TORONTO, May 14, 2019 /CNW/ - Leon's Furniture
Limited ("Leon's" or the "Company")
(TSX: LNF), today announced financial results for the
first quarter 2019.
Highlights – Q1-2019
- Revenue in the quarter was effectively at par at
$499,741,000.
- Gross profit margin improved by 46 bps to 43.26% in Q1-2019
from 42.80% in Q1-2018.
- Adjusted diluted earnings per share (1)(2) grew by
21.4% to $0.17 in Q1-2019 from
$0.14 in Q1-2018.
- Adjusted EBITDA (1)(3) increased 90.7% in Q1-2019 to
$50,669,000 from $26,576,000 in Q1-2018, excluding the impact of
IFRS 16, adjusted EBITDA increased 8.1% in Q1-2019 to $28,740,000.
- The Brick division opened two corporate stores in Q1-2019.
_________________________________________________________________________________________________________
|
(1)
Refer to the "Non-IFRS Financial Measures" section of this press
release for additional information on these
measures.
|
(2) For
comparative purposes to the prior year's quarter of 2018 the
adjusted diluted earnings per share amount of $0.17
in Q1-2019 in the highlights above has been adjusted to exclude the
impact of the implementation by the Company of IFRS 16
beginning on January 1, 2019.
|
(3) The
Company implemented IFRS 16, "Leases", on January 1, 2019
using the modified retrospective approach as a result the
comparative quarter has not been restated. Adjusted EBITDA in
Q1-2019 (excluding the impact of IFRS 16) increased
8.1% in Q1-2019 to $28,740,000.
|
Edward Leon, President and Chief
Executive Officer of LFL Group commented, "I am very proud of all
the Company's associates across the country for generating solid
bottom line results in what was a challenging quarter in our
industry. In Q1, we invested in targeted and innovative
marketing initiatives from which we expect to receive further
benefits throughout the year. 2019 and 2020 will be exciting
years for our Company, with plans to continue to leverage our solid
online and national bricks & mortar footprint into results for
shareholders, while strategically growing our presence on both
Canadian coasts. In Q1, our e-commerce retail channel continues to
generate a double-digit growth rate thanks equally to the talent of
our internal development team and the rapid and successful platform
shift we initiated and completed in 2018, enabling the team to
focus on value-add customization, driving traffic growth and
elevating the customer experience. We continue to expand the Leon's
banner in the BC market as we introduce a smaller-scale, tech
forward prototype store in Coquitlam which is scheduled to open in the
second half of the year. We also plan to expand the presence
of The Brick division in the Maritimes with three new full line
corporate stores over the next two years. I would like to thank all
of our long-term shareholders for their continued support and we
look forward to updating you further as the year progresses."
For a full explanation of the Company's use of non-IFRS
financial measures, please refer to the section of this press
release with the heading "Non-IFRS Financial
Measures".
Summary of Financial Highlights
|
For the three
months ended March 31
|
(000's of $ except
% and per share amounts)
|
2019
|
2018
|
$
Increase/
(Decrease)
|
%
Increase/
(Decrease)
|
Total system wide
sales (1)
|
|
597,158
|
|
601,142
|
|
(3,984)
|
(0.7%)
|
Franchise sales
(1)
|
|
97,417
|
|
100,423
|
|
(3,006)
|
(3.0%)
|
Revenue
|
|
499,741
|
|
500,719
|
|
(978)
|
(0.2%)
|
Same store sales
(1)
|
|
485,149
|
|
490,069
|
|
(4,920)
|
(1.0%)
|
Gross profit margin
as a percentage of revenue
|
|
43.26%
|
|
42.80%
|
|
|
|
SG&A(2)(3)
|
|
197,222
|
|
196,902
|
|
320
|
0.2%
|
SG&A(2)(3)as a percentage of
revenue
|
|
39.46%
|
|
39.32%
|
|
|
|
Adjusted
EBITDA(1)(2)(4)
|
|
50,669
|
|
26,576
|
|
24,093
|
90.7%
|
Adjusted net
income(1)(2)(5)
|
|
13,925
|
|
11,545
|
|
2,380
|
20.6%
|
Adjusted diluted
earnings per share(1)(2)(5)
|
$
|
0.17
|
$
|
0.14
|
$
|
0.03
|
21.4%
|
Net income
(2)
|
|
9,334
|
|
14,526
|
|
(5,192)
|
(35.7%)
|
Common share
dividends declared
|
$
|
0.14
|
$
|
0.12
|
$
|
0.02
|
16.7%
|
(1)
Refer to the "Non-IFRS Financial
Measures" section of this press release for additional information
on these measures.
