Dorel Industries' (DIIBF) CEO Martin Schwartz on Q2 2014 Results - Earnings Call Transcript

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 |  About: Dorel Industries, Inc.B (DIIBF)
by: SA Transcripts

Dorel Industries Inc. (OTCPK:DIIBF) Q2 2014 Earnings Conference Call August 6, 2014 1:00 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries’ Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. (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 conference call is being recorded on Wednesday, August 6, 2014.

I will now turn the conference over to Martin Schwartz, President and CEO. Please go ahead.

Martin Schwartz

Thank you. Good afternoon, everyone. On behalf of Jeffrey Schwartz and Frank Rana welcome to our second quarter 2014 conference call. We will be pleased to take your questions following our comments. As always, all numbers mentioned are in U.S. dollars.

Overall, we are pleased with the earnings from operations of our three segments. As Jeffrey will explain, the significant costs related to the Caloi acquisition resulted in our earnings being lower than we had hoped to see. The momentum of the first quarter in recreation and leisure segment continue into Q2. Both the Cannondale Sports Group and Pacific Cycle have made solid headway. CSG benefited from global sales growth in most IBD markets, particularly in Europe and Japan, while growing demand drove the improvement at Pacific Cycle as mass merchants. As a result, second quarter revenue and recreation leisure grew by strong double-digits and operating profits rose significantly.

Caloi’s first half of the year’s performance was close to plan. They were affected by Brazil’s slowing economy and the focus on the World Cup, which shifted attention away from the bicycle business. But to be clear, Caloi is executing well and is growing its market share. We are expecting the bulk of its earnings to come in the fourth quarter, as that is both the start of summer and Christmas season in Brazil. Despite the softening Brazilian economy, we expect Caloi to grow versus last year and are confident regarding its future contributions to the segment. We firmly believe in this transaction as it will be a good long-term investment in Dorel’s future.

Juvenile exceeded prior year led by strong performance of Dorel Juvenile Europe and continued sales growth of Dorel Juvenile Brazil. Home furnishings top line was flat and as anticipated operating profits decreased. Internet sales continued their upward trend offsetting the drop in brick-and-mortar revenue. The specifics of each segment are detailed in this morning’s press release.

I’d like to take a few moments to talk about Dorel’s long-term vision. Basically, we are spending today to build and we fully expect to reap the benefits in the years to come. The Lerado Juvenile business acquisition, which at this point we expect to close late in Q3 or early Q4, is a prime example. This is definitely a new way of thinking for Dorel and we expect will be a game changer for us. We have never before owned factories in Asia. This is a sound $120 million investment in our future to ensure that going forward we control our own destiny allowing us to be more flexible in an increasingly changing environment. It has become more important than ever to be vertically integrated and to be in direct control of our supply chain.

We are confident the Lerado transaction will ensure that we continue to further grow our leadership in the industry. The purchase includes four extensive facilities, three based in China and one in Taiwan, encompassing over 2.5 million square feet of modern production, research development, and testing resources. We have established a transition team at Dorel Juvenile and have hired a seasoned industry individual in China as an onsite consultant, who will head up operations shortly after the deal is closed. We also expect to retain current Lerado management.

The acquisition should also accelerate our plans to grow in the Asian domestic market, an area of opportunity that thus far has been underexploited. The acquisition will not be accretive in the first year as work will be required to integrate these new facilities into existing operations. We will continue to purchase other Juvenile products from existing Asian suppliers with whom relationships have been built over time. We also look forward to continuing to supply Lerado’s current customers at a service levels that they have come to expect.

Another example of our approach to growth is our confidence in the Latin American markets. Dorel Juvenile Brazil has strong platform and is growing. And to further support it we recently bought the Brazilian rights to the highly popular Infanti brand to expand our position in that market. This provides great products in the mid and high price point categories. And we will now be able to cover all bases. The reception from retailers in Brazil has been very good and allows us to better reach the middle class consumer, the fastest growing segment in Brazil. As most of you know we own the Infanti brand in many other Latin American countries.

