Dorel Industries Inc.

Thank you for standing by. Welcome to the Doral Industries first quarter 2023 results conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference is being recorded today, May 5th, 2023. I will now turn the conference over to Martin Schwartz, President and CEO. Please go ahead.

Good morning, and thank you for joining us for Darrell's first quarter earnings call for the period ended March 31st. With me are Jeffrey Schwartz, CFO, and Frank Grano, VP of Finance. We'll take your questions following our comments. Again, all figures mentioned during this call are in U.S. dollars. Our first quarter was another challenging one for sales, as retailers refrained from reordering, focusing instead on trying to lower their excess in high-cost inventories. Order replenishment was not the only thing affecting the top line. Consumers were forced to make purchasing choices for more essential goods due to inflation, which limited disposable income. This was particularly the case for Dorel Home. While there was also market weakness in the overall juvenile products industry, I'm pleased to say that Dorel Juvenile has been able to grow with continued market share gains in many of our categories. As we announced, Both Juvenile and Home were hit by a late quarter network security incident, which prevented shipping for up to two weeks in some locations. The two segments combined, this resulted in a reduction in sales and net income of $13 million and $4 million, respectively. To be clear, we are now fully operational. Specifically, as concerns each of our businesses, let's first look at Juvenile. We are very upbeat there and expect a positive turnaround starting as soon as this month, as we have introduced some of our best new Juvenile products in years, with several more to come. Innovation is very much in evidence. In Europe, Maxi Cosi's 360 Pro Family, one of Dorel's most important introductions in a long time, was shipped in early April, with additional significant shipping scheduled throughout its quarter. The 360 Pro is truly a family of products, including the Pebble 360 Pro, a new infant car seat, the Family Fix 360 Pro, a new rotative ISOFIX base, and the Pearl 360 Pro, a new toddler seat. The product line features Dorel's revolutionary SlideTech technology, a new era of design and safety. This is a range of world-first comfortable ergonomic car seat solutions with a base that can both rotate and slide toward parents. By making it easier than ever to secure children safely and comfortably in the car, the 360 Pro family sets a new standard in car seat innovation. With COVID restrictions behind us, Dorel Juvenile has been attending juvenile product shows and numerous sales events across Europe. The response to the 360 Pro has been nothing less than spectacular, with hundreds of orders to date. Not to be outdone, in the US, shipments also began of the new safety-first turn-and-go 360 rotating all-in-one convertible car seat, and the turn-and-go 360 DLX rotating all-in-one convertible car seat. These two new models feature innovative safety swivel, 360-degree rotational technology that allows the car seat to turn easily, bringing parents and caregivers face-to-face with their children while getting them in and out of the car. They now have the flexibility to choose the side of the car in which to install the turn-and-go, which is another plus. North America's premier show, ABC Kids Expo, took place earlier this month in Las Vegas. Durrell highlighted some of its best new products with a press event on opening day. Media pickup was excellent. The Durrell Juvenile booth was the busiest packed throughout the two-day show. Many in attendance commented that it was the best new product lineup they've seen in many years. What was particularly satisfying was how excited our people were seeing firsthand how all their hard work and effort is paying off. In short, this is a great deal of optimism. This round of new products is hitting the mark with customers much better than we have seen in a long time. We're definitely starting to see the needle move at Juvenile. Juvenile's cost base has also stabilized, and FX is currently much less of a concern. At the REL home, it was a tough quarter with a challenging climate as sales continue their downward trend in several categories, both in-store and online. The two key issues were homes, customers still reducing their internal inventories, and the weaker demand from consumers. The push continues to bring sales volumes back up, which will also ease the negative factory overhead absorption issue. Progress has been made bringing operating costs down continued headcount reduction and expense controls. We can now say there is some light at the end of the tunnel. Notwithstanding some lingering issues with retailers, notably inventory and staffing shortages, buyers are finally starting to talk about new products, and they are starting to slowly reorder. There was excellent representation of the top 100 furniture stores visiting Dorrell Homes booth at the April High Point Furniture Show. As well, fresh new looks and new advertising strategies are being introduced to invigorate the segment's many brands, which have done well over recent years. There are additional bright spots with a number of opportunities for increased business expected to materialize by the second half this year and improve homes' volumes, particularly at their domestic facilities. Dorel's outlook included in our year-end March release remains much the same. The retail environment in the U.S. has not materially changed, and substantial orders from our retail partners have not yet picked up, especially Dorel Home. While Dorel Juveniles slightly underperformed, market share gains and the extremely well-accepted new product announcements led us to be optimistic about a quick turnaround. The network disruption dampened early April's juvenile sales, but May and June look strong. We expect the strength to continue for the balance of the year based on our latest product portfolio and a stable cost environment and to translate into profits beginning this month. At the REL Home, we are encouraged by the latest order levels. As well, their inventory average cost was lower as the quarter began. However, we do not see them returning to operating profit until at least the third quarter. Inventory reductions above our segments was good during Q1, generating over $50 million in cash. This had the double benefit of moving out higher-cost goods and strengthening our balance sheet. Going forward, we have newer, lower-cost inventory, and our gross margins are expected to improve. Q1's positive currency and cost environment is expected to remain unchanged and will also contribute to better earnings. I thank our entire organization for their genuine efforts on turning around our business and look forward to better results ahead. I will now ask Jeffrey to review the financials.

