• Dorel Home maintains its dominance in e-commerce
  • Dorel Sports affected by slower than expected holiday consumer demand
  • Dorel Juvenile earnings decline despite organic revenue growth
  • US$501.4 million non-cash impairment charge being recorded
  • Annual dividend being adjusted to US$0.60

MONTRÉAL, March 14, 2019 (GLOBE NEWSWIRE) -- Dorel Industries Inc. (TSX: DII.B, DII.A) today announced results for the fourth quarter and year ended December 30, 2018. Revenue for the fourth quarter was US$683.5 million, up 1.0% from US$677.1 million a year ago. Reported net loss for the quarter was US$443.9 million or US$13.68 per diluted share compared to US$6.1 million or US$0.19 per diluted share a year ago. Adjusted net income was US$10.3 million or US$0.31 per diluted share compared to US$17.3 million or US$0.53 per diluted share in the fourth quarter of 2017. Removing the impact of the 2017 fourth quarter impairment loss on trade accounts receivable from Toys“R”Us U.S. of US$2.8 million after tax, the comparative fourth quarter adjusted net income was US$20.1 million or US$0.62 per diluted share a year ago.

Revenue for 2018 was US$2.62 billion, compared to US$2.58 billion the previous year. Reported net loss was US$444.3 million or US$13.70 per diluted share, compared to a reported net income of US$27.4 million or US$0.84 per diluted share the previous year. Adjusted net income for the year declined to US$39.5 million or US$1.21 per diluted share, compared to US$67.0 million or US$2.05 per diluted share in 2017. Removing the impact of the 2018 first quarter and 2017 fourth quarter impairment losses on trade accounts receivable from Toys“R”Us U.S. of US$9.4 million after tax in the first quarter of 2018 and US$2.8 million after tax in the fourth quarter of 2017 as noted above, the adjusted net income for the year was US$48.9 million or US$1.50 per diluted share, compared to US$69.8 million or US$2.14 per diluted share a year ago.

“Dorel Home has again performed well and continues to benefit from our market-leading innovations in e-commerce. At the same time, we were disappointed by fourth quarter earnings at Dorel Juvenile and Dorel Sports. Both segments were affected by lower than expected industry-wide consumer demand over the holiday season and the on-going changes in the consumer products industry. We are in the process of actively addressing these realities,” stated Dorel President & CEO, Martin Schwartz.

“Despite the challenges facing the retail sector as a whole, we are committed to continuing to take action to build value for Dorel shareholders, including making some tough but necessary decisions. We have been acting on the recognition that the way our industry does business and the expectations and behaviours of customers and consumers are all changing. Dorel is in the process of initiating a restructuring program to evaluate our global footprint and to optimize our Company to meet these new realities. We’re confident that this program will help us be more efficient, improve performance, and maximize long-term value for our shareholders.”

Optimizing Dorel to Meet Changing Marketplace Realities

Like all consumer products companies, Dorel is not immune to the impacts of a changing retail landscape and evolving consumer habits. Traditional brick and mortar stores —stores that existed as recently as 2018— are shuttering as the buying patterns of consumers evolve.

We have recognized these new realities of retail require Dorel to be efficient, innovative, and nimble to maintain alignment with consumers. Dorel has been taking important steps to ensure that we can be competitive for the long-term and the online success of Dorel Home is indicative of this. Each of these new realities impact our business lines in different ways and require a unique approach to ensure the long-term success of each.

Building on the success of the innovations at Dorel Home, Dorel is in the process of launching a comprehensive global restructuring program. As part of the restructuring program, Dorel is undertaking a comprehensive review of our global footprint, including the assets within each business segment.

As an immediate result of this review, Dorel has divested from its juvenile distribution operations based in Colombia and Panama. Though relatively immaterial to earnings, the closure of these businesses will improve working capital, reduce costs and allow for greater focus on its larger South American markets. Dorel will continue to supply products through a local distributor allowing it to maintain its access to emerging consumer markets in Central America.

In addition to optimizing our global footprint, the restructuring program will also include assessing our business processes and related enabling technologies and identifying long-term cost savings and other efficiencies. 

The implementation of the restructuring program will be on-going throughout 2019 with resultant benefits expected to begin later this year and extending into future years, leading to improved performance, cost savings and enhanced long-term returns for shareholders. Dorel will provide periodic updates to the market.

Long-Term Debt Update

Dorel is currently reviewing its refinancing options with its financial advisors and will pursue what it believes to be the best alternative. In this regard, Dorel is in the process of refinancing its US$120.0 million convertible debentures maturing on November 30, 2019, although there can be no assurance that it will be able to successfully complete such refinancing. On March 8, 2019, Dorel amended its revolving bank loans and term loan agreement to facilitate the compliance with its covenants in light of the last twelve months’ results of operations, and to permit additional financing from other lenders to refinance and repay the convertible debentures. The amendment also extends the maturity date to July 1, 2021 if the convertible debentures are repaid or refinanced by May 30, 2019. If the convertible debentures have not been repaid or refinanced, the maturity remains on May 30, 2019. Given the convertible debentures are not yet repaid or refinanced, as such, the convertible debentures, the revolving bank loans and term loan were all classified as current as at December 30, 2018.

