Martin Schwartz - President and CEO Jeffrey Schwartz - EVP and CFO

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

Thank you. Good afternoon.

On behalf of Jeffrey Schwartz and Frank Rana, I thank you for joining Dorel’s second quarter conference call. We will be pleased to take your questions following our initial comments.

And a reminder, all numbers are in US dollars. Home furnishing is having a very good year with both revenues and operating profits increasing consistently by strong double digits.

Juvenile and Sports are operating in an environment of serious foreign exchange challenges as the US dollar remains strong against practically all the currencies where we do business. The number is underlying the FX on earnings.

Operating profit in the two segments combined has been impacted by a net negative amount of approximately US$12 million in the second quarter alone, bringing the net negative FX year-to-date impact to approximately $25 million. We have done a good job mitigating this impact with selective price increases and other proactive measures and our results reflect these actions.

Overall, organic revenue grew 5% in the quarter. Moving to our specific segments, we are quite pleased with our progress to-date at Dorel Juvenile Chinese factory.

The new management team we’ve put in place is bringing considerable order to our operations with the focus at the main complex in Zhongshan. There have been advances in several key areas including operational improvements, headcount reduction and then product development.

We’ve made considerable headway in assuming control of our supply chain as we continue to reduce material costs. As well, we are building the Chinese domestic sales of factory-made products.

Progress has been material and more improvements are in the works. We’re looking at changes to mid-level management as well as a reduction of redundant levels.

Another objective is to continue to strengthen support management teams such as finance, IT and HR, and build the skill sets in sales. The recent months of integration are helping make Dorel Juvenile China a stronger and leaner organization but more is required.

As an example, there is a plan to consolidate space to further cut costs and become more efficient. These ongoing improvements will continue for several months.

We are extremely confident that they will translate into positive results. In fact, Dorel China did much better in Q2 than we anticipated.

Some highlights now from our other Juvenile divisions. At Dorel Juvenile USA, overall earnings remain on plan for the year.

The highly successful cost of rebranding launched earlier this year with the Kimberly Henderson, Lullaby Mom Internet viral sensation, will now expand in the second half with the powerful car seats for everyone video campaign. And the Scenario Next car seat which replaced the popular Legacy Scenario line has been performing very well and it’s currently outselling at improved profit levels.

In Europe, Maxi-Cosi car seats continue to be the driver of the growth and there is also some strength in Quinny strollers. During the quarter, we opened our first outlet store in Portugal and initial sales were above expectations.

We have started distribution of Tiny Love in several key markets and we see increased sales of our i-Size models as this family of products continue to grow in importance. At Dorel Juvenile Latin America, sales growth of local currencies continues in the double digits and year-to-date earnings overall in US dollars are near plan.

FX challenges are significant in all markets in Latin America and the teams have done a good job clawing back some of the transactional losses due to this higher product costs. A particular of highlight was in Brazil where there was a slight slowdown to the very strong start at Q1.

Year-to-date sales are above plan by double digits. Currency rates in Chile and Peru have fallen below budget rates and we are contemplating a second wave of price increases to compensate for this.

Foreign exchange also had a big impact on Dorel Sports. Organically, several regions were higher than last year including Japan, UK and China due to strong sales in these markets of cycling sports group.

Caloi did nicely and excluding the FX impact, their top line grew by double digits with operating profits also up considerably. You will recall last year, this time Brazil is hosting the World Cup and this distracted consumers of just about everything not related to soccer.

Price increases have been implemented in Brazil to help offset the FX impact. Europe was down as dealers loaded up on inventory in the first quarter to add up price increases implemented in April and in anticipation of the launch of new model year 2016 Cannondale products in the third quarter.

Our Pacific Cycle sales decrease slightly, they outperformed the overall department on each of the top retailers through Q2 and signs of improved POS are starting to emerge. Shipments of battery-powered ride-ons rose by over 140% driven by the pickup of the six old models at a major Big Box retailer.

Dorel Sports had an active and important quarter of new product launches. The global media introduction for two of the most anticipated bikes of the year, the Cannondale SuperSix Evo and the CAAD12 took place at the end of June at special media camp we hosted.

40 journalists attended from 19 countries with extensive media coverage resulting. The Evo launch has received close to 670 million impressions while the CAAD12 has received over 410 million.

Home Furnishing had another great quarter. Internet and drop-ship vendor sales grew considerably and represented almost 35% in the segment sales.

Importantly, brick and mortar had its third consecutive quarter of growth with sales in this channel up healthy double digits. All divisions posted improved operating results and margins.

