Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries' first quarter 2024 results conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. 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 conference call is being recorded today, May 10th, 2024. I would now like to turn the call over to Martin Schwartz, President and CEO. Please go ahead.
Thank you. Well, good afternoon, and thank you all for joining us for Dorel's first quarter earnings call for the period ended March 30th. With me are Jeffrey Schwartz, CFO, and Frank Rana, recently named Executive VP and Chief Strategy Officer. Frank has been an integral part of senior management since the company's IPO in 1987, and this appointment recognizes his contribution in driving Dorel's growth. Also with us is Jason Kwasnik, recently appointed VP of Finance, and Jason has been with Dorel for 20 years. We'll take your questions following our comments. A reminder that all figures mentioned during this call are in U.S. dollars. Dorel Juvenile is making steady progress in all areas. The first quarter presented clear evidence that with adjusted operating profit improving by $10 million, Dorel went from last year's first quarter loss to a slight profit. We are optimistic the improvement will continue.
The segment is capitalizing on the introduction of a diverse selection of exciting new products. Our retail partners and consumers have reacted well to the new offerings, resulting in additional market share gains. Growth came mainly in the U.S., Europe, and Brazil, as sales in the brick-and-mortar channel rebounded sharply. Dorel Juvenile USA had an exceptionally strong quarter with car seat sales leading the increase in the division's various product categories. Safety 1st did particularly well, the result of a new product placement and a refreshed branding program now hitting the stores. From home safety peg items to strollers and car seats, the new look of Safety 1st, designed in-house, goes beyond aesthetics, reflecting our dedication to innovation, quality, and the desire to grow with families. The original and iconic "Baby on Board" sign still remains a bestseller.
In Europe, a major new product was unveiled to approximately 375 guests attending Dorel Juvenile's 2024 customer conference in Portugal. The all-new Maxi-Cosi Fame stroller, the future of family travel, made its debut. The Fame, our most advanced stroller ever, is the first step of a new generation of premium travel systems by Maxi-Cosi, a premium product of high quality with special features. Just some of the features include a revolutionary suspension system, LED lights to light up the path ahead, and an integrated cell phone charger. Fame will be available in stores across Europe starting next month. This entry is highly strategic for Maxi-Cosi, our flagship brand, recognized globally for innovation and quality. Maxi-Cosi has developed a proven reputation in car seats, a category that continues to do exceptionally well for us.
We now want to replicate this with strollers, and we see the introduction of the Fame as the perfect opportunity to accomplish that. This is just one of the reasons why there is a positive feeling across the entire segment. We are also focused on further reducing juvenile costs and are more comfortable than ever that this business is in a good place. Turning to Dorel Home, they made substantial progress during the first quarter despite dealing with a tough environment as interest rates and mortgage rates remain high. This does not bode well for furniture, which, again, lagged sales of all consumer products during the first quarter of the year. Despite these challenges, I'm pleased to say that the segment posted improvements.
Post-COVID, now that there is more merchandise on shelves, which was not the case during the pandemic, there is a tendency for consumers to shop more in-store than online. Home has introduced many new products, which we expect will keep us ahead of the competition and has been successful in building brick-and-mortar sales with additional listings at its retail customers. The growth in this channel is solid, but the brick-and-mortar cycle is slower to evolve than e-commerce. Therefore, we see the benefits occurring in the second half this year and into 2025. Cosco Home & Office was a significant contributor to Q1 improvement, as the division's revenues and profitabilities were up materially. Cosco operates in a category where there is less competition, and its legacy utility products such as step stools and folding furniture are well known for their high quality.
Additional relationships are being cultivated with more mass merchants and DIY stores. Home's restructuring activities to simplify and combine certain key areas, including the merger of Ameriwood and Dorel Home Products, took effect in January and are starting to have the desired results. Everyone is working extremely well together, all focusing on the entire business. There's now one product team, one marketing team, and one purchasing team for the combined divisions. Our customers have responded well to our change, and there are more benefits to come from streamlining. Savings are expected to be approximately $4 million annually. Dorel Home attended last month's High Point Furniture Market. Our showroom was busy throughout the show with many customer appointments. Reaction to our product lineup was excellent, and we anticipate follow-up orders.
