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Financial report summary
?Risks
- Our business is impacted by the age, condition and number of vehicles that need servicing and by improvements in the quality of new vehicle parts.
- Our industry is highly competitive, and our success depends on our ability to compete with suppliers of motor vehicle aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do.
- The loss or decrease in sales among one of our top customers, or a material change in the terms on which they are willing to buy from us, could have a substantial negative impact on our sales and operating results.
- Limited shelf space and the inability of our customers who resell our products to expand into new locations may adversely affect our ability to grow.
- Customer consolidation in the motor vehicle aftermarket industry may lead to customer contract terms less favorable to us, which may negatively impact our financial results.
- Our growth in the specialty vehicle category depends upon our continued ability to expand our product sales into specialty vehicles, including, but not limited to, those that require performance-defining products, and the expansion of the market for these vehicles.
- If we fail to maintain sufficient inventory to meet current customer demands, or if we fail to anticipate future changes in customer demands, our financial results could be adversely affected.
- Our operations would be materially and adversely affected if our suppliers fail to perform or if we are unable to manage our supply chain effectively.
- Our operating results are sensitive to the availability and cost of third-party transportation providers, which are important in the manufacture and transport of our products.
- Significant inflation could adversely affect our business and financial results.
- Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, could adversely affect our results of operations.
- Our business, results of operations and financial condition could be materially adversely affected by the effects of widespread public health pandemics, such as COVID-19, that are beyond our control.
- If we do not continue to develop new products and bring them to market, our business, financial condition and results of operations could be materially impacted.
- We may be adversely impacted by changes in, or restrictions on access to, motor vehicle technology.
- Design and quality problems with our products could damage our reputation and adversely affect our business.
- Cyber-attacks or other breaches of information technology security could adversely impact our business and operations.
- We are dependent, in part, on our intellectual property. If we are not able to protect our proprietary rights or if those rights are invalidated or circumvented, our business may be adversely affected.
- Claims of intellectual property infringement by original equipment manufacturers and others could adversely affect our business and negatively impact our ability to develop new products.
- Failure to maintain the value of our brands could have an adverse effect on our reputation, cause us to incur significant costs and negatively impact our business.
- Increasing our indebtedness could negatively affect our financial health.
- Our credit agreement contains covenants that restrict our operational flexibility. If we cannot comply with these covenants, we may be in default under our credit agreement.
- We are exposed to risks related to accounts receivable sales agreements.
- Interest rate increases may adversely affect our financial condition and results of operations.
- We extend credit to our customers, some of whom may be unable to pay in the future.
- Dorman’s Non-Executive Chairman and his family members own a significant portion of the Company.
- Unfavorable economic conditions may adversely affect our business.
- Our operations, revenues and operating results, and the operations of our third-party manufacturers, suppliers, warehouse and distribution providers, and customers, may be subject to quarter-over-quarter fluctuations and disruptions from events beyond our or their control.
- Unfavorable results of legal proceedings could materially adversely affect us.
- The market price of our common stock may be volatile and could expose us to securities class action litigation and increased shareholder activism.
- Losing the services of our executive officers or other highly qualified and experienced employees or failing to attract and retain any of such officers or employees could adversely affect our business.
- Our growth may be impacted by acquisitions. We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.
- Changes in tax laws or exposure to additional income tax liabilities could have a material adverse effect on our business, financial condition and results of operations.
- Global climate change and related regulations could negatively affect our business.
- We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws around the world.
- Our products are subject to import and export controls and economic sanctions laws and regulations in various jurisdictions, and violations could adversely affect us.
Management Discussion
- Net sales increased 11% to $1,929.8 million in fiscal 2023 from $1,733.7 million in fiscal 2022. The increase in net sales reflected the addition of SuperATV in October 2022, price increases to offset inflation, and higher volume including the introduction of new products to market, partially offset by an additional week in fiscal 2022, which we estimate increased fiscal 2022 net sales by $19.2 million. Net sales growth for the year ended December 31, 2023 excluding the incremental period of SuperATV net sales was 2%.
- Gross profit margin was 35.5% of net sales in fiscal 2023 compared to 32.6% of net sales in fiscal 2022. The increase in gross margin as a percentage of net sales was primarily due to the addition of SuperATV, which has a higher gross margin percentage than the Company average, cost saving initiatives, and pricing actions taken to offset inflation, partially offset by the sell-through of high-cost inventory purchased in 2022 that was impacted by inflationary costs.
- Selling, general and administrative ("SG&A") expenses were $470.7 million, or 24.4% of net sales, in fiscal 2023 compared to $393.4 million, or 22.7% of net sales, in fiscal 2022. The increase in SG&A expenses as a percentage of net sales was primarily due to the impact of higher interest rates on our customer accounts receivable factoring programs and the addition of SuperATV, which has higher SG&A expenses as a percentage of net sales than the Company average. The increase was also impacted by higher amortization of intangible assets, and a charge recorded related to a customer bankruptcy filing, partially offset by a decrease in the fair value estimate of a contingent consideration obligation for a potential earnout payment on a previous acquisition in the year ended December 31, 2023.