And the segment’s operating profits increased 65%. A particularly note, Cosco Home & Office had its biggest online sales quarter.

Dorel home products continue to strong results driven by consistent new offerings in its popular futons and mattress categories. And there was also solid growth at Ameriwood import division.

I’ll now ask Jeffrey to provide some more financial perspective. Jeffrey?

Thank you, Martin. As usual, I’ll focus on the quarter results rather than the year-to-date.

For the second quarter 2015, our revenues increased by $13.8 million or 2.1% to $669.6 million. The organic revenue increase, removing the impact for foreign exchange rate variations and new business acquisitions, was approximately 5% compared to last year.

Adjusted pre-tax earnings declined by 27.3% to $18.1 million versus $24.8 million. Adjusted net income for the quarter was $16.6 million, a decrease of 15.9% from 19.8% recorded last year.

Our adjusted diluted EPS was $0.51 for the quarter compared to $0.61 last year. As we’ve discussed in the first quarter, the surge in value of the US dollar versus the majority of the other operating currencies was expected to have a significant negative impact throughout all of this year.

The net negative impact of FX on the quarter, our operating profit was about $9 million. So we have $12 million was coming from operations in Juvenile and Sports, but we did have a positive impact of about $3 million which is noted on the corporate level.

So you’ve got $9 million pre-tax coming from Sports and Juvenile. The net negative impact on EPS in the after-tax is about $0.23.

For the second quarter, our gross profit was 22.4%, down from 23.8%. The profit decreased in Juvenile and Sports, and remained stable in Home Furnishings.

Our reported operating profit for the quarter declined 6.7% and the adjusted operating profit declined 15.5% when excluding restructuring and other costs that were in 2014. Reported finance expenses decreased by $600,000 to $10.6 million in the quarter.

Both years expenses included non-cash and non-tax deductible amounts related to the re-measurement of forward purchase agreement liabilities related to certain past business acquisitions. This represented an expense of $200,000 in 2015 and $2.4 million in 2014.

Adjusted finance expenses, after removing the impact of the re-measurements that I’ve discussed, was $10.3 million for Q2 2015 compared to $8.8 million in 2014. Our interest on long-debt increased to $8.3 million versus the prior year’s $6.1 million.

And finally, the tax rate was 8.1% versus 20.2%. The main cause is the variation like always changes in jurisdiction in which the company generates its income.

One of the major impacts for the quarter is a one-time recognition of tax benefits relating to a business reorganization. And there’s also the decrease in the fair value adjustments related to the forward purchase agreement liabilities which are non-deductible for tax purposes.

Nevertheless, we still expect income tax rates to be between 15% and 20% by the yearend. Juvenile segment, so sales were $264.9 million compared to $251.3 million, an increase of 5.4%.

Organically, sales increased by about 7% after removing the effects of the Dorel Juvenile China acquisition and the impact of varying exchange rates. The organic sales growths were seen in all major regions.

In Europe, mostly from improved car seat sales in the Northern markets. The US sales increases, we had a large sales increase in cribs and furniture.

Latin America, despite all their problems, they are posting double digits sales growth. Some of that obviously is pricing but on their own, we’re still seeing you know unit sales up double digits.

Gross profit decreased to 27.6 and 29, the decrease is largely explained by the FX pressures, as well as some of the lower gross margins produced to Dorel China from sales to third-party customers. The margins there are a little bit lower at this present time.

Adjusted operating profits include a full quarter results from Dorel Juvenile China acquired in 2014 and it amounted to $15.4 million for the entire adjusted operating profit, a decline of 6% from the $16.3 million in 2014. All major divisions saw their currency weaken significantly against the US dollar which had a net negative impact on operating profits in the Juvenile segment by about $5 million during the quarter.

For the segment as a whole, SG&A expenses decreased by $1.4 million or 2.7%. And if we move over now to the Sports division, Sports segment revenue decreased $35 million or 12.3% to $251.1 million versus $286.2 million.

Organic revenue declined by about 5% after removing the impact of various exchange rates. As we mentioned, strong sales were noted in Japan and the UK.

However, organic sales declined on the continent in Europe. This is primarily due to dealers loaded up on inventory at the end of Q1 because of price increases that went into effect in Q2, as well our business was light because a lot of them at this point are waiting for the 2016 line which everybody seems to be excited on.

So it was a tough quarter in Europe for the Cannondale bikes. Over on the mass side, we had some declines in North America, May turned out to be one of the wettest months on record between the two coasts that practically was raining everywhere between the East and West Coast of the US and a number of our customers also reduced inventory levels in their sporting goods category.

