COLMAR, PA — Dorman Products, Inc. (NASDAQ: DORM) this week announced its financial results for the third quarter ended September 30, 2023.
Third Quarter Financial Results
The Company reported third quarter 2023 net sales of $488.2 million, up 18% compared to net sales of $413.5 million in the third quarter of 2022. The sales growth was primarily driven by the addition of SuperATV, price increases to offset inflation and the introduction of new products to the market. Net sales growth excluding acquisitions was 6% compared to the third quarter of 2022.
Gross profit was $183.2 million in the third quarter of 2023, or 37.5% of net sales, compared to $131.9 million, or 31.9% of net sales, for the same quarter last year. Adjusted gross margin* was 37.5% in the third quarter of 2023 compared to 32.0% in the same quarter last year. The 550-basis-point increase in adjusted gross margin* is primarily due to sales of lower-cost inventory, price increases and the addition of SuperATV, which has a higher gross margin percentage than the Company average. In addition, adjusted gross margin* increased 240 basis points compared to the second quarter of 2023.
Selling, general and administrative (“SG&A”) expenses were $119.0 million, or 24.4% of net sales, in the third quarter of 2023 compared to $89.8 million, or 21.7% of net sales, for the same quarter last year. Adjusted SG&A expenses* were $114.1 million, or 23.4% of net sales, in the third quarter of 2023, compared to $82.3 million, or 19.9% of net sales, in the same quarter last year. The increase in adjusted SG&A expenses* as a percentage of net sales compared to the third quarter of 2022 was due primarily to the addition of SuperATV, which has higher SG&A expenses as a percentage of net sales than the Company average, an increase in variable compensation expense and the impact of higher interest rates on its customer accounts receivable factoring programs.
Net interest expense was $12.2 million for the third quarter of 2023 compared to $2.3 million for the same quarter last year. The increase of $9.9 million primarily reflects the addition of the term loan used to complete the acquisition of SuperATV in October 2022 and significantly higher interest rates compared to the prior year.
Income tax expense was $12.1 million, or 23.0% of income before income taxes, compared to $9.1 million, or 22.9% of income before income taxes, in the same quarter last year. The effective tax rate was flat, with an increase from state tax expense and the effect of foreign operations offset by discrete benefits.
Net income for the third quarter of 2023 was $40.5 million, or $1.28 per diluted share, compared to $30.6 million, or $0.97 per diluted share, in the prior-year quarter. Adjusted net income* in the third quarter of 2023 was $44.3 million, or $1.40 per diluted share, compared to $37.0 million, or $1.17 per diluted share, in the prior-year quarter.
Kevin Olsen, Dorman’s President and Chief Executive Officer, stated, “We delivered strong top line growth, record profits and robust cash flow in the third quarter, and I am proud of the hard work from our contributors to deliver these results. These results were driven by the continued improvement of our adjusted gross margin*, which increased 240 basis points over the second quarter of 2023, and 550 basis points year-over-year. As a result, we achieved record third quarter adjusted diluted EPS*, which increased 20% over last year and 39% over the second quarter.
“In addition, we had another quarter of healthy cash flow, with cash from operations of $56 million. Inventory was $17 million lower in the quarter, $130 million lower year-to-date, and a primary driver of the increase in cash from operations. Over the last few quarters, we focused on reducing our debt and repaid $50 million in the quarter, for total repayments of $129 million year-to-date. We expect continued strong cash flow in the fourth quarter.
“From an innovation standpoint, we continue to focus on bringing products to market that will drive profitable revenue growth for us and our customers and improve the experience of our ultimate end users. During the third quarter, we launched hundreds of new products across all our businesses. We are a leader in the industry in bringing new complex electronic parts to the aftermarket, a result of investing in our people and technologies to grow our capabilities, and this will continue to be a focus for us.
“The SuperATV integration continues to go well and is substantially complete. We are on track to meet our year one expectations and the team has done a solid job executing on the many growth initiatives that were identified, which are expected to result in profitable growth in the future.
“While we were pleased with third quarter sales growth, we did experience softer demand than we expected due to a number of factors, including the uneven performance of some of our larger light-duty customers. As a result of this softer demand and faced with the uncertainties surrounding the overall economic environment, we are lowering our full-year net sales forecast range. We are also lowering our earnings guidance to be in line with our updated net sales forecast resulting in fourth quarter revised adjusted diluted EPS* growth of 35% – 55% over the prior year fourth quarter, which included an extra week of results.
“Overall, industry fundamentals remain strong, and we are encouraged by the strength of our business, as evidenced by our third quarter results. Moreover, we believe that our industry leadership in innovation and new product development continues to set Dorman apart as a preferred supplier to the aftermarket.”
2023 Guidance
The Company updated its full-year 2023 guidance, detailed in the table below, which includes the impact of the SuperATV acquisition but excludes any potential impacts from future acquisitions, additional supply chain disruptions, significant interest rate increases, or share repurchases.
| Updated 2023 Fiscal Year | Previous 2023 Fiscal Year | |||
| Net Sales | $1.925B – $1.945B | $1.950B – $2.000B | ||
| Growth vs. 2022 | 11.0% – 12.2% | 12.5% – 15.4% | ||
| Diluted EPS | $3.75 – $3.95 | $4.35 – $4.55 | ||
| Growth vs. 2022 | (2.6%) – 2.6% | 13.0% – 18.2% | ||
| Adjusted Diluted EPS* | $4.35 – $4.55 | $5.15 – $5.35 | ||
| Growth vs. 2022 | (8.6%) – (4.4%) | 8.2% – 12.4% | ||
| Tax Rate Estimate | 24% | 24% | ||
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