Dorel Industries Inc. ($DIIB)

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries' Fourth Quarter 2025 Results Conference Call. [Operator Instructions] 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. I would like to remind everyone that this call is being recorded today, March 11, 2026. I would now like to turn the call over to Martin Schwartz, President and CEO. Please go ahead.

Thank you. Good morning, and thank you for joining us for Dorel's fourth quarter earnings call for the period ended December 30, 2025. With me today are Jeffrey Schwartz, CFO; and Jayson Kwasnik, Vice President of Finance. We'll take your questions following our comments. Please note that all figures mentioned during this call are in U.S. dollars. Dorel Juvenile delivered strong performance in 2025, demonstrating resilience amid ongoing tariff-related pressure in the U.S. and mixed market conditions globally. While these external factors moderated revenue growth, improved margins and disciplined cost management contributed to an 84.7% increase in adjusted operating profit for the year. Fourth quarter results were marked by a return to growth in the U.S., coupled with exceptional results in Europe and across several international markets. Innovation across core categories, particularly rotating car seats and Maxi-Cosi products continues to support the segment's competitive positioning. These results underscore the benefit of Dorel Juvenile's diversified geographic footprint and the segment's ability to execute in a challenging operating environment. During the fourth quarter, Dorel Home operated a lower sales environment, reflecting constrained product availability, deliberate SKU rationalization and the final stages of restructuring plan. Notwithstanding these pressures, the segment advanced its operational initiatives, including cost reductions associated with facility closures, workforce actions and administrative consolidation. Adjusted operating loss improved year-over-year in the quarter, reflecting the benefit of a reduced cost base. With the conclusion of our major restructuring activities, and the disposition of non-core inventory near complete, Dorel Home entered 2026 with a streamlined operating footprint and a simplified business model intended to support improved execution and performance. As always, Jeffrey will walk you through our results. But first, I want to add color to our press release, starting with the Juvenile segment. At Juvenile throughout 2025, our international footprint allowed us to offset challenges in the U.S., principally due to the uncertainty around tariffs and increasing retail price points. In prior conference calls, I articulated how well we're doing with our divisions in Australia and Canada and other export markets continued into the fourth quarter. And in Chile, Peru, our operations were profitable in the fourth quarter for the first time since 2022 as the team adjusted the business model to full omnichannel capabilities. But in the fourth quarter, we are particularly pleased by the results of our U.S. operations. As previously disclosed, revenues in the U.S. until the end of the third quarter were actually down versus prior year. but this reversed in the fourth quarter, and we posted a small single-digit increase. The increase came from our traditional retail partners as we successfully reset modular items and introduce new items and price points. We had strong e-commerce sales, including our own direct-to-consumer fulfillment. Traditional car seat models like the Scenera, the Grow and Go and the Finale did well as new introductions that hit key price points supported by targeted promotional activities. Our opening price point strollers did well and Maxi-Cosi continued its growth path in the U.S. This all illustrates clearly how our multiple price point brand strategy allows us to compete from opening to high-end categories. and we did so with improved margins. And finally, in Europe, despite a slight decline in revenue, we gained market share and delivered improved earnings in the quarter. We are taking business from our competitors, and our product line is as good as it has ever been in Europe. Fourth quarter in general is quiet in terms of customer events, but I do want to call out a few highlights in certain markets. In Chile, Infanti was named #1 juvenile retail brands for the third consecutive year according to the Omnichannel Index 2025 by Altevo. This achievement reflects the team's continued commitment to omnichannel excellence and digital transformation, reinforcing Infanti's leadership position in the Chilean market. In Brazil, we are prominently featured on Auto Esporte, a leading Sunday program on TV Global as part of a special Children's Day edition focused on child car seat safety. The 4 minutes segment showcased the latest innovations from Maxi-Cosi, Safety 1st and Infanti. Including i-Size technology, 360-degree rotating seats, high-adjustable models and lightweight foldable designs along with guidance on keeping children refacing until at least 15 months. And finally, in Canada, we made a strong return to the Toronto Baby Show, engaging with attendees across 2 lively boots for Mexico and Safety first. The event delivered excellent visibility and standout commercial results with strong sales in strollers, travel systems, especially the Zelia travel system and car seats like the new Maxi-Cosi Andi and other Maxi-Cosi products. The success reinforced the value of a direct consumer engagement in the Canadian market. And now for Dorel Home, we concluded 2025 with the majority of our restructuring complete, there remains certain legacy costs that we are working to eliminate in 2026. And fundamentally, our cost structure has been reduced to where our return to profitability is possible. I already elaborated at the end of the third quarter, the extent of the changes in 2025, and we delivered on those changes. The most significant restructuring event in the fourth quarter was the migration to our juvenile IT systems, a task that was delivered within 9 months of concept, which is a great feat by our team. I want to thank everyone involved in that project. I know it took a lot of work outside of the usual tasks. It was only made possible by the sheer effort and the termination of our employees. And as of today, we still have some work to do. the main one being the final liquidation of a not go-forward SKU, the sublease of our lease commitment at our former manufacturing facility in Cornwell, Ontario; vacating space in Dowagiac, Michigan, with the major lease expiring in Q2 of 2026, and the sublease of excess space in our East Coast warehouse in Georgia. Unfortunately, we were unable to kick start our supply chain despite our new borrowing facilities. This meant our product availability was lacking, and we did lose sales as a result. As of now, that is resolved and product is flowing again. We are working with our supplier partners, and we are slowly reestablishing the right level of inventory needed to support sales. But for fourth quarter and even the start of 2026, we are not seeing the sales rebound that was expected. Our core Costco business remains strong, but getting our traditional everyday living furniture categories back to the sales levels that we expect is taking a little longer than anticipated. I'll now ask Jeffrey to review the financials. Jeffrey?