|
(2)
The Company implemented IFRS 16,
"Leases", on January 1, 2019 using the modified retrospective
approach as a result the comparative quarter has not been
restated.
|
(3)
Selling, general and administrative
expenses.
|
(4)
Adjusted EBITDA in Q1-2019 (excluding
the impact of IFRS 16) increased 8.1% in Q1-2019 to
$28,740,000.
|
(5)
For comparative purposes to the prior
year's quarter of 2018 the adjusted net income of $13,925,000 and
the diluted EPS amount of $0.17 in Q1-2019 in the highlights table
above has been adjusted and presented to exclude the impact of the
implementation by the Company of IFRS 16 beginning
on January 1, 2019. Refer to the "Non-IFRS Financial
Measures" section of this press release.
|
Revenue
For the three months ended March 31,
2019, revenue was $499,741,000
compared to $500,719,000 in the prior
year's first quarter.
Gross profit margin
The gross profit margin for the first quarter 2019 increased
from 42.80% to 43.26% compared to the prior year's first quarter as
a result of a favourable product mix of furniture sales.
Selling, general and administrative expenses
SG&A as a percentage of revenue in the current quarter was
relatively flat as compared to the prior year's first quarter when
normalized for the impact of IFRS 16 in the current quarter.
The implementation of IFRS 16 in the quarter resulted in added
depreciation and amortization expense which was approximately
$522,000 greater than the reduction
in rent expense. Normalized for these impacts, the Company's
SG&A as a percentage of revenue in the current quarter was
39.36% as compared to 39.32% in the prior year's quarter. This was
due to effectively managing payroll costs and digital commerce
expenses while at the same time increasing advertising spend in the
current quarter that was targeted to drive customers to the
Company's websites and retail stores.
Adjusted EBITDA (1)
Adjusted EBITDA increased $24,093,000 in the quarter, an increase of 90.7%
as compared to the prior year's quarter. This increase has
been driven primarily by two factors, the first is the
implementation of IFRS 16 by the Company commencing on January 1, 2019 on a modified retrospective
approach, which results in the prior year's quarter to not be
restated, and the second was due to improvement in gross margin
percentage in the current quarter aided by keeping operating
expenses in check and a reduction in net finance costs that exclude
the impact of IFRS 16. Under the new lease standard, the
depreciation and amortization expense on leased assets and interest
expense on lease liabilities replaced rent expense, which was
previously recognized on a straight-line basis in operating income
under IAS 17 over the term of the lease. Normalized for the
impact of implementing the new lease standard, adjusted EBITDA
increased $2,164,000 in the quarter,
an increase of 8.1% over the three months ended March 31, 2018, with the remainder of the overall
increase of $21,929,000 driven solely
by the change in the lease standard implemented by the Company on
January 1, 2019.
Adjusted Net Income (1) and Adjusted Diluted
Earnings Per Share(1)
Normalized for the quarter-over-quarter after tax impact of
$4,511,000 due to a net increase in
depreciation and amortization expense and lease interest expense
offset by a reduction in rent expense related to the IFRS 16
implementation in the current quarter, adjusted net income in the
current quarter totaled $13,925,000
an increase of $2,380,000 or 20.6%
over the prior year's quarter. As a result of these
adjustments, adjusted diluted earnings per share for the Company
increased by $0.03 to $0.17 per share, an increase of 21.4% over the
prior year's quarter.
