Dorel Industries Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Durell Industries' second quarter 2026 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 reach 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 was being recorded today, August 6, 2026. I would now like to turn the call over to Martin Schwartz, President and CEO. Please go ahead.

Okay, thank you. Good morning. Thanks for joining us for Durell's second quarter earnings call for the period ended June 30th, 2026. Today, we will review our second quarter performance, provide an update on strategic actions underway across the Durell juvenile and Durell home, and discuss how these initiatives are intended to improve profitability Simplify the business and strengthen cash generation over time. With me today are Jeffrey Schwartz, CFO, and Jason Kwasnik, VP of Finance. We'll take your questions following our comments. And please note that all figures mentioned during this call are in U.S. dollars. The REL Juvenile delivered a resilient second quarter supported by strong international performance and continued momentum in its premium brand. While softer market conditions in the United States affected sales, the segment continued to improve underlying operating performance and growth across several key international markets. Ongoing investment in innovation, consumer engagement, and commercial execution continues to reinforce the REL juvenile's ability to navigate market challenges while strengthening its foundation for long-term profitable growth. As announced with our first quarter results, the REL home required a further reduction in its overhead structure. During the quarter, we advanced a new business model centered on Costco product categories. In addition, our European Furniture Distribution Company, Nadeo, will continue to supply key large retailers with select furniture SKUs. Although this transition resulted in a reduction in revenue in the quarter, We are very pleased that the Costco business performed in line with expectations and was profitable under the new operating model. As always, Jeffrey will walk you through our results, but first I want to add color to our press release of today, starting with the juvenile segment. Juvenile results included some significant year-over-year foreign currency variations. When those are excluded from the figures, the underlying earnings actually improve both in the quarter and the year to date. This was in spite of some challenges in our major U.S. market and again demonstrates the resilience of our business model. The smaller international markets continue to excel, averaging our product engine, mostly the European line, and we are winning in our smaller markets like Australia and our export markets. Maxi Cosi continues to be the growth engine that has been established in many non-European markets as a preferred choice for consumers. The quarter reflected progress in several areas that are important to our long-term strategy. Innovation, strengthening our brands, and expanding product credibility. While these highlights are not financial results in themselves, they are meaningful indicators of the underlying health of the business. We saw encouraging momentum across several of our key brands during the quarter. At the ABC Kids Expo in Las Vegas, Xarel Juvenile USA showcased innovation and upcoming product launches across Maxi Cosi, Safety First, Little Seeds, and Tiny Loves. This event provided an important opportunity to engage customers and partners, present new category initiatives, and reinforce them Relevance of our portfolio in the juvenile products market. External recognition also reinforced the strength of our product offering. Safety First received recognition for home safety and connected nursery products, including the 80-piece baby proofing kit and the smart humidifier. Moxie Cozy also received recognition for its embraced forms crib and dresser, supporting the brand's expansion into the nursery category.

Our focus remains clear.

Build trusted brands, deliver relevant products, strengthen execution with retail partners, and support the teams that make us successful. We believe these priorities position Dorel Juvenile to continue advancing its strategy and creating long-term value for stakeholders. At Dorel Home, and as previously announced, we undertook a further comprehensive review of the Dorel Home business after the slow start in 2026. As a result, we have fundamentally reshaped the home segment around the businesses we believe offer the strongest long-term returns potential. The new structure is built around three focused platforms, Costco Products, Youth Furniture under Darrell Juvenile, and Select Furniture Opportunity supported by Nautica. Throughout the restructuring process, Costco has demonstrated resilience and remains the foundation of our home strategy. It benefits from strong retailer relationships, leading positions in functional living categories, and an operating model that can generate attractive profitability and supported by the appropriate cost structure. Importantly, the second quarter reinforced our confidence in this business. While the REL home overall remains burdened by legacy costs and restructuring activities, management analysis shows that Costco itself performed in line with expectations and was profitable within the new operating model. The second component of our strategy is the transfer of youth furniture into the REL Juvenile. This move leverages the natural connection between youth furniture, nursery furniture, and Derrell Juvenile's existing product categories. Importantly, this business will remain subject to strict profitability requirements. Growth will only be pursued if it can generate appropriate returns without recreating the overhead structure of the legacy home organizations. The third element involves transitioning the remaining viable furniture activities to NADIO, our Europe-based furniture division. NADIO is a lean furniture distribution business that possesses extensive furniture expertise, strong sourcing capabilities, established retailer relationships, and a lower-cost operating structure. The items being transferred to NADIO to be sold in North America will be limited to active, profitable use will be direct shipment sales or utilize third-party warehousing that do not require company-owned warehousing in North America. A dedicated home furniture organization has been further downsized with certain retained activities integrated into existing platforms and juvenile or no-deal. These actions are expected to improve profitability, increase flexibility, and reduced risk going forward. I'll now ask Jeffrey to review the financials. Thank you, Martin.