Thank you, Martin. I'm going to be pretty brief here. As far as the consolidated numbers for the fourth quarter, our revenue decreased 14.7% to $278 million. That decline, as we said, is all in the Home area and partially offset by some improvements in the Juvenile. As we said in the Home, we reduced our SKUs significantly. We've got out of a lot of lines of business. It's a new -- we're building a new business. We also did not have a lot of inventory in the fourth quarter and that -- all of that lines up together to have the negative results there. On the Juvenile side, we did see improvements in revenue and organic revenue in the fourth quarter, U.S., Australia, Chile and Canada, sort of led the growth, while we had some declines in Brazil. And in Europe, we actually had some organic decline of only 2%, but a growth when you convert it over to the U.S. dollar. Where we did do quite well in our gross profit areas, we increased that by $10 million or 21% in the quarter. The margins increased by 600 basis points. That's coming from the Juvenile segment. Obviously, there were declines in the Home segment. The Juvenile increases gross profit and gross margin in the fourth quarter was primarily driven by improved volumes, improved mix and FX exchange as well, all contributed to get us there. At the end, we reported an operating loss of $8.7 million compared to $23 million in the previous year. Finance expenses increased by $5 million to $15 million during the quarter. The increase is mainly explained by the interest on the preferred shares that we issued at the end of the third quarter and higher debt balances and a higher interest rate as well. If we move over to Juvenile in itself now, a little bit more detail. Quarter revenue was $226 million or 6.6% above last year. As I said before, we improved in the U.S., Australia, Chile, Canada. In the U.S., the improvement was market share gains, car seat performing quite well. We do have, as everyone knows, a car seat manufacturing facility in Columbus, Indiana, which is growing and doing well there in this tariff environment. Australia, we never really talked about Australia, but it's really becoming a key element to our business, the Australia and New Zealand group that we have is doing extremely well through brand growth of Maxi-Cosi. Martin mentioned, Chile and Peru turned around and we're starting to see some positive results there and happy to see the momentum in Canada as well. The gross profit for the quarter increased by $13 million or 24%. Gross margin was 29.9%, representing an increase of 440 basis points. As I mentioned, higher sales volumes, better mix, selling more higher-margin product and a favorable FX all contributed towards that. Operating profit, $14.6 million compared to $1.6 million the year before. If we move over to Home, the numbers, I mean, obviously, the top line, a large decline there by $61 million or 54%. And again, we're getting out of the old business. We're getting into a smaller, more streamlined business, which is really the Costco business and an additional business. We like to call it the Plus business, which is a number of -- a limited number of SKUs on the furniture side. I'm not going to get into gross margins and gross profit. There's incredible amounts of noise here. None of those numbers really -- we just -- we took down a lot of inventory. We're clearing out inventory. We're closing warehouses and all of that. So a very, very noisy quarter, and it produced the results that you see, which is -- excluding restructuring costs, we still had a loss of $2.9 million -- sorry, the loss decreased by $2.9 million to $8.8 million this year. With that, I'm going to pass it back to Martin for any questions -- any other comments.

