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Dorel to investors: Bike biz will improve in 2018

Company says inventory levels are right and new sporting goods business should give it a boost.

MONTREAL (BRAIN) — Dorel reported 0.6 percent growth in fourth-quarter revenue at its bike division, which includes Cannondale, Sugoi, GT, Schwinn, Mongoose and Caloi. However, full-year revenue declined 7.8 percent.

Organic revenue, which excludes the positive impact of foreign exchange rates, was off 1.4 percent for the quarter and 11 percent for the year.
Dorel said the segment's revenue improved from the third quarter despite the continuing challenging global bicycle market, particularly in North America. Sales at Cycling Sports Group, which includes its specialty bike brands, decreased due to the competitive environment and a generally soft industry globally at independent bicycle dealers, the company said.

Fourth quarter operating profit increased $4.6 million to $9.6 million. Excluding restructuring and other costs, adjusted operating profit declined by $0.9 million to $9.3 million. For the year, operating profit was $24.8 million compared to an operating loss a year ago of $33.9 million.
The company said it expects to deliver higher sales and better operating profit for its bike business in 2018.

"This improvement is expected in all three of our principal channels: mass market, independent bike dealers and sporting goods. While there are less e-commerce sales opportunities within Dorel Sports' product categories, our focus on compelling online content is driving consumer awareness to our brands," the company said.

During a conference call with financial analysts, executives said bike inventory at retail is at its lowest in three years, which bodes well for margins. Discounting has been kept in check, helping profits grow, said Dorel president and CEO Martin Schwartz. The lower inventory is both at mass and at IBDs.

"We're getting much better at carrying the right inventories," he said. "The biggest part of our sales decline on the independent side is less clearance bikes."

Dorel picked up the contract last fall for Dick's Sporting Goods, which Accell North America lost. And executives noted during the call that they expect this new business to significantly impact revenues for this year.

Mass business was down last year for Dorel's bike business. "Weather certainly hurt us on mass last year. There's no question. I don't know any mass account that had a great year," Schwartz said.

The company also noted that the market for bikes isn't growing, though some categories are doing okay.

"You have to be in the right category with the right products," executives noted. "Our kids business last year was up 50 percent or more. If you're in the right category with the right products you can do it, but road bikes continue to be a slightly down category. Overall ... the industry's kind of flat."
Though the bike business is coming off two years of organic declines, Dorel was optimistic about 2018 for several reasons. It pointed to:
- The bulk of decline at IBDs was clearance bikes, which they don't have this year.
- New sporting goods accounts they didn't have last year.
- A much better range of new products in second half than last year.
- Mass side should bounce back after cyclical downturn.
- Expansion in non-bike business at Pacific Cycle.

Source: bicycleretailer.com