FINAL TRANSCRIPT
Dorel Industries Inc.
Second Quarter Results
Event Date/Time: August 6, 2014 - 1:00 p.m. E.T.
Length: 42 minutes
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
2
CORPORATE PARTICIPANTS
Martin Schwartz
Dorel Industries Inc. – President and Chief Executive Officer
Jeffrey Schwartz
Dorel Industries Inc. – Executive Vice President and Chief Financial Officer
CONFERENCE CALL PARTICIPANTS
Joe Bess
Roth Capital Partners – Analyst
Derek Lessard
TD Securities – Analyst
Leon Aghazarian
National Bank Financial – Analyst
Anthony Zicha
Scotiabank – Analyst
Stephen MacLeod
BMO Capital Markets – Analyst
Derek Dley
Canaccord Genuity – Analyst
Mark Petrie
CIBC World Markets – Analyst
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
3
PRESENTATION
Operator
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries’
Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following
the presentation, we will conduct a question and answer session. Instructions will be provided at that
time for you to queue up for questions. If anyone has difficulties hearing the conference, please press
star, followed by zero for Operator assistance at any time.
Before turning the meeting over to Management, please be advised that this conference call will
contain statements that are forward-looking and subject to a number of risks and uncertainties that
could cause actual results to differ materially from those anticipated. I would like to remind everyone
that this conference call is being recorded on Wednesday, August 6th, 2014.
I will now turn the conference over to Martin Schwartz, President and CEO. Please go ahead
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
Thank you. Good afternoon, everyone. On behalf of Jeffrey Schwartz and Frank Rana, welcome
to our second quarter 2014 conference call. We will be pleased to take your questions following our
comments. As always, all numbers mentioned are in US dollars.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
4
Overall, we are pleased with the earnings from operations of our three segments. As Jeffrey will
explain, the significant costs related to the Caloi acquisition resulted in our earnings being lower than we
had hoped to see. The momentum of the first quarter in Recreation/Leisure segment continued into Q2.
Both the Cannondale Sports Group and Pacific Cycle made solid headway. CSG benefited from global
sales growth in most IBD markets, particularly in Europe and Japan, while growing demand drove the
improvement at Pacific Cycle as mass merchants. As a result, second quarter revenue in
Recreation/Leisure grew by strong double digits and operating profits rose significantly.
Caloi’s first half of the year’s performance was close to plan. They were affected by Brazil’s
slowing economy and the focus on the World Cup, which shifted attention away from the bicycle
business, but to be clear, Caloi is executing well and is growing its market share. We are expecting the
bulk of its earnings to come in the fourth quarter, as that is both the start of the summer and Christmas
season in Brazil. Despite the softening Brazilian economy, we expect Caloi to grow versus last year and
are confident regarding its future contributions to the segment. We firmly believe in this transaction as
it will be a good long-term investment in Dorel’s future.
Juvenile exceeded prior year, led by strong performance of Dorel Juvenile Europe and continued
sales growth of Dorel Juvenile Brazil. Home Furnishings’ top line was flat and, as anticipated, operating
profits decreased. Internet sales continued their upward trend, offsetting the drop in brick-and-mortar
revenue. The specifics of each segment are detailed in this morning’s press release.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
5
I’d like to take a few moments to talk about Dorel’s long-term vision. Basically, we are spending
today to build, and we fully expect to reap the benefits in the years to come. The Lerado Juvenile
business acquisition, which at this point we expect to close late in Q3 or early Q4, is a prime example.
This is definitely a new way of thinking for Dorel and we expect will be a game changer for us. We have
never before owned factories in Asia. This is a sound $120 million investment in our future to ensure
that, going forward, we control our own destiny, allowing us to be more flexible in an increasingly
changing environment. It has become more important than ever to be vertically integrated and to be in
direct control of our supply chain. We are confident the Lerado transaction will ensure that we continue
to further grow our leadership in the industry.
