Leon's Furniture Releases Financial Results for the Third Quarter and Nine Months Ended September 30, 2015

TORONTO, Nov. 12, 2015 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced financial results for the three and nine months ended September 30, 2015.

All figures in CAD thousands unless otherwise noted.

Highlights – Q3 2015

  • Same store sales grew 1.1% in Q3-2015.
  • Total system wide sales grew 1.0% to $635,347 in Q3-2015 compared to $629,152 in Q3-2014.
  • Revenue grew 1.2% to $538,130 in Q3-2015 compared to $531,685 in Q3-2014.
  • Excluding the costs related to the ongoing integration of The Brick for which we expect benefits in the future, operating expenses as a percentage of sales have declined.
  • Diluted earnings per share of $0.34 in Q3-2015 compared to $0.34 in Q3-2014.

Highlights – nine months ended September 30th

  • Same-store sales grew 1.0% in the first nine months of 2015.
  • Total system wide sales grew 0.7% to $1,711,114 in the first nine months of 2015 compared to $1,698,991 in the first nine months of 2014.
  • Revenue grew 0.9% to $1,445,448 in the first nine months of 2015 compared to $1,432,211 in the first nine months of 2014.
  • Diluted earnings per share of $0.59 in the first nine months of 2015 compared to $0.58 in the first nine months of 2014.

"During Q3, we generated solid same store sales, maintained consistent gross margins through effective promotional activity and set the stage to realize future operating expense efficiencies," said Edward Leon, President and Chief Operating Officer of Leon's. "In October, we converted the last region of The Brick to our IT system, concluding a nearly two year undertaking with minimal disruption to the business. We are well-positioned to drive value for shareholders in the coming years, given our dominant market position in all key categories and the incremental synergies we expect to continue to generate."

For a full explanation of the Company's use of non-IFRS measures, please refer to page 10 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 nine months ended September 30, 2015 available under the Company's profile on SEDAR at www.sedar.com.

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






For the three months ended September 30

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


2015

2014


$ Increase

(Decrease)

% Increase

(Decrease)

Total system wide sales (1)



635,347


629,152


6,195

1.0%

Franchise sales (1)



97,217


97,467


(250)

(0.3%)

Revenue



538,130


531,685


6,445

1.2%

Cost of sales



310,545


306,454


4,091

1.3%

Gross profit



227,585


225,231


2,354

1.0%


Gross profit margin as a percentage of revenue



42.29%


42.36%




Operating expenses



185,766


184,433


1,333

0.7%


Operating expenses as a percentage of revenue



34.52%


34.69%




Net finance costs



4,433


3,657


776

21.2%

Income before income taxes



37,386


37,141


245

0.7%

Income tax expense



10,046


9,854


192

1.9%

Net income



27,340


27,287


53

0.2%


Net income as a percentage of revenue



5.08%


5.13%




Basic weighted average number of common shares



71,237,230


71,001,666




Basic earnings per share


$

0.38

$

0.38


-

-

Diluted weighted average number of common shares



82,316,642


82,335,180




Diluted earnings per share


$

0.34

$

0.34


-

-

Common share dividends declared


$

0.10

$

0.10


-


Convertible, non-voting shares dividends declared


$

-

$

-


-


(1) Non-IFRS financial measures. Refer to page 10 for additional information.

Revenue

For the three months ended September 30, 2015, revenue was $538,130,000 compared to $531,685,000 in the prior year's third quarter.  Revenue increased $6,445,000 or 1.2% between the comparative quarters as we continued to see growth in most product categories.

Gross profit

The gross margin for the third quarter 2015 decreased slightly from 42.36% to 42.29% compared to the prior year's third quarter.  We saw an increase in promotional pricing in the quarter which helped increase sales at lower margins but we were able to mitigate our foreign currency exposure.

Operating expenses

Net operating expenses of $185,766,000 increased $1,333,000 for the third quarter 2015 compared to the third quarter of 2014.  Compared to the prior year quarter, sales and marketing expenses increased $1,889,000. This increase was primarily related to advertising expenditures which increased $1,321,000 in order to promote our brands and increase sales.  General and administrative expenses decreased $1,755,000 for the comparative quarter.  The impact of annual salary increases was partially offset by the increase in the unrealized value of the Company's financial derivatives, comprised of foreign exchange forward contracts and a fixed interest rate swap.