Caloi had double digit growth in the local currency, very exciting. Unfortunately, when you convert that over into US dollars, that actually shows as a reduction.

In the second quarter, adjusted gross profit, excluding restructuring and other costs decreased by 110 basis points from 23.7% to 22.6%. The decline was mainly driven by unfavorable exchange rates.

Adjusted operating profit, excluding restructuring and other costs, decreased by $7.7 million versus 2014. Again, a lot of that is currency related.

We have calculated at the net negative impact to be about $7 million. When I say net negative impact, what we’ve done is we’ve taken the difference in transaction costs between the two periods, but we’ve added back any pricing that we’ve increased product buys.

So we have -- the actual pre-price increase impact is significantly higher than $7 million, but we did – in many markets we were able to put some price increases in for the Q2 and that’s the same when we do the calculations of the Juvenile. Over to Home Furnishings, second quarter revenue for Home Furnishings increased by $35 million or almost 30%, $253.6 million.

The sales segment Internet retailers continue to drive revenue compared to the previous year to represent over 34% now of our total sales are going to Internet retailers. As in the first quarter, sales to brick and mortar stores also increased and that’s something that we didn’t – we didn’t see that up until this year.

We’ve been seeing growth in the Internet retailer channel, but a decline in brick and mortar, and 2015 is the first year we’ve seen growth in both, so that’s sort of leading to the great numbers we have. Gross profits have been stable at 13.4%.

We did higher material overhead costs in our ready-to-assemble manufacturing plant. However, we made up for that with the margins on imported items.

Operating profit was 8.7 for the quarter compared to the prior year, which is an increase of 65.2%. Just a couple of other notes on the balance sheet, the big item that I just want to take a minute to talk about is inventory.

It increased 15 million. There’re a number of reasons for that.

One of the biggest ones is in the Sports section and it’s due to a shift in timing of the new arrivals of the model year bikes at the independent bike dealer level. So normally, we introduce bikes throughout the second half of the year.

We’ve got tremendous, tremendous feedback on our 2016 model year. We’ve also been able to bring more of that up earlier so we actually had a significant amount of 2016 bikes in stock by the end of the year, in stock or underwater.

Those bikes are getting into the market at an earlier pace. So we still have the previous model year in the system which is declining.

But we’ve got more of the new model year. However you know we’re not too concerned.

As we stand now, we actually have less of the previous model year in inventory than we did one year ago today looking at – if we calculate the ‘14 model last year compared to ‘15 model this year. So a lot more inventory, but it’s going to lead I think to greater sales throughout the second half.

In Home Furnishings sector, inventory is at a higher level because at the end of June we’re going to back-to-school period which for the most part is a large time for Home Furnishings. Other than that, I think I will pass it back to you, Martin.

Okay. Thank you, Jeffrey.

In terms of our outlook, we expect that the substantial momentum established at Dorel Home Furnishings to be maintained over the balance of the year. The investments we’ve made in the business in product development and logistics are paying off handsomely.

And we’ve maintained a consistent growth in ecommerce. Even brick and mortar sales are benefitting from strong POS at major retailers.

Dorel Juvenile had a good quarter and approached last year’s earnings level despite the ongoing FX issues. We are ahead of the plan at Dorel Juvenile China to be break even by the fourth quarter and see further upside as we near the end of the year.

Q3 will not be as strong as Q2 due to the timing of sales and additional spending needed to support several new product launches and marketing initiatives. New product launches from Dorel Sports are expected to deliver better results in the second half versus last year.

Thanks to both CSG and Pacific Cycle. Most of the benefit will be in Q4 due to the seasonality of our business and the positive impact of the Christmas shopping season.

Since the end of the quarter, most currencies have further declined against the US dollar, and therefore, we remain cautious in our outlook through 2015 for our Sports and Juvenile segments. I’ll now ask the operator to open the lines for your questions.

And again, please limit your questions to two on the first round. Operator?

Good afternoon, gentlemen. I just wanted to maybe zero-in on the bike business and you did give some color in terms of the inventory in your comments, Jeffrey.

But given the new model in shows, how confident are you in selling down the 2015 model inventory profitably, particularly given with Europe loading up? And in terms of guidance for the division, are we looking at similar levels or lower levels of profitability in Q3 outside of FX?

Thanks.

Yeah. I mean, that’s obviously – it’s a good question.