The segment is adding new customers in Europe, and rather than being Germany-centric as in the past, it is branching out across the continent. Importantly, we are looking to structure Dorel Home in a manner that will ensure the business is resilient, profitable, and will serve our customers well, no matter what the future holds. This will involve an extensive cost-cutting exercise, which is currently being developed. Decisions have yet to be made as to what the scope and timing of the project will be, but it will result in more streamlined, low-cost operation. We are confident that even with a diminished furniture industry, should that be the case, Dorel Home will be able to work within it and be profitable. Regarding our outlook, Dorel Juvenile is positioned to continue its quarter-over-quarter earnings improvements.
Several significant customer events are planned this second quarter, which are expected to increase sales beyond our current improving revenue line. It is anticipated the second half will be better than the first, driven by continued year-over-year revenue gains. At Dorel Home, the traction at brick-and-mortar experience in Q1 is expected to be maintained. Continued improvement in quarter-over-quarter earnings is anticipated, driven by new listings and increased product sales growth. However, as the brick-and-mortar sales cycle is naturally longer than e-commerce, the benefits will only be manifested during the second half and into next year. Home's efforts are continuing on cost reduction and on reigniting the e-commerce business. I'll now ask Jeffrey to review the financials.
Thank you, Martin. For the first quarter of 2024, Dorel's revenue increased by $17.9 million, or 5.4%, to $351 million. Organic revenue growth was approximately 5.3% after removing the variations of foreign exchange. The revenue and organic growth improvements were in both of our segments, Juvenile and Home. Dorel Juvenile revenue improved even when excluding the reduction in revenue from the network security incident during last year's first quarter. And in Dorel Home, the revenue and organic revenue improvements are mainly explained by the increase in brick-and-mortar sales, which was partially offset by reduced online sales during the quarter. Gross profit for the quarter increased $21.5 million, or 46%. The gross margin in the first quarter was 19.4%, an improvement of 540 basis points from the 14% last year. The improvement in gross profit and gross margin in the quarter was in both the Juvenile and the Home segment.
In the Juvenile, the improvement was driven by improved pricing and lower input costs, better product mix, and higher volume sales, particularly in the United States. In Home, the improvement was mainly due to reduced freight and material costs, as well as higher factory overhead absorption from the slightly better domestic manufacturing activities. The operating loss in the quarter was $ 7.7 million compared to $ 28 million last year. Excluding restructuring costs, the adjusted operating loss was $ 6.9 million versus $28 million. The decrease was, again, primarily due to improved gross margins in both sectors. Financing expenses for the quarter were increased by $ 2.8 million to $ 9 million, generally explained by higher average interest costs. If we move over to the Juvenile segment itself, first quarter revenues increased by $ 12.7 million, or 6.3%. Organic revenues increased by about 6.2%.
The improvement in revenue and organic revenue was in the U.S., in Europe, and the Brazilian market. In the U.S., even when excluding the reduction in revenues from the network security incident, the revenue improvement was across all brands and all product categories as market share gains continue in the quarter. In Brazil, the revenue improvement was in both specialists in the e-commerce segment, and in Europe, revenue improvement was in most markets offset by declines in e-commerce channel as customers reduced orders to reduce their inventory in the quarter. Gross profit increased by $ 11.7 million, or 26%, compared to last year. So the margins in the quarter were gross margin 26.5%, an improvement of 410 basis points from last year, again, mainly driven by improved pricing and lower input costs, better product mix, and higher sales volumes that drove, particularly in the United States.
