Posted by Editoress on 05/8/20
Dorel Reports 7.2% Revenue Drop in Q1, Bike Division Shows Strong Results
Dorel reported its 2020 first quarter results on Friday (May 8th), for the period ending March 31st. Overall, revenue was US$580.8 million, down 7.2% compared to US$625.6 million a year ago. Reported net loss was US$57.8 million, or US$1.78 per diluted share, compared to US$8.3 million or US$0.26 per diluted share last year. Adjusted net loss was US$13.6 million or US$0.42 per diluted share compared to an adjusted net income1 of US$5.8 million or US$0.18 per diluted share.
"In mid-March the Coronavirus pandemic literally brought a halt to the global economy as lockdown orders forced an unprecedented situation. Our priority is to ensure the health and well-being of our employees worldwide. Additional safety measures have been implemented in our facilities and where possible, employees began working from home. While like most companies, Dorel's revenues have been affected, many of our products have remained popular with consumers purchasing them in stores where open, and increasingly online. We feel we are in a good position in the short-term and going forward as the economy recovers. Both Dorel Home and Dorel Sports have been experiencing strong demand since the virus hit," commented Dorel President & CEO, Martin Schwartz.
For the Dorel Sports division specifically, the first quarter was the fourth consecutive quarter of revenue growth, at US$188.2 million, an increase of US$3.6 million, or 2.0%, compared to a year ago. Sales improvements were at Cycling Sports Group (CSG) and Pacific Cycle (PCG), partially offset by weakness at Caloi. PCG saw strong retail point-of-sale (POS) with growth accelerating particularly in the last two weeks of March as consumer demand for bikes spiked amid the pandemic lockdowns, and ahead of the Easter holiday period. Caloi's decline was attributed to lower demand due to price increases aimed at offsetting devaluation of the Brazilian Real and the Coronavirus which forced many retailers to close towards the end of the quarter.
Operating loss was US$0.6 million versus an operating profit of US$4.5 million last year. The Coronavirus reduced first quarter operating profit by over US$6.0 million through a combination of reduced sales in the second half of March due to lockdowns, unfavourable foreign exchange due to the strength of the US dollar and an increased impairment loss on trade accounts receivable considering the economic impact of the COVID-19 pandemic.
As noted above, the first quarter started strong but was derailed by the pandemic, which eroded approximately US$6.0 million in operating profit. Many bicycle factories in Asia were forced to close for four to six weeks, reducing supply. Though demand remained strong, there were some constraints in the ability to realize sales as many countries locked down retail operations. A small percentage of PCG customers were closed and at CSG, the impact varied by region. Some of the larger sporting goods outlets closed although e-commerce sales are making up for the lack of brick and mortar sales. By the end of April, many dealers that had been closed in Northern Europe had reopened while most of the dealers in the Southern countries remained closed.
As reported in the media, the bicycle industry has seen a surge in business in recent weeks. Many people are getting out for fresh air and exercise, while others are using bicycles as a mode of transportation to avoid public transport during the Coronavirus crisis. The desire for physical and mental health wellness, outdoor fun and fitness, while remaining safely isolated, are all driving factors for the significant increase in bike demand. This has been helped by the breaking, warm Spring weather in many regions. Cities around the world are closing additional traffic lanes to give cyclists and pedestrians more space and some are temporarily or permanently expanding cycling infrastructure in response to COVID-19.
Dorel Sports Outlook
Despite some constraints, second quarter sales are expected to remain strong where consumers can access bikes, including mass retailers and e-commerce, two channels experiencing an exponential increase. Through April, PCG customer POS has increased significantly versus prior year. CSG's North American business is expected to deliver sales growth while European revenues are expected to decline due to ongoing lockdowns across Southern Europe. It is anticipated that Caloi sales will decline as many of its key customers are expected to remain closed through the quarter. Even though short-term supply will be an issue due to the high demand, and store closures will affect distribution, a return to profitability is expected for the second quarter.
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