Dorel Industries Inc.

Thank you for standing by.

Welcome to Durrell Industries' fourth quarter 2020 year-over-year. The revenue and organic growth was in juvenile, which was partially offset by the decline in Durrell Home. Gross profits for the quarter increased by $42.2 million, or 147%. The gross margin in the fourth quarter was 20.2%, coming back from last year's abysmal 8.4%. The marked improvement in gross product was in both the juvenile and the home. In juvenile, you know, it was based on lower product costs, better product and overhead absorption, improved product mix, and some foreign exchange gains. On the home side, the improvement was due to lower product costs as well and some increased factory absorption from slightly improved domestic manufacturing activity. For the Total operating loss of $7.4 million compared to $40.7 million in 2022. Excluding restructuring costs, adjusted operating loss for the quarter decreased by $36.2 million to a loss of $2.9 from $39.1 last year. Finance expenses in the quarter decreased by $800,000 to $6 million. The rates, obviously, the rates are higher, but the amount we borrowed was less. Net losses from continuing operations during the quarter, the net loss from continuing operations, $3.8 million, or $0.12 per diluted share compared to $41.4 or $1.27 last year. And then excluding restructuring costs for the quarter, it was... income of one cent per diluted share versus a loss last year of $1.22 per share. Moving over to the juvenile, as Martin said, we continue to move forward in that division. We're pleased with the progress. Revenue increased by $23 million or 12.2% to $212 million this year. Organic revenue improved by 9.3% after removing the impact of exchange rates. The improvement in the revenue and both revenue and organic revenue was in the majority of the markets with the most significant contributor being the US and Europe. In the US, the increases across all brands and all product categories. Europe experienced double digit revenue growth in the quarter for the third sequential quarter in a row. A lot of that again has to do with the new product launches that we launched in the second quarter of 2023. Gross profit in the segment for the fourth quarter was 33.7 million, or 110 percent better than last year. The gross margin was 30.4 percent, representing an improvement of 1,420 basis points from last year's 16.2. Again, lower product costs led that. Last year, in 22, we had much higher freight, better overhead absorption, and then improved margins from the increased sale of new products. And that's a key element that we're going to continue to push. As we introduce more successful new products, they generally come at higher gross margins. So for the whole quarter, we... The juvenile business had an operating profit of $11.3 million for the quarter versus a loss of $23.5 last year. In excluding restructuring costs, we actually increased by $34.7 million to an operating profit of $12.9. Moving over to the home, unfortunately, revenue declined by $12.7 million, or 8.4%. to 138.6 million. The decline in the revenue is mainly explained by the online sales from just lower demand and a more difficult condition. That's partially offset by the increase in sales in the brick and mortar channel. The increased sales in brick and mortar, you know, is due to, I believe, people coming back to the stores. It's due to increased order replenishment because point-of-sale sales, POS sales, were far exceeded the replenishment orders in the previous few months. So the inventories at the retail levels have really come down, and now the retailers have started to order in a level similar to the POS. Gross profit for the quarter in-home increased by 8.5 million, or 416 percent. Gross margins for the quarter were 4.7, an improvement of 610 basis points from an actual 1.4 percent loss. The increase in gross profits and gross margin in the quarter were mainly due to lower product costs, raw material costs, freight, et cetera. And then sales of a smaller proportion of older higher-cost items that were no longer in our inventory by the fourth quarter. You know, that was always a burden throughout most of the year, that high-cost inventory that had come in in 2022, and that's been reduced significantly. Margins were also positively impacted by slightly better domestic manufacturing activity. That's slowly picking up as well. And, you know, basically gross margins in the second half of the year were much higher than the first half of the year. Overall, we did still have a loss. The loss declined by $5.5 million for the quarter to an operating loss of $12.8 million from 18.3 the previous year. If we exclude restructuring costs, the operating loss declined $8.5 million. to 9.8 versus the 18.3. If we talk a little bit before I finish about the restructuring costs, so we basically total for the quarter was about six, was about four and a half million of cost. A lot of it, most of it was in the home side, the majority of it. MAYBE ABOUT TWO-THIRDS OF IT. WE BASICALLY RESTRUCTURED IN A WAY WHERE WE COMBINED A COUPLE OF OUR OPERATING UNITS UNDER ONE OPERATING UNIT AND REDUCED, YOU KNOW, REDUCED STAFF AND, YOU KNOW, OVERALL IN THOSE TWO DIVISIONS AS WE MOVED THEM TOGETHER. THERE WAS A LITTLE BIT AS WELL IN THE JUVENILE SIDE. WE'RE EXPECTING benefits of about six and a half million. That should appear throughout the year of 2024. So we're expecting to see sort of a return on that right away. With that, I will pass it back to Martin.

