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Dorel Home Q3 Revenues Set Record But Tariffs Loom

Dorel’s third quarter featured its home division, which reached record revenues, but the company cautioned that the tariffs could impact prices and consumer demand in the future.

The company posted net income of $9.6 million, or 29 cents per diluted share, versus $13.3 million, or 41 cents per diluted share, in the year-earlier period. Adjusted net income, excluding one-time charges, was $11 million, or 34 cents per diluted share, versus $14.5 million, or 44 cents per diluted share, in the period a year prior.

Revenue in the quarter advanced 4.3% to $670.4 million year over year.

At the company’s furnishings division, Dorel Home, revenues gained 10% in the third quarter to $221.6 million while operating profit declined 5% to $19.5 million. At a time when tariffs on furnishings imports to the U.S. are kicking in, Dorel pointed out that the operating profit decline resulted from various overseas finished goods cost increases, not yet fully offset by price increases, affecting some division segments as well as higher year over year warehouse and distribution costs arising from a warehouse footprint increase.

In October, Dorel Home acquired the assets and operations of Alphason, a designer and distributer of home office and audio-visual furniture based in the United Kingdom. The company added that initial sales of the CosmoLiving by Cosmopolitan furniture collection are encouraging. The collection, licensed from Cosmopolitan magazine publisher Hearst, benefited from several full-page ads that appeared in the publication’s September and October issues.

“While we were pleased with the significant progress at Dorel Sports and the top line success at Dorel Home, Dorel Juvenile had a disappointing quarter,” said Martin Schwartz, Dorel president and CEO. “Dorel Home’s e-commerce business continued to account for a growing share of revenues, more than compensating for lost brick and mortar sales. Several factors caused lower gross margins at Dorel Juvenile, which significantly affected earnings and steps are underway to correct this situation. Our new product pipeline for our major markets, both launched and in progress, is the best it has been in recent memory and is expected to reverse the negative trend of the past two quarters.”

Schwartz added, “A substantial number of our imports from China into the U.S. are now subject to new 10% U.S. tariffs, which primarily affect our Dorel Home and Dorel Sports segments. We have informed our customers of the impending price increase necessitated by these tariffs. The rate of imposition is currently scheduled to increase to 25% on January 1, 2019, and at that level, these increases could impact consumer demand in the longer term.”