First Quarter Conference Call May 9, 2013 - Dorel Industries
First Quarter Conference Call May 9, 2013 - Dorel Industries
First Quarter Conference Call May 9, 2013 - Dorel Industries
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FINAL TRANSCRIPT<br />
<strong>Dorel</strong> <strong>Industries</strong><br />
<strong>First</strong> <strong>Quarter</strong> Results<br />
Event Date/Time: <strong>May</strong> 9, <strong>2013</strong>, 01:00 p.m. E.T.<br />
Length: 41 minutes<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
1
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
CORPORATE PARTICIPANTS<br />
Martin Schwartz<br />
President and Chief Executive Officer, <strong>Dorel</strong> <strong>Industries</strong><br />
Jeffrey Schwartz<br />
Executive Vice President and Chief Financial Officer, <strong>Dorel</strong> <strong>Industries</strong><br />
CONFERENCE CALL PARTICIPANTS<br />
Derek Lessard<br />
Analyst, TD Securities<br />
Anthony Zicha<br />
Analyst, Scotiabank<br />
Tal Woolley<br />
Analyst, RBC<br />
Leon Aghazarian<br />
Analyst, National Bank Financial<br />
Stephen MacLeod<br />
Analyst, BMO<br />
Mark Petrie<br />
Analyst, CIBC World Markets<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
2
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
PRESENTATION<br />
Operator<br />
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to <strong>Dorel</strong><br />
<strong>Industries</strong>' first quarter results conference call.<br />
At this time, all participants are in a listen‐only mode. Following the presentation we will<br />
conduct a question‐and‐answer session. Instructions will be provided at that time for you to queue<br />
up for questions. If anyone has any difficulties hearing the conference, please press * followed by 0<br />
for operator assistance at any time.<br />
Before turning the meeting over to management, please be advised that this conference<br />
call will contain statements that are forward looking and subject to a number of risks and<br />
uncertainties that could cause actual results to differ materially from those anticipated.<br />
I would like to remind everyone that this conference call is being recorded on Thursday,<br />
<strong>May</strong> 9th, <strong>2013</strong>.<br />
I will now turn the conference over to Martin Schwartz, President and CEO. Please go<br />
ahead.<br />
Martin Schwartz –President and CEO, <strong>Dorel</strong> <strong>Industries</strong><br />
Thank you. Good afternoon, and welcome to <strong>Dorel</strong>'s first quarter conference call. Jeffrey<br />
and I will be pleased to take your questions following our initial comments. And a reminder that all<br />
numbers mentioned during this call are in US dollars.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
3
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
As anticipated, <strong>2013</strong> has started off slower than last year. Revenue in the first quarter<br />
decreased just over 4 per cent to 594 million; net income of 22.3 million or $0.70 per diluted share,<br />
compared to 29 million or $0.90 per diluted share a year ago.<br />
To say the weather through Q1 was a negative factor in the bicycle business is an<br />
understatement. And this had a big impact on the segment's operating profit. In the US, the March‐<br />
April period was the second coldest on record, and in Europe some regions had the coldest spring in<br />
50 years. And clearly, we were not the only ones affected. Bicycle sales in the industry's IBD and<br />
mass channels were down over 25 per cent in March. And again, these are industry numbers. This<br />
was in stark contrast to a year ago, when abnormally mild weather in March drove higher POS levels<br />
at retail.<br />
Operating profit for the quarter in Juvenile was also lower than last year due to challenges<br />
in the economy and consumer confidence in our more mature markets. However, controlled<br />
spending and enhanced gross margins eased the impact on earnings.<br />
Latin America as a whole recorded increased profits as <strong>Dorel</strong> Chile's revenues grew<br />
substantially and <strong>Dorel</strong> Brazil had its best operating results since 2010.<br />
Home Furnishing had one of its best quarters since 2011 with the earnings up substantially<br />
and the continued growth of online sales, where we are a leader.<br />
Now for some insight in our three segments. And Jeffrey will detail the numbers shortly.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
4
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
In Juvenile, we have a number of new products either just launched or set to go. The<br />
Safety 1st Advance 70 Air + announced last week is the latest offering from our Air Protect platform<br />
and is now in a mass merchant for an exclusive run of a few months. The convertible seat, which can<br />
be used in either rear‐facing or forward‐facing positions, incorporates our patented G‐cell race foam<br />
design which provides superior body protection. <strong>Dorel</strong>'s technical centre in Columbus, Indiana<br />
developed technology jointly with a group that specializes in safety features used in race car seats<br />
and driver helmets. Coupled with Safety 1st Air Protect for the child's head, Advance 70 Air +<br />
features full‐body protection. We are confident that this newest <strong>Dorel</strong> car seat is the safest choice<br />
for parents and caregivers for their child.<br />
The highly fashionable Quinny Britto, an upscale version of the Quinny Moodd, which was<br />
unveiled in the US last summer, has received considerable attention and has done well across the<br />
States and Canada. Based on this, it is now being introduced in Europe under the Quinny and Maxi‐<br />
Cosi brands.<br />
Also in Europe, a premium range of Bébé Confort baby bottles has been introduced, which<br />
is noteworthy as it increases <strong>Dorel</strong> Europe's footprint in the important feeding category.<br />