We have also recently taken steps to setup distribution of our Juvenile products in Mexico. After looking at possible acquisitions for quite some time, we have hired a local industry veteran with experience in international brands as well as a number of other people to get things going on our own. We have leased premises in Mexico City for our sales offices and showroom. We have had good sales meetings with most of the major retailers there. Again this will not happen overnight, but we are committing today the necessary resources because we believe there is potential for us in this large market. We are making similar investments for the future in our recreation and leisure segment.

We expect a strong Q4 in Caloi and things look even better for 2015. Its management is executing well and is gaining more market share. We see great things coming from this division. Many new dealers have been added and we have also invested to go Dorel’s other bicycle brands. We have invested resources in our factory and since April 1, we are assembling our international brands at the large Caloi facility for domestic distribution. We have spent money this year setting up dealers for our Cannondale, GT and Schwinn brands as well as spending on sales, marketing and exhibitions.

In yet another move the recreation and leisure segment is preparing to sell bicycles to both the IBD and mass channels through our proven distribution base in Chile and Peru. We expect to see some benefits from this – from it this year. So yes, we are spending considerable funds to establish a stronger and long-term base in many of our businesses. We have developed a detailed plan and we are executing it. We fully expect to see the benefits as we move forward.

Jeffrey will now provide a more detailed financial perspective.

Jeffrey Schwartz

Thank you, Martin. I will now focus on the quarter results rather than year-to-date and we will go through some key highlights. Revenue in the second quarter are $655.8 million, an increase of $9.2 million over the same quarter last year. Organically revenue increases after removing the impact of foreign exchange rates and new acquisitions was about 4%. Gross profit increased 40 basis points to 23.8 from 23.4 last year. The gross profit increase was in recreation and leisure and the Juvenile segment partially offset by a decrease in home furnishings. Pretax earnings increased 13.5% to $19 million from $16.8 million. Our net income for the quarter was $15.2 million, an increase of 14.9% from the $13.2 million recorded last year or $0.47 per share versus $0.41.

Going through the statement increases in selling, general and administrative expenses were mainly due to the acquisitions of both Caloi and Tiny Love. Our finance expenses increased by $4.6 million to $10.2 million, which is a big material number, included in that is $1.5 million related to interest recorded on the company’s put option liability compared to only $600,000 last year, that is a non-cash item. Our second quarter tax rate was 20.2% versus 21.1%.

Before I go into details on the various segments just want to talk a little bit about the impact of the Caloi acquisition on our earnings in the quarter and also actually year-to-date. So for the first six months the Caloi acquisition has actually decreased our earnings by $10.3 million so far. And this is made up of about $800,000 from operations, which although below our plan is not significantly below our plan. The balance is cash interest from doing the acquisition and then there is $6 million of non-cash charges this year. Of that, it’s the interest related to the company’s put option as well as a foreign exchange loss on that same contingent liability that we have in Brazil. So, it’s really taken quite a hit for the quarter – for the year, sorry. What happens however is the bulk of your – I guess, we can say 100% of the profit or more than 100% will be made in the second half and particularly in the fourth quarter. So, we expect to have a huge fourth quarter in Brazil.

The company itself although behind a little bit on operations is doing well. It’s executed a lot of our plans on time or early. We have expanded store counts, our sales will be up over last year and the earnings at Caloi will be up double-digit over last year as well. I think we mentioned that in the first quarter – in second quarter, we had difficulties because of the World Cup in Brazil, a lot of Brazilian companies did. I think the bicycle business had it even more, because a big channel that we sell through would be sporting goods and mass-market in Brazil as well as independents. And those retailers shifted their focus towards soccer and promoting the World Cup. And only in July, did we finally see a real uptick in sales once the World Cup wound down. And today, we are actually operating in a very busy environment. So, looking forward to the rest of the year, but that first half of the year was very tough on our P&L.

If I move over now to Juvenile Juvenile segment revenue for the quarter increased $7.9 million or 3.2%. Organically, we were flat for the year versus last year. While the organic revenue was negligible, Latin America organic growth was an exception and we increased approximately 10% for the quarter. However, upon conversion to the U.S. dollar, this growth was mostly offset by less favorable exchange rate. So, gross profits increased to 80 basis points to 29% versus last year. Operating profits for the quarter were $16.2 million, an increase of 2.2% over the $15.8 million last year. One of the drivers – positive drivers in the segment was Dorel Europe, which improved due to gross margins in operating costs. Additionally, the conversion of European operating profits was helped by a stronger rate of conversion to the U.S. dollar.

