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Increasing Costs Lead to 18.3% Profit Decline For Dorel

Michael Knell -- Furniture Today, June 2, 2011

MONTREAL - Strong performances by its recreational and home furnishings segments overcame sags in its juvenile business to give Dorel Inds. a modest uptick in sales for the opening stanza of 2011.
     However, increasing input costs wounded earnings as net income fell 18.3% from the same quarter last year.
     The consumer goods giant, which posts its results in U.S. dollars, reported first-quarter revenues of $607.8 million, up 1.9% over from a year earlier, and net income of $31.2 million or 94 cents per share, compared with $38.2 million or $1.15 per share a year ago.
     Dorel's home furnishings segment had revenues of $137.7 million, a gain of 6.9% year-over-year. However, operating profit fell 27.6% to $7.7 million.
     "Home furnishings revenues were stronger both year-over-year and particularly sequentially, but factors including high commodity prices and freight rates, as well as the weakening U.S. dollar, resulted in lower earnings compared to last year's first quarter," Martin Schwartz, Dorel's president and CEO, said in a statement.
     The company said several big customers increased their purchases during the January to March period, particularly for upholstered furniture and futons. Offsetting this uptick were increased input costs, with steel and polyester experiencing the most dramatic increases.
     "A delay in obtaining price increases also had an impact on profit," Dorel said.
     Also making a contribution to Dorel's improved top line was its recreation segment, which produces bicycles and other sporting goods. Its revenue climbed 10.3% to $200.4 million and its operating profit was up 17.9% to $17.8 million.
     Dorel's juvenile segment, which produces car seats and other products, saw sales drop 5.7% to $269.6 million and operating profit fall 28.6% to US$23.7 million.
     "The U.S. retail environment, particularly in juvenile, continues to pose challenges," Schwartz said. "As evidenced by lower margins in the juvenile and home furnishings segments, high input costs have not receded and the majority of these higher costs are being absorbed by the company at this time."
     On the positive side of the ledger, Dorel noted that inventories are falling to what it described as "appropriate levels" which should result in significantly improved cash flow over the coming months.
     "Despite the current short-term challenges we are not wavering from our commitment to new product development in all our segments," Schwartz said. "We realize that to successfully navigate an environment of rising costs and prudent consumers, we need to promote our brands and bring new exciting products to market that will create demand, allowing us to improve profitability."

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Home furnishings, recreation spur 1.9% sales growth for Dorel

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