Dorel Industries Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Doral Industries First Quarter 2025 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a -and-answer session. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. 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 12, 2025. I would now like to turn the conference over to Martin Schwartz, President and CEO. Please go ahead. Thank you.

Good morning and thank you all for joining us for Doral's First Quarter earnings call for the period ended March 31, 2025. With me are Jeffrey Schwartz, CFO, and Jason Kwasnick, VP of Finance. We will take your questions following our comments. Again, all figures mentioned during this call are in U.S. dollars. Doral Juvenile had a strong start to 2025 with another quarter of organic revenue growth. Our new product introductions continue to resonate with retailers and consumers, and our pipeline of upcoming launches is robust. Another positive, though out of our control, was the weakening of the U.S. dollar in the quarter against most major currencies, which helped earnings and should do so going forward. Inversely, Doral Home faced a challenging start to the year, with e-commerce sales much lower than expectations. As we said in our last earnings release, brick and mortar success will be the turnaround, but the change in the e-commerce landscape means we significantly underperform. We have lowered our expectations on what that channel can deliver, and as a result, we'll be taking further action to substantially reduce our footprint. Jeffrey will elaborate further on our results, as well as what further changes we are making in the home segment, as well as our view on U.S. tariffs. But for now, I'm going to give more color on the performance of our two segments. With Doral Juvenile, as stated in our release, we delivered organic revenue growth in the quarter. This is the eighth consecutive quarter of -over-year organic revenue growth. This revenue growth is being led by our Maxi Cozy brand, which grew 9 percent over the entire year, and now make up 37 percent of our sales. Importantly, we are gaining traction in almost all of our markets. The local safety standards make global product success more challenging. We have improved our ability to create one platform and then tweak it to match local standards. The best example of this is the Maxi Cozy Fame Stroller. We launched this item first in early 2024 in Europe, and it was a huge success. This is the most premium stroller in our portfolio and competes well with the current market leaders. We have excellent product placement with our European customers, and now it is available in over 40 countries worldwide. We are building on the momentum of the fame, and at our most recent customer event in April in Marbella, Spain, we introduced a small cabin version. What is particularly exciting about this new launch is that this category of strollers is the most popular around the world, so it has been the potential to be even more impactful than the original fame. This lightweight stroller was introduced alongside a new and improved Coral Slide Pro Car Seat as part of the Zero G travel system. This is the lightest ever as the Coral consists of a soft shell inside a rigid frame, and the airplane overhead bins. The soft shell can be removed from the rigid frame in the car and placed directly in the stroller, the only infant carrier in the marketplace with the ability to do so. Of course, the Coral is part of the SlideTech family of car seats and can be used with multiple strollers. This travel system combo is really the best in the industry, and we are being recognized again for the incredible innovation that our teams are delivering. One of our underperforming markets has been Chile, Peru, and as we announced in our March conference call, we recently installed new leadership. Earlier returns are good as Chile, Peru delivered an improvement in earnings of $1.4 million versus last year, and posted a profitable quarter for the first time since the first quarter of 2023. In the U.S., the team has been working on launching new car seats for over a year that meet the new side impact regulations, and I'm happy to say we began shipping customer placements in the quarter. The team did an amazing job meeting these new standards, and the product looks better than ever. With the current tariff environment, the team is already looking at incremental opportunities for our U.S. factory. We already produce 3 million seats a year, and are the most competitive option for many price points, so this could be a major opportunity for us. Finally, on juvenile, cost reduction remains a priority, and in the quarter, some changes were made which will help our run rate going forward. We're now turning to Darrell Home. It was a difficult quarter, far below our expectations. We have reacted strongly, and since end of the quarter identified further cost reductions and operational improvements. In our last call, I stated they were key pillars to success, and as you can see in our results, we are not executing on all of them yet, so I want to give an update on where we see our progress. In leveraging our previous success with traditional brick and mortar and omni-channel retailers, though not fully reflected in our earnings, our brick and mortar sales remain flat with prior years. This should change going forward as we have some major launches coming with several key retailers. I will add to this that these relationships are proving to be particularly beneficial as we navigate the tariff environment. We have already had multiple meetings with several customers as they look to us to find solutions with them. A reduced product line with differentiation and value added features. This has been difficult to start the year as our financial constraints have limited our ability to bring many new products to market. Prioritizing fewer but more successful licensed brands such as Novagrass. As we have been unable to bring a lot of new products to the market as of now, this has not really been a benefit yet. This is part of our Europe. We have a good quarter on plan. It remains relatively small but we want to grow it profitably from its current level of sales. And an enhanced management team. As announced previously, Troy Franks has been installed as the rail home CEO and he is driving the initiatives to turn the business around. The management team has been streamlined and those remaining have a proven record of success. We have also moved our juvenile CFO over to be responsible for the home segment. Ian Farthing has been with us for over 30 years. The last 12 at juvenile. So he is perfectly suited for what we need to do. We are strategically right sizing the business and have revitalized the management team in place. I will now ask Jeffrey to review the financials as well as collaborate on tariffs on our home restructuring program. Jeffrey?

