DOREL Reports Second Quarter 2011

EXCHANGES
TSX: DII.B, DII.A

• Recreational/Leisure segment maintains strong growth
  
• U.S. economy affects Juvenile sale

MONTREAL, Aug. 9, 2011 /PRNewswire/ - Dorel Industries Inc. (TSX: DII.B DII.A) today announced results for the second quarter ended June 30, 2011. Total revenue for the period was US$619.0 million, up 1.9% from US$607.7 million for the same quarter last year. Net income was US$23.0 million or US$0.70 per diluted share compared with US$32.9 million or US$0.99 per diluted share for the corresponding quarter of 2010.

Year-to-date revenue was US$1.23 billion, compared to US$1.20 billion last year. Net income was US$54.2 million or US$1.65 per diluted share compared to US$71.1 million or US$2.14 per diluted share for the first half of 2010. Upon transition to IFRS, previously issued earnings per diluted share of US$1.05 and US$2.18 for the second quarter and six months of fiscal 2010 respectively have been restated to US$0.99 and US$2.14.

"Dorel's Recreational / Leisure segment maintained its strong performance through the second quarter with a year-over-year revenue increase of 16% and an operating profit gain of 25%. With its strong focus on innovation, Cannondale has become a much desired brand and is selling very well. In addition, the marketing investments made in Schwinn have brought the desired results," commented Dorel President and CEO, Martin Schwartz.

"Costs in the first half of 2011 are higher than last year, and given the highly conservative spending of today's typical consumer, initiating price increases to our customers is a challenge, particularly within our Juvenile segment in the U.S. While the economic climate in Europe remains difficult, notably in southern Europe, Dorel Europe is protecting or increasing its juvenile products' market share. Home Furnishings was affected by the still weak U.S. economy which impacted POS levels, as well as by the weaker U.S. dollar which hurt our Canadian plants shipping into the U.S," commented Mr. Schwartz.

Second quarter revenue declined in the majority of the Juvenile segment's businesses, particularly when expressed in local currency. Revenues declined by 6.1% and after removing the impact of varying exchange rates, the overall organic revenue decline was approximately 12% for the quarter and 9% for the first half. The most significant reduction in revenue was at Dorel Juvenile Group USA (DJG) where the depressed retail environment due to the weak economy affected POS levels and sales and has driven a less favourable sales mix.

In Europe, sales in Euros were down just over 4% due to a tough economic environment, however upon conversion to the U.S. dollar, recorded sales increased by 8.5%. The declines in Europe were most pronounced in Southern Europe. Notwithstanding these results, Dorel Europe is preserving its market share. For example, it is maintaining its leadership in the all-important car seat category and is preserving its high market share in strollers. A number of new products have been launched in recent months abroad and several more will be introduced at the Cologne, Germany juvenile show next month.

Traditionally in weaker economies, commodity prices decline which allows for sustained profitability even in an environment of poor demand. However the first half of 2011 experienced both higher costs and weakened demand. This resulted in the majority of these costs being absorbed by the Company, particularly at DJG, as retailers were reluctant to increase pricing to consumers in the current retail environment. Europe was also negatively impacted by higher costs, though the impact was less significant.

Recreational/Leisure Segment

The second quarter's sales increase of 15.9% was driven by strong sales in the Cycling Sport's Group, the segment's independent bicycle dealer (IBD) division. Excluding the impact of foreign exchange variations on the segment's non-US based businesses, organic revenue increased approximately 12% for the quarter and 11% year-to-date. For the quarter, the IBD channel experienced sales gains in all of its divisions which are located in the U.S., Europe, Japan and Australia, with Europe posting a particularly strong sales increase of over 50%. There has also been strong revenue growth within the segment's international IBD distributors in Europe and Latin America.

Consumers remain attracted to Dorel's premium bicycle brands. The demand for Cannondale is very strong and GT, Schwinn and Mongoose continue to make important gains in key North American and European IBD markets. Growth is coming both from existing dealers and from new distribution for all brands through a combination of additional dealers and cross-selling at existing dealers.

The sales success of the segment's premium bicycles can be attributed to successful new product introductions and increased promotional spending which is improving brand awareness. Product development also remains a key focus. This is evident in the exciting innovations in the 2012 Cannondale line up, which is now ready to be shipped. The 2012 Schwinn and GT lines also feature significant changes with updated frame specifications and components.

After a slow start due to a wet spring and retailers closely controlling inventories, second quarter Pacific Cycle sales to the mass merchant distribution channel improved slightly over last year. POS levels have increased since the weather finally broke in early June. Bolstered by an aggressive advertising and marketing campaign which has increased Schwinn's brand awareness, Pacific Cycle is increasing its market share in the adult category. Schwinn is outperforming the competition and has made gains over last year's second quarter.

