Dorel Reports First Quarter 2018 Results

• Results reflect US$12.5 million impairment loss on trade accounts receivable from Toys“R”Us liquidation
  
• Most Toys“R”Us business expected to be replaced starting second half
  
• Dorel Juvenile and Dorel Sports introducing numerous exciting products

MONTRÉAL, May 04, 2018 (GLOBE NEWSWIRE) -- Dorel Industries Inc. (TSX:DII.B) (TSX:DII.A) today released results for the first quarter ended March 31, 2018. Total revenue was US$642.3 million compared to US$646.7 million a year ago. Reported net income was US$4.7 million, or US$0.14 per diluted share, compared to US$8.8 million or US$0.27 per diluted share last year. Adjusted net income, was US$5.5 million or US$0.17 per diluted share compared to US$22.7 million or US$0.69 per diluted share for the first quarter of 2017. Removing the impact of Toys“R”Us, adjusted net income was US$15.0 million or US$0.46 per diluted share compared to US$22.7 million or US$0.69 per diluted share for the first quarter of 2017.

The liquidation of Toys“R”Us in the U.S. resulted in a first quarter impairment loss on trade accounts receivable of US$12.5 million, or US$0.29 per diluted share, comprising of US$2.1 million within Dorel Home, US$3.8 million within Dorel Juvenile and US$6.6 million within Dorel Sports. This was in addition to the US$3.8 million recorded by Dorel in the fourth quarter of 2017.

“As we reported in March, all of our business units are being affected by the Toys“R”Us situation. We estimate that company-wide sales were reduced by approximately US$7 million in the quarter. The Toys“R”Us liquidation in the U.S. may cause a market disruption in the short-term, but we believe this situation will stabilize, and both the Juvenile and Sports business will shift to other retailers or other channels during the second half. While we were anticipating a slower start to the year, the first quarter was more difficult than originally expected at Dorel Juvenile and Dorel Sports. Dorel Home had a solid quarter with a slow start in January, followed by revenue acceleration in the rest of the quarter and into April. Their warehouse network processed a record number of packages in the e-commerce channel in March. There are numerous exciting new products being launched through 2018 and we feel that these introductions, coupled with our strong brand recognition, will find traction with consumers,” stated Dorel President & CEO, Martin Schwartz.

The Company is presenting adjusted financial information, excluding restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt, as it believes this provides a more meaningful comparison of its core business performance between the periods presented. These previously announced items are detailed in the attached tables of this press release. Contained within this press release are reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. 

First quarter revenue decreased US$11.8 million, or 5.8%, to US$192.3 million. Within the segment’s sales channels, e-commerce continued to grow and represented 50% of total segment revenue. This growth did not fully make up for a shortfall in brick and mortar sales, compounded by the Toys“R”Us liquidation.

Gross profit continues to improve at 17.7%, up 80 basis points, due to the higher proportion of dot.com sales with higher margin items. Offsetting the margin improvement were higher operating costs required by on-going investment in people and technology necessary to support the growth of the business. As a result, operating profit declined by US$3.5 million, or 17.7%, from US$19.8 million a year ago. This decline includes the US$2.1 million impairment loss on the trade accounts receivable from Toys“R”Us.

First quarter revenue increased US$14.7 million, or 6.4%, to US$243.3 million. Excluding the impact of foreign exchange rates, organic revenue increased by approximately 0.4%.  Revenue increased moderately in the segment’s mature markets of the U.S. and Europe, and in Latin America where strong growth in Brazil, and to a lesser extent Peru, was offset by challenges in the Chilean market.

Profitability for the first quarter was most negatively affected by lower earnings in Chile and at the Dorel Juvenile China factory. Production has stabilized at the China factory and deliveries were on-time to both internal and external customers around Chinese New Year. However, higher commodity prices and unfavorable foreign exchange levels are reducing earnings.

In Chile, the shifting marketplace means sales and gross profit are lower as wholesale customers have moved completely on-line which has had the impact of lowering retail price points and expanding competition within their virtual stores. This has had an impact on Dorel-owned retail stores as consumers now have access to more points of sale where they can easily comparison shop products. Infanti remains the country’s number one baby retailer and brand.  We are aggressively expanding our e-commerce capabilities and reducing our retail footprint to compete in this new environment.

