Martin Schwartz – President and Chief Executive Officer Jeffrey Schwartz – Executive Vice-President, Chief Financial Officer and Secretary

Derek Lessard – TD Securities Sabahat Khan – RBC Capital Markets Dave King – Roth Capital Eric Beder – FBR Stephen MacLeod – BMO Capital Markets Leon Aghazarian – National Bank Financial

Good morning, ladies and gentlemen. Thank you for standing by.

Welcome to Dorel Industries Second Quarter 2017 Results Conference Call. [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 Friday, August 4, 2017. I will now turn the conference over to Martin Schwartz, President and CEO.

Please go ahead.

Thank you. Good morning, everyone.

On behalf of Jeffrey Schwartz and Frank Rana, thank you for joining us for Dorel’s Second Quarter Earnings Call. We’ll be happy to take your questions following our initial comments.

As a reminder, all numbers are in U.S. dollars.

Dorel Home’s online sales exceeded 50% of segment revenue for the first time, resulting in another stellar performance for the quarter. Disciplined cost management and better gross margins at Dorel Sports offset lower revenue, resulting in the fourth consecutive quarter of year-over-year earnings improvement.

Dorel Juvenile’s poor quarter was below our expectations. Many of the first quarter manufacturing issues in China have been corrected and our production levels have increased significantly.

As we entered the second half, we are poised for a strong rebound in revenues and earnings from several robust product introductions across all of our operating businesses and with our most important retail customers. As well, additional factory improvements will continue to take effect.

Revenues and earnings outside U.S. and Europe were up overall, led by strong growth in Brazil and Australia.

More on this shortly from Jeffrey. But now some specifics regarding our 3 segments.

At Dorel Home, all divisions showed revenue increases and Internet sales were also up once again across the board, more than making up for the decrease in brick-and-mortar. Margins also improved as the continued growth in e-commerce has allows the segment to expand its online offerings with higher price point products.

Little Seeds, Dorel Home’s newest RTA brand, focused on the fast-growing nursery end use market, is a perfect example of how we can and are doing more online. It is unlikely that previously, we could have launched this furniture platform with our traditional brick-and-mortar customers.

But in the e-commerce world, there are no such restriction. The product is supplied by both DHP and Ameriwood and features high-end styling and on-trend colors at prices targeted to young parents.

After an initial exclusive run, which did very well, Little Seeds is now being expanded to online retailers and will be available this fall in selected Babies’R’Us stores. In Juvenile, new product launches and continued improvement at the China factory is a recipe for growth at Dorel Juvenile, and we are moving steadily with confidence in that direction.

Maxi-Cosi is the flagship of Dorel Juvenile’s 4 global brands and several upcoming products will carry its name. Various new stroller and travel assistant platforms will be unveiled through the end of the year, with successive introductions in Europe, the U.S., Asia and Latin America.

3 of the platforms will have a global footprint. A product is expected to have an important impact will be featured next month at the Cologne, Germany Juvenile Show.

Maxi-Cosi’s revolutionary car seat, which has already won an innovation award, is scheduled to be in stores in Europe by October and will be available in Asia and Latin America in 2018. As well, the new Rodi XP ISOFIX was launched this spring in Europe, 2 months prior to the scheduled launch, underlining improvement in Dorel Juvenile’s revised project management to improve time to market.

The Infanti brand continues to gain popularity in Latin America, driven by steady car seat sales in Brazil, Chile, Peru and Colombia. And after a successful 2-year test with consumers, Infanti is expanding into children’s clothing and footwear, with a regional rollout through 2018.

Other Q2 Dorel Juvenile highlights include Walmart representatives visited our Columbus, Indiana car seat factory as part of the retailer’s 10-year commitment to buy $250 billion of made-in-America products. The visit was to mark Dorel Juvenile’s U.S.A.

success in moving production from a Chinese competitor to a U.S. facility, which will definitely add new jobs in Columbus.

The grand opening of the new Zhongshan, China campus and the best-in-class test lab was held in May, which has allowed for the successful exit and sale of the old campus. In June, the expanded manufacturing facility in Portugal became fully operational, adding more flexibility to bring product to market faster in Europe.

