TORONTO, Nov. 14, 2018 /CNW/ - Leon's Furniture
Limited ("Leon's" or the "Company") (TSX:
LNF), today announced financial results for the third quarter
2018.
Highlights – Q3-2018
- Total system wide sales1 were $707,058,000 in Q3-2018 compared to $706,534,000 in Q3-2017.
- Gross margin percentage increased 94 basis points to
43.62%
- Adjusted diluted earnings per share1 of $0.42 was maintained as compared to Q3-2017.
- Adjusted net income1 was $34,262,000 in Q3-2018 compared to $34,392,000 in Q3-2017.
- Net debt including the convertible debenture totaled
$83,726,000 at September 30, 2018 compared to $138,909,000 at December
31, 2017 and $225,770,000 at
September 30, 2017.
- On September 12, 2018, the
Company commenced its common share repurchase programme on The
Toronto Stock Exchange. The Company intends to repurchase for
cancellation up to a maximum of 3,813,398 common shares
representing 4.99% of the total number of its 76,420,803 issued and
outstanding common shares at August 31, 2018.
Highlights – nine months ended September 30th, 2018
- Total system wide sales1 grew 2.2% to $1,961,100,000 year to date September 2018 compared to $1,917,998,000 year to date September 2017.
- Revenue grew 1.3% to $1,639,777,000 year to date September 2018 compared to $1,618,528,000 year to date September 2017.
- Adjusted net income1 increased by 8.7% to
$68,402,000 year to date September 2018 compared to $62,902,000 year to date September 2017.
- Adjusted diluted earnings per share1 grew 7.7% to
$0.84 year to date September 2018 compared to $0.78 year to date September 2017.
1Refer to the non-IFRS financial measures section of
this press release
"Leon's drove solid profitability in Q3 despite an overall
weakness in consumer spending in the Ontario market," said Edward Leon, Chief Executive Officer and
President of Leon's. "During the quarter, we made same-store-sales
gains in some regional markets outside of Ontario, with stronger market share
positioning and gains achieved in our franchise groups. We are
proud to say that our team's efforts drove higher average tickets
while maintaining profitability across the board.
On October 25, 2018 we announced
an important undertaking to position our already leading e-commerce
business for additional growth. All the Company's online stores
have now migrated to a Shopify platform, and we have already
generated additional growth in e-commerce revenue as a result. This
latest step in our strategic journey will drive value from our
online properties, while continuing to support our ancillary
business lines and coast-to-coast real estate portfolio. Between
these value creation exercises and continued solid execution at
store level, we expect to build significant value for all of our
long-term shareholders."
For a full explanation of the Company's use of non-IFRS
financial measures, please refer to the heading "Non-IFRS Financial
Measures" in this document
Summary of
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30
|
(000's of $ except
% and per share amounts)
|
2018
|
2017
|
$ Increase/
(Decrease)
|
% Increase/
(Decrease)
|
Total system wide
sales (1)(2)
|
707,058
|
706,534
|
524
|
0.1%
|
Franchise sales
(1)
|
114,729
|
111,094
|
3,635
|
3.3%
|
Revenue
(2)
|
592,329
|
595,440
|
(3,111)
|
(0.5%)
|
Same store sales
(1)
|
579,662
|
589,001
|
(9,339)
|
(1.6%)
|
Gross profit margin
as a percentage of revenue
|
43.62%
|
42.68%
|
|
|
SG&A(3)(excluding mark-to-market
impact)
|
210,404
|
204,807
|
5,597
|
2.7%
|
SG&A(3)as a percentage of revenue
(excluding mark-to-market impact)
|
35.52%
|
34.40%
|
|
|
Adjusted
EBITDA(1)
|
57,530
|
59,029
|
(1,499)
|
(2.5%)
|
Adjusted net
income(1)
|
34,262
|
34,392
|
(130)
|
(0.4%)
|
Net income
|
33,744
|
34,338
|
(594)
|
(1.7%)
|
Adjusted basic
earnings per share(1)
|
$
|
0.45
|
$
|
0.48
|
$
|
(0.03)
|
(6.2%)
|
Adjusted diluted
earnings per share(1)
|
$
|
0.42
|
$
|
0.42
|
$
|
-
|
-
|
Common share
dividends declared
|
$
|
0.14
|
$
|
0.12
|
$
|
0.02
|
16.7%
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(1) Non-IFRS
financial measures. Refer to "Non-IFRS Financial Measures" section
in this press release for additional information.
|
(2) Reclassified
comparative results to conform to the presentation of the three
months ended September 30, 2018
|
(3) Selling, general
and administrative expenses
|
Revenue
For the three months ended September 30,
2018, revenue was $592,329,000
compared to $595,440,000 in the prior
year's third quarter. Revenue decreased by 0.5% as
compared to the prior quarter mainly due to a decrease in
appliance sales in certain regional markets.
Selling, general and administrative 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 34.40% to 35.52% compared to the prior year period. The
change is due primarily to an anticipated increase in finance
charges related to financed sales and incremental marketing spend
related to targeted promotions in the quarter.
Adjusted Net Income and Adjusted Diluted Earnings Per
Share(1)
As we continue to pay down debt, we have reduced our net debt
finance charges by $1,068,000 between
the comparative quarters. As a result of the factors above,
adjusted net income for the third quarter of 2018 was $34,262,000. This resulted in an adjusted
diluted earnings per share of $0.42
in the quarter ($34,392,000,
$0.42 adjusted diluted earnings per
share in 2017).