Our Latin American businesses continue to do well. At <strong>Dorel</strong> Chile's three new stores…<br />
three new store openings in Q1 bring our total store count to 73 with another three planned for<br />
during the year.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
5
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Since purchasing Cannondale in 2008, we have made significant investments in this<br />
premium brand, both in product development and in marketing. This has greatly enhanced<br />
awareness of the brand and has delivered excellent results. In terms of product development, we<br />
feel Cannondale has another big winner in the new 2014 Synapse Carbon Hi‐Mod. The Synapse is a<br />
showcase of next‐generation technology. It is the culmination of three years of development in<br />
which every aspect of performance was considered, including weight, stiffness, compliance,<br />
handling and fit. As a result, the 2014 Synapse is lighter, stiffer, stronger, and smoother than its<br />
predecessor.<br />
Input from our Cannondale pro cycling riders played a significant role in the development<br />
process of the bike. So far this season, Peter Sagan, with his Synapse Carbon Hi‐Mod, has competed<br />
in the <strong>2013</strong> Spring Classics, some of the world's toughest races. He has two wins and two podiums,<br />
the ultimate proof of performance for an endurance bike.<br />
Next week we are launching Cannondale Sports, a multi‐brand retail store. We see this as a<br />
testing ground for breakthrough retail experiences for independent bike dealers and as a flagship<br />
environment for the consumer. The store will feature products from Cannondale, GT, Schwinn, and<br />
Mongoose, along with Cannondale and Sugoi apparel and a full line of parts and accessories. We will<br />
also include the Guru Fit experience to improve customer performance.<br />
The impetus for Cannondale Sports started a while ago with the concept that the bicycle<br />
retailing experience can and should be re‐imagined for the modern, well‐informed consumer. The<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
6
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
first phase is a retail lab at Cannondale's Bethel headquarters to showcase new retail designs and<br />
merchandising for the IBD channel. More than 40 US dealers have had their stores remodelled as<br />
part of that program.<br />
The Cannondale Sports store now takes this to the next level by allowing us to get even<br />
closer to the consumer so we can understand exactly what our dealers want and need on a daily<br />
basis, essentially putting ourselves in their shoes. This will allow us to create a more compelling<br />
retail environment to test new and innovative retailing ideas and techniques, which we will then<br />
pass on to our IBDs.<br />
Cannondale Sports is a 4,200‐square‐foot store in Carle Place, New York, less than a mile<br />
from Roosevelt Field, one of the largest retail malls in North America. Schwinn is launching a TV ad<br />
campaign in the US as further support for the brand. Research has shown that consumers know if<br />
they are going to purchase a bike in the spring but are not sure which brand and where to purchase.<br />
The new Schwinn campaign coincides with <strong>May</strong> Bike Month and showcases the Schwinn<br />
collection, which is available at our retail partners. The ads started last week and will run for a<br />
month on national cable TV and will be supported by a social media campaign.<br />
Home Furnishings' solid quarter was driven to a fair degree by continued progress in online<br />
sales. The segment now has a dedicated team to service and further build relationships with the<br />
largest online shopping site, as Home Furnishing has had good growth with them over the past few<br />
months. Also working well is the segment's DSV, or the Drop Ship Vendor Program.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
7
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey will now add a more detailed financial perspective. Jeffrey?<br />
Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, <strong>Dorel</strong> <strong>Industries</strong><br />
Thank you, Martin. I'm going to assume everybody's seen the press release. I'm going to<br />
focus on the segmented results.<br />
On Juvenile, reported revenue decline was 5.3 per cent. After removing the effects of the<br />
Columbia acquisition in late 2012 and various foreign exchange rates year over year, the decline was<br />
about 7 per cent. Our operating profit in the quarter was down to 17.9 million versus 20.4 million. In<br />
Europe, the comparative quarter of 2012 was particularly strong and some timing of deliveries this<br />
year will push sales into the second quarter. So that's … that’s part of the reason for the decline.<br />
This, coupled with the fact that the economic conditions in Europe have not really<br />
improved any, that resulted in our revenue decreasing by about 8 per cent in Europe. Those are the<br />
two factors.<br />
In the US, our operating profit increased slightly due to a more favourable revenue mix<br />
versus the same period last year. In Latin America, strategy is definitely paying dividends, as Martin<br />
mentioned. Revenue growth was 37 per cent in the first quarter. The growth came from opening of<br />
more stores in Chile and Peru, the addition of <strong>Dorel</strong> Colombia, and a strong quarter from <strong>Dorel</strong><br />
Brazil, as it introduced more and more product lines that met with good reaction from the retailers.<br />
The segment's gross profit increased by 170 basis points to 29.2 compared to 27.5 last<br />
year, despite the decrease in revenue. So we're happy about that.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
8
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Our sales mix was better. We did a good job of managing our input costs, both in the<br />