The operating profit for the quarter was $0.5 million during the first quarter compared to a loss of about $8.9 million last year in the quarter. If we exclude restructuring costs, the operating profit was $1.1 million versus the $8.9 million. If we move over to Home quickly, Home's revenue increased by $5.2 million, or 3.9%, to $138.4 million. Again, the revenue increase was all in the brick-and-mortar channel. We actually saw a partial decrease in the online channel. The increased brick-and-mortar channel was due, among other things, to order replenishment as the POS sales have far exceeded replenishment orders. Last year, we did see our customers reducing their heavy inventories that they started 2023 with, and we're back into a position where inventories are in a proper place.
POS sales are trending very positively as well in the brick-and-mortar retailers, and we're hoping to see that last throughout the year. In the gross profit area, which was very important in this sector, we increased by $9.9 million compared to last year. So last year or this year, our gross margin was 8.5%, still low, but an improvement of 710 basis points versus last year's meager 1.4% gross margin. The operating loss for the quarter declined by $10.3 million to $3.6 million from $13.9 million last year. Again, the decrease in the loss is mostly from the increased gross margin and some lower operating expenses relating to some of the restructuring we did last year. So with that, I'll pass it back to Martin.
Okay. Thank you, Jeffrey. I'll now ask the operator to open the lines for questions and request that you please limit them to two on the first round. Operator?
Thank you. To join the question queue, you may press star, then one, on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Derek Lessard with TD Cowen. Please go ahead.
Yeah. Good afternoon, everybody. Really nice to see the home improvement. I was wondering if you could talk about the success that you did see in the brick-and-mortar channel and then maybe, on the other side, some of the challenges that you're still experiencing in e-commerce.
Sure. Well, we are seeing it pretty much across the board with a lot of our accounts at the brick-and-mortar. I think what leads to that is we're still one of the best suppliers overall when you look at everything from product innovation, price, service, the ability to store goods in the right place, be able to get product to our customer on time. And that's something that's very important in the brick-and-mortar channel. In the online channel, it often turns to just price and, "Do you have a nice picture?" And that's where it's a little more challenging for us, and we're finding that. As well, we are finding, in general, the brick-and-mortar stores are doing better at our customer level. If they look at how furniture's doing online versus in-store, their in-store sales are growing, and they're struggling on the online.
It's certainly something we have some concerns about it as the channel seems to be sort of in a bit of a disarray online. But it's good to see that if we focus on where our roots were in this business, that we're still among the best at doing that. Just to explain, I mean, we mentioned it a few times today, but some of our frustration is our sales are lower than we want them to be. So you naturally turn to your sales department, and they're out there doing a really good job placing items, listing items, showing good interaction with our customers. But all of that only gets placed later in the year versus online. If you have a good item, you put it online, it sells tomorrow.
But we often have to wait for that placement or for the mod set to happen and all of that. So we're excited about where we're going. It's just taking a longer time because our successes are in a place where we can't instantly sell the product. That's kind of what's happening in our furniture business.
Okay. Cool. Thanks for that color, Jeffrey. I mean, over the last or over the previous five years, e-commerce was sort of the big driver of the business for you guys and seemed like you were leaving brick-and-mortar to the side. It seems like you're almost reversing trend here.
You're right, but I don't know if it's we're reversing trend or the market seems to be reversing. Because, like I said, when you have omni-customers who sell both online and in the stores, and their online business is retreating and their store business is accelerating, we're following that trend. So I wouldn't say we're doing this because we can't sell online. It just seems to be where the market's moving right now. And obviously, online's not going away, and we're focusing more on what works online because we still sell a lot of product online. I think it's around 50/50, or if not, it's still even more product online. But it's still quite a bit online. We're not giving up on that, but we are finding the opportunities, and the growth is happening at the store level.
Will continue to happen, because as we start placing those goods in the second half and into next year, we're going to see that channel continuing to grow.
Okay. Thanks. And talking about you called out about $4 million in annual savings. Just remind us of some of the initiatives that's going on there. Have you realized any of that $4 million in savings, and how should we be thinking about the cadence there? And I think as well, in your prepared remarks, you had talked about more cost-savings initiatives coming up. Is that in addition to that $4 million?
