The majority of the increase in Recreational/Leisure revenue is due to the acquisition of Cannondale and SUGOI in February this year. Sales at the segment's mass merchant customers again increased in the quarter, as demand for bicycles has risen. Gross margins were up, principally due to the contribution of higher margins on Cannondale bicycles and SUGOI clothing. Note that the PTI acquisition in late June 2008 did not contribute any significant revenues in the quarter.
With the exception of sales of metal folding furniture, all of the segment's divisions posted improved sales over 2007, both for the quarter and year-to-date. Sales of ready-to-assemble (RTA) furniture were especially strong, despite the overall slowdown in the home furnishings retail sector. In fact, demand for domestically produced product has risen dramatically allowing the segment's North American factories to run much more efficiently.
The second quarter of 2007 included a pre-tax restructuring charge of US 9.7 million, of which US$3.7 million is grouped in cost of sales. Additionally, the second quarter of 2007 included an insurance recovery relating to prior periods of US$2.2 million. Excluding these amounts from the comparative figures, gross margins for the second quarter of 2008 improved by 190 basis points and earnings from operations increased by US$2.8 million to US$4.0 million from US$1.2 million in the prior year.
Other: The Board of Directors of Dorel declared its regular quarterly dividend of US$0.125 per share on the outstanding number of the Company's Class A Multiple Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units. The dividend is payable on September 4, 2008 to shareholders of record as at the close of business on August 21, 2008.
Outlook: The Company's strong first half will allow for very solid 2008 full year results. However, the pace of earnings improvement over the first six months of the year will not be repeated in the second half, due principally to seasonality, specifically in the Recreational / Leisure segment. The majority of the earnings from this segment occur in the first half of the year, particularly in the Independent Bicycle Dealer (IBD) business. Both Juvenile and Home Furnishings earnings are expected to remain strong for the balance of the year. The Company continues to expect its annual tax rate to be between 15% and 20%.
As stated at the end of the first quarter, the Company continues to operate in a rising input cost environment on items such as crude oil and certain commodities, as well as the increasing cost of goods sourced in China. As a result, the Company took action on pricing, and for the most part has been able to offset these increases. However, the effects of further cost increases at the retail level cannot be determined with any degree of certainty. Despite the higher resultant retail price points, demand for Dorel products has remained strong in all three of the Company's segments.
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.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "UBM China (Shanghai)")
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