On the other side, operating profits in Latin America, Canada and Australia were again negatively impacted by foreign exchange rates versus the U.S. dollar. For the segment as a whole, selling expenses increased to only $1.4 million in the quarter and general and administrative were up by $3.2 million. A majority of the increases in both selling and G&A again can be attributed to Tiny Love, as well as some selling expenses in Europe, which again is affected by the higher exchange rate.

Moving over to recreation and leisure segment, our second quarter revenues increased by $48 million or 20% to $286 million. Organically, revenue increased by approximately 11% in the quarter. Overseas markets in the IBD Europe, Japan as an example and the North American mass-merchant markets contributed to the quarter’s growth driven partly by improved weather condition compared to last year.

Adjusted operating profit, excluding restructuring costs for the quarter, was $11.3 million – I am sorry, increased by $11.3 million or 200% to $16.9 million compared to the $5.6 million we have last year. So, everybody remembers last year was a very, very difficult year and I think we feel pretty comfortable we are past that now.

Excluding restructuring costs, gross margins increased by 80 basis points to $23.7 million versus $22.9 million. Less discounting on inventory and a weakening of the U.S. dollar against the euro help boost our margins in the IBD channel. If we look at selling expenses, they declined 6.7%. Excluding the impact of Caloi, however, it actually reduced by 15.3%. And the decline in expenses is due to the significant cost cutting initiatives that were started last year and then continued to be put in place throughout this year.

General administrative expenses increased by 23.3%. And if we take out Caloi, the increase is only 3.4%. Our restructuring costs were about $1.7 million for the quarter compared to $2 million recorded last year. In the home furnishing segment, second quarter revenues were flat versus previous year. Sales in the segment’s drop ship vendor program and online sales increased. However, these increases were offset by declines in brick-and-mortar. People that heard the last conference call will notice that seems to be a trend where brick-and-mortar sales are definitely moving towards online sales in this category.

Operating profits $5.3 million versus $7.2 million, a decrease of $1.9 million or 27%. Although again a big decrease there it’s in our budget some of it could be explained by a shift in some of our large customers taking in orders for the back-to-school season. Last year 2013, a lot of that was shipped in June, this year it’s shipped in July. So we have gone through July which was a particularly strong month for us. So we are feeling good. So that’s certainly not an issue, gross profits 13.4%, a decrease of 100 basis points from the 14.4% last year. While our input costs rose slightly versus last year particularly in particle board gross profit deteriorated mostly because of the less profitable sales mix.

If we move over to some other statistics before I give it back to Martin, inventories did increase by 6.7% when we compare to the end of the year last year. Again the inventory is higher particularly go back to school, which were shipped in July. July was a pretty strong month. So inventories have reduced again. So we don’t consider that to be an issue. Of course, some of the increase is also coming from Caloi, where again they are building bikes to be shipped in second half of the year, so between those two that’s a significant part of that. On the statement of cash flows for the first six months, cash flow from operating activities $16.6 million versus $44.4 million, a decrease in $27.8 million. The main reason for the decrease was the increase in receivables and inventory which was partially offset by an increase in accounts payable.

With that I will pass it back to Martin.

Martin Schwartz

Okay. Thank you Jeffrey. As we look ahead to the second half of this year in recreation/leisure, excluding the restructuring costs we anticipate slight growth in operating profits for the third quarter and significant growth in the fourth quarter. In Juvenile even after excluding the impacts of the U.S. product liability settlement case in Q4 of 2013, we expect double digit earnings growth in the second half. This excludes any impact on earnings related to the acquisition of the Juvenile product business of the Lerado Group. We have foreseen improvement in home furnishing’s second half which will make up the earnings short fall from the second quarter.