For the second quarter of 26, the REL's revenue decreased by 42.9 million, 14.7%. The organic revenue decline was 16.9%. The decline in revenue in-home was mainly due to the intentional reduction of active SKUs that are now considered non-core. So this is a continuation of our policy to drive down the business to get it to the new format that Martin described. In Durrell Juvenile, the decline was mainly in the U.S. The revenue declines were partially upset by some robust double-digit revenue and organic growth in most of our export markets. Places like Australia, Brazil, Canada are doing the best they've done in years and years. So we're pretty excited about that level of growth. The margin line, the margins decreased by, gross margin by 9.3 million or 18.7%. It's decreased by 80 basis points from a percentage from 16.1% or 216.1 from 16.9. However, excluding restructuring costs, the gross profit decreased by 5.1 million, but improved as a percentage from 21.5 last year to 23.1. In home, the decrease in the gross profit and margin is mainly due to lower sales, which we talked about. and a continuing sales of non-course skews at very low margins to help clean up and get us out of some facilities. We do, of course, have significantly lower overheads now, but that wasn't able to offset all of the margin pressure from the stuff I've mentioned before. On the juvenile side, the decrease in gross profit and margin in the second quarter was primarily driven by year-over-year significant negative foreign exchange impacts due to the U.S. dollar weakening against the euro in the second quarter. Operating loss for Durell was 24.3 million compared to 37.2, but when you take out restructuring, the operating loss dropped to 5.3 million. And furthermore, if you remove the impact of FX, We actually get a positive result of 1.5 million. From an FX standpoint, we had a loss, not a significant loss this year. However, there were some significant FX gains in Q2 of last year as the euro strengthened significantly against the U.S. dollar. So when you take the loss of this year and you add back or you take away the gain of last year, We would have been slightly positive. If we move over to the juvenile now, the second quarter revenue was 209, decreased by 3.9% versus last year. The organic revenue line was down a little bit more at 6.8%. The revenue and organic revenue declines were mainly in the U.S. market. In the U.S. market, we were driven by some softer category demand. We did some reduced promotional activity compared to last year, the timing of certain programs with key customers, and in addition, some of our competitors engaged in what we thought was extremely aggressive promotional activity across a number of categories during the quarter, and that pretty much caused a lot of the decline in sales. The revenue decline described above was partially offset by double-digit revenue and organic growth. Like I said, in our international area, Australia, Brazil, like I said, doing extremely well. Australia's growth has now allowed our Mexico's brand to finally take the number one position in car seats in that country with the leading retailers. So that's been a long time coming and we're pretty excited about that. In Brazil, organic revenue growth was from every major product category and across all the brands. Both the export markets and Canada are all really working from the fact that our original plan of having all this distribution works really well when we have some great product being produced. A lot of the product that's leading to the growth is the product that's coming out of Europe and allowing our various divisions around the world to really succeed. While this used to be a very minor point of Dorel, it wasn't really influencing our export business or businesses outside of Europe and the U.S., are actually starting to contribute meaningful dollars to the bottom line. From a gross profit, gross margin standpoint, the numbers decreased in the juvenile by 4.7 million, declined by 110 basis points as a percentage down to 27.9. The decrease was really mostly part of the negative foreign exchange and some obviously lower sales in the U.S. And that doesn't help us on that end. Partially offset by higher sales volumes and better mixes in most of the other markets around the world. From an operating profit, it was 3.6 during the quarter compared to 6.5. If we remove restructuring costs, adjusted operating profits declined by 2.7 million. to an operating profit of 5.1. And again, if we look with the FX adjustments in both periods, we actually improved, just the FX would have improved our earnings by $4 million. And again, that's mostly because of the large FX gain that we had in 2025 Q2. Switching over to home, again, very difficult to read a lot into the numbers. Sales are down significantly. But, again, all of that is pretty much in the areas that we are just exiting the business. So, you know, you see a decline of 46.4%. You know, as I explained before, where that's coming from. The losses, the home loss was 11.3 million in the quarter versus 23.9. And adjusting, excluding restructuring costs, adjusted operating losses decreased by 6.9 million, or 6.3 million to an adjusted operating loss of 6.5. Other things I wanted to address was finance expenses during the quarter increased by $8.6 million to $17 million. However, the cash portion of the interest was $11.1 million this year. So, you know, a significant chunk of that, just $5.9 is non-cash. So that's an important thing. With that, I'll pass it back to Martin for the outlook.

