08/09/2013 01:30 EDT | Updated 10/09/2013 05:12 EDT

Dorel hopes bike business will regain stride after Q2 sales hurt by poor weather

MONTREAL - Dorel Industries expects that cutting costs will help the bicycle manufacturer to recover from disappointing second-quarter results caused by spring snow and poor weather that hurt sales.

Its shares fell more than 10 per cent on the Toronto Stock Exchange on the results, losing $3.70 at C$33 in midday trading on Friday, although they remained above the 52-week low of $27.76 set about a year ago.

"There is no doubt that the second quarter was a bad quarter," president and CEO Martin Schwartz said Friday during a conference call.

"This is now behind us and we are confident that going forward things will get back to normal and we will return to traditional levels of profitability."

The company (TSX:DII.B), which reports in U.S. dollars, said it earned US$13.2 million or 41 cents per share during the three months ended June 30. That compared to 95 cents per share in the prior year on $633.7 million of revenues.

The company was expected to earn 87 cents per share on $639 million of revenues, according to analysts polled by Thomson Reuters.

Revenues dropped five per cent to US$600.4 million due to poor weather that prompted deep bike discounting and continuing difficult economic conditions affected its juvenile products division.

Analyst Mark Petrie of CIBC World Markets said the results were disappointing.

"The company had warned of weakness in its bike business, though conditions were even tougher than we expected," he wrote in a report.

The company said poor weather reduced bike sales and prompted deep discounting by competitors hurt its recreation and leisure segment's operating profit and revenues. The division earned $3.7 million compared with $21.6 million a year earlier on a 5.4 per cent dip in sales to $238.2 million.

While the results were down, Dorel said it outperformed the bike industry, which suffered a 6.8 per cent drop in sales.

"Our brands remain strong and we are still gaining market share," he said, adding that Peter Sagan's green jersey win in the Tour de France for a second year is attracting interest and sales for its Cannondale brand and other labels.

While most bike markets were down, Britain was also up double-digits on improved weather from last year and fan interest prompted by racing success of British riders.

In addition to weak sales and discounting, Dorel was hurt because its administrative spending was set for an expected double-digit increase in sales.

A pull-back in such spending wasn't done quickly enough to help the second-quarter results, but should help future quarters especially if it has a small rebound in sales, chief financial officer Jeffrey Schwartz said.

"The key element to the recovery in the second half is going to be spending that is in line with the current level of sales and margin," he told analysts.

Dorel is also removing the model year from some of its bikes as competitors have done to limit the pressure to cut costs to reduce inventories.

Jeffrey Schwartz hopes sales will get a boost in the second half of the year from customers who have put off planned upgrades because of the poor weather.

The company's juvenile segment's profit fell to $15.8 million from $17.1 million in the second quarter of 2012 on weaker results in Europe and the United States due to economic conditions that reduced sales.

The home furnishings business's operating profit increased 7.5 per cent to $7.2 million on $118.9 million of revenues.

Dorel said its Latin American operations saw sales increase by 35 per cent, fuelled by four new juvenile products retail stores being added in Peru and Chile, raising the total to 76.

"This region continues to hold important potential for us. We believe that given our strong position in our mature market going in Latin America is critical to our long-term success and we will continue to see opportunities there," Martin Schwartz said.

The company manufacturers a number of children's products under the Safety 1st, Quinny, Cosco, Maxi-Cosi and Bebe Confort brands, while its bikes and related products include brands such as Cannondale, Schwinn, GT, Mongoose, IronHorse and Sugoi.