Dorel Reports Second Quarter 2024 Results

• Dorel Juvenile continues its growth and earnings improvement momentum
• Dorel Home earnings continue to be pressured by challenging market conditions; records a US$45.3 million non-cash impairment charge

MONTREAL, Aug. 09, 2024 (GLOBE NEWSWIRE) — Dorel Industries Inc. (TSX: DII.B, DII.A), today announced results for the second quarter and six months ended June 30, 2024.

Second quarter revenue was US$348.1 million, compared to US$345.2 million, up 0.8% from the same period a year ago. Reported net loss was US$59.5 million or US$1.83 per diluted share, compared to US$16.7 million or US$0.51 per diluted share last year. Adjusted net loss¹ was US$13.6 million or US$0.42 per diluted share compared to US$16.7 million or US$0.51 per diluted share last year.

Revenue for the six months was US$699.1 million, compared to US$678.4 million, up 3.1% from the prior year. Reported net loss was US$77.0 million or US$2.37 per diluted share, compared to US$48.2 million or US$1.48 per diluted share a year ago. Adjusted net loss¹ for the six months was US$30.5 million or US$0.94 per diluted share, compared to US$48.2 million or US$1.48 per diluted share last year.

“Dorel Juvenile has continued its trajectory of growth and improvement. Our profit turnaround is on-going, particularly driven by strong results in North America where our market share has grown for several consecutive quarters. This is also true in our other major market of Europe, where our innovative new product launches are leading the way with our retail partners and consumers. This positive outcome is a testament to our commitment to excellence and innovation. Our Home segment continues to operate in a difficult environment with the ongoing high inflation and interest rates affecting our consumers and the demand for new furniture. As a result, reduced earnings and cash flow projections forced us to record a non-cash impairment loss on goodwill of US$45.3 million in the quarter. Excluding this, our adjusted operating loss¹ was similar to prior year second quarter. On a positive note, the Cosco product line of folding indoor furniture, step stools and utility products is growing year-over-year and sales to our brick-and-mortar retailers increased overall. We have also significantly reduced our operating expenses and it remains a focus. We’re excited about our new product listings and we remain committed to improving our operations, focusing on new product development and expanding our market presence,” stated Dorel President & CEO, Martin Schwartz.

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1} This is a non-GAAP financial ratio or measure with no standardized meaning prescribed by IFRS and therefore is unlikely to be comparable to similar measures presented by other issuers. Refer to the section “Definition and reconciliation of non-GAAP financial ratios and measures” in this press release.

Second quarter revenue was US$216.4 million, an increase of US$4.7 million, or 2.2% versus last year. Organic revenue¹ increased by 3.7%, after removing the impact of varying foreign exchange rates year-over-year. The growth in the second quarter mainly came from North America and the majority of export markets. Year-to-date revenue was US$429.1 million, an increase of US$17.3 million, or 4.2% from US$411.8 million in 2023. Year-to-date, the sales increase versus prior year are being driven by continued success on Maxi-Cosi and a strong performance by Safety 1st. Car seats continue to drive revenues at approximately half of sales, but importantly sales of travel systems and strollers are increasing. This is an identified strategic priority in most markets where Dorel is underrepresented within these categories.

Reported operating profit for the quarter was US$6.3 million compared to US$0.8 million last year. Adjusted operating profit¹ for the quarter was US$6.9 million which was an increase of US$6.0 million versus last year’s results. This increase was driven by revenue increases in North America and improving gross margins in the majority of markets. While Europe was not a contributor to improved earnings, new product launches in the quarter were very successful, but less favourable currency and some supply chain challenges limited their impact with substantial shipping occurring expected in the second half. For the six months, reported operating profit was US$6.8 million and adjusted operating profit¹ was US$8.0 million compared to an adjusted operating loss¹ of US$8.1 million last year, an improvement of US$16.1 million.  