The purchase includes four extensive facilities, three based in China and one in Taiwan,
encompassing over 2.5 million square feet of modern production, research development, and testing
resources. We have established a transition team at Dorel Juvenile and have hired a seasoned industry
individual in China as an on-site consultant who will head up operations shortly after the deal is closed.
We also expect to retain current Lerado management.
The acquisition should also accelerate our plans to grow in the Asian domestic market, an area
of opportunity that thus far has been underexploited. The acquisition will not be accretive in the first
year as work will be required to integrate these new facilities into existing operations. We will continue
to purchase other Juvenile products from existing Asian suppliers with whom relationships have been
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
6
built over time. We also look forward to continuing to supply Lerado’s current customers at a service
level that they have come to expect.
Another example of our approach to growth is our confidence in the Latin American market.
Dorel Juvenile Brazil has a strong platform and is growing, and to further support it, we recently bought
the Brazilian rights to the highly popular Infanti brand to expand our position in that market. This
provides great products in the mid and high price point categories, and we will now be able to cover all
bases. The reception from retailers in Brazil has been very good and allows us to better reach the
middle-class consumer, the fastest-growing segment in Brazil. As most of you know, we own the Infanti
brand in many other Latin American countries.
We have also recently taken steps to set up distribution of our Juvenile products in Mexico.
After looking at possible acquisitions for quite some time, we have hired a local industry veteran with
experience in international brands, as well as a number of other people, to get things going on our own.
We have leased premises in Mexico City for our sales offices and showroom. We have had good sales
meetings with most of the major retailers there. Again, this will not happen overnight, but we are
committing today the necessary resources because we believe there is potential for us in this large
market.
We are making similar investments for the future in our Recreation/Leisure segment. We expect
a strong Q4 in Caloi and things look even better for 2015. Its management is executing well and is
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
7
gaining more market share. We see great things coming from this division. Many new dealers have been
added and we have also invested to grow Dorel’s other bicycle brands. We’ve invested resources in our
factory, and since April 1st, we are assembling our international brands at the large Caloi facility for
domestic distribution. We have spent money this year setting up dealers for our Cannondale, GT and
Schwinn brands, as well as spending on sales, marketing and exhibitions.
In yet another move, the Recreation/Leisure segment is preparing to sell bicycles to both the
IBD and mass channels through our proven distribution base in Chile and Peru. We expect to see some
benefits from it this year. So, yes, we are spending considerable funds to establish a stronger long-term
base in many of our businesses. We have developed a detailed plan, and we are executing it. We fully
expect to see the benefits as we move forward.
Jeffrey will now provide a more detailed financial perspective.
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Thank you, Martin. I’ll now focus on the quarter results rather than the year-to-date and go
through some key highlights. Revenue in the second quarter, $655.8 million, an increase of $9.2 million
over the same quarter last year. Organically, revenue increases, after removing the impact of foreign
exchange rates and new acquisitions, was about 4 percent. Our gross profit increased 40 basis points to
23.8 from 23.4 last year. The gross profit increase was in Recreation and Leisure, and the Juvenile
segment, partially offset by a decrease in Home Furnishings. Pre-tax earnings increased 13.5 percent to
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
8
$19 million from $16.8 million. Our net income for the quarter was $15.2 million, an increase of 14.9
percent from the $13.2 million recorded last year, or $0.47 per share versus $0.41.
Going through the statement, increases in selling, general and administrative expenses were
mainly due to the acquisitions of both Caloi and Tiny Love. Our finance expenses increased by $4.6
million to $10.2 million, which is a big material number. Included in that is $1.5 million related to
interest recorded on the Company’s put option liability compared to only $600,000 last year. That is a
non-cash item. Our second quarter tax rate was 20.2 percent versus 21.1 percent.