Dividend

Dorel is committed to reducing its leverage. We recognize that a market-competitive dividend is important to its shareholders, as is maintaining Dorel’s long-term strategy of investing in new products development. In order to strike a balance and to ensure financial flexibility, Dorel will adjust its dividend from the current annual US$1.20 a share to US$0.60 on the outstanding number of the Company’s Class “A” Multiple Voting Shares, Class “B” Subordinate Voting Shares, Deferred Share Units, cash-settled Restricted Share Units and cash-settled Performance Share Units.

The reduction in the dividend will allow Dorel to retain approximately US$19.5 million annually in cash, which will be used to enhance Dorel’s financial position and give us additional flexibility to enhance long-term value. The Board of Directors will continue to assess potential future dividend levels on a quarterly basis.

Impairment Losses on Goodwill, Intangible Assets and Property, Plant and Equipment

A sustained decline in Dorel’s stock price during 2018 has caused Dorel’s market capitalization to be significantly lower than the carrying value of its net assets and as such the Company has recorded total impairment losses on goodwill, intangible assets and property, plant and equipment of US$501.4 million during the fourth quarter of 2018, of which US$264.2 million was within Dorel Juvenile and US$237.2 million was within Dorel Sports.

Non-GAAP Financial Measures

The Company is presenting adjusted financial information, excluding impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt, as it believes this provides a more meaningful comparison of its core business performance between the periods presented. These announced items are detailed in the attached tables of this press release. Contained within this press release are reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. 

    
Summary of Financial Information (unaudited)
Fourth Quarters Ended December 30,
All figures in thousands of US $, except per share amounts
 20182017 (1)Change
 $$%
Total revenue683,546 677,052 1.0%
    
Net loss(443,898)(6,134)(7,136.7%)
Per share - Basic(13.68)(0.19)(7,100.0%)
Per share - Diluted(13.68)(0.19)(7,100.0%)
    
Adjusted net income10,298 17,268 (40.4%)
Per share - Basic0.32 0.53 (39.6%)
Per share - Diluted0.31 0.53 (41.5%)
Number of shares outstanding –   
Basic weighted average32,439,189 32,426,326 
Diluted weighted average32,439,189 32,426,326 
    
Summary of Financial Information (unaudited)
Years Ended December 30,
All figures in thousands of US $, except per share amounts
 20182017 (1)Change
 $$%
Total revenue2,619,513 2,577,668 1.6%
    
Net income (loss)(444,343)27,441 (1,719.3%)
Per share - Basic(13.70)0.85 (1,711.8%)
Per share - Diluted(13.70)0.84 (1,731.0%)
    
Adjusted net income39,484 66,955 (41.0%)
Per share - Basic1.22 2.07 (41.1%)
Per share - Diluted1.21 2.05 (41.0%)
Number of shares outstanding –   
Basic weighted average32,438,645 32,409,551 
Diluted weighted average32,438,645 32,665,713 
    
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated.


DETAILED FINANCIAL RESULTS

 

      
Dorel Home     
All figures in thousands of US $     
Fourth Quarters Ended December 30 (unaudited)
 20182017 (1)Change 
 $% of rev. $% of rev. %
Total revenue209,262 200,975 4.1%
      
Gross profit33,46016.0%38,69819.3%(13.5%)
Operating profit17,4958.4%21,06410.5%(16.9%)
      
Adjusted operating profit17,7478.5%21,06410.5%(15.7%)
      
All figures in thousands of US $     
Years Ended December 30 (unaudited)
 20182017 (1)Change 
 $% of rev. $% of rev. %
Total revenue804,447 790,619 1.7%
      
Gross profit132,84916.5%141,55017.9%(6.1%)
Operating profit70,1728.7%78,0819.9%(10.1%)
      
Adjusted operating profit70,4248.8%78,0819.9%(9.8%)
      
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated.


Fourth quarter revenue rose US$8.3 million, or 4.1%, to US$209.3 million. The increase was despite certain customers cancelling orders in response to U.S. tariffs being imposed in the second half of the year. For the full year, revenue was up US$13.8 million, or 1.7%, to US$804.4 million from US$790.6 million in 2017. Dorel Home’s online business continued its upward trend. For the fourth quarter and the full year, e-commerce sales represented a record 59% and 56% of total segment gross sales respectively compared to 58% and 52% for the comparable periods in 2017. Brick and mortar sales experienced a slight improvement for the fourth quarter compared to the same period a year ago, aided by new business for Cosco Home & Office at a major DIY chain. While still a small percentage of overall revenue, branded-product sales were up substantially year-over-year and the fourth quarter experienced a decent start for the new Cosmo Living business.

Fourth quarter gross profit was 16.0%, down 330 basis points, and for the full year decreased 140 basis points to 16.5%. A major component of the margin decline was the potential impact of further U.S. tariffs on Chinese-sourced product that were expected on January 1, 2019. As in many industries, purchases were accelerated into 2018. The resultant increased demand for overseas containers drove higher transportation costs and higher inventories meant an increase in warehousing and other overheads. In addition, product mix was less favourable with a higher proportion of lower margin product sales. Operational costs to support e-commerce growth were also higher than prior year.

