Dorel Industries Inc. (DIIB) Earnings Call Transcript & Summary

Good morning. I'm Norm Steinberg, Co-Chair of the Board of Directors of Dorel Industries. Welcome to Dorel's 2025 Annual Meeting. [Foreign Language] Again, this year, we felt it was prudent and cost effective to hold this meeting online, and we, therefore, asked all our shareholders to vote by proxy prior to the meeting, which many of you have done and to participate in this meeting by audio webcast. [Foreign Language] We will first conduct the official business of the meeting, after which Martin Schwartz, Dorel's President and CEO, will discuss recent developments at Dorel. We ask shareholders in advance to submit their questions prior to the meeting. After the official business of the meeting, Martin Schwartz will respond to your questions. [Foreign Language] Based on proxy forms and voting information form submitted prior to the meeting, I can report that all matters to be considered today will be adopted. The election of directors will be by ballot. All other votes will be conducted by voice vote unless a ballot is requested by a registered shareholder or proxy holder. [Foreign Language] Lesley Anne?

[Foreign Language]

[Foreign Language] Now the next item of business, the notice calling this meeting, together with the proxy form, management's proxy circular and related documents have been available to Dorel shareholders and mailed to Dorel's auditors. With the consent of the meeting, we'll dispense with the reading of the notice and of the minutes of the last meeting, which took place May 22, 2024, and I direct that the minutes be taken as read and approved and that they be signed as being correct. The next item is the financial statements. So the first item of business is the presentation of the annual report and the financial statements and the auditor's report thereon. I now present to the meeting the annual report and consolidated financial statements of Dorel for the fiscal year ended December 30, 2024, and the auditor's report thereon. Copies of such documents have been made available to our shareholders. The next item of business is the election of directors. [Foreign Language] John?

Thank you, Norman. Mr. Chairman, I am John Paikopoulos, Vice President and Corporate Controller of Dorel Industries, Inc. and a proxy holder. I nominate Martin Schwartz, Jeff Siegel, Jeffrey Schwartz, Brad A. Johnson, Sharon Ranson, Norman M. Steinberg and Maurice Tousson as Directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

Thank you very much, John. Are there any other nominations? Hearing none, I declare the nominations closed. As Dorel has a majority voting policy for the election of directors, we will vote by ballot in order for the votes to be accurately compiled. Martin Schwartz has already signed and submitted a ballot in his capacity as proxy holder as did other proxy holders. As all the ballots have been submitted and tabulated, I'll now call upon our scrutineer to present the results of the vote on the election of the directors. Lesley Anne?

Mr. President, for the directors -- as for the directors, all are passing with votes over 79.97%.

Thank you. Thank you very much. Based on these results, I declare that the 7 nominees have been elected as directors of Dorel Industries, Inc. to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. Dorel will, of course, issue a press release announcing the results and file a detailed report of voting results on SEDAR shortly after this meeting. Next item of business is the appointment of our auditors. [Foreign Language]

Thanks, Norman. It is resolved that KPMG LLP chartered professional accountants be and they are hereby appointed auditors of the company to hold office until the next Annual Meeting of Shareholders at such remuneration as may be fixed by the directors and the directors be and they are hereby authorized to fix such remuneration.

Thank you. I'll ask Claudie Lauzon to second the motion.

Mr. Chairman, I am Claudie Lauzon, Director of Finance of Dorel Industries, Inc. and a proxy holder. I second the motion.

All those in favor, please say aye.

Aye.

Aye. Any against? Hearing none [Foreign Language] Now we move to the part of the meeting, which I'll ask our President, Martin Schwartz, to say a few words about recent developments.

