Q2 2026 Dorel Industries Inc Earnings Call

Speaker #1: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to DOREL INDUSTRIES Q2 2026 results conference call. At this time, all participants are in listen-only mode.

Speaker #1: Following the presentation, we will conduct a question-and-answer session. To join the question queue, you may press * then 1 on your telephone keypad. Should you need assistance during the conference call, you may reach an operator by pressing * then 0.

Speaker #1: 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.

Speaker #1: I would like to remind everyone that this conference call is being recorded today on August 6, 2026. I would now like to turn the call over to Martin Schwartz, President and CEO.

Speaker #1: Please go

Speaker #2: Okay. Thank you. Good morning. Thanks for joining us for DOREL's Q2 earnings call for the period ending June 30, 2026. Today, we will review our Q2 performance, provide an update on strategic actions underway across the DOREL juvenile and DOREL home, and discuss how these initiatives are intended to improve profitability, simplify the business, and strengthen cash generation over time.

Speaker #2: 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 US dollars.

Speaker #2: DOREL juvenile delivered a resilient Q2, supported by strong international performance, and continued momentum in its premium brands. While softer market conditions in the United States affected sales, the segment continued to improve underlying operating performance.

Speaker #2: With growth across several key international markets, ongoing investment in innovation, consumer engagement, and commercial execution continues to reinforce DOREL's juvenile's ability to navigate market challenges while strengthening its foundation for long-term profitable growth.

Speaker #2: As announced with our first quarter results, DOREL home required a further reduction in its overhead structure. During the quarter, we advanced a new business model centered on Costco product categories.

Speaker #2: In addition, our European furniture distribution company, Nadio, 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.

Speaker #2: 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.

Speaker #2: Juvenile results included some significant year-over-year foreign currency variations. When those are excluded from the figures, the underlying earnings actual improved both in the quarter and the year-to-date.

Speaker #2: This was in spite of some challenges in our major US market and again demonstrates the resilience of our business model. The smaller international markets continued to excel.

Speaker #2: 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 beat growth engine and has been established in many non-European markets as a preferred choice for consumers.

Speaker #2: 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.

Speaker #2: We saw encouraging momentum across several of our key brands during the quarter. At the ABC Kids Expo, in Las Vegas, DOREL juvenile USA showcased innovation, an upcoming product launches across Maxi-Cosi, Safety First, Little Seeds, and Tiny Loves.

Speaker #2: This event provided an important opportunity to engage customers and partners. Present new category initiatives and reinforce the relevance of our portfolio in the juvenile products market.

Speaker #2: External recognition also reinforced the strengths of our product offering. Safety First received recognition for home safety and connected nursery products. Including the ADP Baby Proofing Kit, and the Smart Humidifier.

Speaker #2: Maxi-Cosi also received recognition for its Embrace 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Costco products, youth furniture under DOREL juvenile, and select furniture opportunities supported by Nadio. Throughout the restructuring process, Costco has demonstrated resilience and remains the foundation of our home strategy.

Speaker #2: 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.

Speaker #2: Importantly, the Q2 reinforced our confidence in this business. While DOREL home overall remained burdened by legacy costs and restructuring activities, management analysis showed that Costco itself performed in line with expectations and was profitable within the new operating model.

Speaker #2: The second component of our strategy is the transfer of youth furniture into DOREL juvenile. This move leverages the natural connection between youth furniture, nursery furniture, and DOREL juvenile's existing product categories.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: The items being transferred to Nadio will be sold in North America and will be limited to active, profitable SKUs to start and will be direct shipment or will be direct shipment sales or utilized third-party warehousing that do not require company-owned warehousing in North America.

Speaker #2: The dedicated Home Furniture organization has been further downsized, with certain retained activities integrated into existing platforms and Juvenile or Nadio. These actions are expected to improve profitability, increase flexibility, and reduce risk going forward.

Speaker #2: I'll now ask Jeffrey to review the financials.