Second quarter revenue was US$131.6 million, a decrease of US$1.8 million, or 1.4%, from US$133.4 million last year. Dorel Home continues to operate in a challenging economic environment, and this is reflected in sales being flat year-over-year. E-commerce sales continued to trend downwards, compensated by improved brick-and-mortar performance. Contrary to the segment overall, Cosco Home & Office sales and earnings continue to grow. Six-month revenue was US$270.0 million, an increase of US$3.4 million, or 1.3%, from US$266.6 million last year. 

Second quarter operating loss was US$53.6 million, which includes an impairment loss on goodwill of US$45.3 million. This impairment loss on goodwill is due to reduced earnings and cash flow projections, and a higher assumed risk adjusted discount rate, in light of the general economic and financial conditions globally. Excluding the impairment loss on goodwill, adjusted operating loss¹ was US$8.3 million, an improvement from an operating loss of US$10.0 million last year. This was due to lower operating costs which were reduced by 15.9% or US$2.4 million versus prior year. The company’s gross margin was impacted by increased promotional pricing and lower volume efficiency and production levels at its ready-to-assemble (RTA) plants. Inventories were down US$32.1 million from the second quarter of 2023 by reducing new purchases and depleting inventory on-hand through the increase in promotional pricing in the quarter. For the six months, the operating loss was US$57.2 million and adjusted operating loss¹ was US$11.7 million. This compares to US$23.9 million in 2023. This improvement was due not only to lower operating costs but an increase in revenue and gross margins.

To match its operations to the reality of current demand, the Home segment continued its path to streamline operations and on July 8th, 2024, it was announced the closure of the RTA manufacturing facility, located in Tiffin, Ohio. This location will be repurposed into a distribution center and production of all RTA furniture will be assumed at facilities in Cornwall, Ontario in late third quarter of 2024. Equipment and customer orders will be transferred to Cornwall with the goal of having one highly efficient and profitable facility for domestic RTA furniture production.

Outlook

“The Dorel Juvenile segment is on track and we still expect our second half results to improve versus the first half. The new product launches thus far this year will drive higher revenues in the back half of the year, with the fourth quarter expected to be the strongest. While there is the risk of a slowing economy and we are facing higher supply chain costs, we believe we have the levers to offset these challenges and are confident that our strategic initiatives and focus on operational efficiency will continue to drive growth and deliver value for our stakeholders,” commented Dorel President & CEO, Martin Schwartz.

“Despite not seeing an industry improvement, we are cautiously optimistic that we will deliver increased sales for Dorel Home in the second half. This is based on our new product pipeline and the success we are seeing at brick and mortar. With our focus on cost reduction, we anticipate improving gross margins and a much improved second half versus both first half results and last year’s comparative quarter. We continue to monitor the macro-environment and will make additional operational improvements and remain committed to delivering quality products and value to our customers,” concluded Mr. Schwartz.

Conference Call

Dorel Industries Inc. will hold a conference call to discuss these results on Friday, August 9, 2024 at 1:00 PM Eastern Time. Interested parties can join the call by dialing 1-844-763-8274. 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 1-855-669-9658 and entering the passcode 0756 on your phone. This recording will be available on Friday, August 9, 2024 as of 4:30 PM until 11:59 PM on Friday, August 16, 2024.

