Leon's Furniture Releases Financial Results for the Fourth Quarter Ended December 31, 2016

TORONTO, Feb. 23, 2017 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced record financial results for the fourth quarter 2016.

Highlights – Q4 2016

  • Total system wide sales1 grew 5.1% to $704,742,000 in Q4-2016 compared to $670,357,000 in Q4-2015.
  • Revenue grew 5.0% to $588,381,000 in Q4-2016 compared to $560,229,000 in Q4-2015.
  • Adjusted EBITDA1 increased 13.5% to $61,606,000 in Q4-2016 compared to $54,270,000 in Q4-2015.
  • Adjusted diluted earnings per share1 grew 10.3% to $0.43 in Q4-2016 compared to $0.39 in Q4-2015.
  • Same store sales1 grew 1.1% in Q4-2016.

Highlights – Fiscal year 2016

  • Total system wide sales1 grew 5.2% to $2,531,573,000 in fiscal 2016 compared to $2,407,512,000 in fiscal 2015.
  • Revenue grew 5.5% to $2,143,736,000 in fiscal 2016 compared to $2,031,718,000 in fiscal 2015.
  • Adjusted EBITDA1 increased 10.4% to $174,266,000 in fiscal 2016 compared to $157,793,000 in fiscal 2015.
  • Adjusted diluted earnings per share1 increased 16.1 % to $1.08 in fiscal 2016 compared to $0.93 in fiscal 2015.
  • Same store sales1 grew 4.1% for 2016.

1Refer to the Non-IFRS Measures section of this press release

"Q4 marked a strong end to 2016 as the consistent execution of our strategy resulted in both record sales and profits for the company," said Edward Leon, President and Chief Operating Officer of Leon's. "In 2016, we successfully grew same store sales for every quarter while improving cost controls throughout the organization to drive operating leverage. We are proud of all of our associates, especially those who worked tirelessly to open nine new locations across Canada in the fourth quarter, resulting in a meaningful presence in key locations across Canada for both of our core banners. These initiatives combined with our strong market presence and national distribution network will enable us to continue to drive shareholder value going forward. In recognition of our record results and confidence in the future, we are happy to announce that the quarterly dividend will be increased by 20% from 10 cents to 12 cents."

For a full explanation of the Company's use of non-IFRS measures, please refer to page 4 of this press release. 

Summary of Financial Highlights







For the three months ended December 31

(000's of $ except % and per share amounts)

2016

2015

$ Increase
(Decrease)

% Increase
(Decrease)

Total system wide sales (1)

704,742

670,357

34,385

5.1%

Franchise sales (1)

116,361

110,128

6,233

5.7%

Revenue

588,381

560,229

28,152

5.0%

Same store sales (1)

560,541

554,241

6,300

1.1%

Gross profit margin as a percentage of revenue

43.93%

44.62%



SG&A(2) (excluding mark-to-market impact and severance charge)

207,554

204,134

3,420

1.7%

SG&A(2) as a percentage of revenue (excluding mark-to-market impact and severance charge)

35.28%

36.44%



Adjusted EBITDA(1)

61,606

54,270

7,336

13.5%

Adjusted net income(1)

34,745

30,589

4,156

13.6%

Adjusted basic earnings per share(1)

$

0.48

$

0.43

$

0.05

11.6%

Adjusted diluted earnings per share(1)

$

0.43

$

0.39

$

0.04

10.3%

Common share dividends declared

$

0.10

$

0.10

$

-


(1)

Non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section in this press release for additional information.

(2)

Selling, general and administrative expenses

 

Revenue

For the three months ended December 31, 2016, revenue was $588,381,000 compared to $560,229,000 in the prior year's fourth quarter.  Revenue increased $28,152,000 or 5.0% between the comparative quarters as we continued to see growth in most product categories.