Speaker #3: Thank you, Martin. For the Q2 of '26, DOREL'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.

Speaker #3: In DOREL juvenile, the decline was mainly in the US, the revenue declines were partially upset by some robust double-digit revenue in organic growth in most of our export markets, places like Australia, Brazil, Canada, are doing the best they've done in years and years.

Speaker #3: So we're pretty excited about that level of growth. On the margin line, the margins decreased by gross margin by 9.3 million, or 18.7%. In a decrease by 80 basis points from a percentage from 16.1 or 216.1 from 16.9.

Speaker #3: 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-core SKUs at very low margins.

Speaker #3: 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.

Speaker #3: On the juvenile side, the decrease in gross profit and margin in the Q2 was primarily driven by year-over-year significant negative foreign exchange impacts due to the US dollar weakening against the euro in the Q2.

Speaker #3: Operating loss for DOREL 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.

Speaker #3: From an FX standpoint, we had a loss not as significant loss this year, however, there were some significant FX gains in Q2 of last year, as the euro strengthened significantly against the US dollar.

Speaker #3: 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.

Speaker #3: If we move over to the juvenile now, the Q2 revenue was 209, decreased by 3.9% versus last year. The organic revenue line was down a little bit more at 6.8%.

Speaker #3: The revenue in organic revenue declines were mainly in the US market. In the US 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.

Speaker #3: 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.

Speaker #3: Like I said, in our international area, Australia, Brazil, like I said, doing extremely well. Australia's growth is now allowed our Mexico's brand to finally take the number one position in car seats in that country, with the leading retailers.

Speaker #3: 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.

Speaker #3: 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 and 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.

Speaker #3: So while this used to be a very minor point of DOREL and it wasn't really influencing our export business or businesses outside of Europe and the US, our actually starting to contribute meaningful dollars to the bottom line.

Speaker #3: From a gross profit, gross margin standpoint, the numbers decreased in the juvenile by 4.7 million. It declined by 110 basis points as a percentage down to 27.9.

Speaker #3: The decrease was really mostly part of the negative foreign exchange in some obviously lower sales in the US and doesn't help us on that end.

Speaker #3: 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.

Speaker #3: Compared to 6.5, if we remove restructuring costs, adjusted operating profits declined by 2.7 million, to a 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.

Speaker #3: 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.

Speaker #3: But again, all of that is pretty much in the areas that we are just exiting the business. So you see a decline of 46.4%.

Speaker #3: 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.

Speaker #3: 6.3 million, to an adjusted operating loss of 6.5. The other thing, just I wanted to address, was finance expenses during the quarter. Increased by 8.6 million to 17 million.

Speaker #3: However, the cash portion of the interest was 11.1 million. This year. So a significant chunk of that just 5.9 is non-cash. So that's an important thing.

Speaker #3: With that, I'll pass it back to Martin for the outlook.

Speaker #1: Okay. Thank you, Jeffrey. DOREL 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.

Speaker #1: Company expects improved earnings in both the US and Europe, supported by significant new product launches. As an early indicator, US sales improved in July and we expect that trend to continue.

Speaker #1: DOREL juvenile remains focused on sustainability profitable growth while further strengthening its position as a global leader in juvenile products. DOREL home remains focused on executing its transformation strategy and building a simpler, more agile, and financially sustainable business.

Speaker #1: 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 platform.

Speaker #1: With that, I'll ask the operator to open the lines for questions. Operator?

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: The first question, comes from Cheryl Zhang. With TD Cowen.

Speaker #4: Hi. Good morning, Jeffrey. And thanks for taking our questions. I wanted to first start on the juvenile segment. So I think MDNA, you noted that part of the US sales decline was due to the timing of certain programs with the key customer delaying sales to the second half of the year.

Speaker #4: I wonder if you could please elaborate on that. You also said US sales improved in July can you maybe speak to what you're seeing that support your that support a continued sales improvement in the second half, please?

