Dorman Products has announced its financial results for the second quarter ended June 29, 2019.
The company reported second quarter 2019 net sales of $254.2 million, up 7% compared to net sales of $238.1 million in the second quarter of 2018. Sales growth in the quarter attributable to acquisitions was approximately 2%.
Gross profit was $87.1 million in the second quarter compared to $92.7 million for the same quarter last year. Gross margin for the second quarter was 34.3% compared to 38.9% in the same quarter last year. Adjusted gross margin was 34.3% in the quarter compared to 39.3% in the same quarter last year.
Dorman said the gross margin decline was primarily due to the pass-through of tariff costs to its customers, along with acquisitions completed in the past 12 months, which carry lower gross margins compared to our historical levels, and redundant overhead costs as the result of operating out of two distribution locations in Portland, Tennessee. The company also experienced a negative mix impact in the quarter as growth from its seasonal, lower margin categories outpaced growth from its high-margin categories.
Net income for the second quarter of 2019 was $21.5 million, or 66 cents per diluted share, compared to $34.3 million, or $1.03 per diluted share, in the same quarter last year. Adjusted net income in the second quarter was $22.2 million, or 68 cents per diluted share, compared to $36.2 million, or $1.09 per diluted share, in the same quarter last year.
Kevin Olsen, Dorman Products president and CEO, stated, “The first half of 2019 was challenging, primarily due to the temporary headwinds relating to higher distribution costs as we continued to work towards consolidating our distribution locations in Portland, Tennessee, and a product sales mix that pressured margins. In addition, second quarter sales growth was not as strong as we had previously anticipated primarily due to softness of end market demand from our Traditional (non-retail) channel. As a result, we are lowering our full year EPS outlook. However, we do expect a stronger back half in 2019 driven primarily by gross and operating margin improvement. We are targeting to be fully operating out of our new distribution facility as we exit 2019 and expect our distribution costs to be back to more typical levels as we move through 2020. Initially, we anticipated this consolidation to be completed in the second quarter, but we delayed the consolidation by approximately six months to minimize customer disruption.”
Olsen continued “Our outlook for the automotive aftermarket remains bullish, underscored by solid industry fundamentals. We are continuing to launch new products at a very healthy pace enabling our customers to achieve year-over-year sales growth while offering our end users a high-quality alternative to the OE. In the second quarter of this year, we launched 1,824 new SKUs, a 48% increase compared to 1,235 SKUs launched in the second quarter last year, with 451 New to the Aftermarket SKUs as well as 206 heavy-duty SKUs. Year-to-date, the percentage of our net sales from products launched in the past 24 months was 18% which showcases the strength of our innovation capabilities and product vitality. In addition, year-to-date growth of both our heavy-duty and complex electronics product lines continues to outpace our overall business. Our strong go-to-market strategy, competitive advantage, and strong balance sheet will position us well to continue to grow in excess of our end markets and deliver long-term value for our shareholders.”
Acquisition Integration and Distribution Facility Consolidation Activities
Acquisition integration activities for MAS and Flight Systems were completed in the first quarter of 2019 and have gone according to plan, Dorman says. In the second quarter of 2019, the company incurred costs of $0.3 million primarily related to acquisition integration activities taking place during the first quarter, and costs of $2.8 million primarily related to acquisition integration and accelerated depreciation have been incurred year to date. Moving forward, Dorman anticipates that these expenses are fully behind the company and are excluded from the company’s non-GAAP financial measures.
As discussed above, in the first quarter of 2019 Dorman began the process of moving its distribution facility in Portland, to a new, larger facility that is near its existing facility. The company expects to be fully operating out of its new facility near the end of 2019.
