Fierce competition, acquisition costs take toll on Domco Tarkett’s fiscal year results
The company cautioned that any comparative analysis of the 2000 and 1999 financial statements must factor in the significant impact of the acquisition of Tarkett North America Holding Inc. (Tarkett NA) that was completed on July 30, 1999. Therefore, a comparative analysis between consolidated financials 2000 and combined financials 1999 -- after excluding the transactions between the two corporations -- is more meaningful than a comparison between the corporation's 1999 and 2000 consolidated statements, Domco Tarkett said.
For fiscal year 2000, consolidated net income totaled $7.8 million, or 31 cents per share, compared to $18.4 million, or 83 cents per share for fiscal year 1999. Combined net income for fiscal year 1999 was $6.4 million, or 25 cents per share.
Consolidated net sales for fiscal year 2000 reached $657.3 million, an increase of 33.7% over the previous year, an increase the company attributed to its acquisition of Tarkett NA. Combined net sales for the two corporations, excluding inter-corporate transactions, for fiscal year 1999 amounted to $680.6 million.
The company attributed the decrease in 2000 sales mainly to fierce competition in the resilient flooring market. For fiscal year 2000, Domco Tarkett's resilient flooring segment posted consolidated net sales of $420.7 million, an increase of 18% compared to fiscal year 1999. However, combined net sales totaled $457.9 million for fiscal year 1999. This decrease is entirely attributed to the residential sector, where the industry is experiencing a shift in consumer tastes toward natural floor coverings.
Sales in the commercial sector were flat at $168.2 million. Domco Tarkett posted sales of $159.1 million in the hardwood flooring segment, a 7.4% increase over the 1999 combined sales of $148.1 million.
Distribution activities are conducted by Domcor, the division which distributes the Domco and Harris-Tarkett products as well as carpet and other flooring products across Canada. For the year ended Dec. 31, 2000, sales related to distribution activities represented $77.5 million, compared to $74.7 million for fiscal year 1999. This represents an increase of 3.8%. The consolidated gross margin, as a percentage of sales, amounted to 30.7% and 31.9% respectively for fiscal years 2000 and 1999. The decrease is due to a combination of higher raw material costs for resilient products, and a different product mix.
Given the lower gross margins of the hardwood flooring segment (vs. the resilient segment) and heightened price pressures on the resilient flooring segment, the corporation's overall gross margin could not reach previous levels, Domco Tarkett said.
The consolidated gross margin for resilient products amounted to $139.9 million or 33.2% for fiscal year 2000 compared to $154.6 million or 33.8% of sales, for fiscal year 1999 combined. Higher raw materials costs and price pressures due to fierce competition were partly offset by the introduction of high-end products with higher margins, in addition to operating expense rationalization programs put in place to reduce the overall break-even point.
The margin of the hardwood-flooring segment is lower than that generally observed in the resilient flooring segment. The hardwood flooring segment's consolidated gross margin totaled $44.4 million, or 27.9% of sales, for fiscal year 2000, compared to $38.6 million and 26.1% of sales in 1999.
Even if the overall resilient category is expected to remain flat between 2000 and 2001, Domco Tarkett said its management is taking the necessary steps to increase its market share through dedicated sales efforts in addition to product improvements and new product launches. The company said its efforts to expand and strengthen Domco Tarkett's distribution networks will help the corporation achieve these objectives. The most important challenge of the residential resilient industry remains to improve profitability in light of rising raw materials costs in a mature market.
To ensure its competitiveness, Domco Tarkett has introduced several continuous improvement programs to reduce unit costs and the overall break-even point, and also to improve customer service flexibility. To these ends, has adopted various measures including a production cost and operating expense rationalization program (introduced in 2000 and continuing in 2001), and a rigid pricing control program (currently underway).
The overall hardwood category is expected to continue to grow in the coming year. Domco Tarkett is also taking the necessary steps to increase its market share in this promising market environment.