As it cited the difficulties of dealing with tariffs imposed by the U.S. on China, Dorel Industries said that a review of preliminary third quarter results has prompted the company’s board of directors to suspend its dividend.
The dividend declared on August 2 is not affected and will be paid on October 2, the company stated.
A second round of increases on certain Chinese imports, including in the furniture and bicycle sectors, among others, imposed in May brought tariffs to 25%, which Dorel maintained is having a much greater impact on business than did the 10% charge introduced a year ago.
Tariffs also have impacted Dorel Sports’ mass merchant business, the company indicated. Although sales remain strong, the mix has been negative and gross margins have slipped. Sales in the independent bicycle dealer and sporting goods channels have remained strong, Dorel reported, and, there, the outlook remains positive.
Another factor affecting the third quarter results, Dorel noted, is the decision by some of the company’s large U.S. customers to delay holiday deliveries to the beginning of the fourth quarter. Also, the recent rise in value of the U.S. dollar has weighed on Dorel’s Sports and Juvenile segments as major currencies that affect Dorel’s financial results dropped between 3% and 8% in relation.
Dorel added that it amended the company’s senior secured revolving credit facilities and term loan to facilitate compliance with its financial covenants.
“The impact of the increase on Dorel businesses was still unclear at the end of the second quarter. We raised prices midway through the third quarter and this has had several negative consequences. Not all competitors nor retailers raised prices at the same time or rate. Retailers have also changed their buying routines. New price points have caused some consumers to opt for different items creating a considerable product mix imbalance. As well, elevated warehousing costs are still being incurred as the shift in demand has delayed our inventory balancing program. The net result of these challenges is that Dorel Home’s expected gross margin improvement from first half levels will be delayed to the beginning of 2020,” said Martin Schwartz, Dorel president and CEO.
He added, “It is prudent to suspend the dividend until the chaotic market conditions created by tariffs are normalized.”