Speaker #4: Thanks.

Speaker #3: 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.

Speaker #3: 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 some of them have shifted to later in the year.

Speaker #3: 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 so that and we're seeing the results.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: In the US in July is a good indication that we're on the right track for that.

Speaker #4: 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 retail programs coming back as a tailwind in the second half?

Speaker #4: Curious if you have any.

Speaker #3: Yeah. 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.

Speaker #3: 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.

Speaker #3: But that one's only hitting in the US at the beginning of Q1. So, that particular item, we'll have to wait three months more, but that's a key thing in Juvenile, right?

Speaker #3: It's about 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 so well in Europe over the last two, three years.

Speaker #3: And driven our international businesses. We're just really succeeding. We've got to get more of those introduced into the US. We do have some. That are coming in Q3.

Speaker #3: And we have more in Q4. And we have quite a bit Q1 and Q2 next year. So that's what's really going to drive meaningful numbers.

Speaker #4: 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.

Speaker #4: 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?

Speaker #3: Oh, yeah. Let me answer the second part first. So really what it is, is I don't think you're going to see it per se.

Speaker #3: 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 for us is what we call youth furniture.

Speaker #3: So youth furniture would be bunk beds and beds for children's bedrooms as opposed to just baby's bedrooms. That's not a big, huge business. There's a couple of SKUs that we had, but it's just more of a focus.

Speaker #3: 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.

Speaker #3: Costco represents about 70% of our business right now with 30% being NoDio. I'm actually I mean, I'm excited not necessarily about the business, but about I think we've finally found our right footing.

Speaker #3: 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.

Speaker #3: We have closed a lot of that business that is just couldn't make a go at. And we finally found a place where it makes sense.

Speaker #3: And 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 Q1.

Speaker #3: 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.

Speaker #3: But we're no longer burning money there. We finally turned that one around. And then the NoDio business, which is already distributing furniture in Europe, will now add the US to its model.

Speaker #3: 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.

Speaker #3: So that's 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.

Speaker #3: We still have inventory in them that we need to sell. And some of that some of that inventory is generating cash to pay for these legacy costs.

Speaker #3: 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.

Speaker #4: Okay. Awesome. That's great color. Thanks so much. I'll read you.

Speaker #3: Yeah. Okay.

Speaker #1: Our next question comes from Steven McCloud, with BMO Capital Markets.

Speaker #2: 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.

Speaker #2: 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?

Speaker #3: Let's see. Yeah, I'm just getting some feedback from my people. Yeah, that's the number I thought. We're looking at an area just under $200 million, just under $200.

Speaker #3: For, I guess, a forward-looking business over the next 12 months would be in that ballpark.

Speaker #2: Yeah. Okay. Okay. Okay. That's helpful. And then I guess just thinking about the more near-term, how long are you expecting to see kind of sales declines from these proactive exits?

Speaker #2: 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.

Speaker #3: I'm not sure I understand. You're talking about home, I'm assuming.

Speaker #2: Yeah. The home business. Yeah.

Speaker #3: Yeah. Well, again, I mean, we've I mean, every it's going to last for we've had a number of restructurings here. So what we've done is we've said, "Okay.

Speaker #3: We're going to eliminate all of this business and run with the remainding." The remainder. And then we go into it and find out, well, part of that remainder business isn't really going to be profitable.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: And therefore, 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 million—I think if we can isolate that, you're going to see both growth in top line and bottom line there.

Speaker #3: And then the other part is, it's difficult to figure out how fast you can get rid of the old stuff. I mean, we're trying every day.

Speaker #2: 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.

Speaker #2: 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?

Speaker #3: 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.

Speaker #3: We have orders in business going forward. I mean, the US is picking up. And that was the only spot. The only spot in the whole world, actually.

Speaker #3: The only country. And again, we are very global. That is that had a tough, tough quarter is the US. Everywhere else, things are working pretty much to plan.