Before I go into details on the various segments, I just want to talk a little bit about the impact of
the Caloi acquisition on our earnings in the quarter, and also actually year to date. So for the first six
months, the Caloi acquisition has actually decreased our earnings by $10.3 million so far, and this is
made up of about $800,000 from operations, which, although below our plan, is not significantly below
our plan. The balance is cash interest from doing the acquisition, and then there’s $6 million of non-cash
charges this year. Of that, it’s the interest related to the Company’s put option, as well as a foreign
exchange loss on that same contingent liability that we have in Brazil. So it’s really taken quite a hit for
the quarter—for the year, sorry. What happens, however, is the bulk of the—or I guess we can say 100
percent of the profit, or more than 100 percent, will be made in the second half and particularly in the
fourth quarter, so we expect to have a huge fourth quarter in Brazil.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
9
The Company itself, although behind a little bit on operations, is doing well. It’s executed a lot of
our plans on time or early. We’ve expanded store counts, our sales will be up over last year and the
earnings at Caloi will be up double-digit over last year as well. I think we mentioned that in the first
quarter—in second quarter, sorry, we had difficulties because of the World Cup in Brazil; a lot of
Brazilian companies did. I think the bicycle business had it even more because a big channel that we sell
through would be sporting goods and mass market in Brazil, as well as independents, and those retailers
shifted their focus towards soccer and promoting the World Cup, and only in July did we finally see a
real uptick in sales once the World Cup wound down, and today, we’re actually operating in a very busy
environment. So looking forward to the rest of the year but that first half of the year was very tough on
our P&L.
If I move over now to Juvenile, Juvenile segment revenue for the quarter increased $7.9 million
or 3.2 percent. Organically, we were flat for the year versus last year. While the organic revenue was
negligible, Latin America organic growth was an exception and we increased approximately 10 percent
for the quarter. However, upon conversion to the US dollar, this growth was mostly offset by a less
favourable exchange rate. So gross profits increased 80 basis points to 29 percent versus last year.
Operating profits for the quarter were $16.2 million, an increase of 2.2 percent over the $15.8
million last year. One of the drivers, positive drivers in the segment was Dorel Europe, which improved
due to gross margins and operating costs. Additionally, the conversion of European operating profits
was helped by a stronger rate of conversion to the US dollar. On the other side, operating profits in Latin
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
10
America, Canada and Australia were again negatively impacted by foreign exchange rates versus the US
dollar.
For the segment as a whole, selling expenses increased only $1.4 million in the quarter and
general and administrative were up by $3.2 million. A majority of the increases in both selling and G&A
again can be attributed to Tiny Love, as well as some selling expenses in Europe, which, again, is affected
by the higher exchange rate.
Moving over to the Recreation and Leisure segment, our second quarter revenues increased by
$48 million, or 20 percent, to $286 million. Organically, revenue increased by approximately 11 percent
in the quarter. Overseas markets in the IBD, Europe, Japan, as an example, and the North American
mass merchant markets contributed to the quarter’s growth, driven partly by improved weather
conditions compared to last year.
Adjusted operating profit, excluding restructuring costs for the quarter, was $11.3 million—I’m
sorry, increased by $11.3 million, or 200 percent, to $16.9 million compared to the $5.6 million we had
last year. So everybody remembers last year was a very, very difficult year and I think we feel pretty
comfortable we’re past that now.
Excluding restructuring costs, gross margins increased by 80 basis points to $23.7 million versus
$22.9 million. Less discounting on inventory and a weakening of the US dollar against the euro helped
boost our margins in the IBD channel.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
11
If we look at selling expenses, they declined 6.7 percent. Excluding the impact of Caloi, however,
it actually reduced by 15.3 percent, and the decline in expenses is due to the significant cost cutting
initiatives that were started last year and then continued to be put in place throughout this year.
General and administrative expenses increased by 23.3 percent, and if we take out Caloi, the increase is
only 3.4 percent. Restructuring costs were about $1.7 million for the quarter compared to $2 million
recorded last year.
In the Home Furnishings segment, second quarter revenues were flat versus the previous year.
Sales in the segment’s drop ship vendor program and online sales increased; however, these increases
were offset by declines in brick-and-mortar. People that heard the last conference call will notice that
seems to be a trend, where brick-and-mortar sales are definitely moving towards online sales in this
category.
Operating profits, $5.3 million versus $7.2 million, a decrease of $1.9 million or 27 percent.