We’re actually quite comfortable. We went through it with management yesterday and they pointed out that they are actually moving through last year’s models bikes at a faster pace than they did last year.

And again, they’re not cutting – we’re not getting no money for this stuff. We’re getting what we would consider traditional pricing for this period.

So every year, we factor in the bikes that are going to be sold at the previous model and probably sold at lower margins, so that’s in our plan as it is every year. And I think it was only back in 2013 when we had to – because of the back inventory in our system that we had to start doing that too early.

But it is normal in our business to do that now and we are running on a normal pace right now. As far as our outlook, like we’ve said, we’re looking at a good second half.

But I would think it’s definitely going to be skewed more to the fourth quarter. Like I’ve said, we do have a lot of new 2016 bikes than earlier.

We don’t have them all in. And we think that some of the key high-volume bikes will be shipped in the Q4 as opposed to Q3.

So we’re not looking for a large increase in performance in Q3, but we are in Q4.

But you are looking for year-over-year performance in Q3?

Yes, flat to single digit. It’s probably where we think we’ll -- I’ll tell you that the big mystery there is going to be FX again.

And we have had some stability in places like Europe but anybody who’s following FX and watching what’s going on in South America in the last three weeks, it’s like all over again, where they’re at new – their currencies have gone to new low not seen for years and years. So we do rely on the second half a lot on Brazil.

And so there’s a little bit of caution there as to where it will all fall out.

Okay, thanks for your answer.

Thanks. Good afternoon, guys.

I guess following up on that subject of FX, I think Jeffrey I think heard in your comment just on some thoughts about price increases and ability to offset that from your non-USD – US dollar market. I guess to what extent have those been implemented across the different segments?

And then what’s the attitude towards further price increases particularly in South America, for example? And what’s sort of been demand response in places where you’ve done it so far?

Well, it differs by market. But South America which is I think had some of the worst declines is fortunately the easiest place to raise prices.

It’s sort of in their culture, they’re used to that. They’re used to very large inflation.

But eventually, just common sense that eventually you’re going to get pushed back where people just can’t afford to buy anymore. What we are seeing – now, having said all that, our sales are up beyond just the price component.

Our volume is up in South America in both Juvenile and bikes, particularly in Brazil which is really, really under a lot of pressure now. But we are seeing -- to be fair, we’re seeing people switch down in price points.

So on the bike side where we were hoping our high-end bikes would be leading the charge this year, we’re seeing more sales out of the Caloi brand, which is sort of the mid-priced brand and we’re seeing a lot more Caloi growth than we expected, but last of the higher-end brands. So far this year we’re actually pleasantly surprised.

We’re seeing growth in sales in US dollars down in South America which is amazing considering what’s going on. And we’ve been able to put the price increases through down there.

It’s just in the last few weeks we’ve got another round of decline, so we’re going to have to go back and get those price increases later in the year, and it’s just challenging.

Absolutely. That’s helpful color.

So far -- I mean, how much longer until it starts to impact, I’m not sure.

Right, I mean, I think a problem for a lot of people right now but it is –

I mean, we’re amazed that in Brazil, given I think it’s a 38% decline in their value of their currency, that our business is so strong in both bikes and in Juvenile.

Okay, thank you. Then maybe actually just switching gears to Home Furnishings, I don’t know if I missed or I wasn’t given enough attention.

I think the ongoing improvements that you’ve had there are really encouraging. I guess, can you talk about really what’s been driving that?

I mean, it sounds like better product development is a piece of it, some other factors. But beyond that, has there been a notable shift in strategy that’s helping to contribute in any way?

And then to what extent do you think just better US housing markets contributing?

I think the general economy – keep in mind, we’re doing Home Furnishings at the opening price points to mid-price point levels. So what we’re seeing is, like I said, the first time, I don’t know how long we’re seeing brick and mortars sales up, the basic like our old channel.

So that’s very encouraging because we’ve been growing at the Internet for years, but we’ve been giving a lot of it back because brick and mortars is down. So I think that’s the economy.

I think people have more money to spend maybe from oil prices being down in the US, and they’re spending it on basic stuff which is what a lot of this is. But in addition to that, we’ve really invested a lot of money and know-how into embracing the ecommerce channel, and we’re getting really, really good at that whether at the logistics, whether it’d be getting stuff onsite, there’s a lot of know-how to do a really good job.

It’s not just placing something on Amazon or walmart.com and sitting back. There’s a lot of work, a lot of analysis and we’re getting really, really good at that.