Okay, thank you, Jeffrey. I'll now ask the operator to open the lines for questions. And as always, request that you please limit them to two on the first round Operator.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Jared Lazard of TD Cone. Please go ahead.

Yeah, good morning, everybody, and actually, congratulations. It's great to see the improved performance at Juvenile. On that segment in particular, I was curious, you know, strong organic growth, obviously, in the U.S., and then Europe on the back of some new product introductions. How do you explain the decline in Chile and Peru?

Chile is undergoing significant internal struggles. We are not losing market share there, I assure you of that. The currency is really under a lot of pressure. You know, most currencies tend to move in tandem with each other against the U.S. dollar, you know, but Chile is moving on its own. It's pretty close to the lowest level that I can remember since we've been there. So that's had a big impact both on people's buying power. We have kind of restructured there. We've taken a lot of costs out. We're focused. We're a retailer there, and we continue. If anything, we're gaining market share. We're still hopeful. We've made a lot of changes. Some of the losses, again, are currency-related, but it's just the most difficult area right now. That's all I can tell you. But we're not losing market share, so we're just hoping for some stabilization in the country and the currency, and I think we'll start moving ahead again.

Okay. And Peru, similar comments?

Yeah, Peru is small. I mean, Peru is small. I wouldn't focus too much on that. But, yeah, Peru has also had a lot of political issues as well. Okay.

And on the home side, it seems like, again, it seems like you're getting some success in the retail segment and shows through the strong POS. What's the disconnect between retail and what's going on in the online business?

That's a good question, and I think I can answer it this way. When it comes to dealing with the retailers that we deal with, we have to bring to the party a lot more than just a good product and a good price, right? We have to have service. We have to have After sales service, we have to have inventory stock for them. Kind of the old way of doing business, right? And there's not a lot of people out there that are good and can do what we can do. And I think a lot of the retailers are realizing that, that we deliver, you know, a much more secure product that we stand behind. Online, it's a little bit more, you know, as they said, the Wild West, where you have People coming in that don't necessarily have, you know, the safety, we'll say, on a product. They don't necessarily have after-sales service. They're just online with a price, a picture and a price. And those are a little harder to compete against. And I think, you know, we're also seeing people coming back to the stores. From what I hear, furniture, even retailer stores are picking up a little bit. And we see the online retailers, some of them struggling to grow. They're certainly not growing very much right now. So I think we're much better suited versus the competition online. I mean, not online, in store. And now we're looking for ways to battle, you know, with the online retailers. It's a little more for the online suppliers, a little more difficult, but You know, we've got some things going, but we are definitely focusing on growing the brick and mortar business, which, you know, continues to grow at double digits now. So I don't think that that's going to slow down.

So brick and mortar is growing at double digits?

Yeah.

Okay. And I guess, you know, If, you know, just on the view of the furniture industry, I was wondering if you had any expectations or maybe thoughts on when you might turn the corner on home and return to profitability?

I'd like to answer that. I don't know so much of it as the industry. I know what we're doing internally and we're growing internally. We're getting more listings. I mean, a lot of what we see success is increased opportunities at brick and mortar. It's a little more difficult. We have some new products for sure. I think our new product development effort is the best I've probably seen in about three years. Some of that goes right to the online. So, you know, expect to see some improvements there. But it's just difficult. I mean, if interest rates would drop, if home sales across the U.S. were to pick up, I think that would all have a positive impact on the industry and therefore on us.