Speaker #3: 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.

Speaker #3: One is the US. And the other one is Chile. And we're dealing with that. But every other country, every other market is doing exactly what we thought.

Speaker #3: So with an improvement in the US 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.

Speaker #2: 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 on including some of the including the restructuring charges as add-backs.

Speaker #2: 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?

Speaker #3: I hope that we're not going to see that again in Q3. 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.

Speaker #3: So that ended up being really what the covenant issue was. We've taken care of it. And it's good. Again, we don't intend on having that issue again.

Speaker #3: But it doesn't mean there's not more restructuring. I think we have some restructuring in our plan. But I don't see these particular items they've been written down to zero type of thing.

Speaker #3: So, we're close to zero. So, they're gone.

Speaker #2: Okay. Okay. That's great. Thanks, guys.

Speaker #3: Okay.

Speaker #1: Our next question comes from Cheryl Zhang with TD Cowen.

Speaker #4: Hi, just a couple of follow-ups. Circling back to the home business profile, I guess I'm looking at it on a go-forward basis. I think you mentioned that Costco is profitable.

Speaker #4: Nodeo 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 profitable in the second half, or is the legacy cost still continuing?

Speaker #4: That's weighing on profitability.

Speaker #3: I think the legacy costs are going to continue to negatively impact it for at least the second half. Some of this big chunks, right?

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: But they are getting less and less. I mean, there's and hopefully, we can fund those with some of the inventory sales that we're doing as well.

Speaker #3: But yeah, I don't—but sorry. Getting back to it, yeah, I don't—we know what our legacy costs are. We don't exactly have the exit date on when those legacy costs go away.

Speaker #4: Okay. Understood. And then just on your manufacturing footprint, I know there's been quite some changes over recent quarters. But could you remind manufacturing footprint globally in both segments and how much of your sales is currently exposed to US tariffs?

Speaker #3: Okay. So let's start with okay. There's no manufacturing in home, right? In fact, a bunch of most of Costco's business is what we call direct import.

Speaker #3: So it goes directly from we design the product. We 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.

Speaker #3: 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're sort of got a good solid cost base.

Speaker #3: A percent of sales, I'm not I would have to be of our US sales, I would guess. I don't have that right now, Cheryl, but in addition, we do have an assembly manufacturing facility in Portugal, which sells a lot of the lower-priced European products.

Speaker #3: 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.

Speaker #3: But I don't it's more than 50% of our business is still imported. China's still in the juvenile industry. China's still is the largest player.

Speaker #3: Difficult to get out of China in the juvenile. And in home, we've exited a lot from China, although, again, if they still play a key role.

Speaker #3: But look, today, here's the crazy part, right? Today, Brazil has a much higher tariff going into the US than China does. So in Brazil, produces furniture.

Speaker #3: So I don't think anyone predicted that or saw that coming. So again, there's huge 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 on the juvenile side.

Speaker #4: That would be great. Thank you. And then just lastly, I guess on the cost pressures, wonder if you can maybe elaborate on any impact that you're seeing from the higher fuel costs and what you're seeing in terms of other raw material cost inflation.

Speaker #3: Yeah. I mean, there's definitely pressure. I think we've been managing it well. Certainly, freight rates are being pushed up. And we have a lot of contracts for stuff.

Speaker #3: So we're not as sort of reliant on spot markets that go up and down. So there's been less pressure from that point of view.

Speaker #3: 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.

Speaker #3: And that's particularly more in the US. So the US would be more I guess, exposed to the price increases. While I find that in other areas, maxi cozy, if we have to raise the price because costs have gone up, but that's a lot easier to do.

Speaker #3: So, and 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 of a challenge than it might have been five or ten years ago.

Speaker #4: That's very helpful. Thanks so much.

Speaker #3: Okay.

Speaker #1: This concludes the question-and-answer session. I would like to turn the conference back over to Martin Schwartz for any closing remarks.

Speaker #3: 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.