Okay, thank you, Jeffrey. REL Juvenile enters the second half of 2026 confident in its strategic priorities and the strength of its global platform. Building on solid performance in key international markets, the company expects improved earnings in both the U.S. and Europe, supported by significant new product launches. As an early indicator, U.S. sales improved in July, and we expect that trend to continue. REL Juvenile remains focused on sustainability, profitable growth, while further strengthening its position as a global leader in Juvenile products. REL Home remains focused on executing its transformation strategy and building a simpler, more agile, and financially sustainable business. supported by the continued profitability of Costco and a stable European operation expected to contribute positively to earnings. The company is focused on eliminating legacy costs and scaling its most profitable platforms. With that, I'll ask the operator to open the lines for questions. Operator?

We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question comes from Cheryl Zhang with TD Cowan.

Good morning, Jeffrey, and thanks for taking our questions. I wanted to first start on the juvenile segment. So I think in the MD&A, you noted that part of the U.S. sales decline was due to the timing of certain programs with the key customers delaying sales to the second half of the year. I wonder if you could please elaborate on that. You also said U.S. sales improved in July. Can you maybe speak to what you're seeing that support a continued sales improvement in the second half, please? Thanks.

Well, the first part of your question, I mean, that's standard. There's rollouts, there's programs that retailers run, and they're not always the exact same time of the year. You know, and I think that's more of a general issue. We looked at what programs we had all across in 26 versus 25 and see, you know, some of them have shifted to later in the year. So there's not a, I don't have a hard number for you on that. On the second question, yeah, we're getting a little more active in promoting, you know, so that, and we're seeing the results. I mean... We started in July and we saw some instant results, particularly in some car seat areas that we're excited about. And I think it's just that. It's some of the timing of the year. It's coming back. I mean, it was a particularly tough quarter on the top line. And I feel good that things are getting back to where they should be. in the U.S. July is a good indication that we're on the right track for that.

Okay, that's helpful. So is it fair to say that the improvement is from the promotional activity that you're doing, but will we also be seeing the, you know, the retail programs coming back as a tailwind in the second half? Curious if you have any. Yeah, I think so.

The key, Yeah, I mean, I think that's the key. The real key, and this goes for all markets, is the actual introduction of the new items that we've been showing. And that's different for all different markets. We have a couple of really great products that we're waiting on. And I know in Europe, one of the Great strollers that I'm very excited about is hitting in Q4, beginning of Q4, but that one's only hitting in the U.S. in the beginning of Q1. So that particular item will have to wait, you know, three months more. But that's a key thing in juvenile, right? It's about, you know, promotions are great and they drive some big numbers, but you really move the needle when you've got new products introduced. So That's what we've been focusing on, and that's what's driven our business so well in Europe over the last two, three years and driven our international businesses.

We're just really succeeding.

We've got to get more of those introduced into the U.S. We do have some that are coming in Q3, and we have more in Q4, and we have quite a bit in Q1 and Q2 next year. So that's what's really going to drive meaningful numbers.

That's helpful context. Thank you. Maybe switching gears to home segment, you introduced a new business model, and I wonder if you could give us a sense of how much of that home sales currently is under Costco, and when should we be expecting the transfer of youth furniture from home to juvenile, and how much would that sales shift be between the segments?

