Dorel Industries Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Durrell Industries' first quarter 2024 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, then one 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, May 10th, 2024. I would now like to turn the call over to Martin Schwartz, President and CEO. Please go ahead.

Thank you. Well, good afternoon, and thank you all for joining us for Dorel's first quarter earnings call for the period ended March 30th. With me are Jeffrey Schwartz, CFO, and Frank Rana, recently named Executive VP and Chief Strategy Officer. Frank has been an integral part of senior management since the company's IPO in 1987, and this appointment recognizes his contribution in driving Dorel's growth. Also with us is Jason Kwasnick, recently appointed VP of Finance, and Jason has been with Darrell for 20 years. We'll take your questions following our comments. A reminder that all figures mentioned during this call are in U.S. dollars. Darrell Juvenile is making steady progress in all areas. The first quarter presented clear evidence that with adjusted operating profit improving by $10 million, Darrell went from last year's first quarter loss to a slight profit. We are optimistic the improvement will continue. This segment is capitalizing on the introduction of a diverse selection of exciting new products. Our retail partners and consumers have reacted well to the new offerings, resulting in additional market share gains. Growth came mainly in the U.S., Europe, and Brazil, as sales in the brick and mortar channel rebounded sharply. Norell Juvenile USA had an exceptionally strong quarter with car seat sales leading the increase in the division's various product categories. Safety First did particularly well, the result of a new product placement and a refreshed branding program now hitting the stores. From home safety peg items to strollers and car seats, the new look of Safety First designed in-house goes beyond aesthetics reflecting our dedication to innovation, quality, and the desire to grow with families. The original and iconic baby on board sign still remains a bestseller. In Europe, a major new product was unveiled to approximately 375 guests attending Dorel Juvenile's 2024 Customer Conference in Portugal. The all-new Maxi Cosi Fame Stroller, The future of family travel made its debut. The Fame, our most advanced stroller ever, is the first step of a new generation of premium travel systems by Maxi Cosi, a premium product of high quality with special features. Just some of the features include a revolutionary suspension system, LED lights to light up the path ahead, and an integrated cell phone charger. Fame will be available in stores across Europe starting next month. This entry is highly strategic for Maxi Cosi, our flagship brand, recognized globally for innovation and quality. Maxi Cosi has developed a proven reputation in car seats, a category that continues to do exceptionally well for us. We now want to replicate this with strollers, and we see the introduction of FAME as the perfect opportunity to accomplish that. This is just one of the reasons why there is a positive feeling across the entire segment. We are also focused on further reducing juvenile costs and are more comfortable than ever that this business is in a good place. Turning to Darrell Hall. They made substantial progress during the first quarter despite dealing with a tough environment as interest rates and mortgage rates remain high. This does not bode well for furniture, which again lagged sales of all consumer products during the first quarter of the year. Despite these challenges, I'm pleased to say that the segment posted improvements. Post-COVID, now that there is more merchandise on shelves, which was not the case during the pandemic, there is a tendency for consumers to shop more in-store than online. Home has introduced many new products, which we expect will keep us ahead of the competition and has been successful in building brick-and-mortar sales with additional listings and its retail customers. The growth in this channel is solid. but the brick and mortar cycle is slower to evolve than e-commerce. Therefore, we see the benefits occurring in the second half this year and into 2025. Costco home and office was a significant contributor to Q1 improvement as the division's revenues and profitability were up materially. Costco operates in a category where there is less competition and its legacy utility products, such as stepstools and folding furniture, are well known for their high quality. Additional relationships are being cultivated with more mass merchants and DIY stores. Homes restructuring activities to simplify and combine certain key areas, including the merger of AmeriWood and Dorel home products, took effect in January and are starting to have the desired results. Everyone is working extremely well together, all focusing on the entire business. There's now one product team, one marketing team, and one purchasing team for the combined divisions. Our customers have responded well to our change, and there are more benefits to come from streamlining. Savings are expected to be approximately $4 million annually. The rail home attended last month's High Point furniture market. Our show was busy throughout the show with many customer appointments. Reaction to our product lineup was excellent, and we anticipate follow-up orders. The segment is adding new customers in Europe, and rather than being Germany-centric, as in the past, it is branching out across the continent. Importantly, we are looking to structure the rail home in a manner that will ensure the business is resilient, profitable, and will serve our customers well, no matter what the future holds. This will involve an extensive cost-cutting exercise, which is currently being developed. Decisions have yet to be made as to what the scope and timing of the project will be, but it will result in more streamlined, low-cost operations. We are confident that even with a diminished furniture industry, should that be the case, Durrell Home will be able to work within it and be profitable. Regarding our outlook, Dorrell Juvenile is positioned to continue its quarter-over-quarter earnings improvement. Several significant customer events are planned this second quarter, which are expected to increase sales beyond our current improving revenue line. It is anticipated the second half will be better than the first, driven by continued year-over-year revenue gains. At Dorrell Home, the traction at brick-and-mortar experience in Q1 is expected to be maintained. Continued improvement in quarter-over-quarter earnings is anticipated, driven by new listings and increased product sell-through. However, as the brick-and-mortar sales cycle is naturally longer than e-commerce, the benefits will only be manifested during the second half and into next year. Holmes' efforts are continuing on cost reduction and on reigniting the e-commerce business. I'll now ask Jeffrey to review the financials.