Traditionally, a manufacturer of car seats and textile components, this factory is now producing safety mechanisms, which will result in significant savings. This year, Portugal also started producing strollers, beginning with the Quinny Zapp X.

While cost cutting in all divisions continued unabated, new product launches are being supported with enhanced point-of-purchase and digital marketing initiatives. This is in line with the segment’s strategy of driving innovation and brand awareness through more consumer-centric spending, replacing legacy spending.

There is a lot happening at Dorel Juvenile, and we are encouraged with the prospects. The bicycle market is facing continued challenges, particularly here in North America, but Dorel Sports has been managing the situation quite well.

Adjusted operating profit was up for the fourth consecutive quarter, despite the poor weather just about everywhere, as well as some fundamental issues in the retail environment. The weather dampened sales in both the IBD and mass channels, but more so in mass where the impact of Pacific Cycle has persisted into the third quarter.

I would venture to say that those inclined to buy Cannondale will still do so, while the Schwinn purchase is being delayed, and worse, possibly canceled for the season. But Dorel Sports has done an excellent job in the IBD channel of reducing closeouts and liquidation sales.

There’s been considerably less discounting in CSG as inventory is back to healthy levels. Specifically, Q2 IBD closeout sales represented only 7% of sales compared to 21% the prior year.

Plus, we have the right pricing and good distribution. West Coast delivery times have been improved with opening of a new warehouse in California.

Brazil remains economically and politically challenged. Coupled with weak consumer demand and increased competitive price pressure, this created lower Q2 sales of Caloi.

But we believe Caloi will return to top line growth on the strength of new product launches and return to the OPP market. Overall, our bicycle brands are doing well.

We are taking shares from others, particularly in North America and in the sporting goods channel. This is a tribute to our product innovation and to the manner in which our team service our customers.

And of course, we have great new products. Cannondale launched the Revitalize model year ‘18 Synapse last year in U.S.

and Europe, a bike which represents a very large percentage of total Cannondale sales. The SuperX SE designed for the more adventurous rider, was also introduced, and it is the first model in a broader range that will follow.

Pacific Cycle product remain vibrant, and they were awarded numerous placements through this year. The new Schwinn Boundary is one of the top performers for the brand.

And KidTrax unveiled new 2 new battery-powered ride-on Disney cars, tied with the release of the feature film Cars 3. Parts and accessory has been a bright spot and should continue to drive growth through the rest of the year.

The Fabric products previewed in Taiwan recently are now in the market and have received high praise from some of the industry’s leading journalists. And as a final note, I’m very pleased to report that the Cannondale pro cycling team has its best showing ever at last month’s Tour de France, with several notable accomplishments.

The team captured 2 King of the Mountain jerseys for Best Climb, had a stage win, and team member Rigoberto Urán finished second overall. Cannondale garnered strong international media exposure throughout the race as Urán worked his way up to second place.

A July television company in North America to support the new Cannondale Synapse had that much more impact because of the team’s success. For a full financial perspective, I now turn to Jeffrey.

Thank you, Martin. I will comment on the second quarter results and highlight some key areas.

First off, consolidated revenues for the second quarter of 2017 was $611.3 million, down 4.1% from $637.3 million a year ago. After removing the variation of foreign exchange rates year-over-year and the change in Cycling Sports Group International’s business model from a licensing revenue recognition model to a distribution platform, for which the accounting treatment increased both revenue and cost of sales, organic revenues declined by about 4.4%.

Gross profit for the quarter increased 30 basis points to 23.9 from 23.6 last year. The increase is due to improved margins in the Sports segment, from less discounting and selective price increases at CSG, as well as favorable product mix at Pacific Cycle, the increase in Dorel Home segments from higher online sales, while Dorel Juvenile’s gross profit did decline to unfavorable – due to unfavorable exchange rates as well as manufacturing cost in the China factory, although the exchange rates are related to China.

Our second quarter operating profit rose by $56 million to $22.8 million from a loss of $33.8 million a year ago. However, when you exclude impairment charges, restructuring and other costs, adjusted operating profit increased by $2.8 million to $24.5 million from $21.7 million last year.

For the second quarter, our finance expenses decreased by $3.3 million. While the adjusted finance expenses, which exclude the remeasurement of forward purchase agreement liabilities, declined by $2.6 million to – to $7.1 million from $9.7 million last year.

