Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries' first quarter 2021 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instruction will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. 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 7th, 2021. I will now turn the conference over to Martin Schwartz, President and CEO. Please go ahead.
Thank you. Good afternoon, and thank you for joining us for Dorel's first quarter earnings call for the period ended March 31st. On the line with me are Jeffrey Schwartz, CFO, and Frank Rana, VP of Finance. A reminder that all figures are in U.S. dollars. We are very pleased with Dorel's first quarter, which exceeded our expectations and ended with a superb month of March. Demand remains strong at Dorel Sports, Dorel Home, with Dorel Juvenile seeing improvements as well. Our solid quarter is a tribute to our teams who did an excellent job of mitigating severe supply chain difficulties. Now looking at each of our segments. Dorel Sports had another huge quarter with momentum in all three divisions, recording its eighth consecutive quarter of growth. Cannondale benefited from significant double-digit growth in all geographies.
Sales of Cannondale's e-bikes and mountain bikes helped drive the revenue increase in Europe. The Moterra and Habit Neo e-bikes, as well as the Scalpel and Trail mountain bikes, are extremely popular among cyclists. In the U.S. IBD channel, organic growth has been very strong. The demand for bikes continues to outpace supply, keeping inventory low and margins up. Dealers are now actually placing orders into 2022 to ensure supply. Pacific Cycle sold whatever it received as retail POS was very strong. e-commerce was a significant factor in the growth as online sales of bikes, ride-ons, parts and accessories were up substantially. In Brazil, the first quarter saw product mix improvement and growth in the IBDs and e-commerce. Caloi finished the quarter with an operating profit, a vast year-over-year improvement.
While economists in Brazil are predicting a tough economy in the second half, it is expected that bike demand will remain strong. Dorel Home had another good quarter with top-line growth and a very solid increase in operating profits. As a percentage of the segment's higher gross sales, e-commerce sales increased low single digits, but it represented 57.4% of revenue compared to 64% a year ago. Brick-and-mortar once again did very well with sales up quite a bit from a year ago, helped by strong POS in most categories and major mass merchants. It was also another great quarter for the segment's branded sales, as Little Seeds, Queer Eye, CosmoLiving by Cosmopolitan, and Novogratz all combined to beat prior year numbers substantially. The new Mr. Kate collection, launched in February, has had a very good run up to this point, and we anticipate this trend will continue.
Though not significant for the segment as a whole, sales in Europe were again strong and growing. Resources have been added to expand opportunities outside of the U.K. into mainland Europe. COVID-19 related store closures persisted in a number of Dorel Juvenile markets, notably parts of Europe, South America, and Canada. The segment posted another quarter of improved adjusted operating profits. Europe posted three consecutive months of good performance, yet revenue is down from last year as some regions re-entered lockdowns. Limited in-store sales were somewhat compensated by an uptick in e-commerce. The late shipments from Asia compounded the situation, resulting in out of stock for certain products. An important new introduction in Q1 was the Maxi-Cosi 360 family of products, a rotating base with multi-age group car seats. The full rollout in Europe is being held until markets improve when more stores reopen.
The U.S. did well due to a combination of pent-up demand and government stimulus checks. Sales were strong in all product categories, most significantly in car seats, as consumers began to shop for mobility products with travel increasing. Brazil had a strong double-digit increase from continued e-commerce dominance and a gradual recovery in brick-and-mortar as stores began reopening. Sales in Chile in local currency increased as well there. The proportion of e-commerce continues to rise. Dorel Chile has made many important changes, and the organization has really turned around nicely. In addition to closing some retail stores over the past few quarters, the warehouse has also been closed and has been outsourced to a third party, and office space has been reduced. The e-commerce platform is far more agile and more mature. As a result, online has grown substantially.
The sale of Dorel Juvenile major China factory closed on March 31st, the transaction thus far has been smooth. The transaction is part of the overall strategic direction of Dorel Juvenile that includes the co-op development of innovative new products with a diverse supplier base, of which the purchaser is one. Sales and earnings for all divisions would have been even higher had it not been for increased prices in Asia, shortages of parts, not enough supply to meet the high demand, and ocean container costs and availability. This situation is not unique to Dorel. Rising prices, shortages of supply, and costs of transportation have affected companies worldwide. To offset this, we will have to work on price increases to our customers throughout the rest of the year. Looking forward, higher import costs and supply chain issues are expected to pressure earnings for all our businesses.
Dorel Sports sales remain very strong, and the second quarter will be similar in earnings to last year. Sales are expected to be at a record level, but bike components availability will remain an ongoing issue. Dorel Home demand also remains strong. However, year-over-year earnings are expected to be lower as higher input costs will pressure margins until needed price increases are implemented. In Dorel Juvenile, the second quarter will be significantly better than prior year, which was heavily impacted by the COVID-19 pandemic. COVID remains very present, and this is limiting sales in the key markets of Europe, Chile, Peru, and Canada. This has continued into April, and May will likely be similar. This is being offset by better sales in Dorel Juvenile's other markets, but overall is limiting our expected performance.