Thank you, Martin. Before discussing the quarter, I want to discuss some of the things that Martin was talking about. So a little bit more information on the restructuring which is ongoing as we

speak.

You know, the lower than expected sales and margins has prompted additional restructuring activities. And over and above what we announced in January. The operations of the home segment, particularly the import part, will be significantly altered with the sales marketing and product development organization being merged into the successful Costco division. So despite the difficulties we are having as you can see in our numbers, we do have a division that is profitable and that is doing well. And that business, which is pretty lean and mean, is going to take over additional product categories, allowing us to do that. And we are also going to significantly reduce our footprint. A substantial number of positions will be eliminated as they have been identified as redundant and not necessary to support the anticipated sales model and activities because of the merging into the Costco division. A lot of the back office functions, accounting IT will also be consolidated with our juvenile segment, allowing us to again significantly take some cost out of that as well. We are actively pursuing other opportunities that we believe can decrease our overhead significantly and allowing us to operate. We will be communicating our plan to the market by the end of June. As I said, we are in the process right now of building it and in some places taking it apart. As far as dealing with our lenders are concerned, we still have the support of our lenders. We are working with them to build a go-forward plan which focuses mostly on our growing profitable juvenile business and a rather different, smaller furniture operation which will no longer lose money. From a tariff standpoint, wow, this is pretty difficult. We prepared all of these notes last week and we got a surprise last night that the Chinese tariff is going to be down to 30%. That gives us optimism. We have had a number of products that have not been shipped out of China that were just sitting there. Again, this is generally category. It is not as if there were alternatives. We like to use things like strollers as an example. The industry is talking about the fact that all strollers are made in China. I am going to say for the last five, six weeks, very few strollers have been sent out of China. However, going forward, 30% is high but it is manageable. In addition, it does still give us an opportunity to increase our factory. Martin talked about that. We have a great factory that produces 25% to 30% of the units sold in America. We have additional capacity. We are looking to turn that up. With the additional tariffs, we feel like that is an opportunity that is still there to grow that part of the business. So tariffs on the home side, the juvenile side, although a pain and certainly in the short term it will cause a little bit of hiccups, should actually be a net benefit for Doral. Moving over to the numbers, for the first quarter, Doral's revenue decreased by 30 million or almost 9%. Organic revenue declined by approximately 7% after moving the variation of foreign exchange over the year. The revenue and organic revenue declined with all in home, partially upset by improvements in juvenile. The gross profit for the quarter decreased by 8.1 million. The gross margin decreased by 60 basis points as a percentage of revenue. Including restructuring costs, the adjusted gross profit decreased by 7.7 million or 11%. And by 50 basis points on this. And again, all of this negativity is all caused at the home level because the juvenile level is actually doing quite nicely and moving according to our plan. The operating loss for the quarter for Doral was 14 million compared to 7.7 last year. All of that, again, is because of the home. Financing expenses of 9.4 million was comparable to last year. And as we move over now to the juvenile segment, I'm quite pleased with the way that business is going. We are definitely going in the right direction. It's still a difficult environment between tariffs and just the economic environment. But nevertheless, our revenues grew by 3.2 million. Organic revenues improved by 4% after moving the foreign exchange environment. We're seeing improvements in most of our markets, which we're pleased about. Operating profits were 3 million during the first quarter compared to half a million last year. Excluding restructuring costs, operating profits increased by 3.1 million to an adjusted operating profit of 4.2. Overall, like I said, the juvenile business is going well in virtually every market that we have. Martin talked about Chile. That was the one fairly large market that's been a problem for the last number of years. We do

see right

at the end of the tunnel, and we're extremely pleased to see the first quarter get into the block. So that's going well. Europe is going well. The U.S. certainly looking forward to increased activity in our factory. Over in the home business, don't have much good news there. The business declined significantly by 33%. The decline in revenue is mainly on the reduced e-commerce sales, which we're taking significant action on that unit. Our gross profit declined by 10.5 million. The gross margin was 1.2%, which is really an indication of way too much overheads for the industry. As far as the losses, as we talked about the losses of 7.8 million. So, disappointing. We're disappointed. We're taking significant action. The first restructuring, I want to point out, although it doesn't look like you see much improvement, we have achieved all of the cost reductions that we plan to do in the first restructuring. What has limited us is the inability to sell at the volume we expected. This current restructuring plan is more significant, more, a much larger plan to turn the business into a smaller, leaner, and profitable business. And that's the plan. And we'll be going back

to

everyone in the market in June when we finalize the plan. We'll explain to everybody what we're doing on the home side. With that, I'll pass it back to Martin. Hi. Thank you, Jeffrey.