Although again a big decrease there, it’s in our budget. Some of it could be explained by a shift in some
of our large customers taking in orders for the back-to-school season. Last year, 2013, a lot of that was
shipped in June. This year, it shipped in July, so we’ve gone through July, which was a particularly strong
month for us and we’re feeling good, so that’s certainly not an issue.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
12
Gross profit, 13.4 percent, a decrease of 100 basis points from the 14.4 percent last year. While
our input costs rose slightly versus last year, particularly in particle board, gross profit deteriorated
mostly because of the less profitable sales mix.
If we move over to some other statistics before I give it back to Martin, inventories did increase
by 6.7 percent when we compare it to the end of the year last year. Again, inventory’s higher,
particularly for back-to-school, which were shipped in July. July was a pretty strong month so inventories
have reduced again, so we don’t consider that to be an issue. Of course, some of the increase is also
coming from Caloi, where again they’re building bikes to be shipped in the second half of the year. So
between those two, that’s a significant part of that.
On the statement of cash flows for the first six months, cash flow from operating activities,
$16.6 million versus $44.4 million, a decrease of $27.8 million. The main reason for the decrease was the
increase in receivables and inventory, which was partially offset by an increase in accounts payable.
With that, I’ll pass it back to Martin.
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
Okay, thank you, Jeffrey. As we look ahead to the second half of this year in Recreation/Leisure,
excluding the restructuring costs, we anticipate slight growth in operating profit for the third quarter
and significant growth in the fourth quarter. In Juvenile, even after excluding the impacts of the US
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
13
product liability settlement case in Q4 of 2013, we expect double-digit earnings growth in the second
half. This excludes any impact on earnings related to the acquisition of the Juvenile products business of
the Lerado Group. We’ve foreseen improvement in Home Furnishings’ second half, which will make up
the earnings shortfall from the second quarter.
Please note that due to the seasonality of our Recreation/Leisure and Juvenile divisions in Latin
America, approximately 90 percent of the operating profit of these businesses will be earned in the
second half this year, primarily in the fourth quarter. Interest costs and the non-cash charges relating to
the put option liability are expensed throughout the year.
As I have outlined, we are focused on investments which will provide Dorel with growth for the
long term. The Caloi acquisition and the Lerado transaction are two such examples. As well, while aware
of a cooling of the Brazilian economy in the short term, we remain bullish on Latin America in general
and have set in motion initial steps to develop a distribution base in Mexico.
I’d now like to ask the Operator to open the lines for your questions, but please limit your
questions in the first round to two. Thank you. Operator?
Q & A
Operator
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
14
Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you
have a question, please press the star, followed by the one on your touchtone phone. You will hear a
tone acknowledging your request. Your questions will be polled in the order they are received. Please
ensure you lift the handset if you are using a speaker phone before pressing any keys. One moment,
please, for your first question.
Your first question comes from Dave King with Roth Capital Partners. Your line is open.
Joe Bess – Analyst, Roth Capital Partners
Good morning. This is Joe Bess asking for Dave. My first question is, can you talk a little bit about
what your targeted leverage ratio is longer term, and then after you kind of achieve that, how are you
guys prioritizing your use of free cash flow at this point?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Sure. I mean, we’re going to be—with the acquisition, we’re going to above 3 to 1. Obviously,
we want to get below the 3 to 1 range. We’re comfortable, very comfortable with the 2 to 2.5 range,
although, again, we produce cash and we’re forecast to produce cash again this year. So after that, you
know, difficult to say. We, obviously, got to use lot of the next little while’s cash flow to get us down to
that level, and then we’d look at possibly an increase in dividends or increased share buyback,
depending on.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
15
Joe Bess – Analyst, Roth Capital Partners
Okay, great. Then thinking about the Lerado acquisition, it sounds like it’ll be earnings dilutive in
the first year, but thinking about after that, how should we be thinking about its contribution?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
It’s a little—I mean, it’ll probably be dilutive. We don’t for sure yet. I mean, there’s a lot of
moving parts on it. We’re converting a company that’s got a significant amount of customers to one
that—although we might have other customers, we’ll primarily have one customer, so we’re not sure
how that’s going to work out and how fast it—it’s difficult to give you a prediction on that, basically.