Let me answer the second part first. So really what it is, I don't think you're going to see it per se. It is authorizing. We've already moved the cribs over. As you know, that was about a year plus ago, maybe two years ago. And then the next logical step we're on is what we call youth furniture. So youth furniture would be bunk beds and beds for children's. of Bedrooms, as opposed to just Baby's Bedrooms. That's not a big, huge business. There's a couple of SKUs that we have, but it's just more of a focus. And so I don't think that's going to be a material number that you're going to see. On the flip side, your first question was about Costco. Costco represents about 70% of our business right now, with 30% being Nodeo. I'm actually, I mean, I'm excited, not necessarily about the business, but I think we finally found our right footing. I mean, it's been a while. This is a business that's been tumbling. As you know, many businesses in this area have just closed up. We have closed a lot of that business that just couldn't make a go at. And we finally found a place where it makes sense. And, you know, I think for you to think about it, This is how we look at it now is we've got a Costco business that was profitable in Q2, sorry, not in Q1, will be profitable for the rest of the year. So we need to grow that business. We need to do a lot of things, but we're no longer burning money there. We finally turned that one around. And then the Nodeo business, which is already distributing furniture in Europe, will now add the U.S. to its model. And that business will be profitable in the second half. And then the third piece, what I call it is the legacy costs. So these are things that we're still paying for as we get out of the old business. So that's, you know, we still have some warehouses we want to exit. We're looking to sublease most of those. Some of them are running out sooner than others. We still have inventory in them that we need to sell, and some of that inventory is generating cash to pay for these legacy costs. But eventually, when those legacy costs are gone, and I don't have an exact date for you when they're all gone because they will be reducing every quarter, then you'll see a profitable business again on the home side.

Okay, awesome. That's great color. Thanks so much. I'll recue.

Yeah, okay.

Our next question comes from Stephen McCloud with BMO Capital Markets.

Thank you. Thank you. Good morning, guys. I just wanted to circle back around on the home business and, I guess, post the most recent business transition or restructuring. If you look at the revenue base from where we are now, can you sort of size up what the go-forward business will be in terms of the top line?

Let's see. I'm just getting some feedback from my people. Yeah, that's the number I thought. We're looking at an area under $200 million, just under $200. For, I guess, like a forward-looking business, you know, over the next 12 months would be in that ballpark.

Yeah, okay, okay. Okay, that's helpful. And then I guess just thinking about the more near term, how much, how long are you expecting to see kind of sales declines from these proactive exits? I would have thought we would be close to lapping it in Q2, but maybe it's something that you expect to lap in the back half of the year?

Not sure I understand. You're talking about home, I'm assuming?

Yeah, the home business, yeah.

Well, again, I mean, it's going to last for, you know, we've had a number of restructurings here. So what we've done is we've said, okay, we're going to eliminate, you know, all of this business and run with, you know, the remaining. The remainder, and then we go into it and find out, well, part of that remainder business isn't really going to be profitable. Or what happens in most cases is, oh, it needs a lot of overhead to run it. We need to have warehousing to run that business, but the volumes aren't there. So we've cut that back, and we've done a number of times. We've finally got to a point where we're saying, you know what? This business works because now we're seeing it work as opposed to hoping it works. and therefore we're not I don't think we're going to cut anymore but again we still have inventories left to do that with so the core 180 to 200 I think you know if we can isolate that you know you're going to see both growth in top line and bottom line there and then the other part it's difficult to figure out how fast you can get rid of the old stuff I mean we're trying every day.

Right. Okay. Okay. Understood. And then maybe just moving to the juvenile segment, you talked about a lot of the promotional discounting and particularly the FX headwinds that weighed on the quarter. If we backed out FX and saw where you were on the adjusted operating profit line, is that sort of a good run rate for the go-forward business when you think about the back half of the year? Well, yeah.

Yeah, I mean, actually, I expect it to be better in the back half of the year. I mean, this was a tough quarter. We have borders and business going forward. I mean, the U.S. is picking up, and that was the only spot. The only spot in the whole world, actually. The only country, and again, we are very global, that had a tough, tough quarter is the U.S. Everywhere else, you know, things are working pretty much to plan. and I'll tell you, when we look at our internal business plan, every area except for two areas right now are expected to hit or exceed its plan. One is the U.S. and the other one is Chile, you know, and we're dealing with that. But every other country, every other market is doing exactly what we thought. So with an improvement in the U.S. in the second half and improvements even in Europe, in the second half with a lot of the new stuff that's coming through. Yeah, I'm pretty optimistic about the second half of the year.

Yeah, okay, that's great. And then maybe just on the balance sheet, you had some commentary on the MD&A about some covenant relief that was given, including the restructuring charges as add-backs, or sorry, non-cash write-downs, I suppose. Is that something that... does continue into Q3, or is it very one-time in nature, isolated to this period?