The decrease in expenses are explained by the decline of $1.1 million in other interest expenses due to lower average bank indebtedness, as well as a decline of $1.6 million on interest on long-term debt due to, again, lower average balances, as well as the lower year-to-date average interest rate. Our second quarter net income rose by $50 million – $50.1 million to $11.4 million or $0.35 a share from a net loss of $38.6 million or a loss of $1.19 last year.

However, adjusted net income rose by $2.3 million or 22.1% to $12.4 million. On an adjusted diluted basis, this equates to $0.38 for the quarter versus $0.31 last year.

Our second quarter effective tax rate was 27.2% versus 12.5%. The adjusted tax rate was 28.4% versus 15.4%.

The main cause, again, year-over-year tax rate is due to the changes in jurisdiction. However, for the first time in many, many years, we’re actually going to call for our tax rate to rise to between 20% and 25%.

In the past number of years, we’ve been between 15% and 20%. The main reason for that is the mix of earnings on our Home Furnishings side is – the taxes are higher there.

And therefore, we don’t believe we will be under 20% again, unless we get a different mix. So for the rest of this year, it’s between 20% and 25%.

We move over to Dorel Home. Second quarter revenues rose by $12.3 million or 7.1% to $184.2 million.

That was driven by, again, increased sales to online retailers in all divisions, which now represent 52% of the total. Last year, at this time, we’re at 43%.

And as Martin mentioned, it’s the highest percentage we’ve ever had of online sales in the segment’s history. Gross profit at 17.8%, an improvement of 90 basis points.

Improved margins, again, increasing from the online sales, and that partially offset by slightly higher input and warehousing costs. Dorel Home posted operating profits of $16.7 million from $14.8 million last year.

And again, driven by higher sales volumes and slightly offset by an increase in selling and general administrative expenses. As we look at outlook for Home, our strength and flexibility of Dorel’s e-commerce platform has allowed us for an expansion of its online offerings with excellent value products at higher prices, a practice that will continue for the rest of the year.

And again, Internet sales are expected to drive this business, so we expect to see continued momentum throughout the year in Home and don’t see anything on the horizon that’s going to change that. To go over the Juvenile sector, our revenues decreased by $10.9 million or 4.7% to $218.1 million.

Organic revenue decreased by 3.8% after removing the impact on varying exchange rates year-over-year. And the decline on revenues in is mainly attributable to the U.S.

and European markets. So what happened in the U.S., the biggest impact was point-of-sales at our largest customer increased versus last year.

However, the customers limited orders in order to reduce their in-stock inventory levels. Sales to some other U.S.

brick-and-mortar were also lower, some of our other customers are having challenges overall in their business, and that’s led to some lower sales. But if you go back to, again, the main cause, our POS was positive but the retailer, using some new software, was successfully – I’m going to use the word successfully, able to reduce their inventory and not hit the store’s – in-stock percentage.

So we think that’s a onetime event because I don’t – you can’t continuously remove inventory. But I have to give them credit, they were able to keep in-stocks the same and they removed about 20% of their inventory.

Since the end of the quarter, that’s changed. And we’re seeing normal orders coming in to match POS.

As well in the quarter, we reported – as we reported in the first quarter, certain scheduled product launches were delayed due to production issues in China. And that continued, although products – some of those products did make it to market.

They make it to market at a slower pace than our budget and that did have an impact on us. That second quarter’s gross profits were 29.9% compared to 31.7% a year ago.

This represented a decline of 180 basis points. The main cause was, in China, where both unfavorable exchange rates and higher manufacturing costs incurred at the segment’s China factory.

These higher costs include a short-term increase in the price of commodities and incremental spending required to prioritize meeting customer’s delivery dates. So most important for us is to get the product out the door, whether it be to third-party customers or to Dorel customers, and that’s what we did.

Production was up, as Martin mentioned. It was up over 50% from the first quarter, so we are making great strides in getting the product out the door, but it did cost us a little bit more.

I want to highlight also that general and administrative expenses decreased by $7.8 million in the quarter. However, everyone remembers last year, we had a $7 million charge on product liability that went into the quarter last year.