Fourth quarter operating profit was down US$3.6 million, or 16.9%, to US$17.5 million from US$21.1 million a year ago. For the full year, operating profit decreased US$7.9 million, or 10.1%, to US$70.2 million compared to US$78.1 million last year. Excluding Alphason’s acquisition-related costs, fourth quarter adjusted operating profit was down US$3.3 million, or 15.7%, to US$17.7 million. For the full year, adjusted operating profit decreased US$7.7 million, or 9.8%, to US$70.4 million compared to US$78.1 million last year. The US$7.7 million decrease includes the US$2.1 million impairment loss on trade accounts receivable from Toys“R”Us U.S. recorded in the first quarter of 2018.

Dorel Juvenile     
All figures in thousands of US $     
Fourth Quarters Ended December 30 (unaudited)
 2018
2017 (1)Change
 $% of rev. $% of rev. %
Total revenue241,598  239,306  1.0%
      
Gross profit61,426 25.4%70,645 29.5%(13.0%)
Operating loss(265,752)(110.0%)(14,305)(6.0%)(1,757.8%)
      
Adjusted gross profit61,978 25.7%70,926 29.6%(12.6%)
Adjusted operating profit1,731 0.7%9,685 4.0%(82.1%)
      
All figures in thousands of US $     
Years Ended December 30 (unaudited)
 20182017 (1)Change
 $% of rev. $% of rev. %
Total revenue932,060  921,669  1.1%
      
Gross profit244,161 26.2%275,261 29.9%(11.3%)
Operating profit (loss)(284,506)(30.5%)12,606 1.4%(2,356.9%)
      
Adjusted gross profit244,800 26.3%276,836 30.0%(11.6%)
Adjusted operating profit  10,741 1.2%  44,468 4.8%(75.8%)
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated. 
       

Fourth quarter revenue increased US$2.3 million, or 1.0%, to US$241.6 million from US$239.3 million last year. Organic revenue improved 4.1% excluding the impact of foreign exchange rate changes year-over-year, which was slightly below expectations. The revenue growth trend in 2018 continued in the U.S. and Brazil which was partially offset by declines in Dorel Juvenile’s other markets. The most notable sales shortfall was in Chile as revenue declined significantly due to a difficult holiday season and the right-sizing of both its retail footprint and product offerings. Full year revenue increased US$10.4 million, or 1.1%, to US$932.1 million from US$921.7 million. Excluding foreign exchange rate fluctuations, organic revenue grew by approximately 0.4%. As for the quarter, this growth was in the U.S. and Brazilian markets, with the significant declines in Chile, as well as Europe earlier in the year due to issues implementing a Warehouse Management System in the second quarter.

Despite increasing slightly from third quarter levels, lower gross margins continue to be the major driver of depressed adjusted operating profit for the segment. Margins in Chile decreased versus last year due to lower retail price points and discounting to achieve critical holiday season sales. Dorel Juvenile Europe gross margin declines were mainly due to lower price points to minimize sales shortfalls in certain categories and a negative sales mix overall. Gross margins were further challenged by higher input costs in the U.S. and less favourable foreign exchange rates in most markets. Going forward, price increases currently in place and the introduction of new products in key product categories are expected to continue the upward trend in gross margins from the low point in the third quarter of 2018 and this trend should gradually improve in 2019.

Operating expenses for the quarter were slightly lower than prior year despite a significant increase in research and development expenses of US$2.5 million, with amortization of deferred development costs accounting for 40% of the increase. This is a result of a greater number of product launches in 2018 versus prior year. Higher spending in both the quarter and year-to-date were a function of more product development activities as the segment launched new product across a range of product categories and price points. Product liability costs also increased in the quarter by US$3.4 million versus last year and exceeded the run rate for 2018 by approximately the same amount.

Dorel Juvenile fourth quarter operating loss was US$265.8 million compared to US$14.3 million a year ago. Excluding the impairment losses on goodwill and intangible assets, restructuring and other costs, adjusted operating profit for the quarter declined by US$8.0 million, or 82.1% to US$1.7 million compared to US$9.7 million last year. Removing the impact of the 2017 fourth quarter impairment loss on trade accounts receivable from Toys“R”Us U.S. of US$0.7 million, the comparative fourth quarter adjusted operating profit was US$10.4 million a year ago. For the full year, the operating loss was US$284.5 million compared to an operating profit of US$12.6 million in 2017. Excluding impairment losses on goodwill and intangible assets, restructuring and other costs, adjusted operating profit declined by US$33.7 million, or 75.8%, to US$10.7 million. Removing the impact of the 2018 first quarter and 2017 fourth quarter impairment losses on trade accounts receivable from Toys“R”Us U.S. of US$3.8 million in the first quarter of 2018 and US$0.7 million in the fourth quarter of 2017 as noted above, the adjusted operating profit was US$14.5 million compared to US$45.2 million last year.