I hope that we're not going to see that again in Q3. You know, we're working hard. I mean, some of it is, again, write-downs of, like you said, non-cash items that weren't forecasted for the quarter. So that ended up being really what the covenant issue was. You know, we've taken care of it, and it's good. Again, we don't intend on having that issue again, but it doesn't mean there's not more restructuring. I think we have some restructuring in our plan, but, you know, I don't see these particular items. You know, they've been written down to zero type of thing, so we're close to zero, so, you know, they're gone.

Okay. Okay, that's great. Thanks, guys. Okay.

Our next question comes from Cheryl Zhang with TD Cowen.

Hi, just a couple follow-ups. So going back to home business profile, I guess on a go-forward basis, I think you mentioned that Costco is profitable and Odeo will be profitable and then there's just some legacy costs from the business that you guys are still paying. I wonder when should we Should we be seeing home overall as probable in the second half, or is the legacy cost still continuing that's weighing on probability?

I think the legacy costs are going to continue to negatively impact it for at least the second half. Some of it's big chunks, right? I mean, most of it I'm going to say is leasing of warehouses, so We are on the market to get out of those as soon as we can. Getting the right deal could have a major impact on that sort of legacy number. So I can't predict, I can't tell you which quarter we're going to start really seeing those legacy costs drop away, but they are getting less and less. I mean, there's, you know, there's... and hopefully we can fund those with, you know, some of the inventory sales that we're doing as well. But yeah, I don't... Sorry. You know, getting back to it, yeah, I don't... We know what legacies and costs we have. We don't exactly have the exit date on those legacies and costs go away.

Okay, understood. And then... Just on your manufacturing footprint, I know there's been quite some changes over recent quarters, but could you remind us of your current manufacturing footprint globally in both segments and how much of your sales is currently exposed to U.S. tariffs?

Okay, so let's start with, okay, there's no manufacturing in homes. In fact, most of Costa's business is what we call direct import. We design the product, sell the product, and it goes from a factory in various parts of Asia. On the juvenile side, we have a very large production facility in Columbus, Indiana, which is a very key asset because that facility is not subject to the Variabilities of tariffs and allows both us and our customers to know that we've got a good, solid cost base. A percent of sales, I would have to be of our U.S. sales, I would guess. I don't have that right now, Cheryl. In addition, we do have an assembly manufacturing facility in Portugal, which sells a lot of the lower-priced European products. And we actually have an assembly facility in Brazil, which sells, again, the lower cost products, the lower cost car seat products in the Brazilian market. But I don't, you know, it's more than 50% of our business is still imported. China is still in the juvenile industry. China still is the largest player. Difficult to get out of China in the juvenile and home. We've exited a lot from China, although again, they still play a key role.

But look, today, here's the crazy part, right?

Like today, Brazil has a much higher tariff going into the U.S. than China does. So, you know, Brazil produces furniture. So, you know, I don't think anyone predicted that or saw that coming. So, again, there's huge... You know, there's huge variability here in what's happening with tariffs. But I can get back to you with, I guess, the percentage of our manufactured goods, you know, on the juvenile side.

That would be great. Thank you. And then just lastly, I guess on the cost pressures, wondering if you can maybe elaborate on an impact that you're seeing from the higher fuel costs and We're seeing in terms of other raw material cost inflation.

Yeah, I mean, there's definitely pressure. I think we've been managing it well. Certainly, you know, freight rates are being pushed up and we have a lot of contracts for stuff. So we're not as sort of reliant on spot markets that go up and down. So there's been less, you know, Less pressure from that point of view, but definitely things are moving up. We've done some price increases. As we get more and more into the higher-end goods, the maxi-cozy brand, price is not as difficult as when you have the lower-end goods that are sold in a discount market at a certain price point. And it's particularly more in the U.S., The U.S. would be more, I guess, exposed to the price increases, while I find that another area is Maxi Cosi if we have to raise the price because costs have gone up, but that's a lot easier to do. Because Maxi Cosi is becoming more and more important in Dorel's business and certainly dominates most of the European and international business, it's a little bit less expensive. That's very helpful.

Thanks so much.

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

I just want to thank everybody on with us today. to hear our story. And I just want to wish everybody a great day. Thank you.

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