And we’re finding more and more Internet retailers who wanted to work us because of the depth of our skills of knowing how to work within the system, how to do logistics, how to keep the customer happy, customer service. All of that is being set up.

And so we’re winning. So we’re winning at that game and that’s been growing double digits now for years.

Right. Great color, and good luck with the rest of the year.

Thanks.

Thank you. Operator Your next question comes from the line of Sabahat Khan with RBC Capital Markets.

Your line is open.

Thank you. Just on the earlier comments about the performance at the various price points in South America, can you maybe talk about how your brands are performing across the various price points in the US market both in Sports and Juvenile?

I mean, I don’t think there’s been a whole lot of change. I mean I'm just trying to think, on the bike side we’re very excited about 2016 on the sort of the upper end bikes the Cannondales and GTs.

We’ve put a lot of effort into some great innovation. We’ve got the best feedback from our dealers that we’ve ever had since we’ve been involved with the company.

So we’re expecting later this year and into next to have a really good year. But other than that, it’s been – we haven’t seen people moving around price points.

Each brand seems to be doing what it’s been doing in the past.

All right, thanks. And on the inventory destocking that you mentioned, would you say that’s largely behind you?

Was it a Q2 factor or you still think some of that creep into --

I mean, as we go it’s going to take some time. But we’ve made -- already we’re, what, five weeks past the end of the quarter.

We’ve made good progress in a lot of areas. It’s not – there’s nothing in our system that’s a problem inventory, it’s just we’ve got a lot more on the bikes at one time.

And the bike stuff is pretty much the only stuff that has a date on it, if you know what I mean. So if we have too much of a furniture item, we’ll just take another month to sell it.

Also on our ecommerce business, we have the hold higher inventories to be able to service all these Internet retailers.

Thank you.

Hi, good afternoon. Martin, how much of the operational improvement year-over-year stem from significantly lower commodity prices?

And could you give us some color, quantify some benefits from lower plastic resin, steel and aluminum prices?

It’s Jeffrey. Obviously that helps, but there’s prices that – it’s hard to quantify that exactly.

But obviously prices, some of that’s helped. But in some cases our prices – our selling price is reflected in that.

So we don’t have like a number on that.

Okay. And then, maybe can you give us some color on the juvenile side, and how does your product pipeline look this year versus last year?

Like, what kind of improvements do we have? And then if I could also get a bit of better color on the US market, we’ve seen a good organic growth rate of 7%.

And Jeffrey, you did mention on the call that there was – the momentum was created basically by the juvenile furniture side. But if we were to remove the juvenile furniture side, what’s happening at the core in terms of the organic growth rate ex-furniture in terms of the – your market share on car seats in the US?

I'm sure it’s strong in Europe, but just give us some color –

Yeah, I think what we’ve been saying for a while on the US is we’ve been focusing more on profitability because we used to grow our sales and have less profitable business. So profitability in the last two or three years in the US has been growing nicely.

We’re getting a much better return on our equity than we ever got there before. And some of that is try, it’s not doing everything that we did before.

So if you look now, our market share is probably down in many areas in the US because we’re not trying to be everything for everybody. Instead, we’re focused on doing better products, but less products.

And it’s working because profitability is going up. We’ve introduced a number of important products, that we will call it out this year, including one in the last month or so, a new high end car seat that is selling – it’s only one account so far, but it’s selling above plans.

So that’s good. It’s getting good reviews online.

So we’re pretty upbeat about that. And we’re going to continue to try and hit the market with larger, more important products instead of smaller individual skews, because it’s just change for our focus.

Okay, thanks. Thanks, Jeffrey.

Thanks, Martin.

Yeah, hi guys. I'm just wondering if you could give us some more color on the integration of the manufacturing facilities in China.

I think you guys said on the call that the third party distribution coming out of there is a little bit lower margins. So are there plans to reduce the amount of third party product that you're making out of those plants?

Well, basically on a weekly basis, we are adding more and more Dorel products to the factory. We’re still making third party goods.

But we anticipate as time goes on, that will start to shrink and that’s all part of our plan. We have a lot more product in design and development for later this year and especially into 2016 for our own use.

As an example, most of the products coming out of there today are destined to the US market. By this time, for example, next year we’ll have a lot more products coming out of there for Europe.

And as we grow that part of our business, there will be shrinkage in the third party. Like I said, it’s all part of our planning.

Okay, that’s great. And can you just comment, in the MD&A you had a comment on the mass market in terms of Dorel Sports in the US, I believe going through an inventory reduction.

Is that sort of settled heading into the back half of the year?

