First Quarter Conference Call May 9, 2013 - Dorel Industries

FINAL TRANSCRIPT 

Dorel Industries 

First Quarter Results 

Event Date/Time: May 9, 2013, 01:00 p.m. E.T. 

Length: 41 minutes 

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May 9, 2013 – 01:00 p.m. E.T. 

Dorel Industries First Quarter Results 

CORPORATE PARTICIPANTS 

Martin Schwartz 

President and Chief Executive Officer, Dorel Industries 

Jeffrey Schwartz 

Executive Vice President and Chief Financial Officer, Dorel Industries 

CONFERENCE CALL PARTICIPANTS 

Derek Lessard 

Analyst, TD Securities 

Anthony Zicha 

Analyst, Scotiabank 

Tal Woolley 

Analyst, RBC 

Leon Aghazarian 

Analyst, National Bank Financial 

Stephen MacLeod 

Analyst, BMO 

Mark Petrie 

Analyst, CIBC World Markets 







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PRESENTATION 

Operator 

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Dorel 

Industries' first quarter 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. Instructions will be provided at that time for you to queue 

up for questions. If anyone has any difficulties hearing the conference, please press * followed by 0 

for operator assistance at any time. 

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 on Thursday, 

May 9th, 2013. 

I will now turn the conference over to Martin Schwartz, President and CEO. Please go 

ahead. 

Martin Schwartz –President and CEO, Dorel Industries 

Thank you. Good afternoon, and welcome to Dorel's first quarter conference call. Jeffrey 

and I will be pleased to take your questions following our initial comments. And a reminder that all 

numbers mentioned during this call are in US dollars. 







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As anticipated, 2013 has started off slower than last year. Revenue in the first quarter 

decreased just over 4 per cent to 594 million; net income of 22.3 million or $0.70 per diluted share, 

compared to 29 million or $0.90 per diluted share a year ago. 

To say the weather through Q1 was a negative factor in the bicycle business is an 

understatement. And this had a big impact on the segment's operating profit. In the US, the March‐ 

April period was the second coldest on record, and in Europe some regions had the coldest spring in 

50 years. And clearly, we were not the only ones affected. Bicycle sales in the industry's IBD and 

mass channels were down over 25 per cent in March. And again, these are industry numbers. This 

was in stark contrast to a year ago, when abnormally mild weather in March drove higher POS levels 

at retail. 

Operating profit for the quarter in Juvenile was also lower than last year due to challenges 

in the economy and consumer confidence in our more mature markets. However, controlled 

spending and enhanced gross margins eased the impact on earnings. 

Latin America as a whole recorded increased profits as Dorel Chile's revenues grew 

substantially and Dorel Brazil had its best operating results since 2010. 

Home Furnishing had one of its best quarters since 2011 with the earnings up substantially 

and the continued growth of online sales, where we are a leader. 

Now for some insight in our three segments. And Jeffrey will detail the numbers shortly. 







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In Juvenile, we have a number of new products either just launched or set to go. The 

Safety 1st Advance 70 Air + announced last week is the latest offering from our Air Protect platform 

and is now in a mass merchant for an exclusive run of a few months. The convertible seat, which can 

be used in either rear‐facing or forward‐facing positions, incorporates our patented G‐cell race foam 

design which provides superior body protection. Dorel's technical centre in Columbus, Indiana 

developed technology jointly with a group that specializes in safety features used in race car seats 

and driver helmets. Coupled with Safety 1st Air Protect for the child's head, Advance 70 Air + 

features full‐body protection. We are confident that this newest Dorel car seat is the safest choice 

for parents and caregivers for their child. 

The highly fashionable Quinny Britto, an upscale version of the Quinny Moodd, which was 

unveiled in the US last summer, has received considerable attention and has done well across the 

States and Canada. Based on this, it is now being introduced in Europe under the Quinny and Maxi‐ 

Cosi brands. 

Also in Europe, a premium range of Bébé Confort baby bottles has been introduced, which 

is noteworthy as it increases Dorel Europe's footprint in the important feeding category. 

Our Latin American businesses continue to do well. At Dorel Chile's three new stores… 

three new store openings in Q1 bring our total store count to 73 with another three planned for 

during the year. 