Please note that due to the seasonality of our recreation/leisure and Juvenile divisions in Latin America approximately 90% of the operating profit of these businesses will be earned in the second half of this year primarily in the fourth quarter. Interest cost and the non-cash charges relating to the put option liability are expensed throughout the year. As I have outlined, we are focused on investments which will provide Dorel with growth for the long-term. The Caloi acquisition and the Lerado transaction are two such examples. As well, while aware of cooling of the Brazilian economy in the short-term, we remain bullish on Latin America in general and have set in motion initial steps to develop a distribution base in Mexico.

I would now like to ask the operator to open the lines for your questions, but please limit your questions in the first round to two. Thank you, operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Dave King with Roth Capital Partners. Your line is open.

Joe Bess - Roth Capital Partners

Good morning. This is Joe Bess asking for Dave. My first question is, can you talk a little bit about what your targeted leverage ratio is longer term and then after you kind of achieve that, how are you guys prioritizing your use of free cash flow at this point?

Martin Schwartz

Sure. I mean we’re going to be with the acquisition, we’re going to above 3% to 1% obviously we want to get below the 3% to 1% range. We are comfortable – very comfortable with the 2% to 2.5% range although again we are – we produce cash, forecasters produce cash again this year. So after that, difficult to say, we obviously got to use lot of the next little while cash flow and again it’s down to that level. And then we look at possibly have increased some dividends or increased share buyback depending on.

Joe Bess - Roth Capital Partners

Okay, great. And then think about the Lerado acquisition, it sounds it will be earnings dilutive in the first year if you’re thinking about after that, how should we be thinking about its contribution.

Martin Schwartz

It’s a little – we’d probably be dilutive, we don’t for sure. Again I mean there is a lot of moving parts on it. I mean we’re converting a company that’s got a significant amount of customers who won that although we might have other customers, but we primarily have one customer. So we’re not sure how that’s going to work out and how fast it. It’s difficult to give you prediction on basically it’s why we kind of putting out there that people shouldn’t expect a – issued in the first year. But we don’t have any hard members yet.

Joe Bess - Roth Capital Partners

Okay, great. Thank you.

Operator

Your next question comes from Derek Lessard with TD Securities. Your line is open.

Derek Lessard - TD Securities

Good afternoon, everyone. Couple of question, the riding seasons now in the dog days of summer, we’ve heard some early rumblings of discounting going on. And I was just wondering if you’re hearing anything on this level and how aggressive has it been. And secondly, how comfortable are you with your 2014 model inventories and your ability to draw them down ahead of 2015 introductions.

Martin Schwartz

Good question. There of curse is a discounting; this is the time for discounting. This is what you budget. So this is where we expected to see some discounting. So discounting is not ahead of what we expected. So that’s good and that’s been in. I mean last year, there were discounting I believe it was in April versus you’d say now is the time that had happened. Our inventory is fine, again because we didn’t have to cut early – we’re not in a position where we have a lot of access and I don’t believe that’s going to be an issue going forward.

Derek Lessard - TD Securities

Okay. And with the August 1st transfer date now passed. Can you guys maybe talk a bit about your plans for the Canadian approach in 2015 and what if anything has changed since taking over title sponsorship?

Martin Schwartz

Shorter answer to that is, no I can’t comment until we finalize everything. I promise you as soon as we do, I’ll be happy to explain everything that we’re going to do going forward. But right now we can’t say anything.

Derek Lessard - TD Securities

Okay. Thanks, guys.

Operator

Your next question comes from Leon Aghazarian with National Bank Financial. Please go ahead.

Leon Aghazarian - National Bank Financial

Hi good afternoon. My first question is regarding Juvenile segment. You’re expecting double digit earnings growth in the second half of the year. And I mean so far we’ve seen organic growth was flat in the quarter and it’s up very slightly year-to-date. I know Latin America has been a big contributor. I just want to see, is it really driven by Latin America in terms of the organic – the earnings growth that we’re expected to see in the latter half of they year or has the U.S. competitive pressure kind of subsided little bit. Can you just comment on that please?