Yes, I think what happens is it shifts. So the mass guys moved from, we’ll call, more bike-focused purchases to a more Christmas-focused purchases as the year moves on.

So they're getting out of one phase and we’re going to start getting into sort of the Christmas season, which has become very big for Pacific Cycle over the last few years. We’re now one of the major players in these electric ride-on toys.

And that’s you get – although we had a great quarter as Martin pointed out, it’s nothing compared to what’s going to happen in the second half where that’s really probably 80% of the sale. Like I said, part of it is I think on shifting SKUs.

So maybe some mountain bikes or some adult bikes will disappear and be replaced by more Christmas-oriented bikes.

Okay, that’s great. Thank you very much for the color.

It’s not a big backlog. I don’t want it to sound like – we’re not – where we were down small single digits.

So it’s not a concern that we have going forward for the rest of the year.

Okay, great. Thanks.

Thank you. Good afternoon.

I'm just wondering if you can comment on the Juvenile segment. You talked about the third quarter not being a strong as the second quarter.

But how does the back half look on a year-over-year basis?

I will just explain a little bit about why it’s a little bit down. We talked about timing of I think revenue and expenses.

So what happens is, particularly in Europe where we make a lot of money, the third quarter is always a drop in revenue. It’s probably the lowest quarter, I think, for sales.

But, yes, it’s one of the most expensive quarters from an expense standpoint. It’s where we launch a lot of new products in Europe.

So there’s a lot of cost that goes into the launches. There’s a large Cologne show from marketing standpoint.

So we do spend a lot more in Q3 and revenues are down. And that’s traditional.

It’s just from a sequential standpoint, something I thought we should point out to people that because that’s a big majority of the profit, that it’s going to probably have an impact on sort of the global juvenile business. So we’re expecting a good quarter in the US in Q3.

And unfortunately, South America, because the currency is kind of in that question mark, so putting those three things together, I think it’s safe to say that that’s why we’re concerned. As far as the whole quarter is concerned – the whole half is concerned, a little early yet to be predicting Q4.

Not quite sure we want to see the reception of the products that we show beginning of September, because a lot of that is baked into how well we’ll do in Q4. So I'm not ready to comment past Q3.

Right, okay. But on the Q3, I mean, would you expect it to be down in year over year?

Like, I guess last year was pretty strong quarter. Last year’s Q3, I mean, if the – on an apples to apples basis, both Q3s have lower revenues and higher expenses, I'm just trying to think of what it would be on a year-over-year basis.

Yeah, we are looking – well, I think last year, I mean, again, I think we had stronger results coming out of South America that we’re not expecting. So, yeah, I do expect it to be down from last year.

Correct, okay. And then on the sports side, you talked about strength in the back half of the year.

Just to clarify, it sounds as though – is that mostly coming from the IDB segment – or the IBD segment?

No, it’s actually both. We’ve got a really sort of big Christmas plan for Pacific Cycle.

There are lots of promotions, lot of new items. Pretty excited about it actually.

And then on top of that they didn’t have particularly a good quarter in Cannondale last year. And with all the new stuff lined up and having all the inventory, we’re expecting a pretty good launch.

So we’ve also adjusted, as I mentioned, South America aside, pricing for model 2016 has been adjusted in all the export markets, so that we’re getting proper margins again for the 2016 model. So by the fourth quarter that number should be good.

So I think we’ll see it on everywhere. And then of course Caloi, big, big quarter.

It’s Q4 where they make most of their money because it’s a combination of summer and Christmas in Brazil. But that’s also where the risk lies because we don’t know what the impact of the currency is going to have on that.

Right, okay. But it actually sounds – just to clarify, so you said that you should see normalizing margins in Q4 on an international basis because the pricing you put through will offset FX?

Correct. In places like Europe as an example and we do have a lot of hedges out there too now.

So I know –but again, that doesn’t help us with the translation effect. But we do have obviously a lot more hedges now than we did in Q1 for the balance of the year, so it’s not as difficult.

And also the euro hasn’t moved a whole lot in the last few months. So if it stays somewhere where it is now, it will be fine.

Obviously if it continues to drop, that could have an impact on that as well. But, yeah, we feel a lot more comfortable on margins.

We should start seeing them increase.

Okay, that’s great. Thank you very much.

Okay.

Hi, good afternoon. I believe, Martin, you mentioned in your prepared remarks that you're ahead of the plan to breakeven by Q4 ’15 in China.

Just wanted to understand a little bit better what the main drivers were for that and if you are currently seeing a clearer view as to what profitability or margins will look like in 2016.