Net income and earnings per share

As a result of the above, net income for the third quarter of 2015 was $27,340,000, $0.38 per common share ($27,287,000, $0.38 per common share in 2014).

Consolidated operating results for the nine months ended September 30, 2015 and 2014












For the nine months ended September 30

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


2015

2014


$ Increase

(Decrease)

% Increase

(Decrease)

Total system wide sales (1)



1,711,114


1,698,991


12,123

0.7%

Franchise sales (1)



265,666


266,780


(1,114)

(0.4%)

Revenue



1,445,448


1,432,211


13,237

0.9%

Cost of sales



834,165


823,493


10,672

1.3%

Gross profit



611,283


608,718


2,565

0.4%


Gross profit margin as a percentage of revenue



42.29%


42.50%




Operating expenses



533,940


534,370


(430)

(0.1%)


Operating expenses as a percentage of revenue



36.94%


37.31%




Net finance costs 



13,384


12,923


461

3.6%

Income before income taxes



63,959


61,425


2,534

4.1%

Income tax expense



17,517


15,814


1,703

10.8%

Net income



46,442


45,611


831

1.8%


Net income as a percentage of revenue



3.21%


3.18%




Basic weighted average number of common shares



71,163,685


70,851,440




Basic earnings per share


$

0.65

$

0.64


0.01

1.6%

Diluted weighted average number of common shares



82,322,677


82,125,786




Diluted earnings per share


$

0.59

$

0.58


0.01

1.7%

Common share dividends declared


$

0.30

$

0.30


-


(1) Non-IFRS financial measures. Refer to page 10 for additional information.

Revenue

For the nine months ended September 30, 2015, revenue was $1,445,448,000 compared to $1,432,211,000 for the prior year's nine month period.  Revenue increased $13,237,000 or 0.9% for the comparative periods.

Gross profit

The gross margin for the nine months ended September 30, 2015 decreased slightly from 42.50% to 42.29% compared to the prior year's nine month period. Since the beginning of the fiscal year there has been a significant weakening of the Canadian dollar. We saw an increase in promotional pricing which helped increase sales at lower margins but we were able to mitigate our foreign currency exposure.

Operating expenses

Net operating expenses of $533,940,000 for the nine month period ending September 30, 2015 are basically flat when compared to the prior year's nine month period.

Net income and earnings per share

As a result of the above, net income for the nine month period ending September 30, 2015 was $46,442,000, $0.65 per common share ($45,611,000, $0.64 per common share in 2014), an increase of $0.01 per common share.

Dividends

As previously announced, we paid a quarterly 10¢ dividend on October 9, 2015. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 8th day of January 2016 to shareholders of record at the close of business on the 8th day of December 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

Leon's has 301 retail stores from coast to coast in Canada under the various banners indicated below which also includes over 100 franchise locations.

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


113

The Brick banner franchise stores2


66

The Brick Mattress Store banner locations


23

UFW banner stores


6

UFW and The Brick Clearance Centre banner stores


10

Total number of stores


301




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 nine months ended September 30, 2015 and September 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 nine months ended September 30, 2015 and September 30, 2014 available under the Company's profile on SEDAR at www.sedar.com.












Consolidated Statements of Income

(Unaudited)



Three months ended September 30

Nine months ended September 30











(000's of $ except per share amounts)



2015


2014


2015


2014











Revenue



538,130


531,685


1,445,448


1,432,211

Cost of sales



310,545


306,454


834,165


823,493

Gross profit



227,585


225,231


611,283


608,718

Operating expenses 










General and administrative expenses



80,845


82,600


236,451


239,663

Sales and marketing expenses



62,137


60,248


170,493


170,852

Occupancy expenses



42,784


41,585


126,996


123,855

Total operating expenses



185,766


184,433


533,940


534,370

Operating profit



41,819


40,798


77,343


74,348

Finance costs 



(4,775)


(4,220)


(14,494)


(14,599)