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Since purchasing Cannondale in 2008, we have made significant investments in this 

premium brand, both in product development and in marketing. This has greatly enhanced 

awareness of the brand and has delivered excellent results. In terms of product development, we 

feel Cannondale has another big winner in the new 2014 Synapse Carbon Hi‐Mod. The Synapse is a 

showcase of next‐generation technology. It is the culmination of three years of development in 

which every aspect of performance was considered, including weight, stiffness, compliance, 

handling and fit. As a result, the 2014 Synapse is lighter, stiffer, stronger, and smoother than its 

predecessor. 

Input from our Cannondale pro cycling riders played a significant role in the development 

process of the bike. So far this season, Peter Sagan, with his Synapse Carbon Hi‐Mod, has competed 

in the 2013 Spring Classics, some of the world's toughest races. He has two wins and two podiums, 

the ultimate proof of performance for an endurance bike. 

Next week we are launching Cannondale Sports, a multi‐brand retail store. We see this as a 

testing ground for breakthrough retail experiences for independent bike dealers and as a flagship 

environment for the consumer. The store will feature products from Cannondale, GT, Schwinn, and 

Mongoose, along with Cannondale and Sugoi apparel and a full line of parts and accessories. We will 

also include the Guru Fit experience to improve customer performance. 

The impetus for Cannondale Sports started a while ago with the concept that the bicycle 

retailing experience can and should be re‐imagined for the modern, well‐informed consumer. The 







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first phase is a retail lab at Cannondale's Bethel headquarters to showcase new retail designs and 

merchandising for the IBD channel. More than 40 US dealers have had their stores remodelled as 

part of that program. 

The Cannondale Sports store now takes this to the next level by allowing us to get even 

closer to the consumer so we can understand exactly what our dealers want and need on a daily 

basis, essentially putting ourselves in their shoes. This will allow us to create a more compelling 

retail environment to test new and innovative retailing ideas and techniques, which we will then 

pass on to our IBDs. 

Cannondale Sports is a 4,200‐square‐foot store in Carle Place, New York, less than a mile 

from Roosevelt Field, one of the largest retail malls in North America. Schwinn is launching a TV ad 

campaign in the US as further support for the brand. Research has shown that consumers know if 

they are going to purchase a bike in the spring but are not sure which brand and where to purchase. 

The new Schwinn campaign coincides with May Bike Month and showcases the Schwinn 

collection, which is available at our retail partners. The ads started last week and will run for a 

month on national cable TV and will be supported by a social media campaign. 

Home Furnishings' solid quarter was driven to a fair degree by continued progress in online 

sales. The segment now has a dedicated team to service and further build relationships with the 

largest online shopping site, as Home Furnishing has had good growth with them over the past few 

months. Also working well is the segment's DSV, or the Drop Ship Vendor Program. 







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Jeffrey will now add a more detailed financial perspective. Jeffrey? 

Jeffrey Schwartz – Executive Vice President and Chief Financial Officer, Dorel Industries 

Thank you, Martin. I'm going to assume everybody's seen the press release. I'm going to 

focus on the segmented results. 

On Juvenile, reported revenue decline was 5.3 per cent. After removing the effects of the 

Columbia acquisition in late 2012 and various foreign exchange rates year over year, the decline was 

about 7 per cent. Our operating profit in the quarter was down to 17.9 million versus 20.4 million. In 

Europe, the comparative quarter of 2012 was particularly strong and some timing of deliveries this 

year will push sales into the second quarter. So that's … that’s part of the reason for the decline. 

This, coupled with the fact that the economic conditions in Europe have not really 

improved any, that resulted in our revenue decreasing by about 8 per cent in Europe. Those are the 

two factors. 

In the US, our operating profit increased slightly due to a more favourable revenue mix 

versus the same period last year. In Latin America, strategy is definitely paying dividends, as Martin 

mentioned. Revenue growth was 37 per cent in the first quarter. The growth came from opening of 

more stores in Chile and Peru, the addition of Dorel Colombia, and a strong quarter from Dorel 

Brazil, as it introduced more and more product lines that met with good reaction from the retailers. 

