Dorel Industries Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Durell Industries' third 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. To join the question queue, you may press star and then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. 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 call is being recorded today, November 3rd, 2023. I would now like to turn the call over to Martin Schwartz, President and CEO. Please go ahead.

Okay. Good afternoon, and thank you all for joining us for Dorrell's third quarter earnings call for the period ended September 30th. Joining me are Jeffrey Schwartz, CFO, and Frank Renna, VP of Finance. We'll take your questions following our comments, and all figures mentioned during this call are in U.S. dollars. Durrell Juvenile delivered double-digit revenue growth and an impressive turnaround in earnings. Their new products are clearly winning with consumers, and our business is gaining market share in an industry that is down from last year. Durrell Home's revenues continue to improve for the third quarter with positive indicators at brick and mortar. Considering the continuing challenges for consumer product companies, I'm pleased to say that our two segments are navigating positively through, though we recognize the need for continuing improvement. A further positive is that retailers selling our products now have far less inventory on hand, and our own inventory levels are at their lowest in two years. The vast majority of the high-cost inventory from last year has been sold. The current lower-cost inventory is contributing to improving margins. Looking specifically at our two segments, the world juvenile posted year-over-year and sequential improvement in both the top and bottom lines. Operating profit would have been even better had it not been for the currency impact in Europe. New products are continuing to drive sales, as was evidenced during September's Cologne Juvenile Product Show. We built excitement with our teams and connected strongly with our customers from all over the world, writing the most orders ever at Cologne. The new Mica 360 Pro was unveiled, a seat that can be used from birth till four years old. It's the latest addition to the groundbreaking Maxi-Cosi 360 Pro family, featuring Dorel's SlideTech technology. In addition to the cologne show, Juul attended several local European fairs during Q3. Among the items unveiled was a new Maxi Cosi 3-in-1 stroller in what is termed the comfort segment. There is a considerable market for this latest entry as it's at the right price point with all the features consumers are looking for. Maxi-Cosi now offers parents a wide range, including car seats, strollers, home equipment, and connected products, to take them through their parenting journey. These launches represent continuous improvement in the European product portfolio, allowing Juvenile to retake market share, something we are clearly doing. Another exciting development was Juvenile's recent partnership with BabyList, at the grand opening of their first flagship showroom in Beverly Hills. The showroom offers a guided registry and product showcase where Maxi Cosi, Tiny Love, and Safety First take center stage with dedicated displays just as you enter the store. This partnership is a testament to Dorrell Juvenile's commitment to innovation, providing parents with the opportunity to explore our products. Additional launches are planned to further broaden Juvenile's product portfolio and strengthen its position in the market. While sales are not where they have to be at the rail home, there were nonetheless a number of positives during the third quarter. Revenue and gross margins have increased steadily through the current year, with lower freight and board costs contributing to improved margins. Inventories have also decreased considerably from last year's comparable period, and is the case with Juvenile. Also, Home has also been successful in depleting its higher-priced stock. Last month's High Point Furniture Market drew excellent attendance to the Dorrell Home showroom. Comments regarding the segment's new product introductions were extremely positive. with customers saying it was home's best lineup ever. We are enthused with our new product development talent. Currently, the furniture industry is experiencing a moderation in consumer spending. This year's numbers show a continuation of slower growth. Challenging interest rates are tempering spending, but there are a number of things in place at Dorel Home to capture sales as consumer appetite returns. Several new products are scheduled for next year, and we feel somewhat positive that home will gain market share. Looking ahead, we maintain our overall forecast of quarter-over-quarter earnings improvement going forward. At the REL Juvenile, market share data confirms that we are gaining sales at the expense of the competition with our new, innovative product that is resonating well with consumers. While we are concerned by the economic environment in which we are operating, we remain focused on bringing winning products to the marketplace, partnering with our retail customers, and investing in e-commerce to ensure that the progress so far this year continues for the balance of 23 and into 24. Results at Doral Home are less positive, but sales have been steadily improving and we are narrowing our losses. The segment is operating in a challenging environment, slowing the pace of our turnaround, but the expectations are that we should deliver an operating profit as soon as fourth quarter of this year, setting the table for a much better performance in 2024. I will now ask Jeffrey to review the financials.