Okay. And maybe just switching back to juvenile, you did touch on the product innovation in home. Just curious if you can maybe just talk about your pipeline for innovation in 2024. Okay.

Yeah, I'm pretty excited about it. I'll tell you, when you look at where we are, we'll take Europe. I mean, Europe and America is pretty different. In Europe, we've had tremendous success lately in the car seat section. The other big category is strollers, and we haven't really been a decent-sized player in a while. We've had some success in the last, six to eight months with a couple of new items. Um, as Martin mentioned, we, we've won some awards, we're getting increased listings. Uh, the success of the car seat is kind of dragging our strollers onto this, onto the retail floor. Um, we have a launch of a brand new, um, pretty exciting product coming, um, in April of this year. Um, so I think if we can have just a partial success of strollers compared to what we've done in, uh, in car seats, that would be a material impact on Doral. And a similar thing in the U S we, we continue to gain market share. We're doing it everywhere, including at the higher end of the product range, which I think we probably at the best we've seen in maybe 10 years at the high end. You know, it's been difficult, the market has, People know with, you know, buy-by-baby leaving and this one leaving. But our success at the high end is definitely improving, and that leads to higher gross margins. And that's where we're trying to take the business. We've also had a lot of success with a lot of these new products around the world, right? Our export business is growing significantly. You know, our business in places like Brazil, Canada, Australia are all doing very, very well now. so Mexico is doing well. So, I mean, it's just all coming together on the backs of having some really good products.

Awesome. Congratulations again on the significant improvements there, Jeffrey. Thank you.

Once again, if you have a question, please press star, then one. The next question comes from Stephen McLeod of BMO Capital Markets. Please go ahead. Great. Thank you.

Morning, guys. Just a couple of couple of questions. Just in terms of the restructuring and the cost savings. So you've cited you highlighted sort of six and a half million dollars in annual savings. Can you just give us some color on how that breaks down between how that breaks out between the two segments? I know it's majority home, but wondering if you can just give a little bit incremental color.

Yeah, probably let's say four of it is in homes.

Okay. Okay, great. And is it mostly headcount, or is there other sort of restructuring items? It's mostly headcount.

I mean, there's a couple, you know, materially it's mostly headcount, yeah.

Yeah, okay, okay. And then would we expect to see that sort of coming in evenly through the year, if we think about Q1 through Q4 for 2024?

Yeah, I would say so. I would say so. I mean, most of the people have exited.

or almost all the people have exited so yeah we would start seeing it yeah okay okay great okay um and then just turning to the juvenile business um it's a strong uh strong q4 and uh just in the outlook section you cited some seasonality impacting uh uh the q1 and i'm just curious is that based on that seasonality comment would you expect actually revenues to be lower quarter over quarter, or is that just a comment around EBIT?

That is a good question. It's definitely on EBIT. I'm not sure where that falls in. Again, we're expecting sequence. That was a sequential comment, right? That's not a versus last year. Versus last year, we expect improvements on both. Um, I would imagine sequentially it would be there a little bit.

Okay. Okay. No, that's, uh, that's helpful. Um, and then maybe just, uh, maybe just finally, or, uh, or just one, one more on the recent credit facility or the term loan that you announced. Um, can you just talk a little bit about, uh, kind of the rates associated with that, including, um, in any payment requirements, and I assume it's also covenant free, is that right?

It is. We'll call it covenant light. I mean, you know, it should be, I mean, all the stuff should be in the financial statements. I do believe there is a repayment schedule of about 10% a year. You know, everything else should be in the financial statements, all the details. Two and a half million a quarter.

Okay. Two and a half million a quarter. Great. Thank you. And then just finally, just as you think about the year and, you know, obviously some movements like juveniles improving, homes likely to improve through the year. And then countering that to some of the restructuring costs or restructuring items, where do you see corporate costs kind of settling out? I mean, is it in that $20 million range or is it a bit higher than that?