The segment's gross profit increased by 170 basis points to 29.2 compared to 27.5 last 

year, despite the decrease in revenue. So we're happy about that. 







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Our sales mix was better. We did a good job of managing our input costs, both in the 

United States and in Europe, and we were helped by some small foreign exchange variances in 

Europe as well. 

One of the other issues I wanted to talk about for the division is that we still remain very 

confident in Juvenile. We're starting to see more of a trend, at least for this year, of a strong fourth 

quarter versus perhaps other years, although last year we had a good fourth quarter. A couple of 

reasons for that: Chile, as one of our more profitable and fastest‐growing segments, relies a lot on 

its retail chains to produce profits, and clearly fourth quarter is definitely the quarter for retail. So 

we definitely see our numbers in Latin America skewed towards the fourth quarter. 

In addition to that, we've been hard at work introducing a lot of new products, particularly 

in the US. Last year, I think we've done a good job on a number of products. Martin mentioned the 

car seats. There was a lot of other products that we're showing to our various accounts right now. 

We believe a lot of them will be listed, and, if they are listed, they will be shipped in the month of 

either November or December. So that, you know, we're expecting some additional sales from new 

products, which will all go into the fourth quarter. 

So putting that all together, we're still on track to have a good year, despite a little bit of a 

slowdown in the first quarter, and we do still keep our internal numbers the same for Juvenile for 

2013. 







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Moving over to Recreation and Leisure, as you read in the release, our revenues were off 

last year by 7.9 per cent. The organic revenue decrease was around 8 per cent. Weather was by far 

the biggest factor, but to a certain extent, there was timing of deliveries between quarters, which 

also had an impact. 

In 2011 Q4, we had a relatively weak quarter and our goods that could have or should 

have been shipped in 2011 Q4 were shipped the first quarter of Q1 2012. So because of that, we 

had a very difficult comp, so that, you know, that was part of the reason. But the majority of the 

reason, without a doubt, was the weather. 

Gross profits decreased 130 basis points from 25 points… to 25.2 per cent from 26.5 per 

cent. The decrease in gross profits compared to last year is related to a less profitable product mix 

driven by sales heavily weighted towards lower‐end bicycles due to the late start of the season. 

In addition to that, some of the opportunity buys that we were able to sell during the last 

part of the quarter were lower‐margin products as the higher‐margin main in‐line products were 

already stocked and in stores waiting to be checked out. 

So the additional revenue that we used, or that we tried to push through the channel was 

at a lower margin. 

Over at Home Furnishings, Home Furnishings increased 3.6 per cent from 130.7 million to 

135.4 million this year. It was made up of various different channels. It was pretty well mixed. You 

know, a lot of it also, as Martin mentioned, came from the Internet sales channel. 







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Consumer trend in furniture shopping clearly indicates that the Internet is becoming an 

important channel and home deliveries are becoming an expected part of the shopping experience. 

As a result, our Drop Ship Vendor Program continues to drive online sales significantly. Drop Ship 

basically means that our online retailers rely on us to fulfil the order and ship it straight to the 

consumer on the same day that we receive the order. 

Over the course of the past several years, we've focused on putting both the technology 

and the infrastructure in place to do that, and we're very pleased with the results that we have right 

now. 

Gross profit in ’13 was 13.4 per cent, an increase of 140 basis points over the 12 per cent 

last year. Input costs are stable versus last year. The operating profit increased 150 basis points due 

to the impact of increased revenues and a more profitable sales mix. 

A few general statements before I hand it back to Martin. Our tax rate was 9.6 per cent 

versus 14.3 the prior year. The main reason for that is again, lower earnings in the higher tax rate 

jurisdictions. We still expect our annual tax rate to be between 15 and 20 per cent as some of those 

higher tax rate jurisdictions start to increase their profits. 

On the balance sheet, just a few words about inventory. It did increase 17 million, or 3.5 

per cent. That is mainly in the Recreation and Leisure segment, as one can assume that, you know, 

we didn't push through all the bike sales that we wanted to right away. And so as of now that the 







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weather has broken, you know, those sales are going through. So inventory is coming down on bikes 

right now. And that's it. 


