by Furniture segment lags because of ongoing inventory issues at retail, but company believes a turnaround is imminent
MONTREAL — Dorel’s latest earnings report for its second quarter and first half ended June 30 sheds light on the state of the industry, particularly at the lower-middle to middle price points where its key furniture brands reside.
In summary, its second-quarter revenues were $345.2 million, down 19.3% from $427.8 million the same period last year. For the full six months, its revenues totaled $678.4 million, down 20.7% from the $855.9 million reported last year.
Its adjusted net loss from continuing operations during the second quarter was $16.7 million, or 51 cents per share, compared to $13.6 million, or 42 cents per share, the same period last year. For the first half, its adjusted net loss from continuing operations was $48.2 million, or $1.48 per share, compared to $36.5 million, or $1.12 per share, for the first six months of 2022.
The Dorel Home segment includes its key furniture brands such as Dorel Home Products whose multiple brands include Cosco Home & Office, RTA specialist Ameriwood, full-line furniture resource Dorel Living, mattress brand Signature Sleep and juvenile and youth furniture brand Little Seeds.
Its other segment, Dorel Juvenile, includes a host of infant and juvenile products such as strollers and car seats offered by the brands Maxi-Cosi, Tiny Love, Safety 1st, BebeConfort, Cosco and Infanti. It represents the lion’s share of revenues, $211.8 million and $411.8 million, for the first quarter and first half of 2023, respectively, compared to $133.5 million and $209.8 million in the furniture segment.
While the home segment is smaller, it saw a larger decline of 36.4% for the quarter and 36.7% for the first half, while operating losses also were the largest, at $10 million for the quarter (compared to net income of $849,000 on the juvenile side of the business) and $23.9 million for the first half (compared to $8.1 million on the juvenile side of the business during the same period).
So what’s happening on the furniture side? Here are a few bullet points captured in its latest earnings report that shed light on this part of its business:
+ The company noted that suppliers and retailers continued to focus on decreasing their high-cost inventories and were not reordering products during the quarter, which impacted revenues.
+ The good news, based on what the company is experiencing of late is that excess inventory levels created last year because of sudden improvements in supply from Asia — combined with lessening demand — are easing as retailers move excess stock and right-size inventory levels. “This is evidenced by the fact that retailers are now planning proactive merchandising campaigns,” the company noted.
+ Things began to improve in May and June and the company expects further improvements based on activity in July, with orders being 30% higher than the first-half average.
+ The operating loss was due to a few key factors, namely lower sales volumes from general softness in demand for furniture, residual higher-cost inventory and promotional pricing to clear merchandise.
+ The company expects sequential reduced losses due to the lowering of freight, warehouse and distribution costs.
+ In addition, inventories were down by $73.3 million from the same quarter last year and by about $30 million from the fourth quarter of 2022. The company said this contributed to some $49.5 million in cash provided by operations in the quarter and year to date.
Company President and CEO Martin Schwartz said the businesses have shown signs of improvement for the third consecutive quarter.
“Despite a slow start, our juvenile business posted its first profitable quarter since the third quarter of 2021,” he said, noting that this was led by business in Europe that drove a strong recovery.”
He also noted in the company’s earnings release that Dorel Home is also showing signs of improvement through gains in market share in the U.S.
“While reporting an operating loss, Dorel Home reported sequential improvement for the third consecutive quarter,” he noted. “There are clear indications that sales volumes are beginning to improve. The trend is positive as retailers’ glut of high-cost inventory is steadily being depleted.”
He said that while a softness in the market impacted the company’s second quarter, the improvement in July orders in particular is “evidence that we are seeing the light at the end of the tunnel.”
Looking ahead, he added, “As of today, we fully expect the quarter-over-quarter earnings improvement that started in the first quarter to continue into the back half of the year,” he said, noting that profitability at both Dorel Juvenile and Dorel Home will improve. “Dorel Juvenile is ahead of Dorel Home on that path and will improve its profitability across the quarters, but we are also confident that Dorel Home will also return to an operating profit in the second half.”