I mean, it should be in that range. We continue every year to take costs out of corporate. You know, we shrunk our footprint in Montreal. We don't have as much space. We don't have as many people. So yeah, it's, it creeps down. I mean, there's, you know what, even though we don't have, and I said this after we sold the bike business, even though we don't have a third, let's say of our revenue, you can't, you know, take away a third of, you know, your, your top accounting staff, your top legal staff, your top tax staff, you know, it's, it doesn't work unfortunately that way. So that's what's sort of keeping it there, but nevertheless, I think every year we make a good effort to bring it down. There's a lot of variable – there's some variable costs, but there's some fixed costs.

Yeah. Okay. Okay, no, that's helpful. And then actually just one more for me if I could. Just in terms of gross margin, when you think about each segment, is it fair to assume that in the juvenile business you'll kind of return – maybe more in line with the historical gross margin rates in the sort of high 20s, maybe even into the 30% range. And then on home, it's kind of fair to assume that you'll see some year-over-year improvement, but probably not getting back to those historical levels, you know, maybe sometime until next year, based on what we know today.

Yeah, I would say that's probably correct. Yeah, we are pretty bullish on the ability to get our juvenile business back up as we continue to have success with higher-priced products. On the home side, I don't see getting back to our historical highs for a while. We had such a tough year last year that we just want to get back to – a reasonable number. Um, you know, and we are seeing success in that area. Um, we are, you know, our business is getting better. Our margin is going up, but the volume is, I guess, where we're, we're struggling with, you know, we're keeping our costs down. We're keeping our, our margins well in a good place. It's just getting that online business, uh, to move is where everybody's heads at right now.

Right.

okay okay now that's uh okay no that's that's very helpful well thanks guys i appreciate it okay thanks steve the next question comes from derek lazar and td cohen please go ahead yeah guys just a few follow-ups for me um is it safe to say that you've now um cycled or mostly cycled through your high-cost inventories and then sort of a follow-up to that. Um, could you maybe just talk about how your input costs are, are, are trending?

I think for the most part, yes, we're through the high cost. It doesn't mean there's absolutely none left, but for the most part, there's none left. Uh, costs are fairly stable. Um, you know, there's a little bump in, in freight. Um, particularly on the European side, as, you know, the problem in the Red Sea is forcing those containers to go around. Not so much for us on the Pacific side. But overall, we haven't seen, you know, we're not seeing a rise in costs anywhere, and we're trying as hard as we can to reduce our costs. So it's fairly stable, I think, is the answer.

Okay. And so you talked about the cost. How about on the pricing side? Is there any pricing action that you feel you need to put through this year?

Pricing action usually means a raising. At this point, no. You know, we don't know what's going to happen. You know, there is a little bit of pressure downwards, particularly in the home side. But it's usually matched with cost reductions. So what we found is, in many cases, if we can lower the retail on some items, we could see spikes of a 30%, 40% increase in sales on an item when it goes down to another price point. So we're trying to do what we can to get our costs down and pass that on to our retailers. and having them reduce the cost. I mean, that doesn't always happen, but when that happens, we're generally seeing nice increases.

Okay. And one last one for me, and it's on inventories. Obviously, some pretty good progress there in 2023. You know, are you done on the inventory side, or do you have a little bit more to go? Yeah.

I mean, there's always a little bit more. I mean, I'm not going to say our inventory is perfect, but, you know, I don't know as we grow, hopefully grow the top line, if we're going to actually be shrinking any more inventory. So it's more likely to go up than down, and that's just because we're hoping sales are going to rise. Okay.

Okay, that's fair. All right. Thanks, everybody.

This concludes the question and answer session. I would like to turn the conference back over to Martin Schwartz for any closing remarks.

Okay. Well, I want to thank everybody for joining us today and just wish you all have a good day. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a blessed day.