Dorel Industries has announced that the impact of increased US imposed tariffs, as well as a review of the preliminary third-quarter results, has prompted Dorel’s board of directors to suspend its dividend.
The dividend declared on 2nd August 2019 is not affected and will be paid on 2nd October 2019. This past May, a second round of increases on Chinese imports, including furniture, bicycles and other goods, brought tariffs to 25%. This is having a much greater impact on the business than the original implementation of 10% introduced a year ago, it has said.
“The impact of the increase on Dorel businesses was still unclear at the end of the second quarter,” said Dorel president and CEO Martin Schwartz. “We raised prices midway through the third quarter and this has had several negative consequences.
“Not all competitors nor retailers raised prices at the same time or rate. Retailers have also changed their buying routines. New price points have caused some consumers to opt for different items creating a considerable product mix imbalance.
“As well, elevated warehousing costs are still being incurred as the shift in demand has delayed our inventory balancing program. The net result of these challenges is that Dorel Home’s expected gross margin improvement from first-half levels will be delayed to the beginning of 2020.”
Another factor affecting the third quarter is that some of Dorel’s large US customers have delayed Christmas 2019 deliveries to the beginning of the fourth quarter, it added. In addition, the recent rise in value of the US dollar has had a negative impact on Dorel’s Sports and Juvenile segments as major currencies that affect Dorel’s financial results dropped between 3% and 8%.
Tariffs have also impacted Dorel Sports’ mass merchant business. Although sales have remained strong, the mix has been negative, and gross margins are lower. Sales in the independent bicycle dealer and sporting goods channels have remained strong and the outlook remains positive.
“It is prudent to suspend the dividend until the chaotic market conditions created by tariffs are normalized,” concluded Schwartz.
Dorel further announced that it has amended its senior secured revolving credit facilities and term loan. The amendment is intended to facilitate compliance by Dorel with its financial covenants under the credit facilities.