Okay. Thank you, Jeffrey. 

First quarter results do not reflect our expectations for the full year. With the bad weather 

hopefully behind us, both our bicycle retailers and us remain positive about our product offerings 

and fully expect sales to rebound and catch up with the improving weather. We have seen some of 

that rebound already in Europe and certain parts of North America. While weather remains a 

variable that is beyond our control, our market share is intact and growing. We still believe that our 

Recreation and Leisure segment will exceed last year's earnings. 

In Juvenile, our first quarter was as anticipated as the timing of sales was different from 

last year. With the new product launches and other plans, our expectations remain positive in 

Juvenile for improved 2013 earnings. 

In Home Furnishings, we have had a good start to the year and continue to benefit from 

our solid retail relationships. 

For the company as a whole, we expect our key input costs to remain stable in the 

foreseeable future, so we maintain our confidence that 2013 will exceed last year's overall results. 

I'll now ask the operator to open the lines for your questions. And again, please limit your 

questions in the first round to two. Operator? 







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Q&A 

Operator 

Thank you. Ladies and gentlemen, we will now conduct the question‐and‐answer session. 

If you have a question, please press * followed by the 1 on your touchtone phone. You will hear a 

tone acknowledging your request. Your questions will be polled in the order they are received. 

Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One 

moment, please, for your first question. 

Your first question comes from the line of Derek Lessard with TD Securities. Your line is 

open. 

Derek Lessard – Analyst, TD Securities 

Yes, thanks, and good afternoon, guys. 

I think a lot of people were caught by surprise by the magnitude of the weather impact on 

your bike sales. March last year was really strong. Just wondering what April and May was like 

compared to a normal year last year. Yeah, I guess what I'm trying to get at is, you know, in your 

experience, if you'd had a bad season, can you make up for it, or do you… or do purchases just get 

pushed out to next year? And what gives you the confidence that, you know, given that we still have 

a… we had a pretty cold April this year, that overall profits will be up? 







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Well, yeah. I mean, definitely, I mean, the answer's pretty… you just have to look outside 

and read the weather reports. So yes, April was still a tough month, there's no question. May, on 

the other hand, is going very well. 

I think what gives us a lot of confidence that we're still going to improve, and you know, 

basically we have to catch up from the shortfall of Q1 and then go ahead throughout the rest of the 

year, is that a lot of our customers aren't giving up yet. And I'm talking about mass merchants right 

down to the IBDs that are saying they still are aiming to do the numbers that, you know, their 

original plans said. 

So nobody's panicking yet. I mean, it is certainly a challenge. I'm not going to say that 

we're going to do everything that our budget planned, but you know, we're definitely aiming and 

believe we're going to do better than last year. 

But you know, again, the weather is everything. I mean, right now we're, at least in the 

northeast, things are great. I mean, the bikes are checking out. In the last few weekends at some of 

our large mass market customers, they've had significant growth in sales versus last year. So it's all 

starting to roll. 

We have a lot… I think Martin talked about some of the ads and promotions we're doing 

with Schwinn. A lot of that's hitting in May. So May is a key retail sales month. So you know, if it 

starts to rain and gets cold again for the rest of May, that's going to be a real challenge. But if we 







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believe in, you know, if we believe that May is going to be good, I think, you know, we could make 

up a lot of ground over the next eight months. 

Derek Lessard 

Okay, and I guess just a follow‐up to that, are the dealers still trying to draw down their 

inventories, or are they ordering from you guys again? Like, have they been… 


They are ordering now. In fact, our orders now are coming in above plan for May. But you 

know, that makes sense because they, you know, they didn't order that much in April, the dealers. 

The dealers' inventory levels were not abnormal. You know, they were high for the time. But 

basically, they weren't reordering until they started selling the goods. But now that the goods are 

selling, the reorders are coming in. 

Derek Lessard 

Okay. Thanks, guys. 

Operator 

Your next question comes from the line of Anthony Zicha, with Scotiabank. Please go 

ahead. 







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Anthony Zicha – Analyst, Scotiabank 

Hi, good afternoon. Martin, can you provide some colour on the weakness in Juvenile, 

maybe from the perspective of America? Like is there anything different, or have you seen or 

experienced any change in the competitive landscape? 