That’s why we’re kind of putting out there that people shouldn’t expect a (inaudible) in the first year,
but we don’t have any hard numbers yet.
Joe Bess – Analyst, Roth Capital Partners
Okay, great. Thank you.
Operator
Your next question comes from Derek Lessard with TD Securities. Your line is open.
Derek Lessard – Analyst, TD Securities
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
16
Good afternoon, everyone. Couple of questions. The riding season’s now in the dog days of
summer, we’ve heard some early rumblings of discounting going on, and I’m just wondering if you’re
hearing anything on this level and how aggressive has it been; and, secondly, how comfortable are you
with your 2014 model inventories and your ability to draw them down ahead of 2015 introductions?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Yes, it’s a good question. Of course, there’s discounting, this is the time for discounting, this is
what you budget, so this is where we expected to see some discounting. Discounting is not ahead of
what we expected, so that’s good and that fit in. I mean, last year, they were discounting, I believe it
was in April, versus (inaudible) now is the time that it happens. Our inventory’s fine, again because we
didn’t have to cut early. We’re not in a position where we have a lot of excess and I don’t believe that’s
going to be an issue going forward.
Derek Lessard – Analyst, TD Securities
Okay. With the August 1st transfer date now passed, can you guys maybe talk a bit about your
plans for the Cannondale Pro Team in 2015, and what, if anything, has changed since taking over title
sponsorship?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
17
Shorter answer to that is, no, I can’t comment until we finalize everything. I promise you, as
soon as we do, I’ll be happy to explain everything that we’re going to do going forward, but right now,
we can’t say anything.
Derek Lessard – Analyst, TD Securities
Okay. Thanks, guys.
Operator
Your next question comes from Leon Aghazarian with National Bank Financial. Please go ahead.
Leon Aghazarian – Analyst, National Bank Financial
Hi, good afternoon. My first question’s regarding Juvenile segment. You’re expecting double-
digit earnings growth in the second half of the year and so I mean, so far, we’ve seen organic growth
was flat in the quarter and it’s up very slightly year to date. I know Latin America has been a big
contributor. I just want to see, you know, is it really driven by Latin America in terms of the organic—
sorry, the earnings growth that we’re expected to see in the latter half of the year, or has the US
competitive pressure kind of subsided little bit? Just your comments on that, please.
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
18
Yes, we expect—I mean, it’s certainly Latin America, there’s no question, as we mentioned, but
there are some other areas that are really starting to gel well. Places like Australia, believe it or not, are
looking forward to a very good second half compared to the first half. Places like Tiny Love, they’re a
big—also, for whatever reason, their earnings are going to be mostly second half earnings.
Leon Aghazarian – Analyst, National Bank Financial
And what about the US, what’s the competitive landscape looking like there? I mean, we know
in the first quarter you benefited a little bit from, I guess, from a recall from one of your competitors?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
US is still tough. I don’t expect a major second-half revival, but Lerado is one of the big sort of
solutions to our issues that we have in the US. We’re going to be able to be more competitive in the US
market, I think, going forward with having our own factory. So that’s where it’s going to take a little bit
of time and it’s not necessarily going to be a second-half business in the US.
Leon Aghazarian – Analyst, National Bank Financial
Okay, great, and a last one from me would be, regarding the SG&A, I mean, you mentioned
quite a bit about Caloi, but talking about the Juvenile SG&A, we see that has risen as well on a year-over-
year basis. Is that primarily driven by Tiny Love, and if so or not, then what are some of the reasons for
the increase in SG&A?
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
19
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Primarily driven by Tiny Love.
Leon Aghazarian – Analyst, National Bank Financial
Okay, thanks. I’ll turn it over.
Operator
Your next question comes from Anthony Zicha with Scotiabank. Please go ahead.