United States and in Europe, and we were helped by some small foreign exchange variances in<br />
Europe as well.<br />
One of the other issues I wanted to talk about for the division is that we still remain very<br />
confident in Juvenile. We're starting to see more of a trend, at least for this year, of a strong fourth<br />
quarter versus perhaps other years, although last year we had a good fourth quarter. A couple of<br />
reasons for that: Chile, as one of our more profitable and fastest‐growing segments, relies a lot on<br />
its retail chains to produce profits, and clearly fourth quarter is definitely the quarter for retail. So<br />
we definitely see our numbers in Latin America skewed towards the fourth quarter.<br />
In addition to that, we've been hard at work introducing a lot of new products, particularly<br />
in the US. Last year, I think we've done a good job on a number of products. Martin mentioned the<br />
car seats. There was a lot of other products that we're showing to our various accounts right now.<br />
We believe a lot of them will be listed, and, if they are listed, they will be shipped in the month of<br />
either November or December. So that, you know, we're expecting some additional sales from new<br />
products, which will all go into the fourth quarter.<br />
So putting that all together, we're still on track to have a good year, despite a little bit of a<br />
slowdown in the first quarter, and we do still keep our internal numbers the same for Juvenile for<br />
<strong>2013</strong>.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
9
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Moving over to Recreation and Leisure, as you read in the release, our revenues were off<br />
last year by 7.9 per cent. The organic revenue decrease was around 8 per cent. Weather was by far<br />
the biggest factor, but to a certain extent, there was timing of deliveries between quarters, which<br />
also had an impact.<br />
In 2011 Q4, we had a relatively weak quarter and our goods that could have or should<br />
have been shipped in 2011 Q4 were shipped the first quarter of Q1 2012. So because of that, we<br />
had a very difficult comp, so that, you know, that was part of the reason. But the majority of the<br />
reason, without a doubt, was the weather.<br />
Gross profits decreased 130 basis points from 25 points… to 25.2 per cent from 26.5 per<br />
cent. The decrease in gross profits compared to last year is related to a less profitable product mix<br />
driven by sales heavily weighted towards lower‐end bicycles due to the late start of the season.<br />
In addition to that, some of the opportunity buys that we were able to sell during the last<br />
part of the quarter were lower‐margin products as the higher‐margin main in‐line products were<br />
already stocked and in stores waiting to be checked out.<br />
So the additional revenue that we used, or that we tried to push through the channel was<br />
at a lower margin.<br />
Over at Home Furnishings, Home Furnishings increased 3.6 per cent from 130.7 million to<br />
135.4 million this year. It was made up of various different channels. It was pretty well mixed. You<br />
know, a lot of it also, as Martin mentioned, came from the Internet sales channel.<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
10
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Consumer trend in furniture shopping clearly indicates that the Internet is becoming an<br />
important channel and home deliveries are becoming an expected part of the shopping experience.<br />
As a result, our Drop Ship Vendor Program continues to drive online sales significantly. Drop Ship<br />
basically means that our online retailers rely on us to fulfil the order and ship it straight to the<br />
consumer on the same day that we receive the order.<br />
Over the course of the past several years, we've focused on putting both the technology<br />
and the infrastructure in place to do that, and we're very pleased with the results that we have right<br />
now.<br />
Gross profit in ’13 was 13.4 per cent, an increase of 140 basis points over the 12 per cent<br />
last year. Input costs are stable versus last year. The operating profit increased 150 basis points due<br />
to the impact of increased revenues and a more profitable sales mix.<br />
A few general statements before I hand it back to Martin. Our tax rate was 9.6 per cent<br />
versus 14.3 the prior year. The main reason for that is again, lower earnings in the higher tax rate<br />
jurisdictions. We still expect our annual tax rate to be between 15 and 20 per cent as some of those<br />
higher tax rate jurisdictions start to increase their profits.<br />
On the balance sheet, just a few words about inventory. It did increase 17 million, or 3.5<br />
per cent. That is mainly in the Recreation and Leisure segment, as one can assume that, you know,<br />
we didn't push through all the bike sales that we wanted to right away. And so as of now that the<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
11
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
weather has broken, you know, those sales are going through. So inventory is coming down on bikes<br />
right now. And that's it.<br />
Martin Schwartz<br />
Okay. Thank you, Jeffrey.<br />
<strong>First</strong> quarter results do not reflect our expectations for the full year. With the bad weather<br />
hopefully behind us, both our bicycle retailers and us remain positive about our product offerings<br />
and fully expect sales to rebound and catch up with the improving weather. We have seen some of<br />
that rebound already in Europe and certain parts of North America. While weather remains a<br />
variable that is beyond our control, our market share is intact and growing. We still believe that our<br />
Recreation and Leisure segment will exceed last year's earnings.<br />
