Martin Schwartz - CEO Jeffrey Schwartz - CFO

Sabahat Khan - RBC Capital Markets Anthony Zicha - Scotia Bank Derek Lessard - TD Securities Leon Aghazarian - National Bank Financial Mark Petrie - CIBC Dave King - ROTH Capital Partners Stephen MacLeod - BMO Capital Markets

Thank you. Good afternoon everyone.

On behalf of Jeffrey Schwartz and Frank Rana, I thank you for joining Dorel's third quarter conference call. We will be pleased to take your questions following our initial comments and a reminder that all numbers are in US dollars.

We recorded certain restructuring and impairment charges in Q3 as we proactively make the required changes that are needed to further drive our Juvenile and Sports business. The impairment charges recorded at Caloi reflect the effects of the economy and currency situation in Brazil.

Excluding these factors adjusted net income for the quarter was $15.5 million or $0.48 per diluted share. In addition, foreign exchange net negative impact was $0.28 per diluted share in the quarter alone, a factor affecting just about all companies with international operations.

Jeffrey will provide a complete breakdown shortly. Home Furnishings put in another extremely strong showing in Q3 and Juvenile and Sports segments are dealing with the strong FX headwinds, which again affected their profitability.

Both businesses are continuing to implement selective price increases and are introducing new products at better margins to mitigate the currency issues. This should benefit results starting in the current fourth quarter and through 2016.

The real Juveniles restructuring activities are part of its ongoing transformation into a more fully integrated operation. Cost savings have been identified in various geographies.

In China operations are being consolidated. Two smaller facilities will be closed and indirect labor levels have been reduced at the company's two main factories there.

We're also consolidating certain operations in North America to allow the Canadian business to focus solely on sales and marketing activities. In Europe, there is an ongoing process harmonization and a realignment of the sales organization to enhance efficiency.

Similar actions are being implemented in Latin America. In short, we have taken a long hard look at everything in this segment and we are doing what needs to be done.

FX continued to impact the Dorel Juvenile's foreign operations. Latin America sales were flat in reported results, but in local currency, growth overall continues in the double digits.

Chile sales growth dipped 10% due to a slowdown in the economy, while in Brazil it grew over 30% despite the challenging environment in that country. In Europe despite the lower euro, margins were maintained through a combination of positive product mix, cost reductions and effective hedging.

Q4 won't be as strong in Europe as traditionally, there is a higher marketing spend to support the many new product launches initiated at the Cologne, Germany show that took place in September. Dorel Juvenile USA posted lower sales mainly because of reduced sales in the US and Canada, where certain retailers reduced orders to lower their in stock levels.

Margins were helped by a better product mix. The fall is an important season for Juvenile trade shows and Dorel was present at the key ones, one in Cologne, Germany and one in Las Vegas.

We had a major presence at both, attendance was high and customer feedback was most encouraging. Several new items were introduced in our car season storylines and we are investing more in marketing to support them.

At the ABC show in Vegas, the emphasis was on our premium brands Quinny and Maxi-Cosi, where a new designer line from reality TV star and stylist Rachel Zoe was unveiled and enthusiastically received by retailers. Importantly, in Europe, the Maxi-Cosi Pebble Plus baby car seat received the Top 5 star rating in the safety category and finished with the top score overall in the group zero category following tests by three independent major European Automobile Clubs.

This underlines Dorel Juvenile's expertise and leading position in the i-sized segment. I will resonate extremely well with consumers across Europe.

Last week, senior management hosted a number of financial analysts in China for a tour of our new Juvenile manufacturing factories. Our people have done a tremendous job of getting the factories in China into order and we are ahead of schedule.

While there is still work to be done, in less than a year, the transformation has been very significant. Many obvious positive changes have been made at the main factory, which comprises 20 buildings and 1.2 million square feet of manufacturing space.

There's been a heavy emphasis on quality control and we are moving to become a world class manufacturing center. Our Huang Shi factory has become one of the largest producers of umbrella strollers in the world, with 2.5 million units being manufactured there and we are continuing to lower cost per unit produced.

Close to 60% of our strollers are being made there and this number will continue to grow. The management team has been almost completely replaced with experienced executives and there has been a material change in operations to a more performance based culture.

Employees are now paid by quality control approved production versus all production and acceptable quality goods are consistent in the 90% plus completion range. We've reduced redundant management layers and progressively taking our dependence away from third party suppliers, although we will continue to outsource certain production where it makes sense.

A strong domestic sales team has been created to sell into the Chinese market. Our acquisition from Laredo came with an opening price point brand called Angel.