Operating expenses were well contained and first quarter operating profit declined by US$7.0 million to US$2.6 million from US$9.6 million a year ago. Excluding restructuring and other costs, adjusted operating profit declined by US$11.6 million, or 75.7% to US$3.7 million. This decline includes the US$3.8 million impairment loss on the trade accounts receivable from Toys“R”Us.

Several product introductions are rolling out in the coming months, including the Maxi-Cosi Magellan, a 5-in-1 convertible car seat, principally for the U.S. market, which is the only seat equipped with Maxi-Cosi’s patented Adjustable Side Impact Protection. Also in the U.S., the new Safety 1^st RIVA Travel System, launched to coincide with April 22^nd Earth Day, is the only recycled resin stroller frame made in the U.S. Titan and Titan Pro will augment Maxi-Cosi’s multi-age car seat offering in Europe and is also targeted for Asia and Latin America where child safety awareness continues to grow.

First quarter revenue declined by US$7.3 million, or 3.4%, to US$206.7 million from US$214.0 million last year. Excluding the impact of foreign exchange rates, organic revenue decreased by approximately 6.2%. The revenue decline was mostly in the mass-market channel due to weak consumer demand at major retailers, and the impact of halted shipments to Toys“R”Us in March. 

A less favourable sales mix accounted for most of the decline in gross profit of 80 basis points. However excluding restructuring and other costs, the decrease in adjusted gross profit was only 30 basis points from 22.4% to 22.1%. Operating profit decreased by US$10.9 million to an operating loss of US$0.8 million compared to an operating profit of US$10.1 million in 2017. Excluding restructuring and other costs, adjusted operating profit decreased by US$10.2 million. This decline includes the US$6.6 million impairment loss on the trade accounts receivable from Toys“R”Us.

The coming months will see the introduction of several exciting model year ’19 mountain and road bikes, expected to be enthusiastically received. Cannondale will launch a complete e-bike line in Europe in response to the growing popularity of e-bikes abroad. As well, a new category of interactive ride-ons has been developed to launch this fall, which will set Dorel Sports apart from the competition.

Other
The Company’s effective tax rate was 6.9% in the first quarter of 2018 compared to 35.7% in 2017. Excluding income taxes on restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt, the Company’s adjusted tax rate was 10.2% in the first quarter compared with 22.6% a year ago. The main cause of the variation in the adjusted tax rate year-over-year is due to changes in the jurisdictions in which the Company generated its income (including the impact related to the U.S. Tax Reform signed into law on December 22, 2017 which reduces the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018). The Company is stating that for the full year it expects its annual adjusted tax rate to be between 20% and 25%.

Quarterly dividend
Dorel’s Board of Directors declared its regular quarterly dividend of US$0.30 per share on the outstanding number of the Company’s Class A Multiple Voting Shares, Class B Subordinate Voting Shares, Deferred Share Units, cash-settled Restricted Share Units and cash-settled Performance Share Units. The dividend is payable on June 1, 2018 to shareholders of record as at the close of business on May 18, 2018.

Outlook
“While 2018 started with lower sales and earnings than initially expected, we still expect improvements over last year as the year progresses. We are confident that much of the lost Toys“R”Us sales will be recovered commencing in the second half. At Dorel Home, since a slow January, sales have bounced back and as such, we remain committed to further growth in revenue and higher operating profit in 2018,” stated Dorel President & CEO, Martin Schwartz. 

“Dorel Juvenile’s new product introductions were slightly delayed and many significant launches are still to come this year and into 2019. The impact of the Toys“R”Us liquidation, the reduced earnings in our Chilean business, and increases in costs in China may dampen earnings in the short-term. However, we are seeing e-commerce growth and point-of-sale increases in many of our markets, and our planned new product introductions have never been as strong. As a result, we still expect revenue and adjusted operating profit improvement, in the second half of the year.