Okay. Thank you, Norman, and good morning to everyone participating in Dorel's Annual General Meeting today. I want to begin by thanking all of you, our shareholders, partners and employees for your continued support and commitment to Dorel Industries. I will discuss 2024 results briefly, but we'll focus on what is happening now and our 2025 expectations. Let me start with the Juvenile segment, which recorded significant earnings improvement for 2024 from new product launches that have resulted in market share gains. The Juvenile segment's strong performance is being led by the strength of our brands with Maxi-Cosi firmly established as our flagship brand, delivering strong margins and consistent results. We continue to build on our momentum with strong performance, breakthrough innovation and growing consumer engagement. We have a pipeline of upcoming product introductions that is very robust and is expected to continue to drive revenue improvements. We recently released our first quarter results, whereby Dorel Juvenile reported its eighth consecutive quarter of year-over-year organic revenue growth. We continue to move in the right direction in our Juvenile segment, capitalizing on new product launches and high-impact customer events, which have energized our markets and elevated our consumer engagement globally. In Europe, our recent annual customer conference in Marbella, Spain, was a standout moment. We unveiled the Zero G travel system, our lightest ever and introduced 2 new innovations, which are the Fame Cabin stroller and the Coral Slide Pro infant car seat. These products are designed to make parenting easier, safer and more enjoyable, and they've met with tremendous enthusiasm. In our export markets, we hosted a major brand event in Istanbul, welcoming top retailers and influencers with a combined reach of over 35 million followers. The event generated significant orders and new business opportunities, further strengthening Maxi-Cosi's premium positioning in key global markets. And just last week, we participated in the ABC Kids Expo in Las Vegas, where we showcased our newly launched nursery and youth furniture collection, 4 distinct collections under the Maxi-Cosi brand, each with their own trend and forward designs that meet parents' unique aesthetics. Maxi-Cosi nursery collection lends form and function, offering design-conscious parents high-end solutions crafted with premium materials, superior craftsmanship and elegant finishes. We intend to introduce additional collections later in the year, further expanding its nursery offerings. The nursery furniture initiatives bring together the expertise of both Dorel Juvenile and Dorel Home to deliver high-quality, stylish and functional furniture under the Maxi-Cosi and Little Seeds brands. These collections combine premium materials, modern design and parent-centric functionality. We're targeting a wide range of consumers from premium to mass market and focusing on long-term use, sustainability and design excellence. Our retail partners and consumers have reacted very well to this introduction, and we believe it positions us as a future leader in the nursery furniture market. Also unveiled at the ABC show was a suite of new baby gear, including strollers, travel systems and car seats that will be launched later this year. As we navigate the uncertainty created by the U.S. tariffs on imported baby gear and furniture, I want to highlight a key strength, which is our manufacturing footprint in Columbus, Indiana. It is a 1.1 million square foot facility, which is one of the largest car seat manufacturing plants in the world, producing nearly 3 million car seats annually. That's enough to manufacture an infant car seat for almost every newborn child in the U.S. this year. This facility gives us the flexibility to scale production, manage costs and ensure constant supply for North American families. It also supports American jobs and helps us mitigate the economic pressures facing the industry. We're proud of our legacy in Indiana and our ability to deliver safe, affordable and accessible products made in the U.S.A. Product development remains central to our success, and we are committed to driving innovation that meets the evolving needs of today's families. Technology is embedded in every initiative, whether through new product lines or using AI across our operations. Cost and capital allocations are constantly being carefully reviewed across the segment to ensure efficiency, impact as well as return on investment. We are more confident than ever that this business is on solid footing, and we are very pleased with Juvenile's performance. And now to look at Dorel Home. 2024 was another difficult year for this segment. And late last year, we initiated restructuring efforts, including a workforce reduction primarily impacting selling and administrative functions and the announcement of the closure of the Montreal production facility. We also consolidated RTA manufacturing activities into one facility. However, Dorel Home faced a challenging start to the year with e-commerce sales much lower than expected. And as a result, we are taking further steps to return the segment to profitability. As we said in our last earnings release, brick-and-mortar success will be a key to our turnaround, but the change in the e-commerce landscape means we significantly underperformed in that channel. We have lowered our expectations on what the e-commerce channel can deliver. And as a result, we'll be taking further action over and above the actions announced previously. There are parts of our Home segment that are performing well, in particular, our Costco branded line of folding furniture, step stools and hand trucks. As such, with a new management team in place, we will simplify the business, incorporating many of the successful elements of our Costco team and leveraging our Juvenile segment capabilities and infrastructure. We will reconfigure our business model to substantially reduce our footprint, and we'll communicate all meaningful developments by the end of June 2025. We recently attended the High Point Furniture Show in North Carolina, and Dorel Home hosted a strong turnout of top-tier retailers and e-commerce partners. The showroom focused on the newly developed collections with motion recliners receiving exceptional reviews and emerging as a highlight of the assortment. Global tariff disruptions seriously impacted sales last month, leading most major retailers to pause or cancel shipments and both April and May were very slow months as a result. The 90-day suspension of tariffs announced on May 12 has led to a reinstatement of orders. And based on current trends, we expect a rebound in sales over the next several months. On February 21, 2025, we entered into a sale-leaseback transaction for our factory and warehouse facility in Columbus, Indiana. The gross proceeds from the sale were $30 million, of which approximately $8 million was allocated to reduce existing debt with the balance designated for funding the company's ongoing operations. In addition, we continue to actively work on additional financing opportunities to further enhance our financial position, and we will update the market over the next couple of weeks. On behalf of senior management, I want to sincerely thank our employees around the world for their dedication and resilience. Your efforts are the foundation of our progress. I also wish to thank our Board of Directors who have contributed to the collective expertise. Thank you for your trust and support. In addition, and this goes without saying, we are grateful to our suppliers and retail partners. We strive to ensure that our relationships are beneficial to both of us. We are building a stronger, more-focused Dorel, one that is committed to innovation, operational excellence with the goal of delivering long-term value. I will now ask Norman to continue with the question period. Norman?

