Cannondale, GT, Mongoose, and Schwinn's parent company, Dorel Industries, have announced that they will suspend their third-quarter dividend due to the impact of increased U.S. imposed tariffs, according to Yahoo Finance
. The move comes as a result of Dorel's Board of Directors reviewing their preliminary third-quarter earnings and upon the release of the news on Tuesday, Dorel's stock fell 23% to its lowest price since 1996. The dividend declared on August 2nd, 2019 is not affected and will be paid on October 2, 2019. In addition to bicycles, Dorel owns companies related to juvenile products and home furnishings.
Tariffs were first implemented
on Chinese imports over a year ago. Dorel were able to ride out the first wave of tariffs at 10% but in May tariffs were increased a second time to 25% and the issues started to hit. Fallout from Dealing with Tariffs
The strain of tariffs and the fallout from dealing with them seem to have hit Dorel hard.
According to Marketwatch
, Dorel raised prices midway into the third quarter in an effort to mitigate financial impacts of tariffs, however, that had "several negative consequences" on its business. Those consequences include not all retailers raising prices at the same time, which disrupted the retail marketplace, retailers changed their buying routines from suppliers, and new price points caused consumers to opt for different items, creating a "considerable product mix imbalance. Additionally, there have been increased warehousing costs as product demand changes have had impacts on the company's inventory balancing program.
“The impact of the increase on Dorel businesses was still unclear at the end of the second quarter. We raised prices midway through the third quarter and this has had several negative consequences. Not all competitors nor retailers raised prices at the same time or rate. Retailers have also changed their buying routines. New price points have caused some consumers to opt for different items creating a considerable product mix imbalance. As well, elevated warehousing costs are still being incurred as the shift in demand has delayed our inventory balancing program. The net result of these challenges is that Dorel Home’s expected gross margin improvement from first-half levels will be delayed to the beginning of 2020,” explained Dorel President & CEO, Martin Schwartz.
Also affecting Dorel's business is that some U.S. customers have delayed their Christmas 2019 deliveries to the beginning of the fourth quarter, Additionally, the recent rise in value of the U.S. dollar has negatively impacted Dorel's sports segments as major currencies that affect Dorel's financial results have dropped between 3% and 8%, according to Yahoo Finance.
Dorel states that sales have remained strong with their mass merchants however, gross margins are lower. On a more positive note, independent bicycle retailers and sporting good channels have continued to have strong sales and a positive outlook.A Record Low
After the news broke on Tuesday, Dorel's stock plummeted 32%, over the course of the day, closing at $6.18 - the lowest value ever. On Wednesday, at the time of publishing this article, Dorel's stock was even lower, valued at 6$ after dipping to a low of $5.77. Additionally, there have been massive exchanges of shares - A volume of over 331,000 shares changed hands on Tuesday. In comparison, last Tuesday, a little over 20,000 shares were traded.
Read more: Giant Declares Made in China Era Over, Citing Trump Tariffs.
We have reached out to Dorel for comment and more information on how this may directly impact their bicycle brands and will provide an update in this article when we receive one.