Dorel Sports     
All figures in thousands of US $     
Fourth Quarters Ended December 30 (unaudited)
 20182017 (1)Change 
 $% of rev. $% of rev. %
Total revenue232,686  236,771 (1.7%)
      
Gross profit48,161 20.7%52,10522.0%(7.6%)
Operating profit (loss)(232,084)(99.7%)6,5452.8%(3,646.0%)
      
Adjusted gross profit48,096 20.7%51,38621.7%(6.4%)
Adjusted operating profit5,130 2.2%6,1842.6%(17.0%)
      
All figures in thousands of US $     
Years Ended December 30 (unaudited)
 20182017 (1)Change 
 $% of rev. $% of rev. %
Total revenue883,006  865,380 2.0%
      
Gross profit187,782 21.3%194,94022.5%(3.7%)
Operating profit (loss)(229,147)(26.0%)21,7632.5%(1,152.9%)
      
Adjusted gross profit189,401 21.4%193,62522.4%(2.2%)
Adjusted operating profit19,860 2.2%21,9042.5%(9.3%)
      
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated.


Fourth quarter revenue declined by US$4.1 million, or 1.7%, to US$232.7 million from US$236.8 million last year but grew by approximately 2.6% after excluding the negative impact of varying foreign exchange rates year-over-year and the divestments of the SUGOI and Sombrio brands in the second quarter of 2018. Cycling Sports Group (CSG) posted double-digit organic revenue growth and significant operating profit improvement, mainly from growth in Europe and in the U.S. sporting goods channel due to innovation in model-year 2019 products. In Brazil, Caloi also delivered double-digit sales and operating profit growth in Brazilian Reals, driven by a stronger mix of products, success with their 29-inch mountain bikes as well as with the Cannondale line. However, at Pacific Cycle, revenue and gross profit both dropped due to weaker than expected mass channel holiday POS on bikes and interactive battery powered ride-ons, as well as by retailer inventory reductions.

For the year, Dorel Sports’ revenue increased by US$17.6 million, or 2.0%, to US$883.0 million and by approximately 3.4%, after excluding foreign exchange rate fluctuations year-over-year, as well as the divestments of SUGOI and Sombrio.

Fourth quarter operating loss was US$232.1 million compared with an operating profit of US$6.5 million in 2017. Adjusted operating profit decreased US$1.1 million, or 17.0%, to US$5.1 million from US$6.2 million when excluding impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs. Removing the impact of the 2017 fourth quarter impairment loss on trade accounts receivable from Toys“R”Us U.S. of US$3.1 million, the comparative fourth quarter adjusted operating profit was US$9.3 million a year ago. The miss in the quarter was primarily due to the slowdown in bicycle sales across the board at Pacific Cycle as well as by the unexpected fourth quarter impairment loss on trade accounts receivable of US$2.1 million as Evans Cycles entered administration in the UK.

For the year, the operating loss was US$229.1 million compared to an operating profit of US$21.8 million in 2017. Excluding impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs, adjusted operating profit decreased by $2.0 million, or 9.3%, to US$19.9 million. When excluding the impairment loss on trade accounts receivable from Toys“R”Us U.S. of US$6.6 million in the first quarter of 2018 and of US$3.1 million in the fourth quarter of 2017, year-to-date adjusted operating profit improved to US$26.5 million from US$25.0 million last year.

Other

During the fourth quarter and year ended December 30, 2018, the Company’s effective tax rates were 10.1% and 10.8%, respectively versus (184.1%) and 37.9% for the same periods in the prior year. Excluding income taxes on impairment losses on goodwill, intangible assets and property, plant and equipment, as well as restructuring and other costs, the Company’s fourth quarter adjusted tax rate was 9.7% in 2018 and 19.6% in 2017. Excluding income taxes on impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt, the adjusted tax rate for the year was 14.8% in 2018 versus 22.7% in 2017. Variations in the adjusted tax rate year-over-year for the fourth quarter and full year are explained largely due to changes in the jurisdictions in which the Company generated its income, including the impact related to the U.S. Tax Reform signed into law on December 22, 2017, effective as of January 1, 2018.

Quarterly Dividend

Dorel’s Board of Directors declared a revised quarterly dividend, as mentioned above, of US$0.15 per share on the outstanding number of the Company’s Class “A” Multiple Voting Shares, Class “B” Subordinate Voting Shares, Deferred Share Units, cash-settled Restricted Share Units and cash-settled Performance Share Units. The dividend is payable on April 11, 2019 to shareholders of record as at the close of business on March 28, 2019.

2019 Outlook

“This is an important stage in the evolution of the consumer products industry and Dorel is leading the change,” stated Dorel President & CEO, Martin Schwartz. “In 2019, we expect improved adjusted operating profit in all business segments with expanding product lines, e-commerce innovations, and improved efficiencies. In addition, implementation of the global restructuring program is expected to result in cost savings. We’re excited about the year ahead.”

Dorel Home:
We expect Dorel Home to deliver revenue and adjusted operating profit improvements in 2019 led by continued growth in e-commerce sales as consumers become more accustomed to purchasing furniture on-line. Dorel Home’s expansion of key product brands — including Little Seeds, Novogratz, and Cosmo Living — is expected to drive revenue growth across various categories, while the recent acquisition of UK-based Alphason is expected to boost adjusted operating profit by the second half of 2019 as we continue to build-out our infrastructure and sales channels in Europe.

