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Dorel profit sinks as demand falls for juvenile products

Dorel Industries' Schwinn 2009 electric bike, the Tailwind.

Dorel/Dorel

Dorel Industries Inc. saw its profit drop by 30 per cent in the second quarter, hit by high commodity prices and weak consumer spending for its line of juvenile products.

Profits at the Montreal-based manufacturer, which reports in U.S. dollars, fell to $23-million (U.S.) or 70 cents a share, down from $32.9-million, or 99 cents, in the year-before period. Overall revenue was up 1.9 per cent, to $619-million.

"Consumer confidence in the United States is a big issue, and is at a depressed level," Dorel chief executive officer Martin Schwartz said in a conference call Tuesday. "Clearly, current signs are not positive. Consumers are being cautious and are putting off certain purchases."

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The company's flagship juvenile business, which specializes in car seats and strollers, saw a 6-per-cent drop in revenue in the second quarter, year over year. U.S. families are increasingly using second-hand car seats rather than buying new ones Mr. Schwartz said, adding that a decline in birth rates may also be a factor.

But while Dorel's baby products and its smaller home-furnishings businesses suffered, its bicycle business grew – with a year-over-year revenue increase of 16 per cent in the second quarter. Dorel's bike brands include Cannondale, Schwinn, GT and Mongoose.

"Bicycles are doing very well," Mr. Schwartz said. "We're confident in the recreation business."

Bike sales increased by more than 50 per cent in Europe and were up in other markets as well, despite rainy spring weather in the United States and Canada.

"Bikes were in line with our strong expectations," Tal Woolley, an analyst with RBC Dominion Securities, wrote in a note to investors.

Mark Petrie, an analyst with CIBC World Markets, said Dorel tends to think of its juvenile products as relatively recession-proof, but the company continues to struggle to improve its sales in the tough economy. "The challenges in the U.S., particularly in juvenile products, are lingering longer than people had once thought, but I think it's an industry issue as opposed to a Dorel issue," he said.

Mr. Schwartz said he expects the juvenile business to revive in 2012, as consumers regain confidence in the economy. "People are still having babies, and you always want the best you can afford for a newborn," he said.

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About the Author
Parliamentary reporter

Kim Mackrael has been a reporter for The Globe and Mail since 2011. She joined the Ottawa bureau Sept. 2012. More

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