In Juvenile, our first quarter was as anticipated as the timing of sales was different from<br />
last year. With the new product launches and other plans, our expectations remain positive in<br />
Juvenile for improved <strong>2013</strong> earnings.<br />
In Home Furnishings, we have had a good start to the year and continue to benefit from<br />
our solid retail relationships.<br />
For the company as a whole, we expect our key input costs to remain stable in the<br />
foreseeable future, so we maintain our confidence that <strong>2013</strong> will exceed last year's overall results.<br />
I'll now ask the operator to open the lines for your questions. And again, please limit your<br />
questions in the first round to two. Operator?<br />
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript<br />
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »<br />
12
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Q&A<br />
Operator<br />
Thank you. Ladies and gentlemen, we will now conduct the question‐and‐answer session.<br />
If you have a question, please press * followed by the 1 on your touchtone phone. You will hear a<br />
tone acknowledging your request. Your questions will be polled in the order they are received.<br />
Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One<br />
moment, please, for your first question.<br />
Your first question comes from the line of Derek Lessard with TD Securities. Your line is<br />
open.<br />
Derek Lessard – Analyst, TD Securities<br />
Yes, thanks, and good afternoon, guys.<br />
I think a lot of people were caught by surprise by the magnitude of the weather impact on<br />
your bike sales. March last year was really strong. Just wondering what April and <strong>May</strong> was like<br />
compared to a normal year last year. Yeah, I guess what I'm trying to get at is, you know, in your<br />
experience, if you'd had a bad season, can you make up for it, or do you… or do purchases just get<br />
pushed out to next year? And what gives you the confidence that, you know, given that we still have<br />
a… we had a pretty cold April this year, that overall profits will be up?<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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13
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Well, yeah. I mean, definitely, I mean, the answer's pretty… you just have to look outside<br />
and read the weather reports. So yes, April was still a tough month, there's no question. <strong>May</strong>, on<br />
the other hand, is going very well.<br />
I think what gives us a lot of confidence that we're still going to improve, and you know,<br />
basically we have to catch up from the shortfall of Q1 and then go ahead throughout the rest of the<br />
year, is that a lot of our customers aren't giving up yet. And I'm talking about mass merchants right<br />
down to the IBDs that are saying they still are aiming to do the numbers that, you know, their<br />
original plans said.<br />
So nobody's panicking yet. I mean, it is certainly a challenge. I'm not going to say that<br />
we're going to do everything that our budget planned, but you know, we're definitely aiming and<br />
believe we're going to do better than last year.<br />
But you know, again, the weather is everything. I mean, right now we're, at least in the<br />
northeast, things are great. I mean, the bikes are checking out. In the last few weekends at some of<br />
our large mass market customers, they've had significant growth in sales versus last year. So it's all<br />
starting to roll.<br />
We have a lot… I think Martin talked about some of the ads and promotions we're doing<br />
with Schwinn. A lot of that's hitting in <strong>May</strong>. So <strong>May</strong> is a key retail sales month. So you know, if it<br />
starts to rain and gets cold again for the rest of <strong>May</strong>, that's going to be a real challenge. But if we<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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14
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
believe in, you know, if we believe that <strong>May</strong> is going to be good, I think, you know, we could make<br />
up a lot of ground over the next eight months.<br />
Derek Lessard<br />
Okay, and I guess just a follow‐up to that, are the dealers still trying to draw down their<br />
inventories, or are they ordering from you guys again? Like, have they been…<br />
Jeffrey Schwartz<br />
They are ordering now. In fact, our orders now are coming in above plan for <strong>May</strong>. But you<br />
know, that makes sense because they, you know, they didn't order that much in April, the dealers.<br />
The dealers' inventory levels were not abnormal. You know, they were high for the time. But<br />
basically, they weren't reordering until they started selling the goods. But now that the goods are<br />
selling, the reorders are coming in.<br />
Derek Lessard<br />
Okay. Thanks, guys.<br />
Operator<br />
Your next question comes from the line of Anthony Zicha, with Scotiabank. Please go<br />
ahead.<br />
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is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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15
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Anthony Zicha – Analyst, Scotiabank<br />
Hi, good afternoon. Martin, can you provide some colour on the weakness in Juvenile,<br />
maybe from the perspective of America? Like is there anything different, or have you seen or<br />
experienced any change in the competitive landscape?<br />
Jeffrey Schwartz<br />
Yes. I mean, it has been weak. I mean, we have to remember, if you go back to January,<br />
you had the tax refund issue in the United States where consumers weren't spending in January. So<br />
I'd say the overall market tends to be weak. We do have some of our competitors that are definitely<br />
gaining ground; others are losing ground. So I mean, that's certainly the case.<br />