We will be building on this with a matrix of our brands to serve all price points. And just last week the Chinese government announced it will abandon its 35 year-old one child policy.

Couples will be allowed to have two children, and obviously that should materially boost our business in China by 2018. Our facilities in China have great potential not only for Juvenile, but eventually for our other businesses as well as.

As an example, we are looking at producing some of our electric ride-on-toys in our [Indiscernible] factory. This is a product line that is rapidly growing.

Dorel's sport is also implementing a new structure for its North American independent bike dealer operation with more emphasis on the parts and accessories and apparel products. As such cost reductions are being implemented across the segments, including headcount in North America, consolidation of the Cannondale and SUGOI apparel product lines into a single global apparel portfolio, and the consolidation of our Parts & Accessory and research and development activities.

These restructuring initiatives are expected to be completed during the current quarter and are already benefiting the segment. Cycling sports group revenue grew 10% in constant currency thanks to a strong model year 2016 line up, which is more of new platforms than ever before and continued growth in the sporting goods channel.

All regions grew organically except China. Cannondale did exceptionally well at the two big Q3 bike shows.

It won a 2015 Eurobike Gold Award for the best road race bike for its new Slate Force CX1. The Eurobike award is selected by an independent jury of industry experts based on a number of criteria and is one of the most prestigious design awards in the cycling industry.

Cycling Plus the UK's Number 1 bike magazine has termed the Slate a great VIB, a Very Important Bike. In the same issue, the CAAD12 105 won a group test with a 4.5 out of 5 star rating.

The magazine states, we go so far as to say the CAAD12 is one of the most impressive handling bikes we've tested this year irrespective of price. Cannondale also received great recognition at the US Interbike show winning the Interbike Road Bike of the Year award for the SuperSix EVO Carbon Force Racing Edition in the important mid-price category.

The Interbike award recognizes overall design, performance, spec, price and styling for the model year 2015. The [indiscernible] cycles electric ride-ons continue to do well and several new models have been introduced for the holiday season, including two Disney Frozen brand units highly popular with the kids.

Jeffrey will get into the impairment charges at Caloi, but I do want to say that senior management remains strongly committed to this business. Caloi had strong brand equity and its lower price point bikes are doing well, despite the current economic headwinds in Brazil.

And Q4 is traditionally been its best. Home Furnishing had another excellent quarter.

E-commerce sales grew by 38% over prior year and represented 37% of the segment's total sales. Dorel Home Products led the way with its biggest online sales quarter-to-date.

Cosco Home & Office also saw growth in the internet sales, which is reflected in improved operating profit. Another significant positive in the quarter was the growth in the Internet channel at Ameriwood particularly at Altra, their import division.

Also important to note is that the segment has also succeeded in maintaining its level of sales in the brick and mortar channel. We are definitely capitalizing on a general improvement in the industry as the housing market rebounds.

Dorel's Home Furnishing business provides consumers with great value and great design. We are executing and we are reaping the benefits as a result.

Jeffrey will now provide the financial perspectives. Jeffrey?

Thank you, Martin. Before we get in the numbers, I want to highlight a few items.

As Martin mentioned, during the third quarter due to circumstances related primarily to the market conditions in Brazil, meaning the economy, the huge devaluation of their currency, we had to revise our assumptions on the projected earnings going forward on the cash flow growth at Caloi, and this resulted in a goodwill impairment charge of $19.9 million as well as $6.6 million impairment charge on the customer relationships that we have on our balance sheet down there. In addition to that, it also resulted in us re-measuring the Caloi acquisition forward purchase agreement liability and that gave us an unrealized gain of $9.7 million.

So I just want to point out that this is really a macro level write down this, really we don't, macro level affects our business. There is no question, our upside, as long as your economy is like this is reduced, but the company itself is doing well considering the economy, we are up in local currency, both sales and earnings were up in Q3 and we expect to be up as well in Q4, particularly on the earnings side.

So I just want to highlight that that is more of a macro conditions of the environment rather than our company itself. Martin covered most of the restructuring, but with related to a number of areas primarily China as well as in Europe like we said we are changing the way we bring product to market.

Our new IT system that is up and running now is allowing us to realign some sales organizations and the total amount of the write off is going to be a 10.6 during the quarter the segment recorded 3.9 of that under the plan. Going forward we would, let's see, the restructuring initiative related to the plan are expected to be completed by the end of the year the segment expects to realize annual savings of $9 million.

So $9 million on a write off of just around $10.6. In addition, we also have a restructuring charge in the bike section, which was $4.7 million in the plan, and that is expected to deliver annual savings of about $4 million.

