(Montreal) Sales at furniture and children’s products maker Dorel Industries tumbled more than 20% as retailers cut back on orders to clear overstocked stocks.
Chairman and CEO Martin Schwartz admitted fourth quarter results were “disappointing” during a conference call with analysts.
He pointed out that the situation was particularly difficult in the Home segment where sales fell 34.4% to 151.3 million US. “Our major retail partners continue to reduce orders due to high inventories,” says Schwartz.
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.
The liquidation of inventory acquired at high prices during supply chain disruptions puts pressure on the company’s profitability. The division’s operating loss widened to US$18.3 million from US$4.3 million in the same period last year.
This “temporary” situation has been particularly difficult in the US, while management says the trend is improving in Europe. “Major retailers in the United States had a desire to reduce inventory and keep less of it in the future,” says CFO Jeffrey Schwartz. It was the holiday season and I believe many of them prioritized Christmas items due to limited space. »
The finance chief believes the situation is temporary while major US retailers have “put their house in order”. He hinted that the situation could improve from the second quarter and that the company would be able to generate earnings before interest, taxes, depreciation and amortization (EBITDA) in 2023.
“We have reduced our inventory, so I would say that the situation should probably improve from the second quarter. We are a bit more bullish on children’s products. I would say a little later in the second quarter for furniture. »
Martin Schwartz also pointed out that Dorel has taken significant steps to reduce costs in the furniture manufacturing business. He estimates that the measures taken will reduce expenditure by nearly 13 million US dollars in 2023.
Losses increase
In the fourth quarter, the Montreal-based company reported a loss of US$41.4 million, which compared with a loss of US$29.6 million for the same period a year earlier.
Adjusted diluted loss per share was US$1.22, compared to a loss of 37 cents. Revenues, for their part, fell 21.8% to US$340.3 million.
Prior to the earnings release, analysts had expected a loss per share of 75 cents and revenue of $406.6 million, according to data firm Refinitiv.
On Tuesday, Dorel’s stock fell 3 cents, or 0.7%, to $4.35 on the Toronto Stock Exchange around noon.