So this year, the change over – the year-over-year is about $5.8 million relating to product liability in the U.S. So the segment’s operating profit decreased $1.3 million to $7.2 million from $8.5 million last year, but when we exclude restructuring, the numbers, profits decreased $700 million to $8.1 million from $8.8 million.

However, I have to stress again – $700,000, not – $700,000 from – to $8.1 million from $8.8 million. But I want to stress that last year, we did have a significant expense that was not going to be repeated and it wasn’t.

So our miss this year is a lot greater than $700,000 and we acknowledge that. If you look at the outlook.

we’re pretty – we’re very strongly confident that the second half will see a major rebound. And I’d like to go through some of the reasons why.

First off, a large number of new products are coming to market, particularly in Europe. Some of them were delayed from the earlier part of the year and some of them are on schedule to be introduced.

And really that’s what we expect to drive both top line and earnings as well. We’re finally getting to that point.

We expect these products, both in second half of this year and then a whole bunch of new ones coming in 2018. So we’re feeling good about that.

In the U.S., we have a lot of new placements at major retailers going in into the second half. We also have, as we mentioned, the issue with point of sales at our customers, they should be ordering at the same pace as our POS, so we’re looking forward to seeing that.

We’re also growing on e-commerce retailers at a greater pace than we budgeted, so that’s doing very well. So between the new listings that we’re getting, having our customers ordering at the proper levels and the growth in e-commerce, we believe the U.S.

is poised for a nice rebound in the second half. Other markets, as we mentioned, they’re doing very well.

They’re growing top and bottom line, we expect that to continue. We’re doing quite well in the other markets.

China is still – it’s not all fixed yet, but we are seeing much a greater amount of production. We do expect to be caught up on all of our backorders by August.

And at that point, we will be turning to – back towards cost-saving opportunities and trying to remove some cost from the product. But our first priority is get the product out the door.

And finally, as we sit today, the majority of the currencies that we deal with have been moving in a positive manner. As many people know, we benefit from a weaker U.S.

dollar, and we’ve been seeing that, so especially in July, where we’ve seen a significant move. So based on all of that, we anticipate a nice rebound in the second half.

We move over to Dorel Sports. Second quarter revenues decreased by $27.5 million or 11.6%.

After removing various impacts of exchange rates, and as I mentioned before, the CSG international business adjustment, the decline, the organic decline was actually 13.4%, so it’s quite a large decline. Part of the revenue was the ongoing weakness we’re seeing in consumer demand, particularly in the mass channel, which a number of factors but certainly weather being one of them as people – remember back in both April and May and even into June, where the weekends tended to be cooler and wetter than normal except in some areas like the southwest U.S.

where it’s been exceedingly hot, so also not great bike weather. CSG second quarter revenues declined, but virtually all of that is due to lower discounted sales in the IBD channels.

So as Martin mentioned, this year, our closeouts represented only 7% of our volume versus 21% last year. And if you remove all of those revenues, we’re flat year-over-year.

So in a weak bike market, we’re satisfied with that. In addition, revenue at Caloi was negatively impacted, as Martin mentioned, and we’re down slightly there.

But Q2 is not an important quarter, Q3 and Q4 are the more important quarters down in Brazil. During the second quarter, the segment’s gross profit rose by 230 basis points to 23%.

When we remove the impact of the CSG international sales recognition, the gross profit actually increased by 290 basis points to 23.6%. And that’s, again, a combination of less discounting and selective price increases at CSG, as well as Pacific Cycle’s improved product mix.

And I guess, the areas that sales are down in – at Pacific Cycle are in lower-margin bikes, so that worked all right. Operating profit for the second’s quarter was $4.9 million compared to an operating loss of $50 million.

However, when you exclude impairment losses, adjusted operating profits rose by 8.1% or $400,000 to $5.7 million from $5.2 million. When we look at the outlook, Dorel Sports is expected to have a better second half than last year.

However, there is currently some weakness in the mass channel, which means Q3 is likely to be a lot lower than last year. However, we anticipate a solid fourth quarter performance, which should monitor compensate for this.

With that, I’ll pass it to Martin.

15):

Good morning everybody. Maybe if I could just talk – if we can just talk about China for a second.

You said last quarter that the goal was to get it back on track by Q2, so obviously, there was some pressure again on your gross margin this quarter. I just wondering if you could talk about where you are, either in percentage terms and being fully – in that business being fully fixed?