As explained, the reported net loss income for the quarter and nine months included impairment charges on goodwill and customer relationships, restructuring and other costs. As such, I'll be discussing the adjusted financial information as we believe that excluding these items, the restructuring and the impairment is more meaningful comparison to our core businesses between the periods discussed.

So as usual, I'll focus on quarter results rather than year-to-date results. Consolidated revenue increased by $6.3 million to $679 million.

The organic revenue increase removing the impact of foreign exchange variations and new business acquisitions was approximately 5% compared to 2014. Adjusted pretax earnings declined by 47.7% to $15.3 million from $29.2 million in 2014.

Adjusted net income for the quarter was $15.5 million, a decrease of 34.9% from the $23.8 million recorded last year. Our adjusted diluted EPS was $0.48 for the quarter compared with $0.73 last year.

As was discussed, the net negative impact of the FX on the third quarter was approximately $12 million. The net impact of that is $0.28.

Our third quarter adjusted gross profit excluding restructuring charges declined to 20.6% from 22.6%. The gross margin decreased in both the Juvenile and the Sports while it increased in the Home Furnishings.

SG&A and R&D expenses decreased by $2.3 million or 2.1%. Now the decrease the adjusted operating profit declined by 28.2% or $10.4 million, when excluding the impairment losses the restructuring charges and other cost explained by $12 million of FX as mentioned above.

Reported finances expense decreased by $4.9 million, but that included the charges related to the re-measurement of the forward purchase agreement as I mentioned before. So if we look at this as an adjusted finance expense, which excludes the re-measurement, the liabilities were $11.2 million this year compared with $7.7 million, that's probably the numbers that people should be focusing on.

Our interest on long term debt increased to $8.6 million from last year's $6.4 million, primarily due to increased borrowing cost relation to the convertible debenture that was part of that Dorel China acquisition. Our third quarter tax rate was a little strange.

It's a recovery, but the main variations primarily as we've said before, changes in jurisdictions in which the company generated income. So we found this particular quarter, the areas where we generated income happened to be fairly low taxable areas, but it also included the recognition of the tax benefits relating to a tax losses following the Canadian reorganization and the decrease in the fair value adjustments related to the forward purchase agreement liabilities, which are non-deductible for tax purposes and also the non-deductible impairment of goodwill.

Going forward, we lowered our expectations a little bit for the balance of the year and expecting annual rate to be between 12% and 17%. On the Juvenile side, the revenue was $247 million compared to $260.7 million, a decrease of 5.1%.

Organic revenue decreased by 4% after removing the effects of China acquisition and the exchange rates. The decline in sales is mainly due to North American issues with reduced sales in Canada and the US where certain retailers reduced their orders in a sense to lower their in stock levels.

This was partially offset by the Latin American division, which posted double digit growth. Adjusted gross profit excluding restructuring charges decreased to 26.3% from 28.1%.

That's largely explained by the FX pressures on all the regions. As well as adding in the Dorel China business to the mix, which is a definitely a lower gross margin.

Adjusting operating profits excluding restructuring and other costs included in the full quarter of results from Dorel China amounted to $7.9 million, a decline of 54% from $17 million last year and that's primarily due to Dorel China and the currency pressures that have been put on by the non US businesses. Foreign exchange had a net negative impact of about $4 million in the Juveniles for the quarter.

If we move over to Sports group, revenue was flat at about $266.5 million, organic revenue increased by approximately 9% after removing the impact of foreign exchange year-over-year. The main drivers of the growth we're an increased demand for new model year bikes and the IBD channel and a significant increase in the battery operated ride-ons in the mass market channel.

For the third quarter, adjusted gross profit excluding restructuring decreased by 340 basis points to 20.1% compared to 23.5%. Again, the main cause of that driver is the exchange rates and some higher logistical costs that occurred in the quarter that won't be repeated.

Adjusted operating profit excluding impairment losses restructuring and other costs decreased by $9.3 million or 46.3%. All major divisions of the segments saw their currency weaken significantly against the US dollar and this had a negative impact on operating profits of about $10 million, significantly more than the Juvenile.

I'll get into that in a minute. Excluding the foreign exchange impact, the third quarter operating profit would have been comparable to last year.

So what had happened in the quarter to explain a little bit is we have a significant amount of inventory overhang from the 2015 model year. So we sold a lot of those bikes in the third quarter from a mix standpoint.

They probably sold more 2015 bikes than 2016 bikes. The 2015 bikes carry the old prices in addition to any discounts that would have taken off of that.