Thanks, Jeffrey. For our outlook, as we enter 2026, we remain focused on building on Dorel's Juvenile momentum while managing continued market uncertainty. Priorities include operational efficiency to strengthen supplier participation and continued investments in product innovation Volatility is expected to persist in the U.S. and in certain Latin American markets, the company's diversified international footprint and disciplined execution provided important sources of resilience. We expect 2026 to continue the trend of year-over-year earnings improvement. At Dorel Home, we remain focused on completing the final stages of our transformation and cementing the foundations of a more efficient operating model. With the principal restructuring actions mostly completed and the cost structure materially reduced, we are positioned to focus on stabilizing the business and improving execution. Key priorities include completing the sell-through of remaining non-core inventory, advancing integration with Juvenile's operational ecosystem and reigniting our everyday living furniture business alongside our successful Costco fold and Furniture pipeline. As we start 2026, we continue to drive down legacy costs and the ramp-up is slow on our traditional furniture product portfolio. As such, earnings improvements are affected as 2026 progresses. With that, I'll ask the operator to open the lines for questions. And please limit your questions to 2 in the first round. Operator?

[Operator Instructions] The first question comes from Stephen MacLeod with BMO Capital Markets. .

Just turning to the Home business. You talked about completing the material parts of your restructuring in Q4. And so I assume when we turn the page to 2026, we should see an improved operations. But I'm just curious, given that now you have most of the restructuring in the rearview mirror, are you able to give some color around what the run rate sort of cost base is in that business in 2026? And I guess a follow-up would be, do you expect to return to profitability on an adjusted EBIT basis in 2026? .

So you're asking now about the Home business itself? .

Yes, the Home business, yes. .

The Home business. Okay. So the Home business, the cost base -- I don't have that number for you because it's still -- we're still creating this new business to be honest with you, the Costco part is kind of okay as far as not a ton of changes there. But the other part, we're still doing that now. We're still seeing what works. To be honest, it's a bit of a work in progress. And that's about 1/3 of the business that we're still trying to figure out how -- what the best cost and efficiencies are for that. So I don't have a go-forward run rate on that. We do expect to see some profitability by the second half of the year. So as Martin mentioned, it was challenging once we've finally gotten a good position with our suppliers, you don't just press a button and they start shipping. I mean, they had their factory orders in. So they started slotting us in with new orders ordering the inventory. So it took a while to get the new inventory that we needed to start pushing the business forward and we saw that in Q4 and Q1. So it's a bit of a process there. It's a lot murkier. We see a fairly clear path on the Juvenile side. And -- but it is a little bit more of a work in progress. It's a very difficult marketplace. I mean just staying around is challenging. A lot of our competitors and a lot of the retailers are actually going out of business. So we do believe there's an opportunity. And like I said, part of our business is doing well in home, and we're still building that second half of the business.

Okay. That's helpful. And then maybe just on the Juvenile side, you cited in the outlook to some volatility that you expect to persist in the U.S. in Latin America. Is that just related to tariffs? Or is there some other volatility that we should be aware of? .

In the U.S., I mean, tariffs -- yes, for sure, tariffs. What's going on with the oil prices, with the war, I mean people, are they spending? It's just more volatile than it's been in a while in the U.S. The economy for consumer products is just tougher. Having said that, we do believe in our products, we do believe that we will pick up market share like we're doing around the world. So we have some good momentum, which we're pleased with. But the market challenges are much harder there. And Chile is just, we're coming out of a difficult period. So Chile is getting better, but it's still a challenging area. .

The next question comes from Derek Lessard with TD Cowen. .

I'll ask the question a different way than Steve. Is it -- would you say it's fair to say, and this is more pertaining to Home that you guys are past the worst? The business.

