million down from $79.4 million.
Dorel is traded on the Toronto Stock Exchange under the symbols DII.B and DII.A. Its stock performance is tracked on BRAIN's Industry Stock chart.