Home Furnishings Segment

Home Furnishings revenues decreased 5.3% in the second quarter and were up 0.7% year-to-date. As in Juvenile, POS levels were affected by the fragile U.S. economy. The segment's products appeal primarily to opening price point consumers, who are being prudent in their spending choices. As well, revenue was affected by the decision by Cosco Home & Office to exit unprofitable product SKUs. An increase in other furniture lines at the segment's other divisions, mainly upholstered furniture and futons, partially offset this decrease.

Cost increases on steel, textiles, container freight as well as other inputs affected margins.  Second quarter profitability was further compounded by the strength of the Canadian dollar which is increasing costs for two of the segments plants that are based in Canada and ship the majority of its product to the United States.

Other
The second quarter tax rate was 28.1% and 20.5% year-to-date. This compares to 25.4% and 23.4% for the second quarter and year-to-date respectively last year. Based on current expectations, the Company maintains that the annual tax rate will be in the range of 15% to 20%. However, variations in earnings across quarters mean that this rate may vary significantly from quarter to quarter.

Versus the first quarter of 2011, second quarter inventory levels increased mainly due to an increase within the Home Furnishings segment as a strong third quarter shipping of futons is anticipated. Therefore inventories rose to US$504.0 million as of June 30, 2011. Versus year end, inventories have decreased by US$6.1 million. The impact of the weaker US dollar was to increase the June balance by US$11.0 million versus year end. As previously stated, the Company estimates the appropriate level of inventory to support the business to be in the US$450 to US$470 million range. This remains the expectation for the second half of this year. First half inventory reductions generated approximately US$17 million in cash flow.

Quarterly dividend
The Board of Directors of Dorel declared its regular quarterly dividend of US$0.15 per share on the outstanding number of the Company's Class A Multiple Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units. The dividend is payable on September 6, 2011 to shareholders of record as at the close of business on August 23, 2011.

Outlook
There are several catalysts which are expected to maintain the positive momentum in the Company's Recreational/Leisure segment. Innovative 2012 Cannondale models are being met with enthusiastic response from independent bicycle dealers and on-going marketing investments are being made in both the Schwinn and Mongoose brands.  In Juvenile, there are no indications of an imminent rebound and as such the second half will remain challenging.  In Home Furnishings, the impact of the poor economy has been less pronounced than in Juvenile and the second half is expected to be slightly better than the prior year.

"Global economic uncertainty, underlined by the recent volatility in world stock markets and ongoing concerns in Europe, continue to drive fears of another possible recession.  This is depressing already weak consumer confidence and is further undermining the existing fragile retail environment. On the positive side, with the economy not recovering as many had anticipated, we are seeing some easing of commodity prices as well as some excess capacity at our overseas suppliers. Should this trend continue, this could alleviate some of the margin pressure experienced during the first half. Notwithstanding the difficult economy, Dorel is remaining aggressive in new product development and exciting new products will be introduced in the upcoming months," concluded Mr. Schwartz.

Conference Call
Dorel Industries Inc. will hold a conference call to discuss these results today, August 9, 2011 at 1:00 P.M. Eastern Time. Interested parties can join the call by dialling 1-800-731-5319. The conference call can also be accessed via live webcast at www.dorel.com or www.newswire.ca. If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-877-289-8525 and entering the passcode 4459235# on your phone. This tape recording will be available on Tuesday, August 9, 2011 as of 4:00 P.M. until 11:59 P.M. on Tuesday, August 16, 2011.

Complete financial statements will be available on the Company's website, www.dorel.com, and will be available through the SEDAR websites.

Profile
Dorel Industries Inc. (TSX: DII.B, DII.A) is a world class juvenile products and bicycle company.  Established in 1962, Dorel creates style and excitement in equal measure to safety, quality and value. The Company's lifestyle leadership position is pronounced in both its Juvenile and Bicycle categories with an array of trend-setting products.  Dorel's powerfully branded products include Safety 1^st, Quinny, Cosco, Maxi-Cosi and Bébé Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose, IronHorse and SUGOI in Recreational/Leisure.  Dorel's Home Furnishings segment markets a wide assortment of furniture products, both domestically produced and imported.   Dorel is a US$2.3 billion company with 4700 employees, facilities in nineteen countries, and sales 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. 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 the Company's expectations expressed in or implied by the forward-looking statements include:  general economic conditions; changes in product costs and supply channel; foreign currency fluctuations; customer and credit risk including the concentration of revenues with few 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 subject to dividends being declared by the Board of Directors, there can be no certainty that Dorel's 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 MD&A 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 our 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.

Except as otherwise indicated, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. The financial impact of these transactions and non-recurring and other unusual items can be complex and depends on the facts particular to each of them. Dorel therefore cannot describe the expected impact in a meaningful way or in the same way Dorel presents known risks affecting the business.

 

 

 

 

 

SOURCE DOREL INDUSTRIES INC.