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Dorel must dispose of its stocks acquired at high prices during the pandemic



Dorel has not come to the end of its struggles with supply chain difficulties. Customers of the children’s furniture and products maker paused orders in the third quarter because they had too many items in stock.

“Everyone wants to get rid of their items before buying others,” said chief financial officer Jeffrey Schwartz during a call to discuss the latest quarterly results on Friday.

The pandemic has brought many logistical headaches for Montreal society. She first had to deal with delivery times and rising transportation costs. In response, retailers have stockpiled too many items at a time of growing fears of an economic downturn.

Asked by an analyst if the worst was behind the company, Schwartz warned that the fourth quarter would also be difficult, but he said he was hopeful that conditions would improve in the longer term.

“Things will not be better in the fourth quarter, because we will still have to dispose of our inventories acquired at a high price,” replies the chief financial officer. The good news is that costs are falling for raw materials, finished products and transportation. When we no longer have our old inventories, it will be good for margins. »

In the Home segment, gross margin was 4.8% in the third quarter, compared to 10.6% in the same period last year. In the children’s products segment, the gross margin fell from 23.3% to 16.1%.

The recession raises concerns for the manufacturer, but the leader believes that the company is doing better in an economic downturn than in an inflationary one.

“It’s not good for Dorel to see costs constantly rising and having to ask consumers to pay more for the same products. It’s not working well for us. It’s better when our costs go down and the margins are higher, even if the demand is more modest. »

Mr. Schwartz added that sales in the juvenile product segment generally hold up well in recessionary times. The company also offers lower-priced furniture and consumers tend to gravitate towards this range more during economic downturns.

In the third quarter, Dorel announced a net loss of 36.7 million US, less than the loss of 68 million US for the same period last year. Revenues, for their part, reached 374.1 million US, a decrease of 14.4% compared to the same period last year.

The fall of the euro and the pound sterling also represented a headwind for the company. Management mentioned that the economic environment was particularly gloomy in Europe.

The stock was down 21 cents, or 4.06%, at $4.96 at the end of trading on the Toronto Stock Exchange.

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