While tariffs in the home furnishings segment are not expected to impact sales or adjusted operating profit in 2019, we remain watchful on the effects of expected anti-dumping duties on mattresses made in China and its impact on costs.
               
Dorel Juvenile:
We project an improvement in adjusted operating profit for Dorel Juvenile in 2019, buoyed by growth in sales in the majority of our markets. In North America and Europe, we expect mid-single digit revenue increases and improved adjusted gross profit on the strength of our new product introductions and our market-leading brands.

As in 2018, in Latin America we expect continued growth in Brazil, Peru and Mexico, while a focussed product line and a more rationalized cost base is expected to improve adjusted operating profit in Chile. Finally, we expect that Dorel Juvenile China will be a positive contributor to earnings improvement in 2019.

Foreign currency fluctuations remain a risk to this segment’s earnings in 2019. Should the US dollar strengthen significantly from current levels against other currencies, principally the Euro and RMB, Dorel Juvenile’s adjusted operating profit expectations for 2019 may be dampened.

Dorel Sports:
We expect to see a rebound in profits for Dorel Sports in 2019 with segment revenue forecasted to grow in the mid-single digits driven by price increases related to tariffs passed on to consumers at Pacific Cycle and volume and market share growth in CSG and Caloi.

Dorel Sports expects improved adjusted operating profit at CSG and Caloi throughout 2019. CSG growth will be driven by recent restructuring efforts and new product innovations particularly in the expanding e-bike category. At Caloi, we project increased sales with its expansion into the OPP segment and OEM manufacturing for retail and bike share programs.

Revenue and adjusted operating profit improvement at Pacific Cycle is expected mostly in the second half, based on the rapidly growing e-commerce channel, new customer distribution points and an expanded product line. This includes a broadened line of electric ride-ons and entering adjacent categories, such as scooters.

Conference Call

Dorel Industries Inc. will hold a conference call to discuss these results today, March 14, 2019 at 1:00 P.M. Eastern Time. Interested parties can join the call by dialing 1-877-223-4471. The conference call can also be accessed via live webcast at https://www.dorel.com. If you are unable to call in at this time, you may access a recording of the meeting by calling 1-800-585-8367 and entering the passcode 9958088 on your phone. This recording will be available on Thursday, March 14, 2019 as of 4:00 P.M. until 11:59 P.M. on Thursday, March 21, 2019.

Complete consolidated financial statements as at December 30, 2018 will be available on the Company’s website, www.dorel.com, and will be available through the SEDAR website.

Profile

Dorel Industries Inc. (TSX: DII.B, DII.A) is a global organization, operating three distinct businesses in juvenile products, bicycles and home products. Dorel's strength lies in the diversity, innovation and quality of its products as well as the superiority of its brands. Dorel Juvenile’s powerfully branded products include global brands Maxi-Cosi, Quinny and Tiny Love, complemented by regional brands such as Safety 1st, Bébé Confort, Cosco and Infanti. Dorel Sports brands include Cannondale, Schwinn, GT, Mongoose, Caloi and IronHorse. Dorel Home, with its comprehensive e-commerce platform, markets a wide assortment of domestically produced and imported furniture. Dorel has annual sales of US$2.6 billion and employs approximately 9,200 people in facilities located in twenty-five countries worldwide.

Caution Regarding Forward-Looking Statements

Certain statements included in this press release may constitute “forward-looking statements” within the meaning of applicable Canadian securities legislation. Except as may be required by Canadian securities laws, Dorel does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from Dorel’s expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. As a result, Dorel cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits Dorel will derive from them. Forward-looking statements are provided in this press release for the purpose of giving information about Management’s current expectations and plans and allowing investors and others to get a better understanding of Dorel’s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.

Forward-looking statements made in this press release are based on a number of assumptions that Dorel believed were reasonable on the day it made the forward-looking statements. Factors that could cause actual results to differ materially from Dorel’s expectations expressed in or implied by the forward-looking statements include: general economic conditions; changes in product costs and supply channels; foreign currency fluctuations; customer and credit risk, including the concentration of revenues with small number of customers; costs associated with product liability; changes in income tax legislation or the interpretation or application of those rules; the continued ability to develop products and support brand names; changes in the regulatory environment; continued access to capital resources, including compliance with covenants, and the related costs of borrowing; debt refinancing; failure related to information technology systems; changes in assumptions in the valuation of goodwill and other intangible assets and future decline in market capitalization; and there being no certainty that Dorel’s current dividend policy will be maintained. These and other risk factors that could cause actual results to differ materially from expectations expressed in or implied by the forward-looking statements are discussed in Dorel’s annual Management Discussion and Analysis and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors outlined in the previously-mentioned documents are specifically incorporated herein by reference.

Forward-looking statements made in this press release related to the expected financial information for 2019 do not take into consideration the impact of adopting IFRS 16, Leases, on December 31, 2018.