And how should we look at the costs going forward?

Well, I mean, our first goal was to get the product to our customers, and we did significantly better. Like I said, production, we’re able to produce more than 50% more production out of there.

We’re still not caught up, that’s – mid-August is our point where we catch up and then we go back to working on efficiencies. We’re in the process of putting in a new ERP system.

So we expect improvement, but to be really caught up, it’s still going to be a number of quarters away. We got to get the ERP running, we have new management, we’re going to be putting in some automation into the building to reduce – I mean labour is still challenged in a lot of places in China.

So we are going to put some that in. So it’s a process, a step-by-step process to get there so I don’t have a date for you on that.

But we definitely seeing an improvement.

Okay. And maybe just on the CSG business.

Just wondering if you could talk about the – of the drivers behind the flat sales trends outside of the, I guess, outside of the volume improvements there, particularly as we move out of the peak sales season. I’m just wondering how you expect to recover some of the losses that you’ve had in the earlier quarters?

Like I said, we see – we look at our true business as being flat because we just managed our inventory a lot better this year, if you count on CSG. So we’ve got a flat business in a relatively flat to down market.

Whether that’s – although I can’t say the weather helped, but I don’t think it had the same impact it has in the mass channel. We have a lot of new products.

We believe – we just came out with a new Synapse that – Synapse is one of our most important bikes we sell, so to have a new one out there, it’s got great reviews. We think that’s the way to gain market share.

We’re running our business a little bit more efficiently. We’re trying to get better service to our dealers and we’re hoping to win that way.

We’re waiting – there’s always different trends in the market. We’re trying to stay on top of that coming out with different sort of category bikes and reducing our dependency on the categories that are going away.

But it is challenging, I’ll tell you, I do have a lot of confidence that the Juvenile business is going to bounce back. I have less confidence, not in us, but in the industry.

It’s still not in a great shape, the industry, so I think we’re doing a great job within what we can. But there is still challenges in the industry.

Okay. And just maybe just on the mass side, I guess as you move out of I guess, what you would call peak sales season, how – do you still expect a strong recovery in Q4 to make up for that?

Yes. I mean, keep in mind, we do a lot of nonbike products as well at Pacific.

There are gift bikes, there are the kids’ bikes, but – there are different bikes that sell in the second half, but bikes do sell. And there’s a lot more of the ride-on toys and a number of other categories that we are in that really start to ship in the second half.

Those look promising. In fact, as we look forward beyond just this year, we realize that bike – we can’t rely and we don’t anymore, but we can’t just rely on bikes at the Pacific – at the mass level.

So we’ve been investing in a lot of other categories, some that we haven’t quite brought to market yet. But I think the future is more categories beyond just bikes.

I mean, the other area is a parts and accessories, which is actually doing well. We’ve done a good job there.

But we are looking to diversify and not just rely on bikes in the mass market.

Okay. Thanks Schwartz.

Thanks. Just on the Juvenile segment, can you maybe talk about the destocking?

Was it broad-based by the retailer across many segments or was it targeted at Juvenile? And do get the indication that POS and shipments are aligned now or is that something you expect to see the during the quarter?

I believe it was across the board. I think it impacted Juvenile more than our other ones.

Certainly, on the bikes with POS being down, wasn’t as big a deal. But – so I think it’s across the board.

And yes, we have seen them come back to normal.

Okay. And then just, I guess, in terms of the late product launches in Europe.

Is that just a timing thing related specifically to that market and are those products already in the market?

I mean, we’ve had delays in a number of places. A lot of the delays were from our China factory, new strollers that we wanted to get out, let’s say, at the end of Q1 that we couldn’t because they were new, we had to get the quality levels right in China and there were delays.

So they came out either Q2 or they are just coming out now. But yes, they are getting through.

We don’t have like a red light, we have more of a yellow light where things are delayed.

Okay. And then just on – one more on Juvenile.

You’re saying the e-commerce sales – or the sales to the online-only customers are growing faster? Can you maybe talk about the margin profile differential between your sales to, I guess, more brick-and-mortar guys versus online only?

Is it similar or is there a bit of the difference?

