by During period of lackluster demand for home furnishings, company reveals restructuring effort that will reduce headcount by 5%, generate $6.5 million in savings
MONTREAL — The numbers in Dorel’s latest financial report for its fourth quarter and full-year 2023 ended Dec. 30 led to where the company has been headed for months and perhaps years — to expansive cost-cutting and layoffs.
According to its annual report, the company cut 5% of its North American workforce. This amounts to about 40 workers in its furniture segment according to the Canadian Press. The Press also reported that the company laid off another 30 in its juvenile segment, leaving it with 3,885 workers as of Dec. 31.
The company said the restructuring will result in about $4.5 million in restructuring costs, some $4 million of which is directly tied to its home furnishings segment. The initial round of staff reductions will generate some $6.5 million in savings although it’s unclear exactly when this savings will occur and how many further adjustments the company could need to make in the days, weeks and months ahead.
“These initiatives will continue in 2024 as the company continues to make additional operational improvements and evaluate its cost structure,” the company noted in its earnings release.
Here’s a quick recap of the numbers. The quarterly overview was not all bad as the company reported $350.7 million in revenues, up 3.1% compared to $340.3 million the same period last year, a notable boost when many others are struggling to stay level.
The company’s net loss for the quarter was $3.8 million, or 12 cents per share, down significantly from its loss of $41.4 million, or $1.27 per share, the same period last year.
For the year, revenues from continuing operations fell 11.6% to $1.4 billion, compared to $1.6 billion in 2022. Its net loss was $62.4 million, or $1.92 per share, compared to a net loss of $118.9 million, or $3.65 per share, again a notable improvement.
But this is no thanks to the furniture segment, which predictably has been a drag on the whole business. For example, revenues in Dorel Home were down 8.4% for the quarter to $138.6 million and were down 26.5% for the year to nearly $559 million. Meanwhile, its adjusted operating loss for the quarter narrowed to $9.8 million from $18.3 million the same period last year. For the full year, the loss rose to $37.3 million, compared to $18.5 million last year.
The company attributed the revenue decline for the quarter and the year to current high inflation and interest rates which “continued to constrain consumer spending on home furnishings.”
This compares to the juvenile segment, where revenues rose 12.2% during the quarter to $212 million, from $188.9 million, and for the year rose 2.4% to $829.8 million from $810.2 million in 2022. Adjusted operating profits totaled $12.9 million for the quarter compared to a loss of $21.9 million last year, and for the full year totaled $7.9 million compared to a loss of $50.7 million last year.
There are some bright spots on the furniture side of the business, however, as the company said its participation in IMM Cologne gained some new customers.
“There were many positive meetings and despite the current lackluster market in Europe, a number of new customers were picked up and several others are seen as potential buyers,” said Dorel President and CEO Martin Schwartz during the company’s conference call this week.
In addition, the company noted, while internet sales declined by 19.4% year over year, total gross store sales rose 15.6%. The company added that there is some continuing traction in brick-and-mortar sales, a factor some other industry suppliers recently have noted of a pickup in February sales and shipments.
“An encouraging sign that retailers’ inventories are coming down was an increase in replenishment orders,” Dorel noted in its quarterly report.
Obviously much will also depend on interest rates and their effect on the housing market. During the conference call, Schwartz noted that some “30% of furniture is sold based on people moving, but with high interest rates, most are staying put. 2023 saw the fewest number of moves in the States since the U.S. government began tracking the data back in the 1940s. However, home affordability hit an historic low last summer while interest rates were the highest since 2022.”
He added that in addition to increases in brick-and-mortar sales and reduction of retailer inventories, the company’s product development team continues to create “a number of exciting new items, differentiating Dorel from the rest of the market. Many of these products will be launched during the second quarter.”
Schwartz noted that coupled with its innovative new products, the lowering of costs through its restructuring will “deliver the turnaround at Dorel Home as we did the past year at Juvenile.”
This is not the first time the company has taken steps to either cut expenses and/or raise much needed capital to support its business.
In late 2021 the company sold its China manufacturing facilities for its juvenile products line as part of a plan to co-develop innovative new products through a diversified global manufacturing base.
In early 2022, the company completed the sale of its sports division to Pon Holdings B.V. for $810 million. In addition to reducing indebtedness and paying a special dividend to shareholders, the sale allowed the company to sharpen its focus on its furniture business, including its RTA, home office and nursery and youth furniture lines and its baby products businesses that include strollers, car seats, activity sets and other baby gear.
Of the sale and use of the proceeds, CEO Martin Schwartz said at the time, “We believe that the result will be both value for our shareholders and a stronger balance sheet for Dorel going forward.”
Unfortunately the challenges faced by the furniture industry during and post-pandemic have impeded that process as illustrated by the recent results of its Dorel Home segment
Which brings us back to the current restructuring initiative.
During the call, Chief Financial Officer Jeffrey Schwartz noted that the restructuring combines a couple of segments of the business into one operating unit and that the $6.5 million in cost savings will materialize throughout 2024.
But much will also depend on how the business holds up in the year ahead, both online and at the brick-and-mortar level. To succeed, Jeffrey Schwartz noted, the company will remain focused not only on good product at a good price, but also on service.
“We have to have after-sales service and we have to have inventory, stock for them,” he said. “Kind of the old way of doing business.”
But he also agreed that improvements in the business also will depend on things outside its control.
“If interest rates would drop and if home sales across the U.S. were to pick up, I think that would all have a positive impact on the industry and therefore on us.”