You know, we haven't really gained any ground up until right now. But as Martin<br />
mentioned, we've introduced kind of a long‐awaited car seat just this week, hope to see it do well,<br />
and we have a lot of introductions scheduled for shipping at the… in Q4. So I think that's going to be<br />
the time that we see… We're talking about the US here.<br />
Anthony Zicha<br />
Mm‐hmm.<br />
Jeffrey Schwartz<br />
That's when we're going to see kind of a… hopefully a growth in the US.<br />
Anthony Zicha<br />
Okay. So you wouldn't expect much of a rebound in Q2, then?<br />
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is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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16
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Well, we had a decent Q2 last year in the US, so we're expecting another decent Q2 again.<br />
You know, versus the first quarter, yeah, we are expecting a rebound. But we had a good Q2 last<br />
year.<br />
Anthony Zicha<br />
Mm‐hmm, okay. My second question is despite the weaker sales in the quarter, the<br />
Juvenile segment improved their gross margins. You also cited like improved product mix. Is there<br />
any other explanation for the improvement? Is it sustainable?<br />
Jeffrey Schwartz<br />
Yeah, I think so. Yeah, it's definitely sustainable. I mean, that's the focus is particularly in<br />
the US where we're focused more on bringing up our margin than bringing up our top line. And you<br />
know, we've been… I think we've been successful there.<br />
Anthony Zicha<br />
Mm‐hmm.<br />
Jeffrey Schwartz<br />
So yeah, it's definitely, you know, providing we don't see any major changes in input costs,<br />
it is sustainable.<br />
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is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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17
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Anthony Zicha<br />
And what have been the trends that you've experienced?<br />
Jeffrey Schwartz<br />
In the input costs?<br />
Anthony Zicha<br />
Mm‐hmm.<br />
Martin Schwartz<br />
Input costs have been fairly stable to slightly down.<br />
Anthony Zicha<br />
Okay. So that could be a surprise if the costs trend downwards, and that should help, again<br />
improve profitability, right, Martin?<br />
Martin Schwartz<br />
Yeah, we're always working hard on getting costs down.<br />
Anthony Zicha<br />
Yeah. Okay. Well, thank you very much.<br />
Operator<br />
Your next question comes from the line of Tal Woolley, with RBC Capital Markets. Your line<br />
is open.<br />
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is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or<br />
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne<br />
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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18
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Tal Woolley – Analyst, RBC<br />
Hi. Good afternoon. Just wondering for the bikes business, when you get a bit of a squeeze<br />
early in the season on weather, is it fair to say, you know like your costs to sort of service sales with<br />
a narrower selling window, you know, would tend to be a little bit higher going forward, or you<br />
know, so more plainly, I'm asking like, you know, do you tend to have to burn a few more dollars<br />
trying to service accounts when the weather kind of works against you?<br />
Jeffrey Schwartz<br />
No, I don't think so. But I'll tell you the other thing that affected us, and I guess we didn't<br />
talk about it, was, you know, we came off of a great year last year and we increased our investment<br />
in the business for this year and expected to have, you know, a gain in sales, particularly on the IBD<br />
side. And we actually had a drop in sales, but we didn't… we weren't able to shut the tap off<br />
immediately on all the increased expenditures. So we ended up, as you can see in our line, our cost<br />
of SG&A is up in that area.<br />
So I mean, our costs are up, but they were supposed to be up, but we were supposed to<br />
get the sales to go along with it. I do believe those costs were well spent. You know, we like where<br />
we are market share wise. We have more distribution, we have great products out there. Our<br />
dealers are really happy and ready to go. They just … They just need the customer to come in the<br />
door.<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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19
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
But no, actually, you know, everything is… I don't know, so kind of seamless now with<br />
dealing with customers that I don't think there's an increase in costs at this point.<br />
Tal Woolley<br />
Okay. And just on the Juvenile side, I guess, you know, we're sort of like nine months out,<br />
or nine months out for the leadership change there. You know, you had the Investor Day last year<br />
where Jean Claude, you know, sort of spoke, but he was very early on in his role. I'm just wondering<br />
sort of as we approach like that first‐year anniversary, has there been any thought about, you know,<br />
what are the big, you know, changes that are coming as a result of, you know, his being… him being<br />
at the top of the organization for a year now?<br />
Martin Schwartz<br />
Yeah, I mean, yeah, it's a good question. Certainly there are a lot of what we'll call<br />
leadership sort of changes, a lot of bringing the company together to be a tighter group, more<br />
synergies. They're working on a lot of synergies. I think probably what we'll do is deal with this<br />
more, you know, at the end of Q2 when we get closer to that anniversary.<br />
Tal Woolley<br />
Okay.<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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20
