Leon's Furniture Releases Financial Results for the Second Quarter Ended June 30, 2017

TORONTO, Aug. 10, 2017 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced financial results for the second quarter 2017.

Highlights Q2 2017

  • Total system wide sales1 grew 4.9% to $636,159,000 in Q2-2017 compared to $606,453,000 in Q2-2016.
  • Revenue grew 4.1% to $537,583,000 in Q2-2017 compared to $516,184,000 in Q2-2016.
  • Adjusted net income1 increased by 28.4% to $19,968,000 in Q2-2017 compared to $15,547,000 in Q2-2016.
  • Adjusted EBITDA1 increased 13.8 % to $40,163,000 in Q2-2017 compared to $35,300,000 in Q2-2016.
  • Adjusted diluted earnings per share1 grew 25% to $0.25 in Q2-2017 compared to $0.20 in Q2-2016.
  • Same store corporate sales1 increased by 1.0% in Q2-2017.

Highlights six months end June 30th

  • Total system wide sales1 grew 5.0% to $1,210,148,000 year to date June 2017 compared to $1,152,936,000 year to date June 2016.
  • Revenue grew 4.3% to $1,021,772,000 year to date June 2017 compared to $979,631,000 year to date June 2016.
  • Adjusted net income1 increased by 37.6% to $28,511,000 year to date June 2017 compared to $20,717,000 year to date June 2016.
  • Adjusted EBITDA1 increased 13.7% to $64,169,000 year to date June 2017 compared to $56,458,000 year to date June 2016.
  • Adjusted diluted earnings per share1 grew 33.3% to $0.36 year to date June 2017 compared to $0.27 year to date June 2016.
  • Same store corporate sales1 increased by 1.1% year to date June 2017 compared to year to date June 2016.

1Refer to the non-IFRS financial measures section of this press release

"The second quarter provided further evidence that the consistent and successful execution of our strategy is translating into strong financial performance for shareholders," said Edward Leon, President and Chief Operating Officer of Leon's. "Leon's is Canada's largest home furnishing retailer with bricks and mortar locations coast-to-coast and a growing significant online presence. The Company is well-positioned to gain market share through its national distribution network. In addition, we have further room to generate efficiencies in our business. One of the initiatives we have undertaken recently is our state of the art Distribution Center in Delta, British Columbia. We have taken possession of this site and will start operating in September. We are confident that the continued judicious implementation of our strategy will drive significant value for shareholders over time."

For a full explanation of the Company's use of non-IFRS measures, please refer to page 3 of this press release.

Summary of Financial Highlights


For the three months ended June 30

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

2017

2016

$ Increase
(Decrease)

% Increase
(Decrease)

Total system wide sales (1)

636,159

606,453

29,706

4.9%

Franchise sales (1)

98,576

90,269

8,307

9.2%

Revenue

537,583

516,184

21,399

4.1%

Same store sales (1)

519,131

514,082

5,049

1.0%

Gross profit margin as a percentage of revenue

43.14%

42.08%



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

37.43%

37.21%



Adjusted EBITDA(1)

40,163

35,300

4,863

13.8%

Adjusted net income(1)

19,968

15,547

4,421

28.4%

Adjusted basic earnings per share(1)

$

0.28

$

0.22

$

0.06

27.3%

Adjusted diluted earnings per share(1)

$

0.25

$

0.20

$

0.05

25.0%

Common share dividends declared

$

0.12

$

0.10

$

0.02

20.0%

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

(2) Selling, general and administration expenses

 

Revenue

For the three months ended June 30, 2017, revenue was $537,583,000 compared to $516,184,000 in the prior year's second quarter. Revenue increased $21,399,000 or 4.1% between the comparative quarters as we continued to see growth in most product categories.

Gross Profit

The gross profit for the second quarter 2017 increased from 42.08% to 43.14% compared to the prior year's second quarter. This was mainly the result of improved gross margins in our furniture category.

Selling, general and administration expenses ("SG&A")

Excluding the mark-to-market impact of the Company's financial derivatives, comprised of foreign exchange forwards and a fixed interest rate swap, SG&A as a percentage of revenue increased from 37.21% to 37.43% compared to the prior year's quarter.

Adjusted Net Income(1) and Adjusted Diluted Earnings Per Share(1)

As a result of the above, adjusted net income for the second quarter of 2017 was $19,968,000, $0.25 adjusted diluted earnings per share ($15,547,000, $0.20 adjusted diluted earnings per share in 2016), an increase of 25% per share.

Consolidated operating results for the six months ended June 30, 2017 and June 30, 2016


For the six months ended June 30

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

2017

2016

$ Increase
(Decrease)

% Increase
(Decrease)

Total system wide sales (1)

1,210,148

1,152,936

57,212

5.0%

Franchise sales (1)

188,376

173,305

15,071

8.7%

Revenue

1,021,772

979,631

42,141

4.3%

Same store sales (1)

983,406

972,896

10,510

1.1%

Gross profit margin as a percentage of revenue

42.55%

42.04%



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

38.15%

38.35%



Adjusted EBITDA(1)

64,169

56,458

7,711

13.7%

Adjusted net income(1)

28,511

20,717

7,794

37.6%

Adjusted basic earnings per share(1)

$

0.40

$

0.29

$

0.11

37.9%

Adjusted diluted earnings per share(1)

$

0.36

$

0.27

$

0.09

33.3%

Common share dividends declared

$

0.24

$

0.20

$

0.04

20.0%

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

(2) Selling, general and administration expenses

 

Revenue

For the six months ended June 30, 2017, revenue was $1,021,772,000 compared to $979,631,000 for the prior year's six month period. Revenue increased $42,141,000 or 4.3% for the comparative period.

Gross Profit

The gross profit for the six months ended June 30, 2017 increased from 42.04% to 42.55% compared to the prior year's six month period.

Selling, general and administration expenses ("SG&A")

Excluding severance payments and the mark-to-market impact of the Company's financial derivatives, comprised of foreign exchange forwards and a fixed interest rate swap, SG&A as a percentage of revenue decreased from 38.35% to 38.15%. Like the second quarter results, the reduction is due primarily from generating a higher degree of operating leverage as revenues increased 4.3% for the six month period and by controlling fixed costs.

Adjusted Net Income(1) and Adjusted Diluted Earnings Per Share(1)

As a result of the above, adjusted net income for the six month period ending June 30, 2017 was $28,511,000, $0.36 adjusted diluted earnings per share ($20,717,000, $0.27 adjusted diluted earnings per share in 2016), an increase of 33.3%.

Dividends

As previously announced, we paid a quarterly $0.12 dividend on July 7, 2017. Today we are happy to announce that the Directors have declared a quarterly dividend of $0.12 per common share payable on the 5th day of October 2017 to shareholders of record at the close of business on the 5th day of September 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 303 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

63

The Brick Mattress Store banner locations

23

United Furniture Warehouse ("UFW") banner stores

2

UFW and The Brick Clearance Centre banner stores

11

Total number of stores

303



1 Includes the Midnorthern Appliance banner


2 Includes 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

 

For a reconciliation of the Company's non-IFRS measures please refer to the Company's MD&A for the quarter ended June 30, 2017, which is available on SEDAR at www.sedar.com.

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 administration ("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.

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.

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.

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 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.

About Leon's Furniture Limited

Leon's Furniture Limited is the largest retailer of furniture, mattresses, 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 has 303 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

RELATED LINKS
http://www.leons.ca

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