So the impact of a price increase was only really felt on 2016 bikes. So as we switch into Q4, where the preponderance of the bikes that we sell in that quarter will be 2016 bikes, we're expecting to see significant shift in our gross margin back to more normal levels.

And that tends goes into our outlook that we will actually be able to increase our top line sales and bottom line sales bottom line earnings in Q4. And that's what we expect sort of that large turnaround from a $10 million FX hit to something significantly less than that in Q4.

The last segment, Home Furnishings, had another strong quarter. Revenues for the quarter increased by $19 million or 13.5%.

The segment sales to online retailers continue to drive the segment and represents 37% of our total sales. A year ago that number was probably closer to 30%.

Gross profits increased 12.9% compared to 11.2%, some higher material costs and overheads at the segments ready-to-assemble plant were offset by higher margins on online sales and operating profit was $10.1 million compared to last year, which is an increase of 84.9%. And with that I'll pass it back to Martin.

Okay. Thank you, Jeffrey.

Looking ahead, we are encouraged with Dorel Sports. It will turn the corner in the fourth quarter and we anticipate increases over last year in both sales and earnings.

And as I discuss, considerable changes have been made in this segment. And we have new pricing in place on the largest number of new bicycle platforms ever introduced.

This will pay off with new positive trend going forward. Foreign exchange remains unpredictable.

However, Dorel Sports is in a stronger position to face the issue. The substantial growth trend established by Home Furnishings during the first nine months is expect to continue through the end of the year as all divisions have benefited from an increase in ecommerce sales.

We are confident of an excellent year for Home Furnishings. Dorel Juvenile sales and adjusted operating profit for the fourth quarter are expected to be at levels similar to those of Q3 as foreign exchange rates are not showing signs of immediate recovery.

Newly launched products are priced at current foreign exchange rates and along with benefits of our restructuring activities initiated in Q3. This will positively impact earnings as we begin 2016.

I'll now ask the operator to open the lines for your questions and please as always limit your questions to two on the first round. Operator?

Thanks. On the Dorel Juvenile segment, can you maybe talk about the new product launches that you expect will contribute in 2016 and what's your outlook for the whole year, in terms of sales and earnings, maybe they're kind of similar to the bikes where you do expect growth to follow the new product launches?

It's a lot more complicated, as, we've got so many pieces that move together in all of this, but yes, we had some successful product launches particularly on the car seat side, doing well in the US with a couple of new products as well. I'm expecting a lot in Europe.

Hopefully soon we got a great test results in a German magazine on car seats, which is pretty influential in the marketplace. And I think we have the top score in the group zero seats.

So we're excited about that. So, yeah, it's a little bit difficult to see a little bit early, budgeting season is going, we expect to see improvements throughout the year.

We certainly expect to see improvements in China as year goes on and we've lost money in 2015. I'm hoping that we're going to be making some money there in 2016.

It's a little harder at this point to give you exactly, when we'll see significant changes, but obviously this whole, if you look at the Juvenile currency pain, if you want to call it that, it's reducing quarter-by-quarter and that's because slowly we're replacing we're getting more price increases and we're placing newer products. So that's going to probably fade away by Q1.

So I would imagine by Q1 we're going to start to see a time where we hopefully could start comping positively in Juvenile.

Hi, good afternoon. Martin, with reference to the Juvenile group, or Jeffrey, we've talked about the Q4 sales guidance being in line with Q3.

So this basically would imply a double digit decline over last year. I can appreciate that part of it will be tied to FX, but could you give us some more color behind that and could you give us an update in terms of market share in competitive landscape please?

Thanks.

Well, we are, let me talk a little bit about the US market. Our sales are down, there's no question, but as we've said for a couple of years we've been focusing on the bottom line and we did not see a drop in our bottom line in the US in Q3 and we are expecting a double digit increase in bottom line in the US in Q4, despite having a slight decrease in the top line.

So, like we've said we are focusing on increasing our margin, we walked away from some no margin or negative margin business and that is definitely part of what we're seeing. So given that our sales are down you could say our market share is down.

But our earnings are not down in the United States. So, and again, that's been our focus for a little while.

So based on that we're expecting some good things. Europe is a transition quarter, Q4 is always a bit of a transition quarter a lot of the new stuff starts to get delivered at various times in Q4, the things we show at our show.

So you tend to see a slowdown in purchases on older models waiting for the new stuff to come in and it launches various times throughout the fourth quarter. So it's accorded as a bit difficult to project and yet it also is an expensive quarter as we launch these new items, they all have sort of marketing launch programs that go with them.