Finance income



342


563


1,110


1,676

Net income before income tax



37,386


37,141


63,959


61,425

Income tax expense



10,046


9,854


17,517


15,814

Net income for the period



27,340


27,287


46,442


45,611

Earnings per share










Basic


$

0.38

$

0.38

$

0.65

$

0.64

Diluted


$

0.34

$

0.34

$

0.59

$

0.58









Consolidated Statements of Financial Position (Unaudited)

(000's of $)




As at September 30, 2015


As at December 31, 2014

Cash and cash equivalents




-


17,941

Restricted marketable securities 




18,631


18,310

Available-for-sale financial assets




22,326


22,358

Trade receivables 




101,152


112,171

Income taxes receivable




24,920


-

Inventories




284,350


266,628

Deferred acquisition costs




5,287


4,957

Deferred financing costs




582


923

Total current assets




457,248


443,288

Other assets




14,678


6,192

Deferred acquisition costs




13,512


11,093

Property, plant and equipment




322,879


334,052

Investment properties




18,623


21,992

Intangible assets




319,936


321,302

Goodwill 




418,079


418,079

Deferred income tax assets 




9,456


7,478

Total assets




1,574,411


1,563,476

Bank overdraft 




775


-

Trade and other payables 




214,381


197,044

Provisions 




4,154


4,576

Income taxes payable




6,439


34,773

Customers' deposits




97,327


97,705

Finance lease liability




2,002


2,002

Dividends payable




7,131


7,105

Deferred warranty plan revenue




50,602


51,111

Loans and borrowings




45,000


30,000

Total current liabilities




427,811


424,316

Loans and borrowings




266,886


285,363

Convertible debentures




92,412


91,773

Finance lease liability




12,337


13,849

Deferred warranty plan revenue 




92,108


92,254

Redeemable share liability




881


401

Deferred rent liabilities and lease inducements




8,134


6,794

Deferred income tax liabilities 




98,464


99,621

Total liabilities




999,033


1,014,371

Common shares




33,782


31,169

Equity component of convertible debentures




7,089


7,089

Retained earnings




535,480


510,398

Accumulated other comprehensive income




(973)


449

Total shareholders' equity




575,378


549,105

Total liabilities and shareholders' equity




1,574,411


1,563,476









Consolidated Statements of Cash Flows (Unaudited)








 Nine months ended September 30






(000's of $)



2015

2014






Operating Activities





Net income for the period



46,442

45,611

Add (deduct) items not involving an outlay of cash





Depreciation of property, plant and equipment and investment properties



24,714

27,188

Amortization of intangible assets



5,971

5,350

Amortization of deferred warranty plan revenue



(46,575)

(46,577)

Net finance costs



13,384

12,173

Deferred income taxes



(3,216)

(4,779)

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



(996)

(96)

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



(10)

(151)




39,714

38,719

Net change in non-cash working capital balances related to operations



(53,826)

14,591

Cash received on warranty plan sales



45,920

48,060

Cash (used in) provided by operating activities



31,808

101,370






Investing Activities





Purchase of property, plant and equipment and investment properties



(13,531)

(5,893)

Purchase of intangible assets



(4,605)

(2,515)

Proceeds on sale of property, plant and equipment



4,355

184

Purchase of available-for-sale financial assets



(6,866)

(10,980)

Proceeds on sale of available-for-sale financial assets



4,651

7,836

Interest received



995

1,718

Cash used in investing activities



(15,001)

(9,650)






Financing Activities





Repayment of finance leases



(1,463)

(1,460)

Dividends paid



(21,334)

(21,227)

Decrease of employee loans-redeemable shares 



3,093

3,020

Issuance of revolving credit



14,990

-

Repayment of debenture 



-

(15,000)

Repayment of term loan 



(20,000)

(40,000)

Interest paid



(10,809)

(13,159)

Cash used in financing activities



(35,523)

(87,826)

Net decrease in cash and cash equivalents during the period



(18,716)

3,894

Cash and cash equivalents, beginning of period



17,941

5,832

Bank overdraft, end of period



775

9,726

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 MD&A 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 MD&A. 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 MD&A 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
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