In addition to the higher costs on imports, Dorel Juvenile's domestic manufacturing capabilities in North America and in Europe are not immune to higher costs, with car seat resins in particular double what they were for most of last year, particularly in North America. We believe we can overcome most of these supply chain challenges and cost increases through higher sales, cost reductions, and price increases. They do pose a risk to our earnings going forward. I will now ask Jeffrey to provide the financial perspective. Jeffrey?
Thank you, Martin. For the first quarter of 2021, Dorel's revenue increased by $128 million or 22%. Organic revenue improved by about 20.5% after removing the variation of foreign exchange rates year-over-year. These revenue and organic revenue improvements were all three segments. As mentioned, Dorel Home's revenue increased due to strong POS in the brick-and-mortar channel, as last year's first quarter was impacted by the start of COVID and the closure of a lot of stores. In Dorel Sports, revenue improved for the eighth consecutive quarter, with organic revenue growth coming from all three divisions. At Dorel Juvenile, several markets, primarily the U.S. and Brazil, saw organic revenue improvements that were partially offset by declines in other countries because of COVID. Gross profit for the quarter increased by about 250 basis points to 20.8% versus 18.3% last year.
The improvement in gross profits in the quarter was in all three segments, despite some raw material and cost increases, as well as the freight increases that we've been talking about for a while. I'm going to talk a little bit about restructuring costs here, just to make sure everybody understands what's happening to our statement. For three months ended March 31st, we recorded $9.7 million, compared to $1.3 million last year. The restructuring costs are mainly related to a loss on the disposal of the Chinese factory. During 2019 now, Dorel Juvenile initiated a new restructuring program across several regions. Main objective there was to simplify the organization and optimize its global footprint in order to improve its competitive position in the marketplace. These restructuring initiatives were expected to be completed in 2020.
However, in the light of the COVID pandemic, some initiatives were delayed and will only be completed this year. The total cost relating to the restructuring activities of $1.1 million was recognized during the first quarter, compared to $1.2 million last year. As mentioned on the end of the month, Dorel completed the sale of its Juvenile factory in China for gross proceeds of $51 million, of which was received during the first quarter. In that, we incurred a loss of $8.6 million that we recorded with our restructuring cost. If we look at finance expenses in the quarter, they decreased by $6.4 million- $8.9 million during the first quarter compared to $15.3 million last year.
The decrease is mainly explained by a decrease in interest on the long-term debt of $3.4 million due to lower average debt balances and the loss of the debt modification of $3.7 million recorded last year in the first quarter in connection with a modification of an unsecured note. I want to point out too, that on our balance sheet, that our debt to EBITDA ratio now is below 2.5, while last year we were above five. I think that says a lot about the turnaround on the balance sheet of Dorel in just one year. If we look over at net income during the first quarter, net income was $2.7 million or $0.08 per share, versus a loss of $57 million or a loss of $1.78 per share in 2020.
When you exclude the impairment charges on goodwill last year and the restructuring costs both years, adjusted net income for the first quarter increased by $25.8 million- $12.2 million or $0.37 per share, versus a loss of $13.6 million or $0.42 a share last year. A good turnaround there. If we move over to the segments now, Dorel Home first quarter increased by 15.8% to $228.7 million. The increase was mainly explained by strong POS in the brick and mortar channel, which is something, again, that we haven't seen in a number of years. We also had last year delayed shipments in the first quarter from China, which resulted in supply chain disruptions, because that's where, if everyone remembers, that's where the outbreak was, and that's where the first signs of disruption were last year on goods shipped directly from China.
Online revenue gains were partially offset by supply constraints of imported products. In this sector, we are definitely still feeling the container shortage issue. There are a lot more products we would like to get to be able to bring in, but we sort of have a side limit based on the amount of containers that we can access. Gross profit at 13.7% is an improvement of 130 basis points over last year. However, it is down from where we were in the later half of last year. That, again, is due to raw material price increases. Some mix, unfortunately for us, some of the product that is the most in demand right now is also the product that is undergoing the most cost pressures. Things like steel chairs, anything made out of steel, is definitely seeing their prices increase more than other commodities.
If we look at the operating profit, we finished up 44.2% to $14.8 million, versus the $10.3 million last year. Again, improved revenue, big part of that, as well as higher gross margin versus last year. Like I said, it is down from where we were at the end of 2020. Of course, that's all offset partially by a little bit of increased expenses that occurred in doing business. If we move over to Sports, a great quarter. Our revenue increased by $82 million or 43.6% versus last year. When we remove the varying foreign exchange rates, the organic revenue was still up by 41.5%. This is the eighth consecutive quarter that we've been able to do this. We are definitely seeing a lot of strength in the category.