Selling, general and administrative expenses

Selling, general and administrative expenses of $207,554,000 increased $3,420,000 for the fourth quarter 2016 compared to the fourth quarter of 2015.  Compared to the prior year quarter, the change is due to an increase in advertising expenditures in order to further promote our brands and increase sales, and the increase of store pre-opening costs from opening nine new stores and a distribution centre.

Adjusted net income and adjusted diluted earnings per share

As a result of the above, adjusted net income for the fourth quarter of 2016 was $34,745,000, $0.43 per fully diluted earnings per share ($30,589,000, $0.39 per adjusted diluted earnings per share in 2015), an increase of $0.04 per common share or 10.3%.

Consolidated operating results for the twelve-months ended December 31, 2016 and December 31, 2015







For the year ended December 31

(000's of $ except % and per share amounts)

2016

2015

$ Increase
(Decrease)

% Increase
(Decrease)

Total system wide sales (1)

2,531,573

2,407,512

124,061

5.2%

Franchise sales (1)

387,837

375,794

12,043

3.2%

Revenue

2,143,736

2,031,718

112,018

5.5%

Same store sales (1)

2,086,388

2,004,986

81,402

4.1%

Gross profit margin as a percentage of revenue

42.69%

43.81%



SG&A(2) (excluding mark-to-market impact and severance charge)

782,206

771,334

10,872

1.4%

SG&A(2) as a percentage of revenue (excluding mark-to-market impact and severance charge)

36.49%

37.96%



Adjusted EBITDA(1)

174,266

157,793

16,473

10.4%

Adjusted net income(1)

86,762

73,738

13,024

17.7%

Adjusted basic earnings per share(1)

$

1.21

$

1.04

$

0.17

16.3%

Adjusted diluted earnings per share(1)

$

1.08

$

0.93

$

0.15

16.1%

Common share dividends declared

$

0.40

$

0.40

$

-


(1)

Non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section in this press release for additional information.

(2)

Selling, general and administrative expenses

 

Revenue

For the year ended December 31, 2016, revenue was $2,143,736,000 compared to $2,031,718,000 for the prior year.  Revenue increased $112,018,000 or 5.5% for the comparative year.

Selling, general and administrative expenses

For the year, selling, general and administrative expenses of $782,206,000 were up $10,872,000 or 1.4% as compared to 2015.  The increase was mainly the result of incremental selling costs as SG&A expenses as a percentage of revenue in 2016 were 36.49% as compared to 37.96% in the prior year.  Additional marketing dollars were also spent to generate higher consumer traffic into our stores and this dollar increase was offset by operating efficiencies especially relating to delivery expenses.

Adjusted net income and adjusted diluted earnings per share

As a result of the above, adjusted net income for the year was $86,762,000, $1.08 per adjusted diluted earnings per share ($73,738,000, $0.93 per adjusted diluted earnings per share in 2015), an increase of $0.15 per common share or 16.3%.

Dividends

As previously announced, we paid a quarterly 10¢ dividend on January 9, 2017. Today we are happy to announce that the Directors have declared an increase of the quarterly dividend to 12¢ per common share payable on the 28th day of April 2017 to shareholders of record at the close of business on the 28th day of March 2017. As of 2007, dividends paid by Leon's Furniture Limited are "eligible dividends" pursuant to the changes to the Income Tax Act under Bill C-28, Canada.

Store Network

The Company has 305 retail stores from coast to coast in Canada under the various banners indicated below.



Banner

Number of Stores

Leon's banner corporate stores

50

Leon's banner franchise stores

36

Appliance Canada banner stores

4

The Brick banner corporate stores1

114

The Brick banner franchise stores2

64

The Brick Mattress Store banner locations

24

United Furniture Warehouse ("UFW") banner stores

2

UFW and The Brick Clearance Centre banner stores

11

Total number of stores

305



1Includes the Midnorthern Appliance banner

2Includes one UFW Franchise

 

Non-IFRS Financial Measures

The Company uses financial measures that do not have standardized meaning under IFRS and may not be comparable to similar measures presented by other entities.  The Company calculates the non-IFRS measures by adjusting certain IFRS measures for specific items the Company believes are significant, but not reflective of underlying operations in the period, as detailed below:

Non-IFRS Measure

IFRS Measure

Adjusted net income

Net income

Adjusted income before income taxes            

Income before income taxes

Adjusted earnings per share – basic

Earnings per share – basic

Adjusted earnings per share – diluted

Earnings per share – diluted

Adjusted EBITDA

Net income

 

Adjusted Net Income

Leon's calculates comparable measures by excluding the effect of:

  • the mark-to-market adjustments included in the Company's selling, general and administrative ("SG&A") income statement line item, related to the net effect of USD-denominated forward contracts and an interest rate swap on the Company's term credit facility;
  • severance charges in the period, a non-recurring expense included in the Company's SG&A.
  • prior period tax adjustments from 2015 relating to tax issues on the acquisition of The Brick.

Management believes excluding from income the effect of these mark-to-market valuations and changes thereto, until settlement, better aligns the intent and financial effect of these contracts with the underlying cash flows.  Similarly, excluding from income the effect of non-recurring expenses better reflects Leon's normalized SG&A as a percentage of revenue in the period.

The following is a reconciliation of reported net income to adjusted net income, basic and diluted earnings per share to adjusted basic and diluted earnings per share:   





For the three months ended
December 31

For the year ended
December 31

(000's of $ except per share amounts )

2016

2015

2016

2015

Net income 

37,233

30,187

83,591

76,629

After-tax mark-to-market loss (gain) on financial derivative instruments

(2,488)

3,025

1,943

(268)

After-tax severance charge

-

-

1,228

-

Prior period tax adjustment

-

(2,623)

-

(2,623)

Adjusted net income

34,745

30,589

86,762

73,738

Basic earnings per share

$

0.52

$

0.42

$

1.17

$

1.08

Diluted earnings per share

$

0.46

$

0.38

$

1.05

$

0.97

Adjusted basic earnings per share

$

0.48

$

0.43

$

1.21

$

1.04

Adjusted diluted earnings per share

$

0.43

$

0.39

$

1.08

$

0.93

 

Adjusted EBITDA

Adjusted earnings before interest, income taxes, depreciation and amortization, mark-to-market adjustment due to the changes in the fair value of the Company's financial derivative instruments and non-recurring charges to income ("Adjusted EBITDA") is a non-IFRS financial measure used by the Company.  The Company considers Adjusted EBITDA to be an effective measure of profitability on an operational basis and is commonly regarded as an indirect measure of operating cash flow, a significant indicator of success for many businesses.  Adjusted EBITDA is a non-IFRS financial measure used by the Company.  The Company's Adjusted EBITDA may not be comparable to the Adjusted EBITDA measure of other entities, but in management's view appropriately reflects Leon's specific financial condition.  This measure is not intended to replace net income, which, as determined in accordance with IFRS, is an indicator of operating performance.

The following is a reconciliation of reported net income to adjusted EBITDA:  





For the three months ended
December 31

For the year ended
December 31

(000's of $)

2016

2015

2016

2015

Net income

37,233

30,187

83,591

76,629

Income tax expense 

13,600

7,273

30,597

24,790

Net finance costs

3,526

4,243

14,481

17,627

Depreciation and amortization

10,654

11,053

41,235

41,738

Severance charge

-

-

1,700

-

Mark-to-market loss (gain) on financial derivative instruments

(3,407)

4,137

2,662

(368)

Prior period tax adjustment

-

(2,623)

-

(2,623)

Adjusted EBITDA

61,606

54,270

174,266

157,793

 

Same Store Sales

Same store sales are defined as sales generated by stores that have been open or closed for more than 12 months on a fiscal year basis. Same store sales is not an earnings measure recognized by IFRS, and does not have a standardized meaning prescribed by IFRS, but it is a key indicator used by the Company to measure performance against prior period results.  Same store sales as discussed in this press release may not be comparable to similar measures presented by other issuers, however this measure is commonly used in the retail industry.  We believe that disclosing this measure is meaningful to investors because it enables them to better understand the level of growth of our business.