In our outlook, finally, on our outlook, the tariff situation is clouding our visibility on expected performance, as can be seen by this morning's changes. As Jeffrey laid out, we are actually in a better place relative to a lot of our competition. But the situation is difficult nonetheless. In the second quarter, in both of our segments, orders from customers have slowed and even stopped entirely for some customers for Chinese-sourced products. But hopefully, we'll start to recover with lower tariffs. This will have an effect on our second quarter results, particularly in the home segment. Giving a long-term resolution on tariffs isn't possible to predict. The exact financial impact cannot be provided as of now. Longer term, our juvenile segment is expected to continue to deliver improved earnings over prior years. Short term, tariffs could challenge earnings. But with our domestic manufacturing factory opportunity, this could offset the risk. For now, in juvenile, we continue to execute on our business strategy that has been successful over the past several years, adjusting as necessary for external factors like tariffs and currency. In home, the focus is transitioning the segment to a new business model that is more agile, with a lower cost infrastructure. The timing of these changes is made more difficult by the tariff situation, but this will not prevent us from making the internal changes necessary for success. We should have much better clarity soon, and we'll be able to provide better guidance thereon. With that, I now ask the operator to open the lines for questions and request that you limit them to two in the first round. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, 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. And your first question today will come from Cheryl Zhang with PD Cowan. Please go ahead.

Good morning, Jeffrey. This is Cheryl calling for Derek. Thanks for taking questions. First question is on tariffs. As you mentioned in the remarks, we saw you have taken down the tariff quite a bit, now charging 30% on China imports down from $145. Curious on your thoughts, and do you think the 30% tariff is enough to turn the demand back on compared to the $145?

Hello?

Pardon me, your line may be needed. Correct. Sorry. I was going to say, this is a difficult question given that we only had an hour to deal with it. I would think that they will turn it on because most of the retailers were coming in high but still moving forward. Given the shock of 154%, in many cases, just not, you know, we just couldn't bring in product, we couldn't get product. The 30 sounds reasonable and sounds like we can move forward with that. So I'm going to give you a call if I get it. Again, I don't know.

Great. Thanks for the color. My second question, and before I re-queue, is on selling expenses. It looks like as a percentage of revenue since a little high compared to the prior year in both businesses, curious if you can provide some color around that and what would you expect on the SG&A as a percentage of revenue going forward?

Well, on the home side, it's pretty easy to say that that's just related to the drop in volume. That is definitely one of the categories that we're looking at, you know, revamping. On the home side, we're looking at a different business. So I don't have a lot of comment there. On the juvenile side, I'm not sure why that would be up. There's nothing radically different. I mean, we are increasing our marketing. Things are going well there. So perhaps some of the marketing programs went into that area. We've launched a lot of new products that we'll start picking up during the year. So I would guess that's it. But there's no real issue.

Okay. And if I may just follow up quickly on that. So you mentioned there's a new business model in home. Curious if you can elaborate a bit more on how the new business model will change or compare to the one that you have currently?

Not until the end of June. We're in the middle now. We weren't expecting such a drop off and tariffs too. I mean, that's had a big impact. Customers not wanting to bring in inventory. And a lot of things that hit this model. So we've been working on it for a while. But because of the size and nature of it, I can't give you any sort of forward look on it.

Okay. Understood. Thank you. I'll re-queue.

Once again, if you have a question, please press star and then one. And your next question today will come from Stephen McCloud with BMO Capital Markets. Please go ahead.

Thank you. Good morning, guys. Just on the home business, understanding that it's still evolving with respect to the restructuring. But you did mention that you're repositioning the business based on a lower expectation on revenues. So I guess I'm just curious, is there a level that you have in mind in terms of how to position this business? It relates to that actual revenue number?