Yes. I mean, it has been weak. I mean, we have to remember, if you go back to January, 

you had the tax refund issue in the United States where consumers weren't spending in January. So 

I'd say the overall market tends to be weak. We do have some of our competitors that are definitely 

gaining ground; others are losing ground. So I mean, that's certainly the case. 

You know, we haven't really gained any ground up until right now. But as Martin 

mentioned, we've introduced kind of a long‐awaited car seat just this week, hope to see it do well, 

and we have a lot of introductions scheduled for shipping at the… in Q4. So I think that's going to be 

the time that we see… We're talking about the US here. 

Anthony Zicha 

Mm‐hmm. 


That's when we're going to see kind of a… hopefully a growth in the US. 

Anthony Zicha 

Okay. So you wouldn't expect much of a rebound in Q2, then? 







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Well, we had a decent Q2 last year in the US, so we're expecting another decent Q2 again. 

You know, versus the first quarter, yeah, we are expecting a rebound. But we had a good Q2 last 

year. 

Anthony Zicha 

Mm‐hmm, okay. My second question is despite the weaker sales in the quarter, the 

Juvenile segment improved their gross margins. You also cited like improved product mix. Is there 

any other explanation for the improvement? Is it sustainable? 


Yeah, I think so. Yeah, it's definitely sustainable. I mean, that's the focus is particularly in 

the US where we're focused more on bringing up our margin than bringing up our top line. And you 

know, we've been… I think we've been successful there. 

Anthony Zicha 

Mm‐hmm. 


So yeah, it's definitely, you know, providing we don't see any major changes in input costs, 

it is sustainable. 







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Anthony Zicha 

And what have been the trends that you've experienced? 


In the input costs? 

Anthony Zicha 

Mm‐hmm. 


Input costs have been fairly stable to slightly down. 

Anthony Zicha 

Okay. So that could be a surprise if the costs trend downwards, and that should help, again 

improve profitability, right, Martin? 


Yeah, we're always working hard on getting costs down. 

Anthony Zicha 

Yeah. Okay. Well, thank you very much. 

Operator 

Your next question comes from the line of Tal Woolley, with RBC Capital Markets. Your line 

is open. 







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Tal Woolley – Analyst, RBC 

Hi. Good afternoon. Just wondering for the bikes business, when you get a bit of a squeeze 

early in the season on weather, is it fair to say, you know like your costs to sort of service sales with 

a narrower selling window, you know, would tend to be a little bit higher going forward, or you 

know, so more plainly, I'm asking like, you know, do you tend to have to burn a few more dollars 

trying to service accounts when the weather kind of works against you? 


No, I don't think so. But I'll tell you the other thing that affected us, and I guess we didn't 

talk about it, was, you know, we came off of a great year last year and we increased our investment 

in the business for this year and expected to have, you know, a gain in sales, particularly on the IBD 

side. And we actually had a drop in sales, but we didn't… we weren't able to shut the tap off 

immediately on all the increased expenditures. So we ended up, as you can see in our line, our cost 

of SG&A is up in that area. 

So I mean, our costs are up, but they were supposed to be up, but we were supposed to 

get the sales to go along with it. I do believe those costs were well spent. You know, we like where 

we are market share wise. We have more distribution, we have great products out there. Our 

dealers are really happy and ready to go. They just … They just need the customer to come in the 

door. 







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But no, actually, you know, everything is… I don't know, so kind of seamless now with 

dealing with customers that I don't think there's an increase in costs at this point. 

Tal Woolley 

Okay. And just on the Juvenile side, I guess, you know, we're sort of like nine months out, 

or nine months out for the leadership change there. You know, you had the Investor Day last year 

where Jean Claude, you know, sort of spoke, but he was very early on in his role. I'm just wondering 

sort of as we approach like that first‐year anniversary, has there been any thought about, you know, 

what are the big, you know, changes that are coming as a result of, you know, his being… him being 

at the top of the organization for a year now? 


