Leon's Furniture Releases Financial Results for the Second Quarter and Six Months Ended June 30, 2015

TORONTO, Aug. 14, 2015 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced financial results for the three and six months ended June 30, 2015.

All figures in CAD thousands unless otherwise noted.

Highlights – Q2 2015

  • Same-store sales grew 1.7% in Q2-2015.
  • Total system wide sales grew 1.9% to $572,113 in Q2-2015 compared to $561,438 in Q2-2014.
  • Revenue grew 2.1% to $484,281 in Q2-2015 compared to $474,517 in Q2-2014.
  • Drove operating expense efficiencies, primarily in the reduction of third party delivery/fuel costs.
  • Diluted earnings per share of $0.19 in Q2-2015 compared to $0.21 in Q2-2014.

Highlights – six months ended June 30th

  • Same-store sales grew 0.8% in the first six months of 2015.
  • Total system wide sales grew 0.6% to $1,075,768 in the first six months of 2015 compared to $1,069,840 in the first six months of 2014.
  • Revenue grew 0.8% to $907,318 in the first six months of 2015 compared to $900,526 in the first six months of 2014.
  • Diluted earnings per share of $0.25 in the first six months of 2015 compared to $0.24 in in the first six months of 2014.

"We are pleased with the performance we generated in the second quarter," said Edward Leon, President and Chief Operating Officer of Leon's. "Although we experienced lower gross margins as a result of the decline in the Canadian dollar and aggressive marketing, we are growing same-store sales in a challenging environment and executing on the operating expense efficiencies we identified when we acquired The Brick two years ago. We are well-positioned to drive value for shareholders as we execute against our top-line growth strategy and generate further synergies."

"In May we announced some key changes to our senior leadership team and we are already benefitting from this decision," added Terry Leon, Chief Executive Officer of Leon's. "With Mike Walsh in charge of Leon's and Jim Caldwell responsible for The Brick, we have dedicated presidents driving division-level performance for the first time in this organization's history. This structure will reinforce the differentiated market position of our primary banners and free-up senior management resources to achieve synergies and execute on growth opportunities within our complimentary portfolio of businesses over the next several years."

For a full explanation of the Company's use of non-IFRS measures, please refer to page 8 of this press release.  For further discussion of the Company's financial and operating results, please refer to Management's Discussion and Analysis for the three and six months ended June 30, 2015 available under the Company's profile on SEDAR at www.sedar.com.

Consolidated operating results for the quarters ended June 30, 2015 and June 30, 2014

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

2015

(Restated)
2014

$ Increase
(Decrease)

% Increase
(Decrease)

Total system wide sales (1)

572,113

561,438

10,675

1.9%

Franchise sales (1)

87,832

86,921

911

1.0%

Revenue

484,281

474,517

9,764

2.1%

Cost of sales

279,122

270,509

8,613

3.2%

Gross profit

205,159

204,008

1,151

0.6%

  Gross profit margin as a percentage of revenue

42.36%

42.99%



Operating expenses

179,634

176,919

2,715

1.5%

  Operating expenses as a percentage of revenue

37.09%

37.28%



Net finance costs

4,597

4,098

499

12.2%

Income before income taxes

20,928

22,991

(2,063)

(9.0%)

Income tax expense

5,932

6,004

(72)

(1.2%)

Net income

14,996

16,987

(1,991)

(11.7%)

  Net income as a percentage of revenue

3.10%

3.58%



Basic weighted average number of common shares

71,152,777

70,888,780



Basic earnings per share

$ 0.21

$ 0.24

(0.03)

(12.5%)

Diluted weighted average number of common shares

82,257,041

82,357,232



Diluted earnings per share

$ 0.19

$ 0.21

(0.02)

(9.5%)

Common share dividends declared

$ 0.10

$ 0.10

-


Convertible, non-voting shares dividends declared

$     -

$      -

-


(1) Non-IFRS financial measures. Refer to page 8 in this press release for additional information.

Revenue

For the three months ended June 30, 2015, revenue was $484,281,000 compared to $474,517,000 in the prior year's second quarter. Revenue increased $9,764,000 or 2.1% between the comparative quarters as we saw good growth in most product categories in the quarter.