Anthony Zicha – Analyst, Scotiabank
Hi, good afternoon. Martin, could you elaborate a bit more on the Lerado acquisition in terms of
the integration plans, like how much business do you figure you’ll be able to take in-house and how
much business could we anticipate losing when the transition occurs; and, finally, like how are we going
to finance this acquisition?
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
As far as the transition, I mean we expect to keep a good part of today’s existing business for a
little while. We’ll see how we manage the relationship with today’s customers, but there’s an awful lot
of goods that we will be able to transition into the Lerado facilities. We should be able—just what Dorel
needs for Juvenile products, we could fill that factory, and we’re starting the transition already so it
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
20
should go as smoothly as we can make it. Like I said, we will fill the factory if we need to and if we want
to.
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
As far as financing, we’re looking at and we’re analyzing all the different options still, so we
haven’t come to any conclusions yet.
Anthony Zicha – Analyst, Scotiabank
Okay, and with reference to Caloi, you mentioned market share. Like, what market share do you
have, and how has that evolved since you’ve acquired the company? And, Martin, what do you see is
the biggest challenge in Brazil in terms of the competitive landscape?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
I’ll take that. We actually haven’t—we don’t have market share numbers. I mean, Caloi is by far
the biggest brand. Going forward, we see Caloi growing probably with the market. I don’t know that
they’re going to gain market share. Where we’re making the big impact is we’ve already introduced, for
instance, Mongoose and Schwinn brands in the marketplace, and those products are produced in Brazil,
100 percent produced in Brazil, so now we have two other brands that we can use in the portfolio. As
well, we’ve got Cannondale and GT, which are coming in either imported or semi-imported, and those
brands are also being expanded, and that’s where we’re gaining significant market share. Cannondale,
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
21
for instance, had, I think—where it was sold in about 80 stores prior to the acquisition and we’re about
250 today. GT, we’re almost—we’re aiming for 200 locations throughout the country. So there’s lot of
brands that are going to help us grow that business, not just the Caloi brand.
Anthony Zicha – Analyst, Scotiabank
Okay, excellent. Thank you, Jeffrey, Martin.
Operator
Your next question comes from Stephen MacLeod with BMO Capital Markets. Please go ahead.
Stephen MacLeod – Analyst, BMO Capital Markets
Thank you, good afternoon. I just wanted to get some more clarity on the $6 million in non-cash
charges from accretion interest and unrealized FX losses. How much of that was actually in the quarter?
I mean, I know, Jeffrey, you said—I thought you said that it was 1.3 or something, but I thought that was
maybe only for the (cross talking).
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Of the total—I’ll tell you what, I have—of the $10.3 million, as opposed to the $6 million of the
total there, about—just under 40 percent is Q2 versus Q1.
Stephen MacLeod – Analyst, BMO Capital Markets
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
22
Okay, but you don’t have the breakdown for the 6?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Breakdown of each individual piece, no.
Stephen MacLeod – Analyst, BMO Capital Markets
Okay. Then can you just talk a little bit about the sort of cost and pricing environment on the
Juvenile business in the US and elsewhere?
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
Are you talking about, like, our input costs or selling?
Stephen MacLeod – Analyst, BMO Capital Markets
Input cost, input cost and selling price environment?
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
Out of Asia, the costs have been very stable. Their materials have been stable. Labour has gone
up a little bit. We’re doing fine with cost of freight. So, if anything, there’s no upside—upward pressure
on our costs. On the selling side, the retail side, competition is still very tight. We have to do whatever it
takes to maintain our market share and try to grow our market share, but I think we’re handling it pretty
well.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
23
Stephen MacLeod – Analyst, BMO Capital Markets
Great, okay, okay. Then just finally, Jeffrey, you alluded to the financing for the Lerado
acquisition. Do you have a sort of preference for an optimal structure in terms of how to finance it?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Like I said, we’re looking at it still. We really don’t have any comments on that. We haven’t
made any decisions.
Stephen MacLeod – Analyst, BMO Capital Markets
Great. Okay, thank you.
Operator
Your next question comes from Derek Dley with Canaccord Genuity. Please go ahead.