Dorel cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to Dorel or that Dorel currently deems to be immaterial may also have a material adverse effect on Dorel’s business, financial condition or results of operations. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Non-GAAP financial measures

As a result of impairment losses on goodwill, intangible assets and property, plant and equipment, restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt incurred in 2018 and 2017, the Company is including in this press release the following non-GAAP financial measures: “adjusted cost of sales”, “adjusted gross profit”, “adjusted operating profit”, “adjusted finance expenses”, “adjusted income before income taxes”, “adjusted income taxes expense”, “adjusted tax rate”, “adjusted net income” and “adjusted earnings per basic and diluted share”. The Company believes that this results in a more meaningful comparison of its core business performance between the periods presented. These non-GAAP financial measures do not have a standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other issuers. Contained within this press release are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.

(All figures in the tables below are in thousands of US $, except per share amounts)

Reconciliation of non-GAAP financial measures          
            
 Fourth Quarters Ended December 30,
 2018 2017(1)
 Reported % of
revenue
 Impairment losses
on goodwill, intangible
assets and property,
plant and equipment,
restructuring and
other costs
 Adjusted % of
revenue
 Reported % of
revenue
 Impairment loss
on goodwill,
restructuring
and other costs
 Adjusted % of
revenue
  $  % $  $  %  $  % $  $  %
TOTAL REVENUE  683,546  100.0 -   683,546  100.0   677,052  100.0 -   677,052  100.0
Cost of sales  540,499  79.1 (487)  540,012  79.0   515,604  76.2 438   516,042  76.2
GROSS PROFIT  143,047  20.9 487   143,534  21.0   161,448  23.8 (438)  161,010  23.8
            
Selling expenses  56,807  8.3 -   56,807  8.3   58,929  8.7 -   58,929  8.7
General and administrative expenses  53,200  7.9 -   53,200  7.9   60,087  8.9 -   60,087  8.9
Research and development expenses  10,482  1.5 -   10,482  1.5   8,039  1.2 -   8,039  1.2
Impairment loss on trade and other receivables  3,018  0.4 -   3,018  0.4   4,263  0.6 -   4,263  0.6
Restructuring and other costs  3,016  0.4 (3,016)  -  -   4,138  0.6 (4,138)  -  -
Impairment losses on goodwill, intangible assets
  and property, plant and equipment
  501,446  73.3 (501,446)  -  -   19,929  2.9 (19,929)  -  -
OPERATING PROFIT (LOSS)  (484,922)(70.9)504,949   20,027  2.9   6,063  0.9 23,629   29,692  4.4
Finance expenses  8,626  1.3 -   8,626  1.3   8,222  1.2 -   8,222  1.2
INCOME (LOSS) BEFORE INCOME TAXES  (493,548)(72.2)504,949   11,401  1.6   (2,159)(0.3)23,629   21,470  3.2
Income taxes expense (recovery)  (49,650)(7.3)50,753   1,103  0.1   3,975  0.6 227   4,202  0.6
Tax rate10.1 %  9.7 %  (184.1%)  19.6 % 
NET INCOME (LOSS)  (443,898)  (64.9)  454,196   10,298    1.5   (6,134)  (0.9)  23,402   17,268    2.6
EARNINGS (LOSS) PER SHARE           
Basic  (13.68)   14.00   0.32      (0.19)   0.72   0.53   
Diluted  (13.68)   13.99   0.31      (0.19)   0.72   0.53   
SHARES OUTSTANDING           
Basic - weighted average32,439,189   32,439,189     32,426,326      32,426,326   
Diluted - weighted average32,439,189   32,747,791     32,426,326      32,706,760   
            
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated. Comparative information has been reclassified due to a new impairment loss line presentation.

 

Reconciliation of non-GAAP financial measures          
            
 Years Ended December 30,
 2018 2017(1)
 Reported % of
revenue
 Impairment losses
on goodwill, intangible
assets and property,
plant and equipment,
restructuring and
other costs
 Adjusted % of
revenue
 Reported % of
revenue
Impairment loss
on goodwill,
restructuring
and other costs
 Adjusted % of
revenue
  $  % $  $  %  $  %$  $  %
TOTAL REVENUE  2,619,513  100.0 -   2,619,513  100.0   2,577,668  100.0-   2,577,668  100.0
Cost of sales  2,054,721  78.4 (2,258)  2,052,463  78.4   1,965,917  76.3(260)  1,965,657  76.3
GROSS PROFIT  564,792  21.6 2,258   567,050  21.6   611,751  23.7260   612,011  23.7
            
Selling expenses  233,772  8.9 -   233,772  8.9   233,106  9.0-   233,106  9.0
General and administrative expenses  200,041  7.7 -   200,041  7.7   220,773  8.6-   220,773  8.6
Research and development expenses  37,819  1.4 -   37,819  1.4   31,065  1.2-   31,065  1.2
Impairment loss on trade and other receivables  16,425  0.6 -   16,425  0.6   7,622  0.3-   7,622  0.3
Restructuring and other costs  16,609  0.6 (16,609)  -  -   11,814  0.4(11,814)  -  -
Impairment losses on goodwill, intangible assets
  and property, plant and equipment
  525,639  20.2 (525,639)  -  -   19,929  0.8(19,929)  -  -
OPERATING PROFIT (LOSS)  (465,513)(17.8)544,506   78,993  3.0   87,442  3.432,003   119,445  4.6
Finance expenses  32,650  1.2 -   32,650  1.2   43,248  1.7(10,475)  32,773  1.2
INCOME (LOSS) BEFORE INCOME TAXES  (498,163)(19.0)544,506   46,343  1.8   44,194  1.742,478   86,672  3.4
Income taxes expense (recovery)  (53,820)(2.0)60,679   6,859  0.3   16,753  0.62,964   19,717  0.8
Tax rate10.8%  14.8%  37.9%  22.7% 
NET INCOME (LOSS)  (444,343)  (17.0)  483,827   39,484    1.5   27,441    1.1  39,514   66,955    2.6
EARNINGS (LOSS) PER SHARE           
Basic  (13.70)   14.92   1.22      0.85     1.22   2.07   
Diluted  (13.70)   14.91   1.21      0.84     1.21   2.05   
SHARES OUTSTANDING           
Basic - weighted average32,438,645   32,438,645     32,409,551      32,409,551   
Diluted - weighted average32,438,645   32,727,662     32,665,713      32,665,713   
            