Consolidated
operating results for the nine months ended September 30, 2018 and
September 30, 2017
|
|
|
|
For the nine
months ended September 30
|
(000's of $ except
% and per share amounts)
|
2018
|
2017
|
$
Increase
|
%
Increase
|
Total system wide
sales (1)(2)
|
1,961,100
|
1,917,998
|
43,102
|
2.2%
|
Franchise sales
(1)
|
321,323
|
299,470
|
21,853
|
7.3%
|
Revenue
(2)
|
1,639,777
|
1,618,528
|
21,249
|
1.3%
|
Same store sales
(1)
|
1,607,818
|
1,602,265
|
5,553
|
0.3%
|
Gross profit margin
as a percentage of revenue
|
43.21%
|
42.65%
|
|
|
SG&A(3)(excluding mark-to-market
impact)
|
610,542
|
595,979
|
14,563
|
2.4%
|
SG&A(3)as a percentage of revenue
(excluding mark-to-market impact)
|
37.23%
|
36.82%
|
|
|
Adjusted
EBITDA(1)
|
126,397
|
123,198
|
3,199
|
2.6%
|
Adjusted net
income(1)
|
68,402
|
62,902
|
5,500
|
8.7%
|
Net income
|
72,245
|
61,814
|
10,431
|
16.9%
|
Adjusted basic
earnings per share(1)
|
$
|
0.90
|
$
|
0.87
|
$
|
0.09
|
10.5%
|
Adjusted diluted
earnings per share(1)
|
$
|
0.84
|
$
|
0.78
|
$
|
0.06
|
7.7%
|
Common share
dividends declared
|
$
|
0.38
|
$
|
0.36
|
$
|
0.02
|
5.6%
|
(1) Non-IFRS
financial measures. Refer to "Non-IFRS Financial Measures" section
in this press release for additional information.
|
(2)
Reclassified comparative results to conform to the presentation of
the six months ended June 30, 2018
|
(3) Selling,
general and administrative expenses
|
Revenue
For the nine months ended September 30,
2018, revenue was $1,639,777,000 compared to $1,618,528,000 for the prior year's nine-month
period. Revenue increased $21,249,000
or 1.3% for the comparative quarters as we continue to see growth
in certain product categories.
Selling, general and administrative 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 was higher
at 37.23%, an increase of 41 basis points over the prior year's
nine-month period, due to increases in advertising expenditures and
increases to finance charges related to financed sales.
Adjusted Net Income and Adjusted Diluted Earnings Per
Share(1)
As we continue to reduce our debt this has enabled us to reduce
our net debt finance charges by $2,803,000 between comparative periods. As
a result of the factors above, adjusted net income for the
nine-month period ending September 30,
2018 was $68,402,000.
This resulted in an adjusted diluted earnings per share of
$0.84 ($62,902,000, $0.78
adjusted diluted earnings per share in 2017), an increase of
7.7%.
Dividends
As previously announced, we paid a quarterly 14¢ dividend on
5th day of October 2018.
Today we are happy to announce that the Directors have declared a
quarterly dividend of 14¢ per common share payable on the
7th day of January 2019 to
shareholders of record at the close of business on the
7th day of December 2018.
In addition, the annual dividend on the convertible non-voting
preferred shares of $0.25 will be
payable on the 7th day of January
2019 to the shareholders of record at the close of business
on the 7th day of December
2018. 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.
Outlook
Overall, despite the challenging retail conditions in certain
markets, we were able to maintain our profitability in the third
quarter of 2018. We have demonstrated our commitment to
deleveraging the balance sheet since we acquired The Brick in
March 2013, which will continue to
allow us to focus on increasing market share in existing and new
markets going forward. We are pleased with our recent
replatforming of our three eCommerce properties, leons.ca,
thebrick.com and furniture.ca as we believe our commitment to
continuously invest in digital innovation will drive more customers
to both our online eCommerce presence and our 304 physical
locations.
Store Network
The Company has 304 retail stores from coast to coast in
Canada under the various banners
indicated below which also includes 100 franchise locations.
Including our franchises, we have over 10,000 employees across
Canada.
|
Number of
Stores
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|
|
Number of
Stores
|
|
as at December
31,
|
|
|
as at September
30,
|
Banner
|
2017
|
Opened
|
Closed
|
2018
|
Leon's banner
corporate stores
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50
|
—
|
—
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50
|
Leon's banner
franchise stores
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36
|
—
|
—
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36
|
Appliance Canada
banner stores
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4
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1
|
—
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5
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The Brick banner
corporate stores1
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114
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—
|
—
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114
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The Brick banner
franchise stores
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65
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—
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(1)
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64
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The Brick Mattress
Store banner locations
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23
|
1
|
—
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24
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Brick
Outlet
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12
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—
|
(1)
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11
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Total number of
stores
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304
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2
|
(2)
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304
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|
1Includes
the Midnorthern Appliance banner
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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 financial 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 financial
measures please refer to the Company's MD&A for the quarter
ended September 30, 2018, 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 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;
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 for more than 12 months on a fiscal 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,
appliances and electronics in Canada. Our retail banners include: Leon's;
The Brick; Brick Outlet; and The Brick Mattress Store.
Finally, with The Brick's Midnorthern Appliance banner alongside
with the Appliance Canada banner, this makes the Company the
country's largest commercial retailer of appliances to builders,
developers, hotels and property management companies. The Company
has 304 retail stores from coast to coast in Canada under various banners. The Company
operates three websites: leons.ca, thebrick.com and
furniture.ca.
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