Martin Schwartz

We expect – I mean it’s certainly Latin America, there is no question that as we mentioned. But there are some other areas that are really starting to gel well, places like Australia, believe it or not, are looking forward to a very good second half compared to the first half places like Tiny Love. There are big – also for whatever reason, their earnings are going to be mostly second half earnings.

Leon Aghazarian - National Bank Financial

And what about the U.S., what’s the competitive landscape looking like there, I mean we know in the first quarter you benefited a little bit from I guess from a recall from one of your competitors?

Martin Schwartz

U.S. is still tough. I don’t expect a major second half revival, but Lerado is one of the big sort of solutions to our issues that we have in the U.S. We are going to be able to be more competitive in the U.S. market I think going forward with having our own factory. So, that’s where it’s going to take a little bit of time and I think it’s not necessarily going to be a second half business in the U.S.

Leon Aghazarian - National Bank Financial

Okay, great. And a last one from me would be regarding the SG&A, I mean, you mentioned quite a bit about Caloi, but I mean talking about the Juvenile SG&A, we see that has risen as well on a year-over-year basis, is that primarily driven by Tiny Love, and if so or not that what are some of the reasons for the increase in SG&A?

Martin Schwartz

Primarily driven by Tiny Love.

Leon Aghazarian - National Bank Financial

Okay, thanks. I will turn over.

Operator

Your next question comes from Anthony Zicha with Scotiabank. Please go ahead.

Anthony Zicha - Scotiabank

Hi, good afternoon, Martin, could you elaborate a bit more on the Lerado acquisition in terms of the integration plans like how much business do you figure you will be able to take in-house and how much business could we anticipate losing when the transition occurs and finally like how are we going to finance this acquisition?

Martin Schwartz

As far as the transition, I mean, we expect to keep a good part of today’s existing business for a little while. We will see how we manage the relationship with today’s customers, but there is awful lot of goods that we will be able to transition into the Lerado facilities. We should be able – just what Dorel needs for Juvenile products, we could fill that factory. And we are starting the transition already. So, it should go smoothly as we can make it. And like I said, we will fill the factory if we need to and if we want to.

Jeffrey Schwartz

As far as financing, we are looking at and we are analyzing all the different options now. So, we haven’t come to any conclusions yet.

Anthony Zicha - Scotiabank

Okay. And with reference to Caloi, you mentioned market share like what market share do you have in the house that evolved since you acquired the company and Martin, what do you see is the biggest challenge in Brazil in terms of the competitive landscape?

Jeffrey Schwartz

I will take that. We actually haven’t – we don’t have market share numbers. I mean, Caloi is by far the biggest brand. Going forward, we see Caloi growing probably with the market, I don’t know that they are going to gain market share, where we are making the big impact is we have already introduced, for instance, Mongoose and Schwinn brands in the marketplace and those products are produced in Brazil, 100% produced in Brazil. So, now, we have two other brands that we can use in the portfolio. As well we have got Cannondale and GT, which are coming in either imported or semi-imported and those brands are also being expanded. And that’s where we are gaining significant market share. Canada, for instance, had I think where it was sold in about 80 stores prior to the acquisition and we are about 250 today. GT, we are almost – we are aiming for 200 locations throughout the country. So, there is lot of brands that are going to help us grow that business, not just the Caloi brand.

Anthony Zicha - Scotiabank

Okay, excellent. Thank you, Jeffrey and Martin.

Operator

Your next question comes from Stephen MacLeod with BMO Capital Markets. Please go ahead.

Stephen MacLeod - BMO Capital Markets

Thank you. Good afternoon. I just wanted to get some more clarity on the $6 million in non-cash charges from accretion interest and unrealized FX losses, how much of that was actually in the quarter. I mean I know Jeffrey you said – I thought you said that it was $1.3 million or something, but I thought that was maybe only for the…

Jeffrey Schwartz

Of the total – I will tell you what, I have of the $10.3 million as opposed to the $6 million of the total there about just under 40% is Q2 versus Q1.

Stephen MacLeod - BMO Capital Markets

Okay. But you don’t have the breakdown for the 6?

Jeffrey Schwartz

Breakdown of each individual piece, no.

Stephen MacLeod - BMO Capital Markets

Okay. And then can you just talk a little bit about the sort of cost and pricing environments on the Juvenile business in the U.S. and elsewhere?