Condensed consolidated interim financial statements as at June 30, 2024 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, DII.A) is a global organization, operating two distinct businesses in juvenile products 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, Safety 1st and Tiny Love, complemented by regional brands such as BebeConfort, Cosco, Mother’s Choice and Infanti. Dorel Home, with its comprehensive e-commerce platform, markets a wide assortment of domestically produced and imported furniture. Dorel has annual sales of US$1.4 billion and employs approximately 3,900 people in facilities located in twenty-two 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, the Company 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, including statements regarding the impact of the macro-economic environment, including inflationary pressures, changes in consumer spending, exchange rate fluctuations and increases in interest rates on the Company’s business, financial position and operations, and are based on several assumptions which give rise to the possibility that actual results could differ materially from the Company’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, the Company cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits the Company 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 the Company’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 the Company 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 and financial conditions, including those resulting from the current high inflationary environment;
• changes in applicable laws or regulations;
• changes in product costs and supply channels, including disruption of the Company’s supply chain resulting from the macro-economic environment;
• foreign currency fluctuations, including high levels of volatility in foreign currencies with respect to the US dollar reflecting uncertainties related to the macro-economic environment;
• customer and credit risk, including the concentration of revenues with a 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;
• outbreak of public health crises, such as the COVID-19 pandemic, that could adversely affect global economies and financial markets, resulting in an economic downturn which could be for a prolonged period of time and have a material adverse effect on the demand for the Company’s products and on its business, financial condition and results of operations;
• the effect of international conflicts on the Company’s sales, including the ongoing Russia-Ukraine war and the Israeli-Hamas war;
• continued access to capital resources, including compliance by the Company with all of the covenants under its ABL facility and term loan facility, and the related costs of borrowing, all of which may be adversely impacted by the macro-economic environment;
• failures related to information technology systems;
• changes in assumptions in the valuation of goodwill and other intangible assets and any future decline in market capitalization;
• there being no certainty that the Company will declare any dividend in the future;
• increased exposure to cybersecurity risks as a result of remote work by the Company’s employees;
• the Company’s ability to protect its current and future technologies and products and to defend its intellectual property rights;
• potential damage to the Company’s reputation; and
• the effect of climate change on the Company.

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 the Company’s annual MD&A and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors set out in the previously mentioned documents are expressly incorporated by reference herein in their entirety.

The Company cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may also have a material adverse effect on the Company’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.

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

Definition and Reconciliation of Non-GAAP Financial Ratios and Measures

Dorel presents in this press release certain non-GAAP financial ratios and measures, as described below. These non-GAAP financial ratios and measures do not have a standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers. These non-GAAP financial ratios and measures should not be considered in isolation or as a substitute for a measure prepared in accordance with IFRS. Contained within this press release are reconciliations of the non-GAAP financial ratios and measures to the most directly comparable financial measures calculated in accordance with IFRS.

Dorel believes that the non-GAAP financial ratios and measures used in this press release provide investors with additional information to analyze its results and to measure its financial performance by excluding the variation caused by certain items that Dorel believes do not reflect its core business performance and provides better comparability between the periods presented. Excluding these items does not imply they are necessarily non-recurring. The non-GAAP financial measures are also used by management to assess Dorel’s financial performance and to make operating and strategic decisions.

Adjustments to non-GAAP financial ratios and measures
As noted above, certain of our non-GAAP financial measures and ratios exclude the variation caused by certain adjustments that affect the comparability of Dorel’s financial results and could potentially distort the analysis of trends in its business performance. Adjustments which impact more than one non-GAAP financial ratio and measure are explained below.

Restructuring costs
Restructuring costs are comprised of costs directly related to significant exit activities, including the sale of manufacturing facilities, closure of businesses, reorganization, optimization, transformation, and consolidation to improve the competitive position of the Company in the marketplace and to reduce costs and bring efficiencies, and acquisition-related costs in connection with business acquisitions. Restructuring costs are included as an adjustment of adjusted gross profit, adjusted gross margin, adjusted operating profit (loss), adjusted net income (loss) and adjusted diluted earnings (loss) per share. Restructuring costs were respectively US$0.6 million and US$1.4 million for the second quarter and six months ended June 30, 2024 (none in 2023). Refer to the section “Impairment loss on goodwill and restructuring costs” in the MD&A for more details.

Impairment loss on goodwill
Impairment loss on goodwill is included as an adjustment of adjusted operating profit (loss), adjusted net income (loss) and adjusted diluted earnings (loss) per share. Impairment loss on goodwill was respectively US$45.3 million and US$45.3 million for the second quarter and six months ended June 30, 2024 (none in 2023). Refer to the section “Impairment loss on goodwill and restructuring costs” in the MD&A for more details.

