Dorel Juvenile continues to gain market share and improve earnings
Additional financing options being explored
MONTRÉAL, Jan. 30, 2025 (GLOBE NEWSWIRE) -- Dorel Industries Inc. (TSX: DII.B, DII.A) today announced a significant restructuring of the Home segment. This strategic move is part of the Company's efforts to realign its business model to current and anticipated future industry dynamics and the reality that revenue expectations for the Home segment require a much smaller footprint than in the past. Given the importance of this restructuring, the update holds considerable relevance for both the upcoming fourth quarter results, to be released on March 11, 2025, and the expectations for the 2025 fiscal year.
Context and Background The furniture industry, like many others, has experienced significant changes since the end of the COVID-19 pandemic. During the pandemic, consumers’ renewed interest in their homes, aided by government stimulus money, kept furniture sales growth ahead of both disposable income and wages and salaries increases. This also attracted a flood of suppliers to the market who had short-term success selling directly to consumers via e-commerce channels.
Since then, the industry has struggled with supply chain uncertainty, inflation and higher interest costs which means consumers have de-prioritized spending on home furnishings. This has in particular impacted traditional North American furniture suppliers and retailers, resulting in a number of significant industry bankruptcies. Although the market is smaller today than it was during the pandemic, the current industry dynamic presents an opportunity for Dorel to succeed by focusing on its core competencies and its long-term relationships with retailers that sell moderately priced furniture. This requires adjustments to the Dorel Home business model and a reduction in overall footprint to achieve profitability.
Restructuring Initiatives In the third quarter of 2024, as part of its previously announced restructuring plan the Company initiated the closure of an RTA manufacturing facility, in Tiffin, Ohio, with all production being assumed by facilities in Cornwall, Ontario. This plan is already in place with the benefits expected immediately in 2025. In addition, the Company is announcing today, as part of an expanded restructuring plan, the following initiatives:
Downsizing of non-manufacturing workforce
Closure of manufacturing operations based in Montreal, Quebec
Acceleration of a SKU reduction initiative
Distribution footprint reduction
Following the announcement of the Tiffin factory closure, considerable progress has been made towards consolidating operations into a single facility. As of today, the equipment transfers and facility upgrades at Cornwall have been mostly completed. Additionally, we have implemented management improvements, including the filling of key management positions. We are already benefitting from this decision and with an anticipated increase in orders, these benefits will increase as we ramp up production.
The workforce reduction was completed in the fourth quarter of 2024 and will reduce the size of these functions by 30%, resulting in one-time severance costs of approximately US$4 million, with the majority being paid out over the course of 2025.
Production at the Montreal manufacturing facility is expected to cease before the end of the first quarter of the current fiscal year. Over time, this facility had become dedicated exclusively to mattress production. Alternative supply sources have already been identified to ensure seamless fulfillment of existing customer orders and to provide a reliable source for future business needs. This change is a significant step towards achieving the overall footprint reduction target for the segment.
The proliferation of the number of SKUs that occurred in the past to service e-commerce has created a larger than necessary warehousing footprint, principally in the United States. With brick-and-mortar now playing a more important role in the Home segment’s channels of distribution, the focus in 2024 was to reduce the number of SKUs targeted for e-commerce, which is expected to reduce warehousing in the U.S. by approximately 1.2 million square feet by the fourth quarter of 2025. Dorel Home will continue to serve its customers and DTC consumers from both West Coast and East Cost warehouses, providing coverage for all U.S. based sales. In Canada, a warehouse will also be maintained to service all Canadian sales.
The cash cost of these initiatives is estimated at US$9 million, the majority of which will be paid in 2025. Over and above this cost, non-cash write-offs and accelerated depreciation of assets accounted for in 2024 are estimated to be an additional US$9 million. The savings from these initiatives began in 2024 and are expected to continue into 2025. The Company believes that the full benefits of these actions will be realized in 2026 with an expected improvement in earnings of up to US$40 million.
Beyond achieving cost reductions, the Home segment is concentrating on leveraging its previous successes with traditional brick-and-mortar and omni-channel retailers. Dorel's capability to offer real-time customer service and maintain required in-stock levels for these retailers sets the segment apart from its competitors. With a leaner and more agile organization, coupled with a reduction in the number of SKUs, the Home segment is poised to benefit from enhanced manufacturing efficiency at the RTA factory in Cornwall, Ontario. Additionally, the Home segment will focus on selling new, innovative imported items with higher profit margins. Lastly, prioritizing fewer but more successfully licensed brands, such as Novogratz, will enable better allocation of targeted marketing expenditures to drive sales and enhance both revenue and profitability.
Management Changes In January, Troy Franks assumed the role of Chief Executive Officer of Dorel Home. Troy returns to Dorel after an absence of one year after having spent 16 years at Dorel Home, most recently as President of Cosco/DHP. Troy will replace Norman Braunstein as CEO who will retire after having served Dorel for almost 22 years. Dorel thanks Norman for his years of invaluable service and looks forward to Troy leading the Home segment going forward.