Yeah. That would be in addition. The $4 million is in there. It's happening. An example would be, if you remember, we had a whole bunch of different divisions within our Home segment. So we've merged what we call the Ameriwood with our DHP division. So we have one much larger business. In addition to saving money, management is telling us that their efficiency levels are going way up, and they're able to get a lot more done because there's less sort of separation. So in addition to both saving money, we're also speeding up our ability to get products to the market and to do all the things, the marketing and all of those things. So that would be one of the major areas where we've done it. We're reducing our overheads. We have less warehouses than we've had in the past.
Most of that number was labor anyways, but I would say we're probably not missing anything by not having that.
So that $4 million is going to.
That $4 million's in there. I mean, we saw some of it in Q1, and that's going to continue now. Is that enough? No, we want more. We want to look at even streamlining this business even more. We're no longer waiting for the market to come back. I mean, to be honest, we did wait for that for a while and said, "Let's be ready when it bounces back." We're hoping it does bounce back. We are looking at increased sales in the future, but we can't wait. We have to deal with what we have today, and that's sort of the focus of that business.
Okay. One final one for me before I read to you. When should we, I guess, expect further details on those measures or initiatives?
Probably the next quarter. I mean, we're working on different things. So I'm hoping by Q2, the end of Q2, when we announce in three months from now, we'll have more color to tell the market.
Okay. Thanks, Jeffrey.
The next question comes from [Nevin Lakhani] with BMO Capital Markets. Please go ahead.
Thank you. Good afternoon, guys. You got Nevin on for Steve today. Hoping we could start on the Home segment. You talked about retail inventories and a proper place now. Just wondering what that means. Are we back in line with historical levels, and then what are your expectations on inventories for your retailers going forward?
Yeah. I mean, I would imagine we might even be light now. The retailers are still nervous about furniture, so they've really brought their inventories down. But we suffered a lot in 2023 with much better POS than we were shipping. So that's reversed now, and we're no longer suffering, if you want to call it that. Will they increase their inventories? I don't know. But at least now, we tend to be shipping along with POS. So that's a good sign. So again, they are still cautious. I mean, people are still not banging down the doors to buy furniture, but it is a little bit steadier now, and certainly, POS is matching ours.
Okay. That's good to hear. And then maybe if you can just provide an update on gross margin in the Home segment. We acknowledge that, I guess, the product costs have come down quite a bit here. Can you talk about pricing and promotional activity that you're using today to get the sales?
Yeah. What we've found is during COVID, yes, demand was up very, very high, but our costs went up quite a bit, and we had to push our retail prices up high. In many items, those are not sustainable price points for those types of furniture, especially in this market where people have less cash available. So we've dropped. Our costs have come down, great, and we've dropped a lot of price points. In some areas, price point is super sensitive. We have items that as soon as we've dropped them to a certain price point, we see 20%-30% increases in sales. It's still a game, if you want to call it, or an art to getting that right. Fortunately, with costs being down, we have the ability to do that.
And if we get good cooperation from the retailers, which is more this year than last year, in the ability for us to drop our prices and them to drop the retail, and then everybody wins when sales go up. So that's kind of the focus because that wasn't necessarily happening last year. Many retailers were just keeping the savings and trying to get as much margin as possible. They're a little more focused now on volume as well. So it's boding well. And like I said, on the brick-and-mortar side, it's working actually really well.
Okay. That's helpful color. And then what might that mean in terms of your gross margin percentage? I mean, a big increase here this quarter. Could you get back into the double-digit range in the coming quarters?
Yeah. We're hoping to get to low double digits for now. Again, we'll see next year as things move forward. We could use a lot more volume through our factories. That would certainly improve our gross margins. That's probably the most magic way to get those numbers up, without a doubt. But yeah, we are expecting to get into the lower double digits by the end of the year, and then hopefully, next year, we can continue to move upwards in that.