Yes, for sure. For sure. It's more of a -- I don't know, let's say, an analogy. I mean the analogy is we run at a gas like at the end of the third quarter in the business on the Home side. On the Juvenile side, we still have momentum. There's still things were slower, things where we did have a toy wanted, but everything moving. We stopped the business for a number of months. So there's a number of SKUs. I won't get into the SKUs of the customers, but that were lost because we didn't respond properly in the tariff environment. Since then, since Q4, we have responded. Responding means probably change the items so that the price points were different or added features or did what we had to do. And we've gotten those items placed again. But we have a couple of items that we lost for 6 months. . So it's just -- you know what I mean, it's just been really difficult because the business stopped -- not -- and again, I don't want to mean like you stop shipping, but we couldn't move forward on a lot of things, and then you got to put some oil in the -- or gas in the tank and then start the process and start. So we're in that. The process is going. We're getting more listings, winning things back. We're getting in front and delivering to our customers. But all of that needed to be done in the home business, which was ended up being more challenging. So I think that's the reason.

Okay. And I think Martin touched on it in his opening remarks, but could you just maybe -- and I know you're close to the end of the restructuring process in Home. But maybe just remind me of -- or as of the sort of the biggest components of that restructuring that you have left?

Yes. We still have a couple of pieces of real estate that I don't think it's technically restructuring, but it's -- we call it legacy costs. There are some costs that we're still paying that we're getting no value for. So we're in the process of looking for subleases. So that's probably the single biggest area. It's not people anymore. We've brought that down. We're just looking for the best and most efficient way to continue to operate. How do we call some costs out maybe join costs with the Juvenile group, increasingly doing that. There's no major -- other than some real estate. There's no major restructuring that we're facing. .

Okay. And maybe turning to more of a positive story on the Juvenile side. Jeffrey, in your prepared remarks, you alluded to volumes mix and ForEx as the drivers of the improvement in the gross margin, is that -- were they all equally weighted?

I don't have the weighting for me. I do know that they're all important. Certainly, our FX is -- the wins are behind us for a change. What you got to look at is you've got an adjustment of FX, but in the following quarter, you're now -- your margins are higher because you're paying, like in Europe, the euros. We're collecting euro, dollars paying in U.S. dollars for the product. So our margins going forward end up being higher as well, right? So it's hard -- I don't have that adjustment to say, well, if it was a $1 million onetime hit in Q4, does that affect Q1. It does. So I don't have those numbers, but -- you know what I mean, it's not just a onetime adjustment, even though it is an adjustment in Q4. But going forward, we're seeing some and we begging at some of the new rates and -- the impact of being a global company is probably coming to the forefront more than in the history of our business. So while we have some challenges in the U.S., even though we're making -- we're doing okay and we're making money and we're growing. If it was just a U.S. business like a bunch of our competitors, it wouldn't be as a rosy picture. But we're able to drive the rest of the world at a pace significantly faster than the U.S., which is allowing for, I'll say, better growth than most of the people in our industry.

Yes. So I just wanted to make sure that volume and mix was a meaningful contributor, if that's a better way to ask the question.

We have a follow-up question from Stephen MacLeod with BMO Capital Markets.

Sorry, my bad. I was on mute there. I just had a follow-up question regarding the Home business again and the outlook. And I know that there are still some moving parts with respect to the some of the restructuring initiatives that haven't been done. But just to get -- trying to get a sense of the run rate on things considering that's probably the business that has the most parts right now. In terms of D&A, we saw D&A sort of take a pretty significant step down in Q4. And I'm just wondering if that's potentially a new run rate? Or is that maybe related to a Q4 full year true-up or something like that? .

I'm going to say on the Home side, any number you see in Q4 is not a valid number for going forward. It doesn't matter what it is. It's about as noisy as you can get when you're taking things down, when you're restructuring, when you're running out of inventory, when you're like discontinuing stuff and you've got factories that are still operating, but they're not -- it's a very messy quarter to do any analysis on.

Yes, understood.

The best thing I can just tell you is it's going to be -- again, it's going to be much better than last year, right? Last year, we lost $40 million. I mean, our back orders are not going to be pro forma off of last year. But we -- it's probably going to take to the second half before we see a turn in the profitability to a positive level.

This concludes the question-and-answer session. I would like to turn the conference back over to Martin Schwartz for any closing remarks. Please go ahead. .

Thank you. I just want to say to everybody, thanks for joining us here today, and I hope you all have a great rest of the week. Thank you. .

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.