I think it’s similar because we’re a branded product company. It’s not the same as when you’re not branded as the Home segment is, where you can do a line easily of 30 chairs.

You can’t do 30 car seats the same way. So I mean, I would say it’s a similar margin.

Okay. And then just one last one for me.

Can you maybe provide an update on how some of your other segments are tracking outside of Home on e-commerce as a percentage of sales? And is there any opportunity to leverage that expertise across those 2 segments in Sports and Juvenile?

Sports would be the lowest because it’s really only – with P&A and it’s the smaller items that get sold, and it is less expensive bikes. People seem to be buying kids’ bikes online.

That’s one area that seems to work. We certainly don’t sell our Cannondale products online and unlikely to do so.

So that’s a much lower statistic. And Juvenile is growing a lot.

We’re probably a little bit behind some of our competitors there, but we’ve been moving assets. And we’ve certainly, as you’ve pointed out, are using best-in-class examples, which is our Home, to teach the other divisions how to get things done, how to work to get your products up the page list and that type of thing.

I guess, first off, on the second half earnings rebound, is it fair to assume growth for the third quarter in particular? And then I guess, along those lines, how should we think about Juvenile for that quarter?

When are the new products set to ship? Is that a third quarter event or fourth quarter event?

I guess just some context there would be helpful.

Yes. I mean, some of these, what I’ll call new products, actually landed, let’s say, at the end of the second quarter.

But we need to get the volumes moving. You’re definitely going to see in the third quarter, I think you’re going to see in – like both the third and fourth quarter being good.

So together, they’re – there’s going to be a rebound there, it’s not all fourth quarter. But certainly, some items we have a car seat coming out in Europe.

I believe that’s a fourth quarter item. And there is a number of fourth quarter items.

But there should be a nice momentum. Just shipping properly according to the POS of our customers is going to be helpful.

That was a big hit there. So I would expect both quarters to be somewhat equal.

Okay. That’s helpful.

And then switching gears to the bike business a little bit. Understanding the weakness there is weather-related, but I guess, it hasn’t really grown in several years.

I guess, just high level, what do you think’s going on with the end market that’s driving these pressures? Is it retainers in general, cross channels carrying less inventory?

Is it store closings, is it lower participation, how do you think industry sell-through’s trending? Any of that stuff.

It’s a bit of everything. I mean, certainly, on the mass side, you’ve got a number of retailers that are either shrinking space, you’ve got retailers that are just shrinking in general.

And there is still a couple of them that are maintaining and hoping to pick up market share there. Longer term, is – are kids riding the same amount of bikes as they did 10 or 20 years ago?

Probably not. So we’re certainly on the mass side, I explained our strategy to get into other categories, which we’ve been successful at, by the way.

I do want to suggest that we’re going to try and drum up ideas that we haven’t done already. We’re one of the largest players in this battery-operated car segment, and that’s led us into a few other segments that we’re getting into.

So we’re actually pretty excited with some of the stuff we see on the list and it’s not really blue sky stuff, it’s just extensions. And on the other side, we believe we’ve got some great products in the mill.

We also have a huge amount of 2018 new products with Cannondale. I mean – the other area of that, that we have focused on, not going to highlight too many of the details, but in the bike segment is the sporting goods channels.

It’s kind of that third channel between mass and IBD’s. And we have multi brands and we’re taking some of our brands and we’re ready focusing on that channel and we’ve had a lot of wins there.

And I think going into next year, were going to see substantial growth in that area.

Okay. So do you think it’s fair to assume then as we look out to next year, that with a shrinking pie but a larger piece of it, you could start to generate net growth?

Yes. I mean, historically – this is going to – I think when the year ends, there’s going to be a big drop in total bikes sold, units in the U.S.

You’re going to – I mean, that’s driven by the mass channel, primarily right. They move the units.

Historically, every time that’s happened and there’s been a large drop, the following year, there’s a nice bounce back. What we don’t know is how high that bounce back is going to be.

So is it going to get us all the way back to where we used to be or are we going to be 5%, 10% less and then it’s going to go on from there? So that’s what we don’t know.

But we are expecting next year, I think like said, with the weather, people decide, "You know what, I’m going to pass for this – maybe next month we’ll buy a bike" and then, "It’s the end of the season. We’ll buy it next year.