So if they all would have launched on October 1, we probably see the impact but we tend to launch throughout the quarter. So Europe tends to be and will be weaker this year.

Expecting good, again in South America we're growing and things are good, they are just by the time they get translated back into US dollars, you see decreases in sales and earnings, but we are expecting a good fourth quarter particularly in Chile in local currency.

And then tying to that all especially in North America, one of your major customers has gone through a major supply chain management change. And I guess it impacted you over the last few quarters.

Is this now behind you?

It's funny. I will say the impact that we were referring to on a reduction on sales was nothing to do with anything you've read anywhere.

It's just an old fashion screw up in which they stopped ordering I guess for one reason and got to the point where they ended up below proper stocking levels. And therefore we got we were screaming, hey, you don't have enough stuff in your system.

They've opened it up since then and we're shipping again, but that was the real reason, nothing else that that's what we're referring to. Just an actual just kind of closing down the system for a number of weeks.

Okay. And then the last question with reference to China production.

When is that going to kick in and should we expect so more restructuring? Thank you.

I'm not sure what you mean by when it's going to kick in. The production?

I mean we've been producing.

Well, what's going to make a big impact, or when do you think it?

Well, I don't have an actual quarter yet. We're still in that process of doing our budgeting now for next year, but we certainly believe next year will be accretive.

At some point, hopefully earlier than later, I'll be able to answer that in the next conference call. And as far as restructuring I mean it's possible.

We're getting better, we're really are. Like Martin said, we just came back from a trip there and I can see the huge changes.

I'm not going to comment I'm not going to comment that we're done, because once you hit a certain level, we're going to analyze it to see can we do better? And if we can do better, we can do it by removing people, our operations.

We probably have too many operations spread out into many buildings and would be probably looking to continue to consolidate a lot of the operations into one main campus. And will that causes a restructuring charge?

It might. But I don't know when and I have no idea what that amount is going to be, but that's our goal is to become as efficient as possible.

Okay, thank you.

Thanks guys, for taking my call. I'm just looking at from what you disclosed, and I'm trying to back out what the negative impact from China was.

Is my math right in saying that it was about $5 million in the quarter?

No, it is less than that. It was higher than we expected.

There are a number of sort I won't call them one time things, but there are some non-repetitive issues, but no, it's not as quite as $5 million. It's less than that.

Okay. And maybe just a quick explanation on the drop in corporate expense?

One second, I am just checking what it is. We mentioned a number of $12 million for the net FX impact.

So if you took the Juvenile and the bike business together, that was about $14 million and we had a positive impact in corporate of about $2 million. So that would be the bulk of the savings there.

Okay, thank you.

Hi guys, just wanted to be clear on that inventory question there in Juvenile so that, what you guys were talking about in terms of lower inventory stocking, that was more of a onetime thing that's not something that we're seeing in terms of maybe losing market share or any retailers taking down shelf space in the Juvenile product area?

What we referred to as one of the issues was absolutely kind of a onetime thing. It's done now, we're shipping again, but like I said I won't tell you we're not gaining market share right now, but the products that we're selling at reasonably good margin we had a lot of no or negative margin product that we've been weeding out of the system and focusing on building product that makes sense and it has been a couple of years like this and every year we make those decisions.

And we've had a few more successes I would say in the last few months on normal margin products. So I'm expecting a reasonably good fourth quarter.

And have you guys, I mean obviously there's been a lot of press around one of the major retailers changing their supply chain agreements and their inventory stocking patterns. Have you guys seen anything they're heading into Q4 or you going into 2016?

Well, that's been asked again, and obviously not going to discuss our negotiations. But yes, I mean that's something, it's nothing that's going to affect this year.

But it's just a way we deal with one of our larger customers, and it will be -- we'll deal with it. And relationships are good.

We're not expecting any major changes to our relationships.

Okay, great. And then just finally, just on the IBD channel Dorel Sports, given all the new product launches you've got coming on, is inventory relatively clean heading into 2016?

Well, again 2016 starts in Q3, and it wasn't clean we had a lot of excess. We tend to have a lot of excess.

We're hoping -- we're making some material changes. So that next year Q3 we're not singing the same song.

And what happens is you end up selling again, lot of ‘15s in Q3, which are not fully margin. On top of that in places like Europe not only are they not fully margin but they also were done at lower exchange rates.

So it's a double whammy in certain places, but that slowing down significantly the old model. And I would say every couple weeks we have a new 2016 model that arrives that we get out to our dealers.