Adjusted gross profit and adjusted gross margin
Adjusted gross profit is calculated as gross profit excluding the impact of restructuring costs. Adjusted gross margin is a non-GAAP ratio and is calculated as adjusted gross profit divided by revenue. Dorel uses adjusted gross profit and adjusted gross margin to measure its performance from one period to the next, without the variation caused by the impacts of the items described above. Dorel also uses adjusted gross profit and adjusted gross margin on a segment basis to measure its performance at the segment level. Dorel excludes this item because it affects the comparability of its financial results and could potentially distort the analysis of trends in its business performance. Certain investors and analysts use the adjusted gross profit and adjusted gross margin to measure the business performance of the Company as a whole and at the segment level from one period to the next, without the variation caused by the impact of the restructuring costs. Excluding this item does not imply it is necessarily non-recurring. These ratios and measures do not have any standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to a similar measure presented by other companies.

There are no adjusted gross profit and adjusted gross margin for the second quarters and six months ended June 30, 2024 and 2023.

Adjusted operating profit (loss)
Adjusted operating profit (loss) is calculated as operating profit (loss) excluding the impact of restructuring costs. Adjusted operating profit (loss) also excludes impairment loss on goodwill. Management uses adjusted operating profit (loss) to measure its performance from one period to the next, without the variation caused by the impacts of the items described above. Dorel also uses adjusted operating profit (loss) on a segment basis to measure its performance at the segment level. Dorel excludes these items because they affect the comparability of its financial results and could potentially distort the analysis of trends in its business performance. Certain investors and analysts use the adjusted operating profit (loss) to measure the business performance of the Company as a whole and at the segment level from one period to the next, without the variation caused by the impact of the restructuring costs and impairment loss on goodwill. Excluding these items does not imply they are necessarily non-recurring. This measure does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to a similar measure presented by other companies.

Adjusted net income (loss) and adjusted diluted earnings (loss) per share
Adjusted net income (loss) is calculated as net income (loss) excluding the impact of restructuring costs and impairment loss on goodwill, as well as income taxes expense (recovery) relating to the adjustments above. Adjusted diluted earnings (loss) per share is a non-GAAP ratio and is calculated as adjusted net income (loss) divided by the weighted average number of diluted shares. Management uses adjusted net income (loss) and adjusted diluted earnings (loss) per share to measure its performance from one period to the next, without the variation caused by the impacts of the items described above. Dorel excludes these items because they affect the comparability of its financial results and could potentially distort the analysis of trends in its business performance. Certain investors and analysts use the adjusted net income (loss) and adjusted diluted earnings (loss) per share to measure the business performance of the Company from one period to the next. Excluding these items does not imply they are necessarily non-recurring. These measures do not have any standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to a similar measure presented by other companies.

Organic revenue growth (decline) and adjusted organic revenue growth (decline)

Organic revenue growth (decline) is calculated as revenue growth (decline) compared to the previous period, excluding the impact of varying foreign exchange rates. Adjusted organic revenue growth (decline) is calculated as revenue growth (decline) compared to the previous period, excluding the impact of varying foreign exchange rates and the impact of the acquired businesses for the first year of operation and the sale of divisions. Management uses organic revenue growth (decline) and adjusted organic revenue growth (decline) to measure its performance from one period to the next, without the variation caused by the impacts of the items described above. Dorel excludes these items because they affect the comparability of its financial results and could potentially distort the analysis of trends in its business performance. Certain investors and analysts use organic revenue growth (decline) and adjusted organic revenue growth (decline) to measure the business performance of the Company as a whole and at the segment level from one period to the next. Excluding these items does not imply they are necessarily non-recurring. These measures do not have any standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to a similar measure presented by other companies.