Not yet. I mean, what we're in the process of doing is looking at all the various business lines that we have. We know the Costco office area is a success. So taking other lines and other opportunities and running it under that way, if it doesn't make sense, we're not going to do it. So we're in that process of measuring everything to decide what's in and what's out. And we're going to be rather ruthless in that process. I mean, we don't want to lose money anymore. And the key to the ORL is really the juvenile business. So we believe there is a home furnishing business and it's going to be different than what it was in Q1. But I can't give you any more insight to that yet. I just don't have it.

Yeah, no, that's fair. And certainly last night's news throws another curveball. And then just maybe on juvenile, can you talk a little bit about your performance in North America? I mean, I know you cited Europe being the most significant contributor in Q1, but wondering if you could give some color on North America. And then what was the contribution from FX to the operating profit this quarter?

North America overall was good versus last year. I don't know if it was up necessarily. It was similar. A lot of its timing. I mean, we know we have we know we have an increased market share. We know going forward, especially now with the tariffs and having the only large manufacturing facility in America, that the opportunity to grow that is probably the best we've seen in many, many years. A lot of new product hitting. But a lot of its timing. So I'm going to say overall flat for North America for Q1, but pretty optimistic about where we're going to go with that. Even though, like I said, in Q2, I could see some bumpiness there because we stopped bringing in some products for a number of weeks. Right. I mean, as did everyone in the industry. So there could be a period where we run out of inventory. The industry is running off of inventory right now and hasn't been replenishing. So I'm not sure where that's all going to land other than car seats where we've been replenishing all the time. So that would be that. But overall, still optimistic. Just to remind you, North America is about I think it's 45% of our overall juvenile business. So the rest of the business continues to move forward.

Okay, that's good color, Jeffrey. Thank you. And then maybe just another one, if I could, just on the you gave a long term debt and financing update with the ABL facility availability, you know, down to 200 billion dollars. Can you talk about how that impacts potentially liquidity? And then I guess along those lines, when you think about other opportunities going forward, do you have other properties where you can execute on the sell and lease back? And is that something you're looking at?

Right. Okay, good question. So no, the impact, we still have at the 200, we weren't using anywhere close to the facility and felt it was unnecessary to continue to have a large facility, especially in lieu of, you know, the fact that the home business will be getting smaller, not larger. So we, you know, had a no problem agreeing to dropping the size of that facility. So that's a non-issue. I forgot to mention something, we continue to work on a liquidity opportunity. I know I've been saying it now for a number of quarters. And that doesn't mean we're not, it's the same opportunity. I don't want to, you know, until it's done, it's not done. But we are moving past gateways. And I hope to see something happen in future, which will give us some more liquidity as far as, you know, our business, which we can definitely use. In addition to that, yes, we do still have some properties, but we don't control, you know, they're not huge, they're not big, but we have some properties that we can sell. That, you know, for example, there's a building in Tiffin, Ohio, that we closed the factory on back in Q3, I believe, of last year. That building's still out there, but we don't control the ability to sell it. But we're actively looking. But a much bigger event is some additional financing that we're pretty hopeful on. And we continue to march through the process and getting all the paperwork done and everything done. So I forgot to mention that in my speech. But yeah, we continue to look for, to have some more liquidity done by the end of the quarter. Okay, that's great.

Thank you. And next, we have a follow up with Cheryl Zhang of TD Cowan. Please go ahead. Cheryl, your line may be muted.

Thank you. Sorry about that. And just one follow up from me. So in the MD&A, you mentioned that there are some old inventory that you needed to move through in home. Just curious how much of that old inventory do you need to move and when do you expect to begin selling the newer products?

We are bringing in some products every day. We just haven't, the model that is the problem is the model where we bring in thousands of skews, re-inventory it, and hopefully it sells online. That's the model that's giving us the most problems. As you can imagine, it's competitive. Not just us, it's almost everyone in the industry. The idea that you're going to pick the right items, put them in the right warehouse and be able to ship it within 24, 48 hours is a very difficult model. And we've had a number of products that when we brought them in, they don't sell the way they're supposed to. So we are in the process now of selling those out. It's something we're always working on. Those models won't be reinvested in. It's not as if they're sat for a year and haven't sold any. They're slow and moving. The only upside we have is those were all bought at the old prices. Today, whether it be Chinese tariffs or Vietnamese tariffs or Malaysian tariffs, people are coming in at a higher price. They should be a little bit more competitive. We are lowering the price to move it. We do have that opportunity. It's not the majority of inventory. We're always working on this.

Got it. Thanks for taking our questions.

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

Okay. I want to just thank everybody for joining us today and listening to our story. And I wish you all a good afternoon. Thank you.

This brings a close to today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.