And I think we’ve seen a lot of that at the mass level. So I’m expecting a good year next year in bikes for mass, but how big is the bounce back?

But in the meantime, we’re diversifying both in products and in channel, sporting goods. And I hope to gain some market share with our great products and better service at Cannondale.

Okay, that’s really good color. Thanks for taking my questions and good luck.

Good morning. Could you talk a little bit about your debt and what you want to do there in terms of paydowns.

You paid down about $60 million or so this last 12 months. Where do you see that going, going forward?

Well, our objective is to continue to reduce our leverage and we’re hoping to be under 2 by end of the year.

Great. And I guess on a somewhat related topic, inventories.

Where should we be thinking about in terms of where the inventories want to go? You’ve obviously done a great job with some of these divisions in terms of reducing some of the surplus inventory.

When you take it all back where should inventory levels, and what kind of turns should we be expecting going forward also?

I don’t think we’re going to see material changes. I will say that at the end of June, we were a little high in a few categories as the sales dropped off.

Also, as we build for back to school. But certainly, the Home Furnishing business, it’s a business in which we have to carry a lot of SKUs.

I think we do a great job of that. Our obsolete – in, of the 3 groups, our slow-moving obsolete inventory is the lowest in Home Furnishings despite carrying by far the most amount of SKUs.

So we definitely have a great system there. But overall, I wouldn’t look for much of a move.

Great, good luck for the rest for rest of the year.

Thank you, Eric.

Good morning. I just wanted to talk a bit more about the sports division.

And just want to get a sense as to some of these headwinds that persisted in Q2, sort of how they’ve evolved in your early experience in Q3? Specifically, around, maybe you could talk a bit about weather in the mass segment and whether you’ve seen that subside and maybe demand increase?

And then secondly, on the CSG side, have you seen any closeouts sales continuing into Q3 or is the most of excess inventory are already – not excess, but most of the end of the inventory already dealt with the CSG channel?

Okay, and then mass side, we’ve not seen an improvement and hence, we’re calling down our third quarter a bit because of that. On the CSG side, we – there’s always that’s I mean, actually, I think Q3 is one of the larger quarters traditionally, and we have that budgeted for closeouts.

But again, not having as much in our system means that our customers if they want a certain model, we don’t have any left, they’re buying the new ones. So again, keeping our margin up.

So I think that’s going to continue the strength of having less excess inventory is going to continue to help our gross margin, which is really what it’s about. We also have introduced – we just came off of a sales conference last week, did very well there.

We took more orders than we’ve taken in the past. People gave the bikes good reviews.

So we’re hopeful that we’ll start shipping some of the new stuff that we have in inventory. So I think CSG is running towards what we want, the IBD business is running in the right direction and – but the mass is still a bit slow.

Okay. That’s helpful.

Thank you. And just turning to the Home business, which had another nice quarter.

Can you just talk a little bit about your expectation around the sales and margins? I mean, in the past, you’ve sort of – the outlook has generally been the same, very positive, but I’m just curious, do you still sort of expect moderating growth and where do you think margins can go?

Is it still sort of slower incremental growth as you grow off of a bigger base?

It’s almost the hardest one to – even though the numbers are so consistent, it’s almost, for me, the hardest ones to project because it’s a bit a blue sky. We’re riding this Internet wave of customers that are selling more and more home furnishing goods, and we’re clearly one of the top suppliers to that channel.

So it’s hard to judge how much of our customers are going to grow. It’s all double-digits for them, and we’re trying to keep up on that part.

You don’t see it as much in our top line because we are losing, as the market is losing share of brick-and-mortars. So when we increase, we’re increasing double-digits our business to our e-commerce customers, but the brick-and-mortars are shrinking, and so are we.

So you end up with probably high single-digit growth rate for Dorel, but the growing segment is growing really fast. So it’s really difficult.

I mean, we do have a little bit of higher cost here and there. But that gets eliminated by just the leverage we have in our business and we continue to be more efficient in our expediting the products and investing in technology to help us get it our customers faster, so it’s just difficult because I don’t know where all this is going other than we know it’s going up.

Yes. Okay.

But you sort of – with that mix of business, you would sort of expect margins to continue to tick higher incrementally, I would expect?