So it's a pretty big shift we're looking for in Q4 versus Q3. I mean, eventually it's we have to turn the corner at some point.

I think Juvenile is going to be at least a quarter later, but we're ready to call the bikes and say that we're going to have that better quarter like -- not adjusted but an actual better quarter in Q4 over the last year or so. We're happy to get to that point.

You were mentioning for the Juvenile space that for Juvenile USA that the top line isn't necessarily growing, but that you're expecting profitability to be better off. I just want to understand why that is necessarily, is it because of the price increases which I would probably guess not, but is it because --.

It will be mix like I said for many years you've been following us for a long time. We don't necessarily give out our U.S.

numbers per se, but our U.S. profitability has always been below average.

And because of that a couple of years ago we said, look we can't be everything to everybody and just sell product just to keep market share or to keep the shelf space. We've got to make sure we're making money doing what we're doing and that's done.

Since we've done that, our bottom line has gone up significantly in the last few years, but our top line slipped a bit because we've walked away from no margin products or very, very low margin that didn't make a lot of sense. We've not gone after at the same way we used to five years ago.

And that's the symptom. So it's really a mix now.

Profitability is better, but our mix is better. We're keeping the better product and may be losing some of the products that we used to have that didn't make money.

If I can follow-up just on that, where are you gaining more traction from? Is it on the LPP or is it more of the HPP or where do you see that kind of hit?

In different areas, we're certainly, I think in the last -- 2015, we've had some big wins on the LPP. We've rebranded Costco, I think we've done a quite a good job the Costco brand, which was doing nothing for many years.

We've spent some money on it. I know it's an LPP brand, but I think it's being successful.

We're seeing significant double digit growth in our Costco branded products, which is LPP. We've also had some success speaking to U.S.

on the HPP the Maxi-Cosi stuff is doing well, again, double-digit growth there, smaller marketplace. The middle I would think if we are struggling in some places it might be in the middle.

The MPP and that is kind of a focus going forward. But we've had I think success at the LPP and at the HPP.

And a final one for me would be on the Dorel Sports side. It was a few questions regarding the inventory levels and discounting some of the older bikes.

I'm just thinking looking forward for those bikes that you're planning on introducing, what kind of price point are you looking at there? I mean is it going to be a higher margin product due to pricing or do you just expect these products just be more I guess more innovative than others?

You have to remember, you have to look at it from a worldwide standpoint. So in the United States no, we're not going to be taking any type of increase unless that product needed it.

In some areas, we've had price decreases because we have remodeled it or something. The issues are the overseas markets, right where Europe, Canada, where FX came in and that's what's been hampering us for most of 2015.

Like I said, we had $10 million hit around the world on earnings in Q3 on bikes. So that's where the price increases are going to come.

But so is everybody else in the industry have the similar types of price increases. Don't think of it as every product that we introduce has a price increase.

It's only going to be related to the FX impact on the local market that we're introducing it to.

Okay. Fair enough.

Thanks a lot.

Hey, good afternoon. I think you sort of just touched on it, but wonder if you could just expand on the relative price increases that you have taken.

And when you look forward to 2016, if the price increases have the effect that you hope they would have, does that restore your profitability to the levels that you're comfortable with and you'd be targeting. And then related to that, what's your sense from the competitive set in terms of price increases?

Well again it is very similar to last thing. We're not necessarily taking price increases in markets where the US dollar didn't have an impact on currency.

On the other areas I would say, if we look at the Sports, it's a little easier in Sports, because they have model years, like the car industry. But 2016 model year has a new pricing in Europe, it has new pricing in Canada.

The competitors are also raising prices. I hope to be back close to where we were.

I can't guarantee to 100% in every market. There is different factors as competitive issues and stuff like that.

But every market we rose prices where currency was an issue. And that's happening, and like I said I hope to be back pretty close.

I mean we're pretty optimistic that's going to happen because we have don't worry, we have introduced 2016 bikes into Europe in the place and we are selling them. It's just as long as we had 2015s to sell alongside it, kind of played with the mix and I think that will be starting to go away in Q4, but we were optimistic.

And based on competitive issues, based on market issues, we're pretty confident where that those prices are going to be holding throughout the whole year.

Okay, thanks. And then, sorry, just in terms of the destocking that you saw, I understand it's sort of run its course but was that isolated to Juvenile or was that in other product categories as well, or other divisions?

I think, we saw Hyosung bikes as well. I think some bikes too a bit.

Yes. But it's mostly Juvenile, but we did see a slowdown in bikes.