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
You know, because things are still happening now. But that's kind of the goal. I mean, and<br />
we do see it in many cases where we're bringing, we've got stronger people in the right places now.<br />
There's a lot more work.<br />
Martin Schwartz<br />
Yeah. We're also working on a very, you know, a large, global platform for all our Juvenile<br />
businesses. You know, a single platform. And that seems to be coming along quite well.<br />
Tal Woolley<br />
Okay, that's great. We'll look forward to that. Thank you very much.<br />
Operator<br />
Your next question comes from the line of Leon Aghazarian from National Bank Financial.<br />
Please go ahead.<br />
Leon Aghazarian – Analyst, National Bank<br />
Hi. Thanks. It's a quick question regarding the inventory. You briefly mentioned it, Jeffrey,<br />
that the inventory level, you know, went up because there was a… I guess less sales than you were<br />
expecting in Recreation and Leisure. What's the inventory level that you're going to be comfortable<br />
with in Q2, I mean, assuming that there are, you know, more sales in Q2 than there were in Q1?<br />
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21
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Well, we expect inventories in the Recreation to go down as you get towards the month of<br />
June. There's no question about that. But that's also the time that Home Furnishing raises its<br />
inventory because back to school is a big season, and that starts July shipping. So I'm not sure the<br />
net effect of all of that together. Yeah. I mean, in the past we've actually gone up. In the past we've<br />
gone up in June.<br />
Leon Aghazarian<br />
Yeah.<br />
Jeffrey Schwartz<br />
I'm not sure we're going to go up as much because I think we'll be drawing down the bike<br />
inventory more than we normally do. So a little difficult to predict. I wouldn't… I wouldn't expect<br />
much of a drawdown, but it's going to transfer over to back‐to‐school goods.<br />
Leon Aghazarian<br />
Okay. That's helpful. And a final one from me. I guess to follow up to a previous question<br />
as well, regarding for the Juvenile, for a better sales mix, you were mentioning, you know, resulting<br />
in an increase in the gross profit. Can you be a bit more… can you give us a bit more colour on that?<br />
Were they higher price‐point products? Were they new products that you saw that you had success<br />
with, or at a given retailer, or just a bit more colour on that, please?<br />
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22
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
I think it's a lot of things. I think, you know, an example would be more sales of a highermargin<br />
product doing better at a retailer, perhaps getting more. If it’s at a mass merchant it would<br />
get more distribution and more stores. We've eliminated sales of a few items that were low margin.<br />
We've done a good job of purchasing, in many cases, where, you know, we've lowered costs<br />
because of purchasing. So I guess that would be a general thing. But you know, is there anything<br />
else?<br />
Yeah, I mean, you know, I think it comes down to not focusing on selling more, you know,<br />
higher‐margin products and not selling the low or zero‐margin products that maybe we have in the<br />
past. So I mean, it's just… it's a management focus that's been going on now for a couple of years.<br />
Leon Aghazarian<br />
Great. Thanks.<br />
Operator<br />
Your next question comes from the line of Stephen MacLeod with BMO Capital Markets.<br />
Please go ahead.<br />
Stephen MacLeod – Analyst, BMO Capital Markets<br />
Thank you. Good afternoon. Just on the recreational business, the steep decline in EBIT,<br />
was that mostly due to a lower mix of IBD, higher‐end sales?<br />
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23
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Not really, no. We actually… I mean, the slowdown in sales happened everywhere, right?<br />
Mass merchants as well put the brakes on at a certain point in March.<br />
No, I think the steep decline is a combination of a drop in sales from last year and an<br />
increase in spending based on the fact that we were expecting an increase in sales from last year. So<br />
you know, we spent a lot more than we should have, in a sense, but those were the investments we<br />
made in, you know, promoting the brand and, you know, in the Schwinn brand, in the Cannondale<br />
brand. And then the… we're up, you know, our expected sales number is up much more than, you<br />
know, the actual sales number from last year.<br />
Martin Schwartz<br />
You know, like I said, you know, like I said, we're opening up a new retail store, we've<br />
invested in the Guru, okay, we've invested in, you know, in the Cannondale pro racing scene. This is<br />
all us buying into the future. And we spent some of that money in the first quarter to strengthen our<br />
future down the road. This was all part of it.<br />
Stephen MacLeod<br />
Right, okay. I understand. Thank you. And then on Latin America, you mentioned in the<br />
Juvenile segment, so you said Latin America growth was about 37 per cent. Are you able to say how<br />
much of that was organic versus acquisition related?<br />
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contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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24
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
The actual growth in Latin America was… We'll get it to you. It's the majority of it.<br />
Stephen MacLeod<br />
Majority organic?<br />
Jeffrey Schwartz<br />
Yeah.<br />
Stephen MacLeod<br />
Yeah.<br />
Jeffrey Schwartz<br />
Yeah. I mean, because we grew it. We definitely grew in Brazil, Chile. I mean, yeah, we got<br />
a little bit from Colombia, but…<br />
Martin Schwartz<br />
