As it reported second quarter results, Dorel Industries said that it is doing its best to shrug off the effects of tariffs imposed on China by the U.S. as it drives top-line growth and makes adjustments to boost the bottom line.
In the second quarter, Dorel posted net income of $2.8 million, or nine cents per diluted share, versus a loss of $14.8 million, or 46 cents per diluted share, in the year-previous period. Adjusted for one-time charges, net income was $6.3 million, or 19 cents per diluted share, versus $12.7 million, or 39 cents per diluted share, in the period a year before.
Net revenue was $670 million versus $623.2 million in the year-prior quarter. Operating profit for the quarter was $20.4 million versus an operating loss of $15 million in the year-earlier period.
For the Dorel Home division, second quarter revenue was $207.4 million versus $181.3 million in the previous second quarter. Operating profit was $14.1 million compared to $16.9 million in the year-before quarter.
Dorel noted that the quarter’s e-commerce home division sales advanced 25.5% year over year, and represented 60% of total segment sales compared to 56% in the period a year prior. Brick-and-mortar sales gained as well, up $5.7 million in the period year over year. CosmoLiving and Novogratz branded product sales continued growing, Dorel maintained.
The effects of the new U.S. tariffs negatively affected gross margins in the first quarter, as did higher warehousing costs on elevated inventory levels, less profitable pricing and product mix, and greater promotional costs arising from moves to drive revenue growth, although, Dorel asserted, a major reason inventories reached a record high was because the company expects strong back-to-school sales in the third quarter. Inventories took a hit in dollar terms due to increased cost valuations from increased tariffs as well. Dorel stated that it has implemented a plan to increase margins and reduce inventories by the end of the year as well as to eliminate excess warehouse costs.
“We are encouraged that, without exception, all our businesses have produced top-line growth,” said Martin Schwartz, Dorel president and CEO. “U.S. tariffs imposed on China-sourced goods, and its impact on retail price points, have created uncertainty on customers’ buying decisions as well as on supply chain and inventory planning processes. The chaotic market conditions have resulted in margin pressure, particularly at Dorel Home and in the mass channel at Dorel Sports. Despite this, Dorel Home has done an exceptional job of growing its top line and is now focused on inventory and margin improvement.”