Thank you, Martin. As everybody knows, this was a pretty tough quarter. The numbers are not very nice to look at. I'm going to go through them quickly, and we can talk a little bit about our outlook. For the quarter, revenue was down by about $95 million, or 22.2%. Organic revenue declined by about 21% after removing the variations on foreign exchange. The revenue and organic revenue declines were in both segments. In home, the revenue and organic revenue declines were in all divisions. And again, mainly explained by a lower overall demand from consumers and probably more importantly, retailers continuing to reduce their high inventory, whether it be online companies or even in-store companies. the brick and mortar companies. In juvenile, the revenue, organic revenue decline was mainly in the U.S. And again, a lot of that was caused by the incident that we had. In addition, you know, like we said, the first quarter was hit by that $13 million revenue security incident. Gross profit for the first quarter declined 25.5% or 35%. 25.5 million or 35 percent gross margin for the quarter declined by 290 basis points uh as a percent of revenue to 14 over 16.9 uh the decline was in both um home and juvenile a home was you know the big bigger culprit uh gross profit was down uh primarily to uh Factory overhead absorption, we're just not putting enough volume to the factories to get that number where we want it to be. In juvenile, the decline was, again, just a little bit of reduced volume. But we did have some favorable foreign exchange and some favorable absorption as well in the U.S. The loss for the quarter was $28 million compared to $15.5 last year. And like I said, not something we're very happy with. Finance expenses decreased by $6.4 million to $6.2, but that's mainly explained by a prepayment fee we had last year on the reimbursement of a senior unsecured note of about $6.4 million. And during the quarter, the net loss from continued operations is $31.5 million, $0.97 per share, compared with $27.2 or $0.84 per share last year. We move over to the home segment. Again, not pretty numbers here. Revenue declined by $78 million or 37%. Organic revenue declined by 36.7%. The decline in revenue in the first quarter, which represents the second sequential quarter of a marked decline, really comes down to two main reasons. Softer demand from consumers coming off of their COVID sales surge, as well as, importantly, the continued destocking of retailers' inventory, which surged in the mid-2022. Gross profit for the quarter was decreased by $21.3 million. Growth margins only showed up at 1.4% for the quarter. And again, primary reason was the impact of a lower domestic manufacturing activity from lower sales that led to factory and warehouse overhead absorption issues. The operating profit declined by 19.4 million for the quarter to an operating loss of 13.9 million. versus a profit of 5.5 last year. Over in juvenile, the revenue declined with 16.5 million. More than half of that was from the closing down of shipping in the last three days of quarter. From the security incident, organic revenue declined by 5.6% after removing the foreign exchange impact. The declines, you know, we had most of the declines in the U.S. However, we did see some improvements in Europe, which is important for us. And in fact, Europe, despite having a security incident, they were able to improve their sales. That's great. Gross profit declined by 4.2 million or 8.6% compared to last year. Gross margins were 22.4, only down 20 basis points from 22.6. And the operating loss is 8.9 this year compared to the operating loss of 12.5 last year. Excluding restructuring costs, the operating loss declined by 1.1 million to 8.9 from the 10 million last year. A couple of notes on the balance sheet. We decreased our inventories by $47.9 million. That happened in both segments. Compared to the end of last year, we also decreased our long-term debt by $20 million. And cash flow provided by operating activities in the quarter was $37 million. this year compared to a usage of about 100 million last year when we were building up our mentors. And with that, I will pass it back to Martin for questions.