Okay. Then maybe moving on to the Juvenile segment, good gross margin this quarter. Can you talk about your expectations for the remainder of the year and then how you'd think about margins longer term?
Yeah. I mean, I'm pretty, I'd say our whole team at Dorel is pretty excited about where we are. Granted, the numbers are still not necessarily where we want them to be, but everything's moving in the right direction. Margins can continue to move up. I mean, one of the biggest weights we had on margins is foreign exchange, right? So we had a negative foreign exchange in Q1. It was a positive in Q4 of last year, which helped us. So far this quarter, it's somewhat neutral. I mean, I don't expect again, I don't want to use the word what I expect. I mean, we have some hedging out there, but really, a strong U.S. dollar is not good for us. And with interest rates kind of holding on, the U.S. dollar is also holding on.
So I would expect to see if we do see a drop in rates in the U.S., a weaker U.S. dollar, which would really accelerate our gross margin. But really, again, the biggest I mean, costs are coming now. We're very focused on bringing down costs as well. We're very focused on getting the mix better and selling more of our higher-end Maxi-Cosi product, which is so much better today than it's been in a number of years.
And so would it be fair to say, I know it's been a number of years, but at one point, you guys were running with close to 30% margins in the juvenile segment. Is that possible in the near term if sort of you get the mix that you're hoping for and the volumes keep trending the way they are?
Yeah. I would say we are trending towards that. Again, it is possible. We're seeing when we have a great month, and I've always said this, if we can get our volume in a particular month above a certain level, both in the U.S. and in Europe, we see significantly higher margins. And the challenge for us is how many months of the 12 can we get those, what I'll call, magic sales numbers. So we know it's possible. We know we make a lot of money, and our margins, both our gross and net margin, go up significantly when we have these, what I'll call, spike months. So how do we get more of these months is the challenge that the management team's working on, and we're getting them. We saw them here and there.
I think in Europe, with the addition of strollers, which we're not a big player on in Europe, but some of the new ones that we've introduced in the last six months have done probably better than any stroller we've introduced in the last five years in Europe. So we do have hopes that that number would be added on top of our car seat numbers, which are really doing well and growing. So we're just optimistic that everything's just moving in the right way.
That's great to hear. Thanks for taking my questions.
Do you have a follow-up question from Derek Lessard with TD Cowen? Please go ahead.
Yeah. Thanks, guys. Just a follow-up maybe on the juvenile, and you said improving the mix. But I was wondering if you could talk about the revamp of the Safety 1st brand, the work you've been doing there. You called it out as being really strong. And I was just curious, given where we are with the macro environment, if that's been a function of the improvement in Safety 1st.
I think the strategy that we had, and this goes back over a year ago in the U.S., was to really make Safety 1st what we call the MTP brand, right, somewhere between Cosco and Maxi-Cosi. We lost our way there. You often had some really low-priced Safety 1st items, and then you'd have to compensate for that low-priced Maxi-Cosi item, so lower priced than they should have been. Instead, we wanted to really conquer that middle ground and give really good value with a good brand. We've redone the graphics and the look, but I think we've been successful at staking an area, which allows Maxi-Cosi to move higher up in the channel and have higher perceived value because now Safety 1st has got sort of a higher-end value as well and is no longer the opening price point type of product.
I think what we're saying is that that's been successful. We're seeing it in the marketplace. We're seeing our products doing well under that brand, and that's boding well for keeping all the brands in the right spot.
That's interesting. Is it still, if I recall, it's more, I guess, North American focused? Safety 1st is not in Europe.
It is to a small extent, but you're right. It's mostly, why don't we say the Americas? Because I believe we also use that brand in Latin America as well in some places. But yeah, it is mostly an American brand.
Okay. Thanks. That's it for me.
Okay.
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.
Okay. I want to thank all of you for joining us this afternoon. I wish you all a great weekend and extend our very best wishes for Mother's Day. Thank you very much.
This concludes today's conference call. You may disconnect your line. Thank you for participating, and have a pleasant day.