Thank you, Martin. For the third quarter of 23, Durrell's revenue decreased by $14.5 million, or just under 4%. Compared to last year, the organic revenue declined about 5.9% after removing the variation of foreign exchange rates year over year. The revenue and organic revenue decline was caused by the Durell Home Group, which was partially offset by improvements in Juvenile. In the Durell Home, the revenue decline was mainly at the online level. as opposed to brick-and-mortar channel, which we actually saw growth in during the quarter. Gross profit for the quarter increased $27 million, or 69.7% compared to last year. Gross margin in the third quarter was 18.3%, representing an improvement of 790 basis points from 10.4% last year. Improvement in gross profit in the quarter was both in juvenile and home. In juvenile, it was mainly due to improved product mix, lower product costs, and a weaker U.S. dollar relative to major currencies from last year. In dual home, the improvement was also due to lower product costs as well as increased factory absorption. from slightly improved domestic manufacturing activities. The operating loss for the quarter was 3.7 million compared to 33.7 million last year. Excluding restructuring costs, the adjusted operating loss decreased by 27.8 million to an adjusted loss of 3.7 this year from 31.5 last year. Finance expenses in the quarter increased by $1.4 million to $6.5 million, and that's related to the average interest rate costs compared to last year. And the overall net loss for the quarter was $10.4 million, $0.32 per diluted share, compared to $36 million or $1.13 diluted share last year. The $1.13, when you look at it from excluding restructuring costs, was $1.07 last year. We move over to juvenile. We're pretty happy with the quarter. It is on the trajectory that we wanted it to be on from the beginning of the year. So revenue increased by 19.3 million or 10.3%. Organically, that number drops to 6.4% because of foreign exchange. The improvement in revenue and organic revenue was mostly in the US and European markets, although we did see some strength in some of the other foreign markets as well. In the US, the increase was across the board in all brands and categories. Europe actually experienced double-digit revenue growth for the second sequential quarter from the new product launches that continue to gain momentum, and that was both in the specialist and the e-commerce channel. Gross profit for the quarter increased 25 million, or 83.5% compared to last year's third quarter. The gross margins were 26.7, representing an improvement of 1,060 basis points over last year. that is mostly, again, due to lower costs, better efficiencies, better absorption, weaker U.S. dollar. All of those things are helping us get our margins to where we want them to be. And the operating profit, which it's nice to say an operating profit for the quarter, was $3.2 million compared to a loss of $18.4 million last year. If we look at the restructuring costs, that loss last year was 16.2 without restructuring costs. If we go over to the home side, third quarter revenue dropped by 33.7 million or 18%. The decline in the revenue is mainly, as we said before, reduced online sales, you know, pretty much across the board where we do online sales. However, on a sequential basis, the third quarter revenue did increase by about 15% over the last two quarters, and that's important for us. Gross profit for the quarter increased by 2.1 million, or 23%. Gross margin in the quarter was 7.1, which was an improvement of 230 basis points from 4.8 last year. Again, the reason for that, lower product costs, both in raw material and freight, and a smaller percentage of the older, higher-cost inventory that we open the year with. As that depletes, it allows our margins to go up. The level of older, higher-cost inventory has actually been reduced significantly. There's a little bit left, but it's a much, much smaller amount than we've had in previous quarters. The margin also was impacted positively by slightly better domestic manufacturing activity, and we hope to see that activity picking up over the next few quarters, which will also lead to some improvements. On a sequential basis, gross margins improved by 570 and 310 basis points compared to the first and second quarters of this year. The margins should continue to improve as freight costs and board and overseas finished good costs of all decreased significantly from the start of the year, as has the remaining older higher-cost inventory. Finally, the operating profit in that group declined, the loss, sorry, the loss declined by $4.4 million to a loss of $3.6 million from about $8 million last year. With that, I will pass it back to Martin.