Thank you very much, Martin. So we are in the question period now, and we've invited shareholders to submit questions prior to the meeting. I'll read the questions, and Martin or I will respond to them. [Foreign Language] So the first question is from shareholder, [ Ross Garlington ] and relates to the subject just mentioned by Martin, the recent sale of Dorel of its facility in Columbus, Indiana to a company in which Martin Schwartz, Jeffrey Schwartz, Alan Schwartz and Jeff Segel, directors and executive officers of Dorel have an interest. Mr. Garlington asked a series of questions about the sale and leaseback transaction, which include the following: What was the sale price? Was the property offered on the open market? And who determined that the sale was exempt from the formal valuation and minority shareholder approval requirements of Canadian multilateral instrument 61-101, which generally applies to a related party transaction. I will answer the question as an independent director and Co-Chair of the Board of Directors. Firstly, as Dorel announced on February 21, the sale price was USD 30 million, which provided, as Martin indicated, much needed liquidity; secondly, the property was offered on the open market through a formal process, but Dorel was not able to find a buyer on terms and conditions acceptable to the Board of Directors. Further, the price of USD 30 million paid by the members of the Schwartz family was not less than the highest bid from any third party. Third, the independent directors of Dorel, myself included, determined unanimously that the sale and leaseback transaction was exempt from the formal valuation and minority shareholder approval requirements of multilateral instrument 61-101 because, among other things, Dorel was in serious financial difficulty. The transaction was designed to improve Dorel's financial position and the terms of the transaction were reasonable in Dorel's circumstances. Now in arriving this decision, we had independent legal counsel and relied in part on a report from a third party specialized in real estate. Finally, Mr. Garlington asked whether the 4 members of the Schwartz family fulfilled their fiduciary duty to Dorel's minority shareholders in buying the facility and leasing it back to Dorel for a period of 10 years. Allow me to say that the 4 independent directors would not have approved the transaction if we believed that it breached our fiduciary duty to Dorel shareholders. The transaction was done on market terms and enhanced Dorel's financial position. Next, we received 2 questions from Michael Melby of Gate City Capital Management, LLC in Chicago. Firstly, Mr. Melby writes that Dorel Home has generated large losses for multiple years and that all turnaround efforts thus far have been unsuccessful, ultimately putting Dorel at risk of default. Mr. Melby asked whether Dorel is still the best owner of the Dorel Home segment. I will now ask our President, Martin Schwartz, to respond.

Okay. Thank you, Norman. Looking back, you will recall that on January 30, Dorel issued a detailed news release announcing a major restructuring of the Home segment, intended to reduce the Home segment to a much smaller footprint. On March 11, when we issued our annual results, we announced that Dorel Home was accelerating the restructuring program and that Dorel Home will focus on leveraging core competencies, strengthening retailer relationships and driving growth with initiatives of high-margin products. On May 12, we released our Q1 results. We announced that additional restructuring activities would be implemented during Q2. For example, we announced that the operations of the Home segment will be slightly altered with the sales, marketing and product development organization being merged into the successful Costco division. At this time, we are continuing these major restructuring initiatives and are closely monitoring the situation at the Home segment. As always, we will keep shareholders and the market apprised of all material developments.

Thank you, Martin. Secondly, Mr. Melby asks what options Dorel has for managing its growing debt levels and cash interest payments in order to preserve and hopefully realize shareholder value. I'll ask Martin Schwartz to respond to this question.

As we previously announced, Dorel is actively working on financing opportunities to further enhance our financial position and reduce our debt. The sale and leaseback transaction in Columbus was part of that initiative. At this time, the process is continuing, and we will announce any material developments regarding financing opportunities if and when they arise.

Thank you, Martin, and thank you to our shareholders for raising these important questions, which, of course, occupy all of us, both on the Board and management. So that concludes the question period. As there's no further business, I'll ask John Paikopoulos to present his motion to terminate the meeting.

Thank you, Norman. I move that the meeting be terminated.

Thank you. May I ask Claudie Lauzon to second the motion?

I second the motion.

All those in favor, please say aye.

Aye.

Against? Hearing none, I declare the motion carried and this meeting is terminated. Thank you, everyone, for participating in our annual meeting. [Foreign Language].