MONTREAL (BRAIN) — Dorel Industries, parent company of Cannondale Sports Group and Pacific Cycle, which includes the Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and Sugoi brands, reported double-digit revenue growth in the second quarter across its bike segment.
The Canadian company said the segment’s revenue for the quarter, which ended June 30, was up 20.2 percent, reaching $286.2 million, up from $238.1 million for the same period in 2013. Gross profit was up 23.5 percent to $67.3 million, compared to $54.5 million in the second quarter of 2013. While operating profit was also up to $15.2 million from $3.6 million.
Through the first six months of the year, revenue from the bicycle division totaled $526.5 million, up from $441.6 million in 2013, and gross profits and operating profits were up 20.7 and 138.4 percent, respectively.
Officials pointed to healthy IBD sales in overseas markets including Europe and Japan, and at the mass-market channel in North America, driven by improved weather. They said profits are up due to less discounting of inventory and cost containment.
“The momentum of the first quarter in the recreational/leisure segment carried into the second quarter as revenue grew by strong double digits and operating profit rose significantly,” Martin Schwartz, president and CEO of Dorel, told shareholders and investors during an earnings call Wednesday.
“Overall, we are pleased with the earnings from operations for our three segments, however the costs related to the Caloi acquisition has resulted in our earnings to be lower than we hoped to see.”
Schwartz said Caloi’s performance was close to plan, but was affected by Brazil’s slowing economy and focus on the World Cup, which shifted business away from bike.
For the first six months of the year, Caloi decreased earnings by $10.3 million, a combination of costs associated with the acquisition, operations, cash interest, accretion interest and unrealized foreign exchange losses.
“A big channel we sell through is sporting goods and mass market in Brazil, as well as independents, and those stores focused on soccer and promoting the World Cup. Only in July did we see an uptick in sales,” said Jeffrey Schwartz, chief financial officer for Dorel, adding that the first half of the year for Caloi was “very tough” on Dorel’s P&L.
Still, Martin Schwartz said the company remains bullish on growth in Latin America, and particularly Brazil. He predicted that the positive impact on earnings will come in the fourth quarter, which is the start of summer and the Christmas season. “We expect Caloi to grow despite a soft economy. We firmly believe in this transaction and that it’s a good long-term investment in the future,” he said.
Schwartz said the company is preparing to sell bikes to the mass and IBD channels in Chile and Peru. In Brazil, Dorel has made a lot of headway opening stores following the Caloi acquisition. Cannondale was in 80 stores prior to buying Caloi and is now in 250 stores. “With GT we’re aiming for 200 locations throughout the country. There’s a lot of brands that will help us grow that business, not just the Caloi brand,” he said.
As for sales in Europe compared to North America, officials pointed to old inventory as being the largest contributor to lower sales in the U.S. so far this year.
“People are still clearing out bikes,” Martin Schwartz said. “It hasn’t affected us that much. We’re doing better than last year. We didn’t have excess inventory we had to clear, but I think the biggest impact on the U.S. is the overhang on inventory from last year.”
He also pointed to better weather across Europe where an early spring and good summer helped push sales above last year’s levels.
Companywide, accounting for its home furnishings and juvenile businesses, Dorel reported revenues of $655.8 million, up 9.2 percent from $600.4 million for the second quarter of 2013. Through the first half, revenues totaled $1.3 billion, up from $1.2 billion last year. Net income was $40 million compared to $35.5 million in 2013.