But I think the Juvenile I think it was just it wasn't a computer problem, but it was like literally a small issue but it ended up being a big issue because we got to points where we were not we didn't have the right fill rate in the stores because they weren't bringing in enough stuff.

And then just last on the Home Furnishings. You mentioned achieving higher margins on online sales and I'm just wondering if you could just talk a bit about the relative profitability of that business through the different channels and how we should think about that going forward.

Well, that channel allows us to sell more than LPP product. So in the bricks and mortar, we tend to be more LPP which obviously has tight margins.

But when we get to a better product, the Internet and lot because again it's sort of an invisible warehouse, they allow us to put in or we get to sort of stock better selling MPP, HPP stuff and those carry better margins and we're finding success there. So that's really the driver behind that.

And do you think there is any potential for that product to move in stores or is it going to be strictly an online thing?

It's a good question. We do try to get some of it in, but a lot of the retailers are very comfortable with their online presence.

Some of the big ones have removed space from their bricks and mortar store. And so Martin made a small comment, but as I said, really it's a big deal and that is that first time bricks and mortars haven't gone down.

They've been going down, oh my god, every year, right? Every year for four or five years, our bricks and mortar business goes down.

And it's made up by the online growth. So at the end of the day, we were maybe increasing 5%, 4%.

But when you see increases when you don't have that decrease in bricks and mortar and you have the increase that we're experiencing online, you get a significant growth rate. So we're pretty happy with that.

Okay, thanks very much.

Thanks guys. I guess first on China, I guess, especially in the context with this one child rule, how much of the business is currently Juvenile business, currently done in China, and then where do you see that going longer term?

I guess, it's my first question on China.

The company that we bought, Lerado had a domestic Chinese business. It was very, very LPP focused.

There was no marketing and it was kind of a down and dirty business and it wasn't profitable at all, only we took over the business. We probably we restructured it in a sense, where we're going.

We're kind of getting out of those LPP models and going into more mid-price points some high price points stuff. We're introducing all our brands into China.

It's a big process today. It is really negligible, right?

Very, very small, but we're investing money in an organization there. We have some international brands.

We are pretty upbeat and this news is just going to grow the market. So we're far from being a big player there but we certainly have well-known brands and we're building a structure in which we think could start really taking advantage of that.

So I would expect next year to see some real growth there, but this year it's really hasn't been much.

And then as you think about that business and how it's structured, it sounds like you're moving towards using fewer private label manufacturers. How much of the business is currently done in that manner as where you sit today, and then conversely, how much of the Dorel China manufacturing that's done is being done for others and where do you see that going longer term and how you think about the impact?

I am not 100% sure I understand. Are you saying --.

I can ask it again. So I guess what I am saying is in terms of you guys currently manufacture, you're manufacturing some other stuff for others at this point, I guess that's my main part of my question.

Where do you see that going in a no longer term? Do you see that business staying where it is?

How much of the business is that at this point?

We factor this is a Dorel China question. So we factor it into three categories for Dorel brands, for third party brands and then directly working with some retailers, which we do at certain price points in certain products.

We expect to see the third party declining. I mean, it is probably in the area of 50% now on the businesses third party.

I guess third party and direct to retail, that will decline the direct to retail should grow as we find the right product and the right price points to go directly to a retailer on. And of course the Dorel branded stuff will grow as we continue to look to move stuff in house.

We don't expect the other third party thing to completely go way and we are hoping not. We do some nice product for other people and I think our quality and our delivery has gone up significantly since we bought it.

So we're hoping to keep some of that, its good factory fill. But I do think ultimately that will be no more than 20%.

Yes, we're still in the shift. And again, as long as you're in the shift, it's not perfect.

So we could lose a customer for $2 million on month number two, doesn't mean we replaced $2 million of our own product on month number two. So this is one of the issues we got to get through to make sure it could be bumpy still in the next few quarters because of that.

And then switching gears to the bike business. It seems like operational improvements increasingly a focus besides just the expense, reductions you announced this quarter.

I think you also alluded to some potential for inventory improvement there over the near term. I guess, beyond that, is there anything else you could talk about either quantifiably or anecdotally in terms of some of the opportunities in that business.

There is a lot -- I've always I'm really bullish on the bike business, I think that just internally by operating our Company in a better manner, particularly the IBD business, our Mats business actually operates pretty well. But just operating better there is a lot of money on the table.

In addition to that we want to grow the business and pick up market share and all the normal things that you always do. But there is just a lot of operational inefficiencies that have occurred.