Total System Wide Sales

Total system wide sales refer to the aggregation of revenue recognized in the Company's consolidated financial statements plus the franchise sales occurring at franchise stores to their customers which are not included in the revenue figure presented in the Company's consolidated financial statements. Total system wide sales is not a measure recognized by IFRS, and does not have a standardized meaning prescribed by IFRS, but it is a key indicator used by the Company to measure performance against prior period results. Therefore, total system wide sales as discussed in this press release may not be comparable to similar measures presented by other issuers.  We believe that disclosing this measure is meaningful to investors because it serves as an indicator of the strength of the Company's overall store network, which ultimately impacts financial performance.

Franchise Sales

Franchise sales figures refer to sales occurring at franchise stores to their customers which are not included in the revenue figures presented in the Company's consolidated financial statements, or in the same store sales figures in this press release. Franchise sales is not a measure recognized by IFRS, and does not have a standardized meaning prescribed by IFRS, but it is a key indicator used by the Company to measure performance against prior period results. Therefore, franchise sales as discussed in this press release may not be comparable to similar measures presented by other issuers.  Once again we believe that disclosing this measure is meaningful to investors because it serves as an indicator of the strength of the Company's brands, which ultimately impacts financial performance.  

Selected Consolidated Financial Information

The summary financial information set out below has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, for the three months and year ended December 31, 2016 and 2015. The unaudited financial information presented has been prepared on a basis consistent with our audited consolidated financial statements for Fiscal 2015. The information presented herein does not contain disclosures required by IFRS and should be read in conjunction with the Company's audited consolidated financial statements available under the Company's profile on SEDAR at www.sedar.com.





CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)







Three months ended December 31

Year ended December 31

($ in thousands)

2016

2015

2016

2015






Revenue 

588,381

560,229

2,143,736

2,031,718

Cost of sales

329,876

310,255

1,228,499

1,141,706

Gross profit

258,505

249,974

915,237

890,012

Operating expenses 





Selling, general and administration expenses

204,146

208,271

786,568

770,966

Operating profit

54,359

41,703

128,669

119,046

Finance costs 

(3,972)

(4,533)

(16,606)

(19,027)

Finance income

446

290

2,125

1,400

Net income before income tax

50,833

37,460

114,188

101,419

Income tax expense 

13,600

7,273

30,597

24,790

Net income for the period

37,233

30,187

83,591

76,629

Earnings per share 





Basic

$

0.52

$

0.42

$

1.17

$

1.08

Diluted

$

0.46

$

0.38

$

1.05

$

0.97

 



 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(UNAUDITED)





As at December 31

As at December 31

($ in thousands)

2016

2015

ASSETS

Current assets



Cash and cash equivalents 

43,985

7,859

Restricted marketable securities 

16,600

18,691

Available-for-sale financial assets

39,079

22,960

Trade receivables 

128,142

117,832

Income taxes receivable

2,042

24,920

Inventories

308,801

303,961

Deferred acquisition costs 

7,643

8,329

Deferred financing costs

775

473

Total current assets

547,067

505,025

Other assets

8,225

6,214

Deferred acquisition costs

13,128

13,093

Property, plant and equipment

315,500

323,218

Investment properties

17,984

18,496

Intangible assets

311,464

318,214

Goodwill 

390,120

390,120

Deferred income tax assets 

8,174

9,083

Total assets

1,611,662

1,583,463

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities



Trade and other payables 

214,838

206,076

Provisions 

5,468

5,343

Income taxes payable

12,641

7,266

Customers' deposits

117,990

112,446

Finance lease liability

1,421

1,954

Dividends payable

7,183

7,141

Deferred warranty plan revenue

39,839

49,380

Loans and borrowings

25,000

50,000

Other liabilities

2,124

0

Total current liabilities

426,504

439,606

Loans and borrowings 

214,436

237,357

Convertible debentures 

93,520

92,628

Finance lease liability 

10,474

11,895

Deferred warranty plan revenue  

105,289

95,775

Redeemable share liability

503

880

Deferred rent liabilities and lease inducements

11,380

8,858

Deferred income tax liabilities 

90,003

96,062

Total liabilities

952,109

983,061

Shareholders' equity attributable to the shareholders of the Company

Common shares 

39,184

34,389

Equity component of convertible debentures 

7,089

7,089

Retained earnings

613,426

558,526

Accumulated other comprehensive income

(146)