Gross margin

Despite the weak Canadian dollar, we have been able to mitigate our foreign currency exposure.  As a result we only saw a decline in our gross margin in going from 42.99% to 42.36% compared to the prior year's second quarter.

Operating expenses

Net operating expenses of $179,634,000 increased $2,715,000 for the second quarter 2015 compared to the second quarter of 2014.  Compared to the prior year quarter, we experienced a $2,613,000 increase with respect to occupancy costs.  The increase related primarily to inflationary increases of property taxes, increase in repairs and maintenance and significant property tax refunds received in the second quarter of 2014 not received in the second quarter of 2015.  Sales and marketing expenses as a percentage of sales was similar to the prior year's second quarter.

Net income and earnings per share

As a result of the above, net income for the second quarter of 2015 was $14,996,000, $0.21 per common share ($16,987,000, $0.24 per common share in 2014), a decrease of $0.03 per common share.

Consolidated operating results for the six months ended June 30, 2015 and June 30, 2014

Revenue

For the six months ended June 30, 2015, revenue was $907,318,000 compared to $900,526,000 for the prior year's six month period.  Revenue increased $6,792,000 or .8% for the comparative periods.

Gross margin

The gross margin for the six months ended June 30, 2015 decreased from 42.58% to 42.29% compared to the prior year's six month period.  Since the beginning of the fiscal year there has been a significant weakening of the Canadian dollar.  Despite this factor, for the most part we have been able to maintain our gross profit margin.

Operating expenses

Net operating expenses of $348,174,000 have decreased $1,764,000 or .5% for the six month period ending June 30, 2015 when compared to the prior year's six month period.  This decrease is primarily the result of lower delivery costs due to expanded use of our own fleet of delivery trucks as opposed to relying on third party cartage companies, and lower fuel costs.

Net income and earnings per share

As a result of the above, net income for the six month period ending June 30, 2015 was $19,102,000, $0.27 per common share ($18,323,000, $0.26 per common share in 2014), an increase of $0.01 per common share.

Dividends

As previously announced, we paid a quarterly 10¢ dividend on July 8, 2015. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 9th day of October 2015 to shareholders of record at the close of business on the 9th day of September 2015. 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

Banner

Number of Stores

Leon's banner corporate stores

44

Leon's banner franchise stores

36

Appliance Canada banner stores

3

The Brick banner corporate stores1

112

The Brick banner franchise stores2

67

The Brick Mattress Store banner locations

25

UFW banner stores

6

UFW and The Brick Clearance Centre banner stores

10

Total number of stores

303



1Includes the Midnorthern Appliance banner


2Includes one UFW Franchise




 

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 and six months ended June 30, 2015 and June 30, 2014. The unaudited financial information presented has been prepared on a basis consistent with our audited consolidated financial statements for Fiscal 2014. The information presented herein does not contain disclosures required by IFRS and should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2015 and June 30, 2014 available under the Company's profile on SEDAR at www.sedar.com.

Consolidated Statements of Income

(Unaudited)


Three months ended June 30

Six months ended June 30



Restated


Restated

(000's of $ except per share amounts)

2015

2014

2015

2014






Revenue

484,281

474,517

907,318

900,526

Cost of sales

279,122

270,509

523,620

517,039

Gross profit

205,159

204,008

383,698

383,487

Operating expenses 





General and administrative expenses

75,072

76,288

148,130

148,024

Sales and marketing expenses

57,671

56,535

108,356

110,605

Occupancy expenses

41,977

39,364

84,212

82,270

Other operating expenses

4,914

4,732

7,476

9,039

Total operating expenses

179,634

176,919

348,174

349,938

Operating profit

25,525

27,089

35,524

33,549

Finance costs 

(4,920)

(4,759)

(9,719)

(10,379)

Finance income

323

661

768

1,113

Net income before income tax

20,928

22,991

26,573

24,283

Income tax expense

5,932

6,004

7,471

5,960

Net income for the period

14,996

16,987

19,102

18,323

Earnings per share





Basic

$ 0.21

$ 0.24

$ 0.27

$ 0.26

Diluted

$ 0.19

$ 0.21

$ 0.25

$ 0.24


Consolidated Statements of Financial Position

(Unaudited)


As at June 30

As at December 31

(000's of $)