Revenues continue to grow with unprecedented consumer demand for bikes around the world since COVID-19 started, as people are continuing to seek outdoor activities or transportation methods that are safe and respect social distancing guidelines. In addition, Dorel Sports was able to deliver sound operational execution across the supply chain in the first quarter, despite extremely challenging global shipping environments and shortages of bike components in the marketplace. We are performing well, but we definitely have limits put on us by the availability of containers as well as the availability of component parts, which limits the amount of product we can manufacture. We do see also a difference between our Cannondale's higher end business and the mass business. We're seeing more pressure, both on costs and on container availability for the mass businesses because just the sheer volume of product that we need to sustain that business.
It's just putting a lot more pressure there than we're seeing on the Cannondale side. Gross profits during the quarter improved by 390 basis points to 22.9% versus 19%. The increase was favorable volume absorption of fixed overhead costs, and favorable foreign exchange in many markets. That's offset by, of course, rising freight costs, rising costs of raw materials, and the weakening of the U.S. dollar versus Chinese currency. Overall, the operating profit was $21.8 million compared to a loss of $600,000 last year. Like we said, the increased profit was explained by an increased revenue and gross margin improvements in the channel. If we move over to Juvenile, again, a little bit of a different story. This business is not being helped by COVID, although we're seeing different parts of the world now moving in different directions.
Overall, we increased our revenue $14.7 million or 7.5%, or an organic sales improvement of 5%. We're pleased to see that despite the challenges we have. Several markets, U.S. and Brazil particularly, are seeing improvements. With the U.S. being very strong, we coordinated with the checks that went out for stimulus late in the quarter. We did see other areas, primarily Europe and South America. Well, I should say Chile, Peru, Brazil, where the resurgence of COVID-19 is continuing to have a negative impact on revenue and making it tough in those areas. Gross profits are up $25.8, representing improvement of 210 basis points. The improvement in gross profit in the first quarter was mainly due to higher sales volume and better efficiencies in the factory, as well as the weakening of the U.S. dollars against most currencies.
That's partially offset by the increased freight costs and people costs in last year's first quarter, saw reductions, if we all remember, during the time because of uncertainties, and where there were layoffs and furloughs and stuff like that last year. We get down to the operating profit. The loss was $7.6 million versus a loss of $46.2 million last year. That includes, again, impairment losses on goodwill last year and restructuring in both years. The adjusted profit improved by $4 million to a profit of $2.1 million this year. We're glad to see that's moving in the right direction.
A little comment on the long-term debt. As you know, we're still refinancing the debt. We are very confident that we will be closing that relatively soon. We do have till the end of the second quarter. There's no real issues here. It's just taking a little bit longer than we expected. We have a lot of confidence that we're going to get that done with plenty of time to spare. With that, I will 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 your first questions to two. Operator?
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press the star followed by the one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment please for your first question. Your first question comes from Stephen MacLeod with BMO. Please go ahead.
Thanks. Good afternoon, guys. I just wanted to look at the sports business here, which obviously had a very strong quarter with very robust growth. It doesn't seem like demand is abating at all. You have a positive outlook for Q2. Can you just talk a little bit about sort of how you would expect, based on what today's sales to unfold, considering last year's Q2 was so strong? Would you expect the growth rate to be strong but moderated from Q1? Is it even so strong that you might see Q1 growth rates again?
Demand is very strong, right? Demand, I think Martin Schwartz mentioned, we're taking orders now. Again, what I'm going to say goes for the whole industry. We're pretty much taking orders for 2022 today because 2021 is done. There's no excess availability in 2021 for bikes. Again, production is good. We keep complaining about problems in production. That's because we can't get everything we want. At the same time, we're getting a lot of bikes in every day. We are expecting a good, strong second quarter. Again, particularly on the Cannondale side, that should go pretty steady right through the whole year. We don't see a lot of ups and downs in that business. The Pacific Cycle mass business is a little more variable. Their demand is very, very strong in there as well, but that's where container freight becomes an issue.
We don't have any inventory in our channel, and I'm going to say most retailers have very little inventory. There is some inventory in China that we just can't get enough containers to get it over here fast enough. That is definitely an issue. I don't know when that's going to abate. That could have an impact on Q3 or Q4. As well as we're finding the price increases on the lower priced bikes are significantly more than on the higher priced bikes. As a percentage, right? Those are the challenges we have, but demand is not one of the challenges. I don't believe that the industry's going to be able to fulfill the demand this year, and what we're seeing is going to continue into next year.