Martin Schwartz

Are you talking about like our input costs or selling?

Stephen MacLeod - BMO Capital Markets

Input costs in selling price environment?

Martin Schwartz

Out of Asia, the costs have been very stable. Materials have been stable; labor has gone up a little bit. We’re doing fine with cost of freights. So if anything, there is no upside – upward pressure on our costs. And on the selling side, the retail side, competition is still very tight. We have to do whatever it takes to maintain our market share and try to grow our market share. But I think we’re handling it pretty well.

Stephen MacLeod - BMO Capital Markets

Great, okay. And then just finally, Jeffrey alluded to the financing for the Lerado acquisition. Do you have a sort of preference for an optimal structure in terms of how to finance that?

Martin Schwartz

Like I said, we’re looking at it. So we really don’t have any comments on that. We haven’t made any decisions.

Stephen MacLeod - BMO Capital Markets

Great, okay. Thank you.

Operator

Your next question comes from Derek Dley with Canaccord Genuity. Please go ahead.

Derek Dley - Canaccord Genuity

Yes, hi guys. I’m just wondering if you could give us an update on the new product pipeline at juvenile and when you really expect that to kick in especially now with the acquisition of Lerado?

Martin Schwartz

I mean there is product all the time, right. This is two year pipeline. So we’re constantly introducing new products. Obviously there is going to be an impact of Lerado on that, that’s probably – it’s going to be nine months, it’s going to stay Q1 to Q2 next year, it’s probably early, so we’ll see some of the new Lerado type of products. But we already have stuff in the pipeline, so it’s a difficult question. It’s not like we have – we’re going to see one major sort of push on that area. But we do have some products, well actually lot of products in the schedule from now until even not too early 2016 in car seats and strollers, there is new products coming out in our safety lines. So I mean we are constantly developing.

Derek Dley - Canaccord Genuity

Okay, that’s great. And then on the recreational division, looking ahead to the back half of the year, obviously you guys have noticed some very strong growth potential. Where do you guys – what markets do you see outperforming outside of Brazil, for example, do you see the US outperforming Europe or vice versa?

Martin Schwartz

I don’t know that we have it broken down.

Jeffrey Schwartz

Europe has been very strong this year.

Martin Schwartz

Yes. I would expect Europe to stay strong. We’re expecting a very strong fourth quarter for like I mean just having Brazil, putting all of that income into the fourth quarter is going to have a major – positive impact for us. Third quarter is going to be a little bit more challenging because we actually had a good third quarter last year. So we’re not expecting to see – it’s not a growth there. But when we look at – I think there is going to be a lot of shipping of 2015 bikes for IBB for the Cannondale, which occurs primarily in Q4. So I think in addition to Brazil, you’re seeing a very strong introduction of new bikes into Q4 as well as our mass channel, which always does well in the Christmas season. So it’s kind of mix, I mean with the two big one thing IDB is selling the new bikes 2015 and Brazil is going to lead to significant profit improvement.

Derek Dley - Canaccord Genuity

Okay. That’s great. Thank you very much.

Operator

Your next question comes from Mark Petrie with CIBC. Please go ahead.

Mark Petrie - CIBC World Markets

Good afternoon. You mentioned that Lerado is going to make you more competitive in the U.S., is that just matter of flexibility or lower production cost – like flexibility around product and innovation, lower production costs, or is it a matter of being able to get back into some of the products that you may have had to exit because the margins were getting squeezed?

Martin Schwartz

Yes. There are a couple of things. First of all it definitely will give us better costs on our purchases out of China as well like you say. We have to accept certain areas because there were some Chinese vendors selling direct to the retailers and in many cases off-brands they are selling direct. We will now be able to easily compete with that and give the retailer and the consumer a brand that they recognize.

Mark Petrie - CIBC World Markets

Okay. And then just in terms of the SG&A in Juvenile is it – I know you said that the increase is sort of basically the acquisitions, but should we expect it to be fairly stable from here then?