Okay. Well, what’s helping us get to our goals is first of all, as I’ve said, we’ve changed out most of the top management, okay.

We’re making the middle management a lot more efficient. We’ve been very closely with suppliers and we’ve done very well in reducing cost of raw materials.

We’ve reset some of the production facilities to become more efficient. And it’s basically a combination of all of that.

And we’re getting out a little bit more goods than we had anticipated. So it’s bringing in more revenue.

And also, we’ve done a very good job in improving the quality and our inspection. So that the cost of say, defective or goods that aren’t up to the standard shipped have really dropped.

So put that all together, a lot of it is dropping to the bottom line. And going into next year, I think we can be doing better.

I mean, we were anticipating more improvements there, but I can't give you a number or – but our goal is to get better.

We’ve had one solid quarter. It’s not enough to predict 2016.

There’s too many moving pieces. We are going to lose some third party business.

We are going to add new business. We are going to have more efficiencies.

There’s just too many pieces that hopefully we can have answered in three months from now. But today it’s too early.

So then, can we know what the contribution was of Laredo in the quarter?

Laredo was slightly – it was slightly above breakeven. I'm just not necessarily confident that means Q3 is going to be breakeven.

Our volume was up by about 30% in Q2 versus Q3. But again, I'm expecting it to come down a little bit in – sorry, Q2 versus Q1.

I'm expecting Q3 to be down a little bit, but we are above breakeven right now. And there are two components.

We have a factory which is the largest component, and we have a domestic sales business which we sell into China. That business is still losing money, and that’s where we’re focused on in Q3.

But when you put them together, we still made a small profit. So the factory is doing well.

And now we hope that we can continue to do a number like that with a lower volume and that’s sort of our challenge in Q3.

Thanks for the color there. And just a final question from me would be on the leverage.

I mean, we still see it at about three – a little bit over three times EBITDA. So what are the plans in terms of reducing that in the near term, and are you – what’s the target leverage ratio by the end of the year?

Thanks.

Well, I mean, the plan is to improve cash flow. And the fastest way to get to that is to bring that inventory number down that we’re working on.

So that’s the plan. We would like to get under three.

I mean, that’s kind of our goal, to get under the three level by the end of the year. We think we’re – our EPS should improve by Q4, and as well just focused on better cash flow.

And that’s pretty much the goal. There’s no other focus other than improving the cash flow.

Thank you. I’ll turn it over.

Yeah, good afternoon. I just wanted to follow up on an earlier question with regards to the US Juvenile business and specifically in the mass channel and the growth in the wooden furniture category, which I know you guys are coming off a pretty low base there.

So, how material is that to your overall Juvenile business?

Today, it’s not that material. Obviously it’s adding to the bottom line.

But it’s probably the largest percent growth that we have with a fairly large upside. I mean, we’re starting to make progress with a number of accounts.

What we’re doing, however, is we’re not focused on the opening price point right now. We’re focused a little bit higher up where the margins are better.

And we’ve just had a lot of success there. So that kind of stood out when we compare that.

There wasn’t a whole lot of difference in this year versus last year in the US. So we kind of look for something that was different, albeit it’s not the most material line item there.

But otherwise, it’s been a very similar year this year versus last year.

And where are you, as you've -- I know you've been repositioning your SKU base and in terms of getting out of some of the opening-price product in car seats, et cetera. Where are you in that trajectory?

I mean is the assortment in your offering where you want it to be or is there more room to adjust?

No, there’s more room. I mean, first of all, I don’t think the answer is we’re getting out or I don’t think the reality is we’re getting out of the opening price point items.

I think more realistically, we’re getting out of sort of fringe items that don’t have a lot of volume, but don’t have a good margin. So we are still very focused on the opening price point car seat.

We own a lot of the opening price point model. There’s a lot of volume there.

And we’re focused on making a better product with healthier margins, and giving more value to our customer at those levels. But sometimes we’re just taking a lot of SKUs because the SKUs, because for SKU sake, for sales sake, but then when you looked at all the work you put into it and the margin you’ve got out of it and the volume that wasn’t that great, we said let’s not focus on that now.

Let’s go after some bigger items and focus on that. We’re going to, as we establish ourselves, as we get those items and the margins and then the profitability up which we are doing, we will start branching out to more and more SKUs.

But I don’t think you’ll see us back where we have like as many SKUs as we used to have. It got to live – the cost of doing that was very expensive.

Okay, thanks. That's helpful.