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated. Comparative information has been reclassified due to a new impairment loss line presentation.

 

Dorel Home           
Reconciliation of non-GAAP financial measures           
            
 Fourth Quarters Ended December 30,
 2018 2017(1)
 Reported% of
revenue
Other costs Adjusted% of
revenue
 Reported % of
revenue
Other costsAdjusted % of
revenue
  $ % $   $ %  $  % $  $  %
TOTAL REVENUE  209,262   100.0  -   209,262   100.0   200,975    100.0  -  200,975    100.0
Cost of sales  175,802   84.0  -   175,802   84.0   162,277    80.7  -  162,277    80.7
GROSS PROFIT  33,460   16.0  -   33,460   16.0   38,698    19.3  -  38,698    19.3
            
Selling expenses  6,923   3.3  -   6,923   3.3   6,814    3.4  -  6,814    3.4
General and administrative expenses  7,739   3.7  -   7,739   3.7   9,799    4.9  -  9,799    4.9
Research and development expenses  993   0.5  -   993   0.5   1,032    0.5  -  1,032    0.5
Impairment loss on trade and other receivables (reversal)  58   -  -   58   -   (11)  -  -  (11)  -
Other costs  252   0.1  (252)  -   -   -    -  -  -    -
OPERATING PROFIT  17,495   8.4  252   17,747   8.5   21,064    10.5  -  21,064    10.5
            
 Years Ended December 30,
 2018 2017(1)
 Reported% of
revenue
Other costs Adjusted% of
revenue
 Reported % of
revenue
Other costsAdjusted % of
revenue
  $ %$  $ %  $  %$ $  %
TOTAL REVENUE  804,447 100.0-   804,447 100.0   790,619  100.0-  790,619  100.0
Cost of sales  671,598 83.5-   671,598 83.5   649,069  82.1-  649,069  82.1
GROSS PROFIT  132,849 16.5-   132,849 16.5   141,550  17.9-  141,550  17.9
            
Selling expenses  26,186 3.3-   26,186 3.3   25,945  3.3-  25,945  3.3
General and administrative expenses  29,886 3.6-   29,886 3.6   33,642  4.2-  33,642  4.2
Research and development expenses  4,241 0.5-   4,241 0.5   3,859  0.5-  3,859  0.5
Impairment loss on trade and other receivables  2,112 0.3-   2,112 0.3   23  --  23  -
Other costs  252 0.1(252)  - -   -  --  -  -
OPERATING PROFIT  70,172 8.7252   70,424 8.8   78,081  9.9-  78,081  9.9
            
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated. Comparative information has been reclassified due to a new impairment loss line presentation.

 

Dorel Juvenile           
Reconciliation of non-GAAP financial measures           
            
 Fourth Quarters Ended December 30,
 2018 2017(1)
 Reported % of
revenue
 Impairment losses
on goodwill and
intangible assets,
restructuring and
other costs
 Adjusted% of
revenue
 Reported % of
revenue
 Impairment loss
on goodwill,
restructuring
and other costs
 Adjusted% of
revenue
  $  % $  $ %  $  % $  $ %
TOTAL REVENUE  241,598  100.0 -   241,598 100.0   239,306  100.0 -   239,306 100.0
Cost of sales  180,172  74.6 (552)  179,620 74.3   168,661  70.5 (281)  168,380 70.4
GROSS PROFIT  61,426  25.4 552   61,978 25.7   70,645  29.5 281   70,926 29.6
            
Selling expenses  28,809  11.9 -   28,809 11.9   29,532  12.3 -   29,532 12.3
General and administrative expenses  22,347  9.3 -   22,347 9.3   25,087  10.6 -   25,087 10.6
Research and development expenses  8,175  3.4 -   8,175 3.4   5,634  2.3 -   5,634 2.3
Impairment loss on trade and other receivables  916  0.4 -   916 0.4   988  0.4 -   988 0.4
Restructuring and other costs  2,708  1.0 (2,708)  - -   3,780  1.6 (3,780)  - -
Impairment losses on goodwill and intangible assets  264,223  109.4 (264,223)  - -   19,929  8.3 (19,929)  - -
OPERATING PROFIT (LOSS)  (265,752)(110.0)267,483   1,731 0.7   (14,305)(6.0)23,990   9,685 4.0
            