Dorel Juvenile Dorel Juvenile is projected to achieve better earnings in 2024 compared to the previous year. This improvement is driven by a robust product pipeline and evidenced by market share gains in all major markets. This is expected to continue into 2025 with more industry-leading new product launches to follow on the success of those introduced in 2024.
The strength of the U.S. dollar against most major currencies in the fourth quarter of 2024 affected earnings expectations for the quarter. If exchange rates stay at current levels, this will be a short-term challenge for the Juvenile segment until the market adjusts. However, it is anticipated that new products introduced in 2024 and those expected in 2025 will continue to drive market share gains without slowing current momentum.
Financing Update Management is actively working on securing new financing solutions to improve liquidity to fund the growth of Juvenile and the turnaround of Home. Dorel will update the market on progress when there is a material development.
Board of Directors Changes In December 2024, Alain Benedetti resigned from Dorel’s Board of Directors after 20 years of service. Dorel thanks Mr. Benedetti for his valued contribution to the Board. To maintain a majority of independent directors on the Board, Alan Schwartz has also stepped down as a director but will continue as Executive Vice-President of Operations.
Profile Dorel Industries Inc. (TSX: DII.B, DII.A) is a global organization, operating two distinct businesses in juvenile products and home products. Dorel’s strength lies in the diversity, innovation and quality of its products as well as the superiority of its brands. Dorel Juvenile’s powerfully branded products include global brands Maxi-Cosi, Safety 1st and Tiny Love, complemented by regional brands such as BebeConfort, Cosco, Mother’s Choice and Infanti. Dorel Home, with its comprehensive e-commerce platform, markets a wide assortment of domestically produced and imported furniture. Dorel has annual sales of USUS$1.4 billion and employs approximately 3,900 people in facilities located in twenty-two countries worldwide.
Caution Regarding Forward-Looking Statements Certain statements included in this press release may constitute “forward-looking statements” within the meaning of applicable Canadian securities legislation. Except as may be required by Canadian securities laws, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties, including statements regarding the impact of the macro-economic environment, including inflationary pressures, changes in consumer spending, exchange rate fluctuations, the possible imposition of tariffs, and increases in interest rates on the Company’s business, financial position and operations, and are based on several assumptions which give rise to the possibility that actual results could differ materially from the Company’s expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. As a result, the Company cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits the Company will derive from them. Forward-looking statements are provided in this press release for the purpose of giving information about management’s current expectations and plans and allowing investors and others to get a better understanding of the Company’s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.
Forward-looking statements made in this press release are based on a number of assumptions that the Company believed were reasonable on the day it made the forward-looking statements. Factors that could cause actual results to differ materially from the Company’s expectations expressed in or implied by the forward-looking statements include:
general economic and financial conditions, including those resulting from the current high inflationary environment;
changes in applicable laws or regulations;
changes in product costs and supply channels, including disruption of the Company’s supply chain resulting from the macro-economic environment;
foreign currency fluctuations, including high levels of volatility in foreign currencies with respect to the US dollar reflecting uncertainties related to the macro-economic environment;
possible imposition of tariffs on goods imported into the United States;
customer and credit risk, including the concentration of revenues with a small number of customers;
costs associated with product liability;
changes in income tax legislation or the interpretation or application of those rules;
the continued ability to develop products and support brand names;
changes in the regulatory environment;
outbreak of public health crises, such as the COVID-19 pandemic, that could adversely affect global economies and financial markets, resulting in an economic downturn which could be for a prolonged period of time and have a material adverse effect on the demand for the Company’s products and on its business, financial condition and results of operations;
the effect of international conflicts on the Company’s sales, including the ongoing Russia-Ukraine war and a possible resumption of the Israeli-Hamas war;
continued access to capital resources, including compliance by the Company with all of the covenants under its ABL facility and term loan facility, and the related costs of borrowing, all of which may be adversely impacted by the macro-economic environment;
failures related to information technology systems;
changes in assumptions in the valuation of goodwill and other intangible assets and any future decline in market capitalization;
there being no certainty that the Company will declare any dividend in the future;
increased exposure to cybersecurity risks as a result of remote work by the Company’s employees;
the Company’s ability to protect its current and future technologies and products and to defend its intellectual property rights;
potential damage to the Company’s reputation; and
the effect of climate change on the Company.
These and other risk factors that could cause actual results to differ materially from expectations expressed in or implied by the forward-looking statements are discussed in the Company’s annual MD&A and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors set out in the previously mentioned documents are expressly incorporated by reference herein in their entirety.
The Company cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may also have a material adverse effect on the Company’s business, financial condition, or results of operations. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
CONTACTS: Dorel Industries Inc. John Paikopoulos (514) 934-3034
Dorel Industries Inc. Jeffrey Schwartz (514) 934-3034