Thank you, Martin. For the first quarter of 24, Durrell's revenue increased by $17.9 million, or 5.4%, to $351 million. Organic revenue growth was approximately 5.3% after removing the variations of foreign exchange. The revenue and organic growth improvements was in both of our segments, juvenile and home. Durrell juvenile revenue improved even when it excluding the reduction in revenue from the network security incident during last year's first quarter. And in Durrell Home, the revenue and organic revenue improvement is mainly explained by the increase in brick-and-mortar sales, which was partially offset by reduced online sales during the quarter. Gross profit for the quarter increased 21.5 million, or 46%. The gross margin in the first quarter was 19.4%, an improvement of 540 basis points from the 14% last year. The improvement in gross profit and gross margin in the quarter was in both the juvenile and the home segment. In the juvenile, the improvement was driven by improved pricing and lower input costs, better product mix, and higher volume sales, particularly in the United States. In home, the improvement was mainly due to reduced breaks and material costs, as well as higher factory overhead absorption from the slightly better domestic manufacturing activity. The operating loss in the quarter was 7.7 million compared to 28 million last year, excluding restructuring costs. The adjusted operating loss was 6.9 million versus 28. You know, the decrease was, again, primarily due to improved gross margins in both sectors. And financing expenses for the quarter were increased by 2.8 million to 9 million, generally explained by higher average interest costs. We move over to the juvenile segment itself. First quarter revenues increased by 12%. by 12.7 million or 6.3%. Organic revenues increased by about 6.2%. The improvement in revenue and organic revenue was in the US and Europe and the Brazilian market. In the US, even when excluding the reduction in revenues from the network security incident, the revenue improvement was across all brands and all product categories as market share gains continue in the quarter. In Brazil, the revenue improvement was in both specialists in the e-commerce segment, and in Europe, revenue improvement was in most markets, offset by declines in e-commerce channel as customers reduced orders to reduce their inventory in the quarter. Gross profit increased by 11.7 million, or 26%, compared to last year. So the margins in the quarter were 26%, The gross margin, 26.5%, an improvement of 410 basis points from last year. Again, mainly driven by improved pricing and lower input costs, better product mix, and higher sales volumes that drove particularly in the United States. The operating profit for the quarter was half a million during the first quarter compared to a loss of about 8.9 million last year. in the quarter. If we exclude restructuring costs, the operating profit was 1.1 million versus the 8.9. Move over to homes. Quickly, homes revenue increased by 5.2 million or 3.9% to 138.4 million. Again, the revenue increase was all in the brick and mortar channel. we actually saw a partial decrease in the online channel. The increased brick and mortar channel was due, among other things, to order replenishment as the POS sales have far exceeded replenishment orders. Last year, we did see our customers reducing their heavy inventories that they started 2023 with, and we're back into a position where inventories are in a proper place. POS sales are trending very positively as well in the brick and mortar retailers, and we're hoping to see that last year. In the gross profit area, which is very important in this sector, we increased by 9.9 million compared to last year. So last year, or this year, our gross margin was 8.5%, still low, but an improvement of 710 basis points versus last year's meager 1.4% gross margin. uh the operating loss for the quarter uh was declined by 10.3 million uh to 3.6 million from 13.9 million last year again the decrease in the loss is is mostly from the increased gross margin uh and some uh lower operating expenses relating to some of the restructuring we did last year so with that uh i'll pass it back to martin