Yeah, I mean, yeah, it's a good question. Certainly there are a lot of what we'll call 

leadership sort of changes, a lot of bringing the company together to be a tighter group, more 

synergies. They're working on a lot of synergies. I think probably what we'll do is deal with this 

more, you know, at the end of Q2 when we get closer to that anniversary. 

Tal Woolley 

Okay. 







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You know, because things are still happening now. But that's kind of the goal. I mean, and 

we do see it in many cases where we're bringing, we've got stronger people in the right places now. 

There's a lot more work. 


Yeah. We're also working on a very, you know, a large, global platform for all our Juvenile 

businesses. You know, a single platform. And that seems to be coming along quite well. 

Tal Woolley 

Okay, that's great. We'll look forward to that. Thank you very much. 

Operator 

Your next question comes from the line of Leon Aghazarian from National Bank Financial. 

Please go ahead. 

Leon Aghazarian – Analyst, National Bank 

Hi. Thanks. It's a quick question regarding the inventory. You briefly mentioned it, Jeffrey, 

that the inventory level, you know, went up because there was a… I guess less sales than you were 

expecting in Recreation and Leisure. What's the inventory level that you're going to be comfortable 

with in Q2, I mean, assuming that there are, you know, more sales in Q2 than there were in Q1? 







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Well, we expect inventories in the Recreation to go down as you get towards the month of 

June. There's no question about that. But that's also the time that Home Furnishing raises its 

inventory because back to school is a big season, and that starts July shipping. So I'm not sure the 

net effect of all of that together. Yeah. I mean, in the past we've actually gone up. In the past we've 

gone up in June. 


Yeah. 


I'm not sure we're going to go up as much because I think we'll be drawing down the bike 

inventory more than we normally do. So a little difficult to predict. I wouldn't… I wouldn't expect 

much of a drawdown, but it's going to transfer over to back‐to‐school goods. 


Okay. That's helpful. And a final one from me. I guess to follow up to a previous question 

as well, regarding for the Juvenile, for a better sales mix, you were mentioning, you know, resulting 

in an increase in the gross profit. Can you be a bit more… can you give us a bit more colour on that? 

Were they higher price‐point products? Were they new products that you saw that you had success 

with, or at a given retailer, or just a bit more colour on that, please? 







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I think it's a lot of things. I think, you know, an example would be more sales of a highermargin 

product doing better at a retailer, perhaps getting more. If it’s at a mass merchant it would 

get more distribution and more stores. We've eliminated sales of a few items that were low margin. 

We've done a good job of purchasing, in many cases, where, you know, we've lowered costs 

because of purchasing. So I guess that would be a general thing. But you know, is there anything 

else? 

Yeah, I mean, you know, I think it comes down to not focusing on selling more, you know, 

higher‐margin products and not selling the low or zero‐margin products that maybe we have in the 

past. So I mean, it's just… it's a management focus that's been going on now for a couple of years. 


Great. Thanks. 

Operator 

Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. 


Stephen MacLeod – Analyst, BMO Capital Markets 

Thank you. Good afternoon. Just on the recreational business, the steep decline in EBIT, 

was that mostly due to a lower mix of IBD, higher‐end sales? 







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Not really, no. We actually… I mean, the slowdown in sales happened everywhere, right? 

Mass merchants as well put the brakes on at a certain point in March. 

No, I think the steep decline is a combination of a drop in sales from last year and an 

increase in spending based on the fact that we were expecting an increase in sales from last year. So 

you know, we spent a lot more than we should have, in a sense, but those were the investments we 

made in, you know, promoting the brand and, you know, in the Schwinn brand, in the Cannondale 

brand. And then the… we're up, you know, our expected sales number is up much more than, you 

know, the actual sales number from last year. 


You know, like I said, you know, like I said, we're opening up a new retail store, we've 

invested in the Guru, okay, we've invested in, you know, in the Cannondale pro racing scene. This is 

all us buying into the future. And we spent some of that money in the first quarter to strengthen our 

future down the road. This was all part of it. 


Right, okay. I understand. Thank you. And then on Latin America, you mentioned in the 

Juvenile segment, so you said Latin America growth was about 37 per cent. Are you able to say how 

much of that was organic versus acquisition related? 







24





The actual growth in Latin America was… We'll get it to you. It's the majority of it. 