Derek Dley – Analyst, Canaccord Genuity
Yes, hi, guys. I’m just wondering if you could give us an update on the new product pipeline at
Juvenile and when you really expect that to kick in, especially now with the acquisition of Lerado?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
24
I mean, there’s product all the time, right? This is like a two-year pipeline, so we’re constantly
introducing new product. Obviously, there’s going to be an impact of Lerado on that. That’s probably—
it’s going to be nine months. I was going to stay Q1 to Q2 next year is probably the earliest we’ll see
some of the new Lerado type of product, but we already have stuff in the pipeline, so it’s a difficult
question. It’s not like we have—you know, we’re going to see one major sort of push on that area.
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
But we do have some products—well, actually lot of products in the schedule from now until
even out to early 2016, in car seats, in strollers, there’s new products coming out in our safety lines. So I
mean, we are constantly developing.
Derek Dley – Analyst, Canaccord Genuity
Okay, that’s great. Then at the Recreational division, looking ahead to the back half of the year –
obviously, you guys have noticed some very strong growth potential – where do you guys—what
markets do you see outperforming outside of Brazil? For example, do you see the US outperforming
Europe or vice versa?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
I don’t know that we have it broken down.
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
25
Europe has been very strong this year.
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Yes, I would expect Europe to stay strong. We’re expecting a very strong fourth quarter for—I
mean, just having Brazil putting all of that income into the fourth quarter is going to have a major—a
positive impact for us. Third quarter’s going to be a little bit more challenging because we actually had a
good third quarter last year, so we’re not expecting to see a ton of growth there. But when we look at—I
think there’s going to be a lot of shipping of 2015 bikes for the IBDs, for the Cannondales, which occurs
primarily in Q4. So I think in addition to Brazil, you’re seeing a very strong introduction of new bikes into
Q4, as well as our mass channel, which always does well in the Christmas season, so it’s kind of mixed. I
mean, with the two big ones being the IBDs selling the new bikes 2015, and Brazil, it’s going to lead to
significant profit improvement.
Derek Dley – Analyst, Canaccord Genuity
Okay, that’s great. Thank you very much.
Operator
Your next question comes from Mark Petrie with CIBC. Please go ahead.
Mark Petrie – Analyst, CIBC World Markets
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
26
Good afternoon. You mentioned that Lerado’s going to make you more competitive in the US,
and is that just matter of flexibility or lower production cost—like, flexibility around product and
innovation, lower production costs, or is it a matter of being able to get back into some of the products
that you may have had to exit because the margins were getting squeezed?
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
Yes, well, there’s a couple of things. First of all, it definitely will give us better costs on our
purchases out of China, as well—like you say, we had to exit certain areas because there were some
Chinese vendors selling direct to the retailers, and in many cases, off-brands that they’re selling direct.
We will now be able to easily compete with that and give the retailer and the consumer a brand that
they recognize.
Mark Petrie – Analyst, CIBC World Markets
Okay. Then just in terms of the SG&A in Juvenile, is it—I know you said that the increase is sort
of basically the acquisitions, but should we expect it to be fairly stable from here then?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
I would think—I mean, again, we’re going to end up with another one, another acquisition by
the fourth quarter so, obviously, that’s going to bump it up, but, yes, I would think it’s going to be fairly
stable.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
27
Mark Petrie – Analyst, CIBC World Markets
Okay. Then just as it relates to the Rec and Leisure business, and the IBD channel specifically,
what do you think accounts for Europe outperforming the US? Is it a matter of just different sort of
weather and that kind of thing, or do you feel like the brands are behaving differently or you have a
different sort of marketing push?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
No, well, certainly the marketing push isn’t different. I think it’s a better environment right now
for biking, but weather is huge, we don’t want to underestimate it. I mean, we used it as an excuse last
year, I think a valid excuse for the problem, and I’ll tell you this year, we had an early spring and then
we’ve had a really good summer, and that’s really helped.