Frank Rana

I would think – I mean again we are going to end up with another one – another acquisition by the fourth quarter. So obviously that’s going to bump it up. But yes I would think it’s going to be fairly stable.

Mark Petrie - CIBC World Markets

Okay. And then just as it relates to the rec and leisure business and the IBD channel specifically, what do you think accounts for Europe outperforming the U.S., is that a matter of just different sort of weather and that kind of thing or do you feel like the brands are behaving differently or you have different sort of marketing push?

Martin Schwartz

No, well certainly marketing push isn’t different. I think it’s a better environment right now for biking, but weather is huge. We don’t underestimate. We used it as excuse last year. I think a valid excuse for the problem and I will tell you this year we had an early spring and then we have had a really good summer and that’s really helped.

Mark Petrie - CIBC World Markets

And what’s your view on the health of the IBD channel in U.S. specifically, do you feel like it’s – is it over stored or are you seeing more people coming into the business still and what’s your view on the inventory levels at the sort of retail level?

Martin Schwartz

I think the biggest single impact on why the U.S. isn’t doing as well as Europe is the inventory overhang from last year. I keep hearing that that still somebody told me something like the best selling bikes of the year, among the top ten bikes of the year being sold, three of them are 2013 models. I mean so people are still clearing out bikes hasn’t really affected us that much other than it’s been a little bit sluggish, it’s certainly – we are doing better than last year. We don’t have – we didn’t have that excess inventory that we needed to clear. So we were able to sell our goods at full margins which meant we had a good year. I think the biggest impact on the U.S. is definitely the overhang on inventory from last year.

Mark Petrie - CIBC World Markets

Okay, thanks very much.

Operator

Your next question comes from Derek Lessard with TD Securities. Please go ahead.

Derek Lessard - TD Securities

Yes. Is there – have you guys gotten any feedback or buzz surrounding you new 2015 models?

Martin Schwartz

Yes. I think they were great. I was down at the sales meeting couple of weeks ago in late June in the U.S. And yes they got excellent response. There we are pumped up on the bikes side. On the products side, I think we are doing a great job there. I see what’s in the pipelines in the last couple of years it’s pretty exciting as well.

Derek Lessard - TD Securities

And you guys still think you are taking market share?

Martin Schwartz

In some categories, yes I do. I really think we are I think we are putting out some great products now.

Frank Rana

And we are getting some great reviews.

Martin Schwartz

Again we have got some Bike of the Year reviews and stuff and we are certainly we are focused on that. We are focused I think next 2015 you are going to see best year ever for parts and accessories Cannondale.

Frank Rana

We are totally rebuilding our parts and accessory lines.

Martin Schwartz

So that part of the business is it looks great.

Derek Lessard - TD Securities

Okay. And one final one it’s nice to see some good news in Juvenile Europe, can you just maybe talk about what’s going on there?

Martin Schwartz

It is some pretty good news. Obviously, the exchange rates helps but we are seeing some growth in a number of territories. And I think again that it tend to be the Northern territory. The south is still somewhat challenging but overall we are picking up a little bit of momentum and it’s still tough don’t get me wrong. This is right now it’s still we are still struggling a little bit here and there. But at least we are not moving backwards anymore.

Derek Lessard - TD Securities

Thanks for your time guys.

Operator

(Operator Instructions) Your next question comes from Anthony Zicha with Scotiabank. Please go ahead.

Anthony Zicha - Scotiabank

Jeffrey, could you please remind us of what your free cash flow do you anticipate for the year?

Jeffrey Schwartz

We haven’t forecasted that.

Anthony Zicha - Scotiabank

Okay.

Jeffrey Schwartz

I haven’t issued it. So I can’t say that.

Anthony Zicha - Scotiabank

Okay, well thank you.

Operator

There are no further questions at this time. Please continue.

Martin Schwartz

Okay. Well, thank you. We are confident about the road ahead for Dorel. We are making very strategic investments, which we know are in the best interest of our shareholders. These include expenditures to support our brands and allow us to be in a better position to control our destiny. We have great teams in place at our business, who are committed to getting the job done. The future is exciting and we see great things ahead in many years. So, in conclusion, I want to thank everybody for joining us this afternoon. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

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