2015

2014

Cash and cash equivalents

-

17,941

Restricted marketable securities 

19,097

18,310

Available-for-sale financial assets

23,550

22,358

Trade receivables 

92,161

112,171

Income taxes receivable

24,920

-

Inventories

279,475

266,628

Deferred acquisition costs

5,127

4,957

Deferred financing costs

697

923

Total current assets

445,027

443,288

Other assets

13,851

6,192

Deferred acquisition costs

12,810

11,093

Property, plant and equipment

325,277

334,052

Investment properties

22,273

21,992

Intangible assets

321,625

321,302

Goodwill 

418,079

418,079

Deferred income tax assets 

9,840

7,478

Total assets

1,568,782

1,563,476




Bank overdraft 

38,347

-

Trade and other payables 

190,854

197,044

Provisions 

3,939

4,576

Income taxes payable

4,724

34,773

Customers' deposits

90,531

97,705

Finance lease liability

2,002

2,002

Dividends payable

7,118

7,105

Deferred warranty plan revenue

50,869

51,111

Loans and borrowings

40,000

30,000

Total current liabilities

428,384

424,316

Loans and borrowings

281,327

285,363

Convertible debentures

92,196

91,773

Finance lease liability

12,846

13,849

Deferred warranty plan revenue 

91,099

92,254

Redeemable share liability

881

401

Deferred rent liabilities and lease inducements

7,773

6,794

Deferred income tax liabilities 

99,580

99,621

Total liabilities

1,014,086

1,014,371




Common shares

32,250

31,169

Equity component of convertible debentures

7,089

7,089

Retained earnings

515,270

510,398

Accumulated other comprehensive income

87

449

Total shareholders' equity

554,696

549,105

Total liabilities and shareholders' equity

1,568,782

1,563,476

Consolidated Statements of Cash Flows

(Unaudited)


 Six  months ended June 30



 Restated

(000's of $)

2015

2014




Operating Activities



Net income for the period

19,102

18,323

Add (deduct) items not involving an outlay of cash



Depreciation of property, plant and equipment and investment properties

16,288

18,305

Amortization of intangible assets

3,980

3,559

Amortization of deferred warranty plan revenue

(31,158)

(31,167)

Net finance costs

8,951

9,266

Deferred income taxes

(2,525)

(3,893)

(Gain)loss on sale of property, plant and equipment

(52)

3

Loss(gain) on sale of available-for-sale financial assets

6

(19)


14,592

14,377

Net change in non-cash working capital balances related



to operations

(70,477)

(17,704)

Cash received on warranty plan sales

29,761

30,102

Cash (used in) provided by operating activities

(26,124)

26,775




Investing Activities



Purchase of property, plant and equipment and investment properties

(7,827)

(4,300)

Purchase of intangible assets

(4,303)

(1,793)

Proceeds on sale of property, plant and equipment

85

66

Purchase of available-for-sale financial assets

(6,203)

(7,122)

Proceeds on sale of available-for-sale financial assets

3,724

4,632

Interest received

674

708

Cash used in investing activities

(13,850)

(7,809)




Financing Activities



Repayment of finance leases

(971)

(1,752)

Dividends paid

(14,217)

(14,130)

Decrease of employee loans-redeemable shares 

1,560

2,701

Issuance of revolving credit

14,987

-

Repayment of debenture 

-

(15,000)

Repayment of term loan 

(10,000)

(10,000)

Interest paid

(7,673)

(13,723)

Cash used in financing activities

(16,314)

(51,904)

Net decrease in cash and cash equivalents



during the period

(56,288)

(32,938)

Cash and cash equivalents, beginning of period

17,941

5,832

Bank overdraft, end of period

(38,347)

(27,106)

Non-IFRS Measures

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 yearly 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 MD&A 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.

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 ("UFW"). Finally, the addition of the Brick's Midnorthern Appliance banner alongside with Leon's Appliance Canada banner, makes the Company the country's largest commercial retailer of appliances to builders, developers, hotels and property management companies. Leon's has in excess of 300 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, 416-243-4073; Jonathan Ross, CFA, LodeRock Advisors, Leon's Investor Relations, jon.ross@loderockadvisors.com, Tel: (905) 334-0095

RELATED LINKS
http://www.leons.ca

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