Colombia only started the end of last year.<br />
Jeffrey Schwartz<br />
Yeah. So we only had… you know, it's not… It's still a small piece, Colombia.<br />
Stephen MacLeod<br />
Okay. And was Colombia, were sales from Colombia in line with kind of what the<br />
acquisition would have implied?<br />
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25
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Yeah, pretty much. I mean, you know, again, it's the first time you get it. I mean, we're still<br />
looking at it on the annualized basis. So yeah, I mean, it's a little… that part of the world's a little<br />
trickier to do your predictions, but we're not unhappy.<br />
Stephen MacLeod<br />
Right.<br />
Martin Schwartz<br />
We feel there's good potential there.<br />
Stephen MacLeod<br />
Okay. Okay, great. Thank you very much.<br />
Operator<br />
Your next question comes from the line of Mark Petrie, with CIBC World Markets. Your line<br />
is open.<br />
Mark Petrie – Analyst, CIBC World Markets<br />
Hey, good afternoon. I just wanted to follow up a little bit about your entry or growth in<br />
the feeding segment in Europe. How material is that business for you in Europe, and also in the US?<br />
And what do you think the growth opportunities are?<br />
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26
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Well, it's not in the US, first of all. It's a… it's not quite material yet in Europe. I mean, we<br />
do a nice business in France, and actually it's not brand new. We've kind of reintroduced the<br />
product line. We've been selling feeding for a long time in France and are one of the major players<br />
there. What we're looking to do is enhance the line and start to expand it outside of that market.<br />
But at this point, you know, in the global scale of a billion‐dollar company, it's not material.<br />
Mark Petrie<br />
Is there M&A there that is possible to accelerate that?<br />
Jeffrey Schwartz<br />
Possibly. That's, you know, one of the categories that has always kind of been on our<br />
radar.<br />
Mark Petrie<br />
Okay. And just regarding the dividend, and maybe if you can just talk about sort of, you<br />
know, priorities for cash and all that stuff, I think the dividend went up last year with the Q2 results.<br />
Is that going to be… I think you said you're going to be looking at it sort of on an ongoing basis. How<br />
should we think about it in terms of, you know, a guideline around cash flow or trailing earnings, or<br />
something like that?<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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27
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Well, it's the board's view, which I share, that we shouldn't be raising a dividend in a bad<br />
quarter. You know, some people could have the opposite view, that, you know, if you have a bad<br />
quarter, if you raise the dividend, at least you make some people happy. But I think our view is, you<br />
know, when everything's stabilized, we can look at it again. But I think it is our intention to seriously<br />
look at it every year and see if we can increase it. So you know, we'll definitely be looking at it again<br />
in Q2. But that's all I can commit to at this point.<br />
Mark Petrie<br />
You don't have any sort of targeted payout or anything like that?<br />
Jeffrey Schwartz<br />
No. No, we don't. We really don't, because you know what? There's still acquisitions out<br />
there that we've been working on. You know, we're always working on them. If something comes,<br />
then, depending on its materiality, that could affect how much the dividend is. But you know, we'll<br />
have to see as we get every quarter.<br />
Mark Petrie<br />
Okay. And how are you thinking about share buy‐backs right now?<br />
Jeffrey Schwartz<br />
Probably, you know, less important than the dividend. So you know, again acquisitions are<br />
important or paying down of debt. And you know, looking to see if we can increase our dividend is<br />
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28
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
probably a bigger priority than share buy‐back. But you know, that could change if there's weakness<br />
on the stock or something like that. But right now, that's sort of the last one.<br />
Mark Petrie<br />
Okay, thanks.<br />
Operator<br />
Your next question is from the line of Derek Lessard, with TD Securities. Please go ahead.<br />
Derek Lessard<br />
Hi, guys, just a question on your spend in the bike business. I mean, it is obvious that<br />
you're spending… you're spending money. You're all over the place in social media, the trade<br />
magazines, the Cannondale pro cycling team. Just when do you think that this is really going to start<br />
paying dividends for you? And secondly, when do you anticipate scaling all this back?<br />
Jeffrey Schwartz<br />
Well, I think it has paid dividends. I mean, up until this quarter, we, Cannondale branding<br />
has been incredible. You know, I mean, we've doubled sales on this brand. Our earnings are way,<br />
way up. So I think it's paid dividends. I mean, the timing, there's no question the timing's off this<br />
quarter. We weren't expecting bad weather, and didn't spend according to bad weather. So I think<br />
we believe had we had good weather, we would have been on plan and … and it would have been<br />
fine.<br />
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29
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
As far as tailing off, I mean, you can never, when you have a brand like Cannondale, you<br />
can't stop spending.<br />
Derek Lessard<br />
Okay.<br />
Jeffrey Schwartz<br />
You know, we might… we might reduce the growth over time because, and you know,<br />
that's a possibility. But we're not going to reduce the spending on the category.<br />
Martin Schwartz<br />
