Dorel Industries Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Dorel 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 question 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 12th, 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 Durell's first quarter earnings call for the period ended March 31st, 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. Durell 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 and the quarter against most major currencies, which helped earnings and should do so going forward. Conversely, the real 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 key to our turnaround, but the change in the e-commerce landscape means we significantly underperform. We have lowered our expectations on what Duck 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. The Terrell Juvenile, as stated in our release, we delivered organic revenue growth in the quarter. This is the eighth consecutive quarter of year-over-year organic revenue growth. This revenue growth is being led by our Maxi-Cosi brand, which grew 9% over prior year and now make up 37% 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-Cosi 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 beats 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 stroller can fit in 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 slide deck 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 the Chile-Peru, and as we announced in our March conference call, we recently installed new leadership. Early returns are good as Chile and 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 Doral Home. It was a difficult quarter, far below our expectations. We have reacted strongly, and since the end of the quarter, identified further cost reductions and operational improvements. In our last call, I stated there 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 omnichannel 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 streamlined portfolio and remains a key deliverable for us. And growing new markets. Europe actually had a good quarter, right on plan. It remains relatively small, but we want to grow it profitably from its current level of sales. And an enhanced management scheme. 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 track record of success. We've 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 Juveniles. So he is perfectly suited for what we need to do. We are strategically rightsizing the business and have a revitalized management team in place. I will now ask Jeffrey to review the financials as well as collaborate on tariffs and our home restructuring program. Jeffrey.

Thank you, Martin. Toward discussing the quarter, I want to discuss some of the things that Martin was talking about, some 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're 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 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 level 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 costs out of that as well. We are actively pursuing other opportunities that we believe can decrease our overhead significantly. and allowing this to operate. We will be communicating our plan to the market by the end of June. As I said, we're 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're 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, while this is not pretty difficult, I mean, you know, we prepared all of these notes last week, and we got surprised last night that the Chinese tariff is going to be down to 30%. That gives us optimism. We've had a number of products that have not been shipped out of China that was just sitting there. Again, this is generally categories, so it's not as if there were alternatives. We like to use things like strollers as an example. The whole industry is talking about the fact that all strollers are made in China, and I'm going to say for the last five, six weeks, very few strollers have been sent. out of China. So, however, going forward, 30% is high, but it's manageable. In addition, it does still give us an opportunity to increase our factory. Martin talked about that. We've got a great factory that produces 25 to 30% of the units sold in America. We have additional capacity. We're looking to turn that up, and with the additional tariffs, we feel like that's an opportunity that's still there to grow that part of the business. So tariffs on the home side, on the juvenile side, although a pain, and certainly in the short term going to cause a little bit of hiccups, should actually be a net benefit for Doral in the U.S., Moving over to the numbers, for the first quarter, the world's revenue decreased by $30 million, or almost 9%. Organic revenue declined by approximately 7% after removing the variation of foreign exchange year-over-year. The revenue and organic revenue declined with all-in-home, partially offset by some 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 those. 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 Dorrell 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, 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 removing 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 million. 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 light at the end of the tunnel, and we're extremely pleased to see the first quarter get into the black. 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, no, 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 AMOUNT OF VOLUME THAT WE'RE DOING. YOU KNOW, AND AS FAR AS THE LOSS, AS WE TALKED ABOUT, THE LOSS IS 7.9 MILLION. SO, YOU KNOW, 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 will be going back to everyone in the market in June when we finalize the plan. And we'll explain to everybody what we're doing on the home side. With that, I'll pass it back to Martin. All right. Thank you, Jeffrey.