I think mainly because we've grown so rapidly in the last few years that things just -- systems just don't work at a certain level and we've gone in, we've got some new people, we're putting in some new processes. There is so many different areas.

I think maybe the next time again we'll have a list and get some people, but certainly the first focus is inventory. I mean to work all year and then end up having to clear so much extra inventory is actually cost you a fortune and is a little bit -- brings you down.

You did such a good job and then you end up having to work so hard just to get rid of the excess. So, I think next year we're going to look at having a lot less product leftover and be able to start ’17 fresh-fresh.

And I think that's going to be a really big deal.

Thank you. Good afternoon.

Just wanted to follow-up on the bikes business, so you cited some good demand from the independent bike dealer channel, can you just give some color on how that broke out through the different geographies?

It's pretty consistent. Now again, we introduced a lot of 2016 bikes.

We had a lot of them in early, like we said, which we never seem to get any in early. So we've got that part, right.

But we didn't get them all in. And there's a number of significant new bikes like the Slate, which is a big deal.

It's a really cool bike, it's getting a lot of the attention. A lot of demand, we haven't shipped that yet.

So that we haven't seen any feedback at all on that bike. So a number of newer models haven't actually made it to the stores yet and we hope to have them in the stores this quarter.

So it's a little early to give you a general feedback on all of the line. I know the stuff that we shipped in the third quarter is doing well and people are happy with it.

We're doing well on magazines, we're doing well on tests, the dealers like it. We're selling through.

So what's in the stores is good but there's a lot that isn't in the stores yet.

And are you fully through your 2015 model clear out?

Not 100%, no. But the mix is going to be significantly changed.

I'd say the majority of bikes in Q3 were probably 2015 still. And I'm hoping the majority of the bikes in Q4 is 2016.

But no, we're not through it. Technically, there'll be a model of a bike that isn't replaced in 2016.

We don't always replace 100% of your model. So there'll be bikes that are actually still valid but they're 2015, if you know what I mean.

You are never 100% out.

But in Q4, you'll sell fortunately, more 2016 than 2015, so we shouldn't necessarily see that kind of margin impact.

Yes, we should see particularly on the FX side.

So a combination of little bit better FX and not discounting so much on 2015 models.

The biggest factor is going to be the mix, more 2016 bikes, which come not in the US but in other markets, come at much better margins. So that's the biggest impact.

And then in terms of Dorel Juveniles, is it fair to assume that Q4 kind of organic numbers are in line with what they were in Q3. You haven't seen any material changes in the marketplace?

There is a shift internally. We have some divisions making a lot more money in Q4 than in Q3, and others particularly Europe going down in Q4 and Q3.

But again Europe, it's just a strange case of we have good momentum for the year, we're going to hit our budget. We're actually going to exceed our earnings budget.

Yet, Q4 is going to be down from last year in Europe, but that's not an indicator of anything. Make sure, it's not a trend, it's not an indicator.

We're going to be back in Q1 again in Europe. It's just timing issue on in certain product arriving and certain expenses.

Right. Okay.

But on the whole like including Europe and North America, you would expect kind of revenues to be flat from Q3, some flying down from Q4 last year?

Yes, relatively flat.

Okay, great. Thank you very much.

Thanks. I had a one more quick follow up.

Just with regards to your leverage position. Are you looking to get to a certain level before you think of things like a dividend increase, or anything on those lines?

And are there other metrics that you'll be looking at?

Well, I guess I haven't talked at all about the balance sheet. The balance sheet is definitely higher than we would like.

We are absolutely looking to bring it down. Magic number for us is always 2.5 to 1, which is debt to EBITDA.

So we'd like to get to that before we can seriously look at anything as you were suggesting at this point. And next year we will have a major focus on cash flow.

This year, it was a bit disappointing for us, the cash flow and we have the number of issues. Talked a bit about inventory at the bike level, but there's also other plans to bring down the inventory throughout the year, next year, to grow our top line and grow our bottom line, but not necessarily grow the working capital that we use and that's going to be big focus.

So, hopefully by the end of next year, our balance sheet looks very different than it does today, from being at what we consider on the high side to more of a normal side. And then maybe we can again look at things like dividends or stuff like that.

Alright, thanks.

Okay, thank you. I want to thank everybody for joining us this afternoon.

We've made important progress in Q3 in many areas of our various businesses. We will see tangible improvements in most areas, starting with the current fourth quarter and definitely as we moved into 2016.

I want to thank our teams for their excellent and tireless efforts, and I thank all our shareholders for their patience. And I want to wish everybody a pleasant afternoon.

Thank you.