This Canadian manufacturer aims to expand markets for its niche products with higher e-commerce sales and a growing overseas presence.
The company appears to be adjusting successfully to the demise of a major toy retailer that affected sales for its juvenile business. It has strengthened its home products with a U.K. acquisition that gives the company a hub for its growing European business. The stock trades at a low 8.2 times projected earnings and the dividend yields a high 7.4%.
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DOREL INDUSTRIES INC. (symbol DII.B on Toronto; www.dorel.com) makes a range of items: ready-to-assemble home and office furniture; juvenile products such as car seats, strollers, high chairs, toddler beds and cribs; and bicycles and other sporting goods.
Dorel recently announced the acquisition of U.K.-based Alphason. Established 30 years ago, Alphason designs and distributes home office and audio-visual furniture (TV stands and TV wall mounting brackets). The Alphason brand is sold at several large independent retailers across the U.K.
Dorel will integrate the operations into Dorel Home’s existing Dorel Home Furnishings Europe unit. The purchase price was not disclosed.
The purchase provides Dorel Home with a new U.K. base as well as a distribution hub to serve its growing European business.
In June 2018, Dorel sold its SUGOI and Sombrio brands to Louis Garneau Sports Inc. for an undisclosed amount.
Both brands focus on cycling apparel and continue to lose money. Dorel took a one-time, non-cash charge of $11 million U.S. in the 2018 second quarter as a result of the sale.
The sale will let Dorel Sports focus on its core businesses of bikes, parts and accessories, and electric ride-ons.
Growth Stocks: Home division now makes 50% of revenue from e-commerce
The liquidation of the U.S. operations of Toys “R” Us continues to have some effect on Dorel. However, the company is shifting its Dorel Juvenile and Sports businesses to other retailers and other sales channels.
Dorel Home is successfully boosting its online sales—that division now makes 50% of its revenue from e-commerce. Its warehouse network processed a record number of packages in March for its e-commerce channel.
The company now needs to do the same for its Juvenile and Sports segments. That will let it sell an expanded line of products for lower costs and higher profits. Bikes in particular are a highly competitive business, especially in the mass market channels, where value and price are the most important factors. That requires a strong e-commerce presence.
In the quarter ended June 30, 2018, overall sales rose 2.0%, to $623.2 million from $611.3 million a year earlier (all figures except share price in U.S. dollars).
Earnings, excluding one-time items, rose 1.7%, to $12.7 million, or $0.39 a share. A year earlier, Dorel earned $12.4 million, or $0.38.
The stock trades at a low 8.2 times the forecast 2018 earnings of $1.66 U.S. a share. Dorel pays a quarterly dividend of $0.30 a share. The annual rate of $1.20 U.S. yields a high 7.4%.
Recommendation in Stock Pickers Digest: Dorel Industries is a buy.
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