Majority organic? 


Yeah. 


Yeah. 


Yeah. I mean, because we grew it. We definitely grew in Brazil, Chile. I mean, yeah, we got 

a little bit from Colombia, but… 


Colombia only started the end of last year. 


Yeah. So we only had… you know, it's not… It's still a small piece, Colombia. 


Okay. And was Colombia, were sales from Colombia in line with kind of what the 

acquisition would have implied? 







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Yeah, pretty much. I mean, you know, again, it's the first time you get it. I mean, we're still 

looking at it on the annualized basis. So yeah, I mean, it's a little… that part of the world's a little 

trickier to do your predictions, but we're not unhappy. 


Right. 


We feel there's good potential there. 


Okay. Okay, great. Thank you very much. 

Operator 

Your next question comes from the line of Mark Petrie, with CIBC World Markets. Your line 

is open. 

Mark Petrie – Analyst, CIBC World Markets 

Hey, good afternoon. I just wanted to follow up a little bit about your entry or growth in 

the feeding segment in Europe. How material is that business for you in Europe, and also in the US? 

And what do you think the growth opportunities are? 







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Well, it's not in the US, first of all. It's a… it's not quite material yet in Europe. I mean, we 

do a nice business in France, and actually it's not brand new. We've kind of reintroduced the 

product line. We've been selling feeding for a long time in France and are one of the major players 

there. What we're looking to do is enhance the line and start to expand it outside of that market. 

But at this point, you know, in the global scale of a billion‐dollar company, it's not material. 

Mark Petrie 

Is there M&A there that is possible to accelerate that? 


Possibly. That's, you know, one of the categories that has always kind of been on our 

radar. 

Mark Petrie 

Okay. And just regarding the dividend, and maybe if you can just talk about sort of, you 

know, priorities for cash and all that stuff, I think the dividend went up last year with the Q2 results. 

Is that going to be… I think you said you're going to be looking at it sort of on an ongoing basis. How 

should we think about it in terms of, you know, a guideline around cash flow or trailing earnings, or 

something like that? 







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Well, it's the board's view, which I share, that we shouldn't be raising a dividend in a bad 

quarter. You know, some people could have the opposite view, that, you know, if you have a bad 

quarter, if you raise the dividend, at least you make some people happy. But I think our view is, you 

know, when everything's stabilized, we can look at it again. But I think it is our intention to seriously 

look at it every year and see if we can increase it. So you know, we'll definitely be looking at it again 

in Q2. But that's all I can commit to at this point. 

Mark Petrie 

You don't have any sort of targeted payout or anything like that? 


No. No, we don't. We really don't, because you know what? There's still acquisitions out 

there that we've been working on. You know, we're always working on them. If something comes, 

then, depending on its materiality, that could affect how much the dividend is. But you know, we'll 

have to see as we get every quarter. 

Mark Petrie 

Okay. And how are you thinking about share buy‐backs right now? 


Probably, you know, less important than the dividend. So you know, again acquisitions are 

important or paying down of debt. And you know, looking to see if we can increase our dividend is 







28




probably a bigger priority than share buy‐back. But you know, that could change if there's weakness 

on the stock or something like that. But right now, that's sort of the last one. 

Mark Petrie 

Okay, thanks. 

Operator 

Your next question is from the line of Derek Lessard, with TD Securities. Please go ahead. 

Derek Lessard 

Hi, guys, just a question on your spend in the bike business. I mean, it is obvious that 

you're spending… you're spending money. You're all over the place in social media, the trade 

magazines, the Cannondale pro cycling team. Just when do you think that this is really going to start 

paying dividends for you? And secondly, when do you anticipate scaling all this back? 


Well, I think it has paid dividends. I mean, up until this quarter, we, Cannondale branding 

has been incredible. You know, I mean, we've doubled sales on this brand. Our earnings are way, 

way up. So I think it's paid dividends. I mean, the timing, there's no question the timing's off this 

quarter. We weren't expecting bad weather, and didn't spend according to bad weather. So I think 

we believe had we had good weather, we would have been on plan and … and it would have been 

fine. 