Mark Petrie – Analyst, CIBC World Markets
What’s your view on the health of the IBD channel in the US specifically? Do you feel like it’s—is
it over-stored, are you seeing more people coming into the business still, and what’s your view on the
inventory levels at the sort of retail level?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
I think the biggest single impact on why the US isn’t doing as well as Europe is the inventory
overhang from last year. I keep hearing that that’s still—somebody told me something like the best-
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
28
selling bikes of the year, among the top 10 bikes of the year being sold, three of them are 2013 models.
You know what I mean? So people are still clearing out bikes. It hasn’t really affected us that much,
other than it’s been a little bit sluggish. Certainly, we’re doing better than last year. We don’t have—we
didn’t have that excess inventory that we needed to clear, so we were able to sell our goods at full
margin, which meant we had a good year. But I think the biggest impact on the US is definitely the
overhang on inventory from last year.
Mark Petrie – Analyst, CIBC World Markets
Okay, thanks very much.
Operator
Your next question comes from Derek Lessard with TD Securities. Please go ahead.
Derek Lessard – Analyst, TD Securities
Yes, have you guys gotten any feedback or buzz surrounding your new 2015 models?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Yes, I think they were great. I was down at the sales meeting a couple of weeks ago, in late June
in the US, and yes, they got excellent response. We’re pumped up on the bike side, on the product side,
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
29
I think we’re doing a great job there. I see what’s in the pipelines for the next couple of years. It’s pretty
exciting as well.
Derek Lessard – Analyst, TD Securities
Okay. You guys still think you’re taking market share?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
In some categories, yes, I do. I really think we are. I think we’re putting out some great products
now and…
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
And we’re getting some great reviews.
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
Yes, again, we’ve got some Bike of the Year reviews and stuff, and we’re certainly—we’re
focused on that and we’re focused—I think next, 2015, you’re are going to see best year ever for parts
and accessories, Cannondale.
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
We’re totally rebuilding our parts and accessory lines.
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
30
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
So, you know, we’re—that part of the business is—it looks great.
Derek Lessard – Analyst, TD Securities
Okay, and one final one. It’s nice to see some good news in Juvenile Europe. Can you just maybe
talk about what’s going on there?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
You know what it is? It is some pretty good news. Obviously, the exchange rate helps, but we
are seeing some growth in a number of territories. You know, we can’t (inaudible)—again, they tend to
be the northern territories. The south is still somewhat challenging, but overall, we’re picking up a little
bit of momentum. It’s still tough, don’t get me wrong, this is—right now, it’s still—you know, we’re still
struggling a little bit here and there, but at least we’re not moving backwards anymore.
Derek Lessard – Analyst, TD Securities
Great. Thanks for your time guys.
Operator
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
31
Ladies and gentlemen, if there are any additional questions at this time, please press the star,
followed by the one. As a reminder, if you are using a speakerphone, please lift the handset before
pressing the keys.
Your next question comes from Anthony Zicha with Scotiabank. Please go ahead.
Anthony Zicha – Analyst, Scotiabank
Yes, Jeffrey, could you please remind us of what free cash flow do you anticipate for the year?
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
We haven’t forecasted that.
Anthony Zicha – Analyst, Scotiabank
Okay.
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries Inc.
I haven’t issued it, so I can’t say now.
Anthony Zicha – Analyst, Scotiabank
Okay. Well, thank you.
Operator
FINAL TRANSCRIPT
August 6, 2014 – 1:00 p.m. E.T.
Dorel Industries Inc. Second Quarter Results
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or
any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut
être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce
texte ou toute erreur qu’il contiendrait. »
32
There are no further questions at this time. Please continue.
Martin Schwartz – President and Chief Executive Officer, Dorel Industries Inc.
Okay, well, thank you. We are confident about the road ahead for Dorel. We are making very
strategic investments which we know are in the best interest of our shareholders. These include
expenditures to support our brands and allow us to be in a better position to control our destiny. We
have great teams in place at our business who are committed to getting the job done. The future is
exciting and we see great things ahead in many areas.
In conclusion, I want to thank everybody for joining us this afternoon. Thank you.
Operator
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating.
Please disconnect your lines.
Top Related