I mean -- and I guess, actually, just one other question on the US Juvenile. When you look at the industry overall, what's the growth rate that you're seeing there?

I'm just trying to think this here. I mean, it’s – I don’t have the industry numbers to be honest with you, so I don’t know.

I wouldn’t want to guess at my point. I mean, I would say it’s up a bit.

We’ve got some of our retailers who are doing well. Others are actually down.

So it’s difficult to say. But I'm going to guess it’s up small single digits at this point.

Okay, thanks. And when you look forward, I mean obviously FX has just had a pretty severe impact across your segments.

When you look forward to fiscal 2016, if FX rates hold where they are today, which is obviously a big assumption, but if that were the case, how do you see FX impacting 2016? And I guess I'm thinking of are you anticipating further price increases to try to claw back some of the losses that you had or you think it’s going to be stable?

Again, it would be market by market. Yeah, it would be market by market.

I mean, in some areas we’re fine. In some areas, we would be fine.

And there’s also I mean, we do – as we introduce new SKUs, new SKUs come in at new – at the proper margins, similar to, like I said, 2016 bikes, right. They were introduced in Europe as an example with the new exchange rates we’ve hedged a lot of it, so we’re good for the year.

But then there’s still the second half of 2016 which would put everything at risk. So a difficult question to answer.

But again, you're asking assuming if rates don’t change, we’d be in a lot better position than we are certainly in 2015.

Okay, thanks. And then I think you mentioned there was a tax benefit in the quarter.

Can you quantify that?

About 1.5 million.

About 1.5 million.

Okay, thanks very much.

Okay.

Yeah. Sorry, guys, just to confirm in the bike -- sorry, in Dorel Sports, you said flat to single-digit growth.

Are we talking sequentially or year-over-year?

Year-over-year.

Okay and …

I'm talking about – sorry, let’s rephrase that. That’s not including FX adjustments.

Okay.

Right, so that would be adjusted earnings. But we also had a big drop in Q3 because of some cost last year, so I'm adjusting for that as well.

So it’s adjusted earnings and adjusting for FX. That’s what we’re talking about.

Okay. Fair enough.

And maybe if you could just give us a sense of where your parts and accessories initiatives are and how much more upside you have from here.

Well, I'm personally excited about the product. I don’t know, Derek, I know you like biking.

I don’t know if you’ve seen some of the stuff we’re doing. We’re getting really, really good feedback.

We’ve got to get it into the stores. We’ve got to get it sold.

We haven’t been known as a parts and accessories company, so that’s the challenge. So the first thing, if you want to get known, you have to have some great products.

And we finally, finally have great products. So from that point, I'm comfortable.

We are getting it listed now. We’re getting it all over the world.

It’s certainly started in the UK. The European market is doing very well.

We’re starting to see it show up now in Canada and the US, but we’re probably just shipping a lot of the new stuff now. And dealers have only seen a lot of the stuff over the last four, five weeks.

So too early to tell you about sell through, but I think you know we’ve got some great stuff. And from our point of view, it’s absolute focus of the company because that’s where we’re underperformed versus a lot of our competitors.

So if we can get ourselves our share, I don’t know what that number is, so don’t ask, but our share of what we think BNA should be tends to be higher margin product, we’ll be doing a lot better.

Okay. And one final question to wrap it up.

One of your competitors on the bike side, they introduced sort of omnichannel where you're able to order your bikes online now. Is that a direction that -- and the IBD will still get a cut or a margin on that.

Is that a direction that you guys are looking at getting into?

We’ve been obviously with our success at home furnishings, we are definitely looking at options on how to move forward through the digital world. We’ve had tremendous success in home furnishings, but it doesn’t necessarily mean that that way is going to work.

So we’re looking at a lot of things. With that, nobody knows if it will succeed, but we are looking at stuff like that.

And we’ve got some great people in the organization that are capable of doing things like that. But, yeah, it is an interesting – I mean, world is changing and we’re trying to – right from the corporate level, we’re trying to influence what our companies do to either stay with the market or even get ahead off the market in these areas.

Okay, thanks guys.

Okay.

Okay, thank you. Well, we anticipate an active third quarter with numerous important shows including the Euro Bike, Inter Bike, as well as the Cologne and the ABC Juvenile shows.

And needless to say, Dorel will be front and center at all of them. In late October, we are hosting an investor and analyst trip to our facilities in Zhongshan to give those attending a firsthand view of our operations and an opportunity to meet senior management and hear from them.

I want to thank you all again today for joining us and have a good afternoon.