Interesting. Okay. That's great. Just turning to the home business, you talked a little bit about inflation being an impact for Q2 and even Q1, I guess, to a degree as well. When would you expect to put price increases through to offset that inflation? Is it safe to assume that you'd see some Q2 margin pressure, but then maybe that begins to moderate in the back half of the year?
Yeah, if prices don't continue to climb. That's the big if. We don't know where it's going to stop. We have items, some furniture items, that were on our third price increase since the fall of last year. That's a lot. The markets aren't used to it. We saw what happened to markets when tariffs came in, right? Tariffs are already in there. We're okay with tariffs, but as I mentioned a couple of years ago, the implementation of price changes are always difficult, and that's kind of what we're going through.
Again, so is the whole industry, and it's just always a bumpy ride because, like you said, we put some price increases in in Q2, it's going to affect Q2, and if nothing goes up after that, we should be stable by Q3, Q4. We don't know that yet. That's kind of the bumpy part of this. Demand is pretty good. Demand is solid. We have a lot of new items that are doing well. We have a lot of new brands that are doing well. Our customers are all doing well in this sector. It's just gonna be a bumpier margin issue than it is a sales issue.
Okay. That's good. Thank you. Then maybe just one more, if I could, on the Dorel Juvenile. Just with respect to the sale of the China manufacturing facility. You've given gross proceeds, but I'm just curious, can you tell us what net proceeds were and how much of that you used to pay down debt? Then what kind of operational efficiencies do you expect to achieve having sold that facility?
I mean, there was very little difference between gross and net, maybe just over $1 million. It was all used to pay down debt. That's where the cash went. It's going to give us flexibility. We're going to continue to buy from that factory, for sure. It gives us an opportunity to find items and find technologies from other factories, and not have to worry about funding all of the R&D that we had to fund. Where we're going to see a good improvement is less cash, less CapEx, because we don't have to fund as much of the R&D. We don't have to fund the actual factory anymore. It gives us more flexibility as to go in the direction of the best ideas and best factories that are out there.
We've had a lot of success in Europe doing things this way in the last couple of years. Now we're gonna be able to do it sort of worldwide. We're pretty excited, and it just takes the pressure off. Our focus needs to be on product design, marketing, branding, and not on running a factory in China, which was never our strength, although we did improve the factory quite a bit over the years, but still.
Okay. That's great. Thank you. I'll pass the line over.
Derek Lessard with TD Securities, please go ahead.
Yeah, good afternoon, everybody. A couple more follow-up questions. You said the Sports and then furniture business should remain strong. I was just wondering how you guys think about those businesses in particular, sort of in a post-COVID world where people and the discretionary spend might go away from bikes and back to things like vacations and driving and those types of things.
Yeah, I mean, there are probably going to be some of that, but I do think we've seen a lot of people rediscover bikes. That seems to be what we're finding out. Again, demand has not been satiated. We still have, I think, a lot to go. There's very little inventory in the system, so we think that when it does happen, it'll be more of a soft landing than a hard landing.
We don't have the answer to that, but we don't see a slowdown, like I said, anytime this year and certainly into next year. The way the market's reacting and some of the new items that are coming out and sort of a shift to e-bikes, which are really starting to gain a foothold in North America, we still see a lot of runway to go. I'm sure it's gonna soften some of the demand here and there, but it's not like we're filling that demand anyways.
Okay.
On the home side, the home side it could level off a little bit, but so much of our business has moved to online retailers, although brick-and-mortar's been pretty strong in the last little while. Again, we're focused so much on our online customers, and I do believe that the move from brick-and-mortars to online retailers is probably permanent. I don't think all those people are going to move back to brick-and-mortar once they've bought furniture online.
Okay. Thanks for that, Jeffrey. Maybe one final one for me, again, more specifically on the Chinese business or factory that you sold. I'm just wondering if, as you look through maybe your organization over the last several months and years, if there are other opportunities to divest of some of the things that you would consider non-core?
I think it's a lot harder because what we have around the world is marketing and distribution businesses that sell Dorel products. It's not impossible, but you're selling your distribution of your items in a country. Maybe we can do that. I wouldn't think there's another material piece like the factory that would be available.
Okay. Thanks, guys.
Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Please go ahead.
Oh, thanks. I just had a follow-up question. More a modeling question than anything else, the tax rate has really moved around quite a bit over the last few quarters. I'm just curious what you would expect in terms of the tax rate for maybe the balance of this year or next year.
Yeah. I think we're looking probably in the 25% range, given everything being equal and not having sort of adjustments.
Okay. Thank you.
There are no further question at this time. I will turn the call back over to the presenters for closing remarks.
Okay. Well, thank you. Okay. Well, this concludes today's call. I want to thank you all for being with us. Have a pleasant weekend and a very happy Mother's Day to all the moms out there.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.