 Years Ended December 30,
 2018 2017(1)
 Reported % of
revenue
 Impairment losses
on goodwill and
intangible assets,
restructuring and
other costs
 Adjusted% of
revenue
 Reported % of
revenue
 Impairment loss
on goodwill,
restructuring
and other costs
 Adjusted% of
revenue
  $  % $  $ %  $  % $  $ %
TOTAL REVENUE  932,060  100.0 -   932,060 100.0   921,669  100.0 -   921,669 100.0
Cost of sales  687,899  73.8 (639)  687,260 73.7   646,408  70.1 (1,575)  644,833 70.0
GROSS PROFIT  244,161  26.2 639   244,800 26.3   275,261  29.9 1,575   276,836 30.0
            
Selling expenses  117,915  12.7 -   117,915 12.7   116,275  12.6 -   116,275 12.6
General and administrative expenses  82,759  8.9 -   82,759 8.9   91,707  9.9 -   91,707 9.9
Research and development expenses  28,283  3.0 -   28,283 3.0   21,893  2.4 -   21,893 2.4
Impairment loss on trade and other receivables  5,102  0.5 -   5,102 0.5   2,493  0.3 -   2,493 0.3
Restructuring and other costs  6,192  0.7 (6,192)  - -   10,358  1.1 (10,358)  - -
Impairment losses on goodwill and intangible assets  288,416  30.9 (288,416)  - -   19,929  2.2 (19,929)  - -
OPERATING PROFIT (LOSS)  (284,506)(30.5)295,247   10,741 1.2   12,606  1.4 31,862   44,468 4.8
            
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated. Comparative information has been reclassified due to a new impairment loss line presentation.

 

Dorel Sports           
Reconciliation of non-GAAP financial measures           
            
 Fourth Quarters Ended December 30,
 2018 2017(1)
 Reported % of
revenue
 Impairment losses
on goodwill, intangible
assets and property,
plant and equipment,
restructuring and
other costs
 Adjusted% of
revenue
 Reported% of
revenue
Restructuring
and other costs
 Adjusted% of
revenue
  $  % $  $ %  $ %$  $ %
TOTAL REVENUE  232,686  100.0 -   232,686 100.0   236,771 100.0-   236,771 100.0
Cost of sales  184,525  79.3 65   184,590 79.3   184,666 78.0719   185,385 78.3
GROSS PROFIT  48,161  20.7 (65)  48,096 20.7   52,105 22.0(719)  51,386 21.7
            
Selling expenses  20,956  9.0 -   20,956 9.0   22,150 9.4-   22,150 9.4
General and administrative expenses  18,652  8.0 -   18,652 8.0   18,393 7.7-   18,393 7.7
Research and development expenses  1,314  0.6 -   1,314 0.6   1,373 0.6-   1,373 0.6
Impairment loss on trade and other receivables  2,044  0.9 -   2,044 0.9   3,286 1.4-   3,286 1.4
Restructuring and other costs  56  - (56)  - -   358 0.1(358)  - -
Impairment losses on goodwill, intangible assets
  and property, plant and equipment
  237,223  101.9 (237,223)  - -   - --   - -
OPERATING PROFIT (LOSS)  (232,084)(99.7)237,214   5,130 2.2   6,545 2.8(361)  6,184 2.6
            
 Years Ended December 30,
 2018 2017(1)
 Reported % of
revenue
 Impairment losses
on goodwill, intangible
assets and property,
plant and equipment,
restructuring and
other costs
 Adjusted% of
revenue
 Reported% of
revenue
Restructuring
and other costs
 Adjusted% of
revenue
  $  % $  $ %  $ %$  $ %
TOTAL REVENUE  883,006  100.0 -   883,006 100.0   865,380 100.0-   865,380 100.0
Cost of sales  695,224  78.7 (1,619)  693,605 78.6   670,440 77.51,315   671,755 77.6
GROSS PROFIT  187,782  21.3 1,619   189,401 21.4   194,940 22.5(1,315)  193,625 22.4
            
Selling expenses  88,876  10.1 -   88,876 10.1   89,197 10.3-   89,197 10.3
General and administrative expenses  66,159  7.5 -   66,159 7.5   72,105 8.4-   72,105 8.4
Research and development expenses  5,295  0.6 -   5,295 0.6   5,313 0.6-   5,313 0.6
Impairment loss on trade and other receivables  9,211  1.0 -   9,211 1.0   5,106 0.6-   5,106 0.6
Restructuring and other costs  10,165  1.2 (10,165)  - -   1,456 0.1(1,456)  - -
Impairment losses on goodwill, intangible assets
  and property, plant and equipment
  237,223  26.9 (237,223)  - -   - --   - -
OPERATING PROFIT (LOSS)  (229,147)(26.0)249,007   19,860 2.2   21,763 2.5141   21,904 2.5
            
(1) The Company has initially applied IFRS 15 and IFRS 9 as at December 31, 2017. Under the transition methods chosen, comparative information is not restated. Comparative information has been reclassified due to a new impairment loss line presentation.


CONTACTS:

MaisonBrison Communications
Rick Leckner
(514) 731-0000

Dorel Industries Inc.
Jeffrey Schwartz
(514) 934-3034