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Home furnishings, juvenile segments drag down Dorel's Q3 results

Michael J. Knell -- Furniture Today, November 8, 2011

MONTREAL — A challenged economy coupled with a decision to rationalize the product assortment offered by its Cosco Home & Office Division resulted in declining revenue and operating profits for Dorel Inds.' home furnishing division, the company has reported.

However, thanks to a stellar performance by its cycling products division, the consumer goods giant eked out a minor uptick in total revenue during the third quarter.

Dorel, which reports in U.S. dollars, said its revenue of $575.8 million in the quarter was up 1.1% from the same period a year ago. Net income was $23.1 million or 71 cents per share, compared with $30.6 million or 92 cents per share in 2010 - a drop of 22.8% on a per share basis.

For the nine months ended Sept. 30, revenue was up 1.6% to $1.8 billion. Net income was $77.2 million or $2.36 per share, down 22.9% from $101.8 million or $3.06 per share a year earlier.

Because of its transition to the IFRS method of financial reporting, the 2010 figures are restated, adjusted downward by 1 cent per share for the quarter and 3 cents for the nine months, Dorel said.

The company's home furnishings segment reported third quarter revenue of $138.9 million, down 6.5% for the same period last year. For the year-to-date, revenue declined 1.9% to $402.6 million.

"While the difficult U.S. economy continued to affect POS (point of sale) levels at retail, the segment's various divisions have maintained their market share," the company said in a report to shareholders.

"In the quarter and year-to-date, a principal driver of the sales decline was the decision to exit unprofitable product SKUs sold by the Cosco Home & Office division as it became strategically advantageous to no longer sell these items," the company said, adding, "Sales of ready-to-assemble furniture are also down from prior year, but increases in other furniture lines, mainly upholstered furniture and futons, offset some of these decreases."

Also affecting margins were cost increases in commodities and labor and the continuing strength of the Canadian dollar, which affects products made in Canada by Dorel but shipped primarily to U.S. retailers.

On the positive side of the ledger, Dorel said the third quarter earnings decline in home furnishings (-4.3%) was the lowest thus far in 2011 "this improved earnings trend is expected to continue into the fourth quarter."

The juvenile segment, Dorel's largest, has been the company's poorest performer in 2011. Revenue fell 8.6% for the quarter, to $227.1 million, and 6.7% for the year to date, to $740.7 million.

Dorel's recreational and leisure segment continues to shine as third quarter sales jumped 21.6% to $209.8 million and 18.9% for the nine months, to $659.3 million.

Dorel president and CEO Martin Schwartz told analysts he expects improvements in sales and earnings during the fourth quarter.

"Overall, we believe that the worst is over for Dorel and going forward we expect to return to a better level of performance," he said.

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Dorel's home furnishings sales decline 6.5%

Nov 16, 2011

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