Yes. I mean, what’s going to stop it is if there’s a significant rise in commodities.

And again, that whole idea – and even this time, to be honest with you, we’ve had a historical time line of what happens when prices – costs go up and how long does it going to take an brick-and-mortar to get the increase back to us. But we haven’t really seen that online.

So I can’t tell you how long the lull is between us receiving cost increases and us implementing them online. So again, it’s a new area for us, so difficult to answer that.

If there’s no major increases, always ups and downs, yes, I do see margins ticking up.

Two quick questions for me. Just I guess, more high level, you talking about the sensitivity earlier about the USD and obviously the fluctuations that we’re seeing currently, especially on the Canadian dollar.

I realize that the Canadian dollar doesn’t necessarily a huge impact on your business, but can you provide us a little bit more color, i.e. like any type of sensitivity USD versus euro in terms of any type of fluctuation there, what impact that will have on your earnings?

Not really. It’s such a complicated model with all the ins and the outs that we’ve tried to work on it and it’s just – it’s big.

Euro is the most, I think, the currency we’ve been the most sensitive to, with Canada probably being least. The other big one that’s coming up lately is the RMB, which is the Chinese currency.

So that one’s moving in the wrong direction. Didn’t use to impact us as much because there’d be a buffer between that and our suppliers.

But now that we’re our own factory, it does have an impact on us. So that would be the only sort of negative currency were seeing today.

But we’re seeing positive currencies in Latin America, which is helping business there, Brazil is certainly a big one, Australia, but I don’t have an actual sensitivity analysis for you.

Okay. But I guess, my question is maybe asked in another way, in an ideal scenario where do you want to U.S.

dollar to be? I mean – because your input costs are in USD.

A lot weaker. If you remember – probably the one of the highest points Dorel Juvenile had in profitability was when the euro was $1.60, if you remember that time.

Yes, if it got back to that level, that’d be – would help us. So any weakness you see in the U.S.

dollar, aside from really Canada – I mean, Canada’s neutral. So only the Chinese currency is the only one that a weak U.S.

dollar doesn’t help us with. But other than that, every other currency helps us.

Also, there’s currencies – there’s places like Russia where we have big distributors, so we don’t see it on our financial statements. But the better it is for them, the more product they’re going to buy.

So we’ve seen over the last 3 or 4 years is the Russian ruble drop, a significant slowdown in business in Russia. And if that were to come back from – maybe Russia’s not the right one to use, but as an example, that would have a significant positive impact on Dorel if the ruble got stronger.

Great. And then one final one for me would be just on the input costing side, are you seeing anything specific in terms of, I don’t know, the price of plastic or the price of any type of input that you would have, any type of variations there at all or any fluctuations, or you see that pretty steady for the moment?

Most of it is stable. Some of the metals are fluctuating, aluminum and steel.

They’ve been on the rise for the last few weeks, but we think that would be maybe over the next couple of months. And then it should start going down.

There seems to be an excess, for example, of steel in China, but they’re – for now they’re holding the prices. But we’ve got contracts locked in with suppliers over the next few months, so it shouldn’t really affect the third, fourth quarter.

Just one quick follow-up on your outlook for Dorel sports and Juvenile. So for Dorel Sports you’re saying you expect a better half.

What are your thoughts on the full year? And then just same thing on Dorel Juvenile, if you can maybe comment on you expect earnings to be specifically in H2 and overall for 2017 as well from your point of view.

Well, for Sports, are we – where are we for the half? I think we’re at up.

I think we’re up first half over last year, adjusted? So we’re expecting both – let’s start with the second quarter, we’re expecting – second half.

We’re expecting both Juvenile and Sports to be up in the second half. My only quarter that I see down is in the bikes in Q3.

But overall, for the second half, we’ll be up. And for the year, I believe, we’re I’m pretty sure we’re up in Home Furnishings and bikes and we’ll be up on Juvenile as well, I believe, right?

Yes.

Just confirming that. Adjusted, we’re only talking adjusted.

Do we agree?

Yes.

So definitely up in bikes and Juvenile as well, so yes, we should be up both of them.

Okay, thank you. So just want to thank everybody for joining us this morning.

And I just want to wish everybody a great weekend and thanks for your support.