“Dorel Sports’ second quarter earnings may be reduced by the residual impact of the Toys“R”Us insolvency as they liquidate on-hand inventory, and by the poor April weather in most of our markets. As we enter the second half of the year, the hangover effect of the Toys“R”Us liquidation should dissipate and our upcoming new products are expected to drive improved sales and adjusted operating profit,” concluded Mr. Schwartz.

Conference Call
Dorel Industries Inc. will hold a conference call to discuss these results today, May 4, 2018 at 10:45 A.M. Eastern Time. Interested parties can join the call by dialing 1-877-223-4471. The conference call can also be accessed via live webcast at http://www.dorel.com. If you are unable to call in at this time, you may access a recording of the meeting by calling 1-800-585-8367 and entering the passcode 6668808 on your phone. This recording will be available on Friday, May 4, 2018 as of 2:00 P.M. until 11:59 P.M. on Thursday, May 10, 2018.

Complete condensed consolidated interim financial statements as at March 31, 2018 will be available on the Company's website, www.dorel.com, and will be available through the SEDAR website.

Profile
Dorel Industries Inc. (TSX:DII.B) (TSX:DII.A) is a global organization, operating three distinct businesses in juvenile products, bicycles and home products. Dorel's strength lies in the diversity, innovation and quality of its products as well as the superiority of its brands. Dorel Juvenile’s powerfully branded products include global brands Maxi-Cosi, Quinny and Tiny Love, complemented by regional brands such as Safety 1^st, Bébé Confort, Cosco and Infanti. Dorel Sports brands include Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and SUGOI. Dorel Home, with its comprehensive e-commerce platform, markets a wide assortment of domestically produced and imported furniture. Dorel has annual sales of US$2.6 billion and employs approximately 10,000 people in facilities located in twenty-five countries worldwide.

Caution Regarding Forward-Looking Statements
Certain statements included in this press release may constitute “forward-looking statements” within the meaning of applicable Canadian securities legislation. Except as may be required by Canadian securities laws, Dorel does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from Dorel’s expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. As a result, Dorel cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits Dorel will derive from them. Forward-looking statements are provided in this press release for the purpose of giving information about Management’s current expectations and plans and allowing investors and others to get a better understanding of Dorel’s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.

Forward-looking statements made in this press release are based on a number of assumptions that Dorel believed were reasonable on the day it made the forward-looking statements. Factors that could cause actual results to differ materially from Dorel’s expectations expressed in or implied by the forward-looking statements include: general economic conditions; changes in product costs and supply channels; foreign currency fluctuations; customer and credit risk, including the risk resulting from the liquidation and reorganization of Toys“R”Us referred to in this press release and the concentration of revenues with small number of customers; costs associated with product liability; changes in income tax legislation or the interpretation or application of those rules; the continued ability to develop products and support brand names; changes in the regulatory environment; continued access to capital resources and the related costs of borrowing; changes in assumptions in the valuation of goodwill and other intangible assets; and there being no certainty that Dorel’s current dividend policy will be maintained. These and other risk factors that could cause actual results to differ materially from expectations expressed in or implied by the forward-looking statements are discussed in Dorel’s annual Management Discussion and Analysis and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors outlined in the previously-mentioned documents are specifically incorporated herein by reference.

Dorel cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to Dorel or that Dorel currently deems to be immaterial may also have a material adverse effect on Dorel’s business, financial condition or results of operations. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Non-GAAP financial measures
As a result of restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt incurred in 2018 and 2017, the Company is including in this press release the following non-GAAP financial measures: “adjusted cost of sales”, “adjusted gross profit”, “adjusted operating profit”, “adjusted finance expenses”, “adjusted income before income taxes”, “adjusted income taxes expense”, “adjusted tax rate”, “adjusted net income”, “adjusted earnings per basic and diluted share” and “adjusted diluted weighted average number of shares outstanding”. The Company believes that this results in a more meaningful comparison of its core business performance between the periods presented. These non-GAAP financial measures do not have a standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other issuers. Contained within this press release are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.

(All figures in the tables below are in thousands of US$, except per share amounts)

CONTACTS:
MaisonBrison Communications
Rick Leckner
(514) 731-0000

Dorel Industries Inc.
Jeffrey Schwartz
(514) 934-3034