And also, social media costs are very minimum. So increasing, you know, we're going to be<br />
increasing focus that. But like Jeffrey says, you know, we just can't walk away from promoting the<br />
brand.<br />
Derek Lessard<br />
Okay, and fair enough. And just maybe an update on your… on the Guru Fit system and the<br />
pilot project, where you're at.<br />
Jeffrey Schwartz<br />
Well, it's going well. We've got 50 units out there. We're finding big success with a large<br />
group of them, and some of the dealers are not successful with it. And we're right now finding out<br />
the reasons why, and we're seeing… It's basically a behavioural issue on how some dealers use the<br />
product and others dealers. So we're taking the sort of best practices and implementing them on<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou<br />
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30
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
the less successful dealers, showing them how to become successful with the product. And at the<br />
same time, we're looking to roll out an expansion in Q4.<br />
Derek Lessard<br />
Okay, so how many more stores?<br />
Jeffrey Schwartz<br />
Haven't committed to that yet. We're working on a new model, like sort of a new<br />
generation…<br />
Derek Lessard<br />
Okay.<br />
Jeffrey Schwartz<br />
… of unit, and working on sort of the behavioural aspects of the retailers so that they<br />
understand how to, you know, get a better benefit from the product. But we've seen a significant<br />
number of very successful people who have increased their conversion rate, have increased their<br />
sales because of the product, who are really, really happy with it. So we want to take their practices<br />
and sort of share that with other dealers.<br />
Derek Lessard<br />
Okay, and one final question on the new car seat. I think you're going at it with an initial<br />
launch customer. When do you expect to roll it out, I guess, across the board?<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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31
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
In six months.<br />
Derek Lessard<br />
So by the… by Q4?<br />
Jeffrey Schwartz<br />
Yeah.<br />
Derek Lessard<br />
Okay. Thanks. Thanks, guys.<br />
Operator<br />
Ladies and gentlemen, if there are any additional questions at this time, please press the *<br />
followed by the 1. As a reminder, if you are using a speakerphone, please lift the handset before<br />
pressing the keys. Your next question comes from the line of Tal Woolley, with RBC Capital Markets.<br />
Please go ahead.<br />
Tal Woolley<br />
Thanks. Just wanted to follow up on the Advance Air + launch. It's more… it sounds like it's<br />
more of a technology launch that could maybe be scaled across multiple products?<br />
Jeffrey Schwartz<br />
Yes, of course.<br />
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32
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Tal Woolley<br />
Okay. So the… and then in Europe this quarter, obviously, you know, there was some<br />
weakness in the Juvenile business, but it sounds like, just to make sure I understand you clearly, you<br />
haven't really changed your internal sales plan much, so you don't really… it sounds like that's… you<br />
know, you see that, the decline, more as a… more as timing rather than any sort of broader issue<br />
related to Europe.<br />
Jeffrey Schwartz<br />
Pretty much that's it. Yeah.<br />
Martin Schwartz<br />
I mean, you know, we're down a little bit from our plan, but our plan… well, we're pretty<br />
close to the plan.<br />
Tal Woolley<br />
Okay.<br />
Martin Schwartz<br />
So you know, on the top line.<br />
Tal Woolley<br />
And then, you know, given the weather situation, I'm sure Sugoi's results this quarter<br />
weren't, you know, any better than the rest of the business. But just wondering if you can speak to<br />
sort of the turnaround efforts that continue there.<br />
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33
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Jeffrey Schwartz<br />
Yeah, they actually weren't… No, they weren't as bad as the bicycle end. They had their<br />
units in. I think fashion's a little different. You know, you've got to ship it in earlier. So you know, it's<br />
going well. You know, we're… we've definitely turned the business around, and now we're focused<br />
on increased sales. You know, the operations are running smoothly and they're running well, but<br />
now what we need to do to take it to the next level is increase the sales.<br />
Tal Woolley<br />
Okay, that's great. Thanks a lot, gentlemen.<br />
Operator<br />
Mr. Schwartz, there are no further questions at this time. Please continue.<br />
Martin Schwartz<br />
Okay. Well, I want to thank everybody for joining us this afternoon. There are many things<br />
underway in our various businesses, and we still expect full‐year earnings to exceed last year.<br />
I invite you to join us on <strong>May</strong> 23rd for our annual general meeting of shareholders to be<br />
held at the Montreal Ritz Carlton Hotel. The meeting begins at 10:00 in the morning, and we hope<br />
to see you there.<br />
Have a pleasant afternoon.<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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34
FINAL TRANSCRIPT<br />
<strong>May</strong> 9, <strong>2013</strong> – 01:00 p.m. E.T.<br />
<strong>Dorel</strong> <strong>Industries</strong> <strong>First</strong> <strong>Quarter</strong> Results<br />
Operator<br />
Ladies and gentlemen, this concludes the conference call for today. Thank you for<br />
participating. Please disconnect your lines.<br />
*****<br />
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liabilities which may arise out of or result from any use made of this transcript or any error contained therein."<br />
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35