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As far as tailing off, I mean, you can never, when you have a brand like Cannondale, you 

can't stop spending. 

Derek Lessard 

Okay. 


You know, we might… we might reduce the growth over time because, and you know, 

that's a possibility. But we're not going to reduce the spending on the category. 


And also, social media costs are very minimum. So increasing, you know, we're going to be 

increasing focus that. But like Jeffrey says, you know, we just can't walk away from promoting the 

brand. 

Derek Lessard 

Okay, and fair enough. And just maybe an update on your… on the Guru Fit system and the 

pilot project, where you're at. 


Well, it's going well. We've got 50 units out there. We're finding big success with a large 

group of them, and some of the dealers are not successful with it. And we're right now finding out 

the reasons why, and we're seeing… It's basically a behavioural issue on how some dealers use the 

product and others dealers. So we're taking the sort of best practices and implementing them on 







30




the less successful dealers, showing them how to become successful with the product. And at the 

same time, we're looking to roll out an expansion in Q4. 

Derek Lessard 

Okay, so how many more stores? 


Haven't committed to that yet. We're working on a new model, like sort of a new 

generation… 

Derek Lessard 

Okay. 


… of unit, and working on sort of the behavioural aspects of the retailers so that they 

understand how to, you know, get a better benefit from the product. But we've seen a significant 

number of very successful people who have increased their conversion rate, have increased their 

sales because of the product, who are really, really happy with it. So we want to take their practices 

and sort of share that with other dealers. 

Derek Lessard 

Okay, and one final question on the new car seat. I think you're going at it with an initial 

launch customer. When do you expect to roll it out, I guess, across the board? 







31





In six months. 

Derek Lessard 

So by the… by Q4? 


Yeah. 

Derek Lessard 

Okay. Thanks. Thanks, guys. 

Operator 

Ladies and gentlemen, if there are any additional questions at this time, please press the * 

followed by the 1. As a reminder, if you are using a speakerphone, please lift the handset before 

pressing the keys. Your next question comes from the line of Tal Woolley, with RBC Capital Markets. 


Tal Woolley 

Thanks. Just wanted to follow up on the Advance Air + launch. It's more… it sounds like it's 

more of a technology launch that could maybe be scaled across multiple products? 


Yes, of course. 







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Tal Woolley 

Okay. So the… and then in Europe this quarter, obviously, you know, there was some 

weakness in the Juvenile business, but it sounds like, just to make sure I understand you clearly, you 

haven't really changed your internal sales plan much, so you don't really… it sounds like that's… you 

know, you see that, the decline, more as a… more as timing rather than any sort of broader issue 

related to Europe. 


Pretty much that's it. Yeah. 


I mean, you know, we're down a little bit from our plan, but our plan… well, we're pretty 

close to the plan. 

Tal Woolley 

Okay. 


So you know, on the top line. 

Tal Woolley 

And then, you know, given the weather situation, I'm sure Sugoi's results this quarter 

weren't, you know, any better than the rest of the business. But just wondering if you can speak to 

sort of the turnaround efforts that continue there. 







33





Yeah, they actually weren't… No, they weren't as bad as the bicycle end. They had their 

units in. I think fashion's a little different. You know, you've got to ship it in earlier. So you know, it's 

going well. You know, we're… we've definitely turned the business around, and now we're focused 

on increased sales. You know, the operations are running smoothly and they're running well, but 

now what we need to do to take it to the next level is increase the sales. 

Tal Woolley 

Okay, that's great. Thanks a lot, gentlemen. 

Operator 

Mr. Schwartz, there are no further questions at this time. Please continue. 


Okay. Well, I want to thank everybody for joining us this afternoon. There are many things 

underway in our various businesses, and we still expect full‐year earnings to exceed last year. 

I invite you to join us on May 23rd for our annual general meeting of shareholders to be 

held at the Montreal Ritz Carlton Hotel. The meeting begins at 10:00 in the morning, and we hope 

to see you there. 

Have a pleasant afternoon. 







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Operator 

Ladies and gentlemen, this concludes the conference call for today. Thank you for 

participating. Please disconnect your lines. 

***** 







35

First Quarter Conference Call May 9, 2013 - Dorel Industries

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