Dorel lays off workers as consumer spending slump weighs on earnings

MONTREAL — Dorel Industries Inc. laid off workers last quarter amid ongoing losses fuelled by low demand for furniture, even as it reported its best financial results in two and a half years.

The maker of children's products and home furniture cut 40 employees in the latter segment — about five per cent of its North American total — according to financial filings Tuesday.

"We basically restructured in a way where we've combined a couple of our operating units under one operating unit and reduced staff," CEO Martin Schwartz told analysts on a conference call Tuesday.

Montreal-based Dorel also laid off 30 employees at its juvenile segment, which sells car seats and strollers in scores of countries. The cuts comprise one per cent of the segment's then headcount of 2,740.

The layoffs made up the bulk of the company's cost-reduction strategy, leaving it with 3,885 workers as of Dec. 30.

The total cost of the job cuts amounts to US$4.6 million, mainly in severance and termination benefits, the company said. The move will likely yield US$6.5 million in savings this year, said Schwartz.

"We're expecting a return on that right away," he said.

The designer and manufacturer reported a net loss of US$3.8 million for the quarter ended Dec. 31, a big improvement from its US$41.4-million loss in the same period last year.

Adjusted earnings of US$200,000 also marked the first time Dorel avoided an adjusted loss since the second quarter of 2021.

A 12 per cent boost in revenue from the family-run company's juvenile segment helped offset an eight per cent drop in revenue from home furnishings, which account for 40 per cent of sales.

"We are well on our way to getting juvenile back on a solid footing," said Schwartz, adding that the segment notched its best quarter since 2017.

Product development helped drive market share gains, particularly at Dorel's Maxi-Cosi brand. Its higher-end rotating car seats now boast a sliding technology to "slide your child towards you, getting them easily in and out of the car," said Schwartz, whose fatherLeo founded the firm in 1962 — the year the car seat was invented.

At the home segment, which sells items ranging from sofas to step ladders, Dorel felt the ongoing slump in spending on consumer products that followed the COVID-19 splurge.

“The current economic environment continues to constrain consumer spending on home furnishing. This was particularly the case in December and the market did not rebound as expected. As a result, neither did Dorel home sales,” Schwartz said.

In the United States, furniture sales across the industry fell 7.5 per cent last year, he said, citing Census Bureau data. In Canada, spending on furniture dropped nearly eight per cent, even as overall retail spending nudged up by less than one per cent, according to a J.C. Williams Group report.

Asked when its home furniture segment would turn a profit, Schwartz replied, "I'd like to answer that," but struggled to.

"It's just difficult. If interest rates would drop at home, if sales across the U.S. were to pick up, I think that would all have a positive impact on the industry and therefore on us."

One bright spot was the uptick in brick-and-mortar sales, as inventory decreases prompted more replenishment orders from retailers, he added.

Dorel's share price fell 25 cents or 4.2 per cent to close at $5.70 on the Toronto Stock Exchange.

The company sold its bike segment to Dutch firm Pon Holdings for US$810 million in January 2022 — when its stock topped $27.

In its fourth quarter, Dorel said revenues rose 3.1 per cent to US$350.7 million from US$340.3 million a year earlier.

On an adjusted basis, net income from continuing operations reached one cent per diluted share versus a loss of US$1.22 per diluted share the year before. The result beat analysts' expectations of an adjusted loss of seven cents per diluted share, according to financial markets data firm Refinitiv.

For the full year, net losses improved by 48 per cent to US$62.4 million from a US$118.9-million loss in 2022. Revenues fell 12 per cent to US$1.39 billion in 2023 from US$1.57 billion the year before.

This report by The Canadian Press was first published March 12, 2024.

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Christopher Reynolds, The Canadian Press