BUSINESS

Dorel to sell its high-priced bicycles this summer to China's wealthy set

05/11/2012 03:47 EDT | Updated 07/11/2012 05:12 EDT
MONTREAL - Dorel Industries hopes to add some high-priced bicycles to China's busy streets by selling its premier Cannondale and GT brands to the country's wealthiest set.

The bikes, which sell for thousands of dollars, will be available this summer.

"The bikes that are on the streets today are like tools, they're local transportation," CEO Martin Schwartz said Friday during a conference call about its first-quarter results.

Dorel (TSX:DII.B) is instead appealing to wealthy urban Chinese residents who drive costly vehicles like BMW, Mercedes and Bentley.

"These are the type of people who are buying bikes in our price range. So there's a very big market for it."

The foray into the world's most populated country is three years in the making. The Montreal-based company wouldn't provide any sales forecasts but said the build-up in sales could take several years.

Acceptance by bike dealers at a recent trade show in Shanghai was very promising, Schwartz told analysts.

It is working with a network of independent bike dealers or very small bike chains to carry the Cannondale and GT brands to compete with global rivals already selling in China.

"It's very similar to the way we operate in North America and Europe and pricing will be in line with the rest of the world."

Dorel, which reports in U.S. dollars, said its recreation and leisure segment posted its best performance in the first quarter since the company entered the bike business in 2004. It earned $21.4 million on $220.9 million of revenues. That compared to $17.8 million on $200.4 million of sales a year earlier.

The improvement was helped by strong sales to independent bike dealers in the United States, Europe and Japan. Favourable weather also drove demand for its lower-priced mass market offerings.

Despite the performance of this segment, the maker of bikes and other products for children missed expectations by reporting a 6.4 per cent drop in first-quarter profits to $29.2 million despite higher revenues. It earned 91 cents per share for the period ended March 31. That compared to 94 cents per share or $31.2 million a year earlier.

Schwartz noted that the results had to compare with a particularly strong first quarter last year, even though subsequent periods made it a tough year overall for Dorel.

"While the start of the year is not equal to last year's strong first quarter, we have seen continuing improvement over what was a tough 2011."

Overall revenues increased 2.2 per cent to $621.1 million from $607.8 million in the year-ago period.

The company was expected to earn $1.08 per share on $636 million of revenues, according to analysts polled by Thomson Reuters.

Dorel said momentum is returning to its juvenile segment that makes car seats and other child products as the quarterly results were the best in a year.

Segment operating profits decreased to $206.7 million from $236.7 million a year ago on flat sales of $269.5 million.

Excluding the impact of acquisitions and currency, sales were down four per cent mainly due to declines in the U.S. business, which were nonetheless 10 per cent higher than the fourth quarter.

But Schwartz said the segment is moving in the right direction.

"We're more encouraged about our U.S. juvenile business and must continue to work hard to make it better," he added.

Schwartz noted the economies in many European countries are weak and conditions are uncertain following recent elections in France and Greece.

The addition of operations in Chile helped Dorel to boost the percentage of juvenile sales outside core bases in North America and Europe to 15 per cent, from 8.5 per cent a year ago.

Home furnishing operating profit fell to $5.8 million from $7.8 million last year as revenues decreased five per cent to $130.7 million.

Leon Aghazarian of National Bank Financial said the performance of the bikes division was "the only clear positive" in a disappointing quarter.

Dorel has some 5,000 employees in 22 countries worldwide.

Its juvenile brands include Safety 1st, Quinny, Cosco and Maxi-Cosi, while it sells bikes under the Cannondale, Schwinn, GT, Mongoose and IronHorse marks.

On the Toronto Stock Exchange, Dorel's shares fell 7.5 per cent, losing $2.17 to C$26.63 in Friday afternoon trading.