The supply chain continues to be a headache for Dorel. After dealing with delays and rising transportation costs, the furniture and children’s product maker now finds itself with too much merchandise in stock.
Posted yesterday at 12:44 p.m.
The situation is particularly difficult for the Dorel Home division, which posted an 11.4% drop in sales to 209.8 million US in the second quarter.
“The second quarter began with serious supply issues, whether we’re talking about container availability, logistics and unloading problems,” said President and CEO Martin Schwartz during a conference call on Tuesday to discuss quarterly results.
The Montreal company, however, observed a rapid turnaround in the situation which led to other problems, explains the manager.
As the quarter unfolded, some issues improved to the point that goods poured in at a time when consumer habits had changed drastically.
Martin Schwartz, President and CEO of Dorel
Household spending on furniture has fallen as consumers travel more or worry about rising food and fuel prices. “This situation has created a glut of inventory for us, but also for our retail customers who have reduced their order. »
For the company as a whole, overstocked inventory has taken up the equivalent of US$80 million in cash that cannot be used for other purposes, said chief financial officer Jeffrey Schwartz.
Management, however, made more optimistic comments about the children’s products division, which is also struggling with surplus items. If retailers have reduced their orders to sell off their stocks, Dorel anticipates a return to normal at the end of the year due to the “essential” nature of its products.
The war in Ukraine had a negative effect on demand in Europe, geographically close to the conflict, observes Jeffrey Schwartz. “We believe this is not sustainable. At some point, people are going to need to buy more products. »
He cited a study commissioned from a third party which claims that the market for children’s products has fallen by 10% in Europe. Market research leads Dorel to believe it has gained market share there, despite the headwinds. “It should be reflected in the results of the fourth quarter [une fois que la demande aurait remonté]. »
The division’s revenue reached US218.0 million, an increase of 3.4%.
In the second quarter, Dorel announced a net loss of 13.6 million US, compared to a loss of 1.4 million US for the same period last year. Revenues, for their part, fell by 4.4% to 427.8 million US.
Around noon, Dorel shares fell 61 cents, or 8.89%, to $6.25 on the Toronto Stock Exchange.