398

Total shareholders' equity

659,553

600,402

Total liabilities and shareholders' equity

1,611,662

1,583,463

 



 CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



 Year ended December 31 

($ in thousands)

2016

2015




OPERATING ACTIVITIES



Net income for the year

83,591

76,629

Add (deduct) items not involving an outlay of cash




Depreciation of property, plant and equipment and investment properties

33,802

33,694


Amortization of intangible assets

7,433

8,044


Amortization of deferred warranty plan revenue

(38,332)

(55,180)


Net finance costs

14,481

17,627


Deferred income taxes

(4,945)

(5,317)


Gain on sale of property, plant and equipment and investment properties

(28)

(1,072)


Gain on sale of available-for-sale financial assets

(897)

1,514


95,105

75,939

Net change in non-cash working capital balances related



to operations

31,238

(74,426)


Cash received on warranty plan sales

38,305

56,970

Cash provided by operating activities

164,648

58,483




INVESTING ACTIVITIES



Purchase of property, plant and equipment and investment properties

(25,689)

(22,756)

Purchase of intangible assets 

(683)

(4,956)

Proceeds on sale of property, plant and equipment and investment properties

145

4,464

Purchase of available-for-sale financial assets

(29,981)

(8,093)

Proceeds on sale of available-for-sale financial assets

16,184

5,524

Interest received

1,717

1,308

Cash used in investing activities

(38,307)

(24,509)




FINANCING ACTIVITIES



Repayment of finance leases

(1,884)

(1,936)

Dividends paid 

(28,649)

(28,465)

Decrease of employee loans-redeemable shares 

4,418

3,699

Proceeds from  revolving loan

(50,000)

(30,000)

Finance costs paid

(775)

-

Interest paid

(13,325)

(15,313)

Cash used in financing activities

(90,215)

(72,015)

Net increase (decrease) in cash and cash equivalents



   during the year

36,126

(38,041)

Cash and cash equivalents, beginning of year

7,859

45,900

Cash and cash equivalents, end of year

43,985

7,859

 

About Leon's Furniture Limited

Leon's Furniture Limited is the largest retailer of furniture, appliances and electronics in Canada. Our retail banners include: Leon's; The Brick; The Brick Mattress Store; The Brick Clearance Centre and United Furniture Warehouse. Finally, with the Midnorthern Appliance banner alongside the Appliance Canada banner, we are also the country's largest commercial retailer of appliances to builders, developers, hotels and property management companies. The Company operates three websites; leons.ca, thebrick.ca and our newest website furniture.ca. The Company has 305 retail stores from coast to coast in Canada under various banners.

Forward-Looking Statements

Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, including future-oriented financial information and financial outlooks. This information is based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While the Company considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking information is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what the Company currently expects. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates, the timing and market acceptance of future products, and competition in the Company's markets.

To the extent any forward-looking information in this press release constitutes future-oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are based on assumptions and subject to risks, uncertainties and other factors. Actual results may differ materially from what the Company currently expects. Other than as required under applicable securities laws, the Company does not undertake to update any forward-looking information at any particular time. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. All forward-looking information contained in this press release is expressly qualified in its entirety by this cautionary statement.

SOURCE Leon's Furniture Limited

For further information: Dominic Scarangella, EVP & CFO, Leon's Furniture Limited, Tel: (416) 243-4073; Jonathan Ross, LodeRock Advisors, Leon's Investor Relations, jon.ross@loderockadvisors.com, Tel: (905) 334-0095

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