Dividends
As previously announced, we paid a quarterly 14¢ dividend on
April 8, 2019. Today we are happy to
announce that the Directors have declared a quarterly dividend of
14¢ per common share payable on the 8th day of
July 2019 to shareholders of record
at the close of business on the 7th day of June 2019. 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
Despite the uncertainty over certain key economic indicators, we
believe that the overall economy remains relatively strong.
Although it is difficult to gauge future consumer confidence and
what impact it may have on retail, we remain confident that our
sales and profitability will increase. Given the Company's
strong financial position, our principal objective is to increase
market share and profitability. We remain focused on our commitment
to continuously invest in digital innovation that will drive more
customers to both our online eCommerce presence and our 302
physical locations across Canada.
(1) Refer to the "Non-IFRS
Financial Measures" section of this press release
|
Store Network
The Company has 302 retail stores from coast to coast in
Canada under the various banners
indicated below which also includes 97 franchise locations.
Including our franchises, there are over 10,000 employees across
Canada.
|
Number of
Stores
|
|
|
Number of
Stores
|
|
as at December
31,
|
|
|
as at March
31,
|
Banner
|
2018
|
Opened
|
Closed
|
2019
|
Leon's banner
corporate stores
|
50
|
—
|
—
|
50
|
Leon's banner
franchise stores
|
36
|
—
|
(2)
|
34
|
Appliance Canada
banner stores
|
5
|
—
|
—
|
5
|
The Brick banner
corporate stores1
|
113
|
1
|
—
|
114
|
The Brick banner
franchise stores
|
64
|
—
|
(1)
|
63
|
The Brick Mattress
Store banner locations
|
25
|
1
|
—
|
26
|
Brick
Outlet
|
10
|
—
|
—
|
10
|
Total number of
stores
|
303
|
2
|
(3)
|
302
|
|
|
|
|
|
1Includes
the Midnorthern Appliance banner
|
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 March 31, 2019, which is
available on SEDAR at www.sedar.com.
Adjusted Net Income
Leon's calculates comparable measures by excluding the effect of
changes in fair value of derivative instruments, related to the net
effect of USD-denominated forward contracts and an interest rate
swap on the Company's term credit facility. The Company uses
forward currency contracts to manage the risk associated with its
USD-denominated purchases and an interest rate swap to manage
interest rate risk on its term credit facility in accordance with
the Company's corporate treasury policy. 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.
The following two tables reconcile reported net income and
earnings per share as stated in the Company's interim condensed
consolidated statement of income to adjusted net income and
earnings per share excluding the impact of IFRS 16. As the
Company implemented IFRS 16, "Leases", on January 1, 2019 using the modified retrospective
approach, the amounts listed in the table below related to the
first quarter of 2019 reflect lease accounting under IFRS 16 for
net income, adjusted net income, basic and diluted earnings per
share, and adjusted basic and adjusted diluted earnings per
share. The comparative quarter of 2018 has not been
restated. See Section 10,
"Recent Accounting Pronouncements", of the Company's MD&A for
additional information on the implementation of IFRS 16.
|
|
|
|
|
|
|
For the three
months ended
|
|
|
|
March
31
|
($ in thousands
except per share amounts)
|
|
2019
|
2018
|
Net Income
(1)
|
|
9,334
|
14,526
|
After-tax
mark-to-market (gain)/loss on financial derivative
instruments
|
|
80
|
(2,981)
|
Adjusted net
income (1)
|
|
9,414
|
11,545
|
Impact of IFRS 16 on
an after-tax basis
|
|
4,511
|
-
|
Adjusted Net
Income excluding impact of IFRS 16
|
|
13,925
|
11,545
|
|
(1) The Company implemented IFRS 16, "Leases", on
January 1, 2019 using the modified retrospective approach. As a
result, the Company's first quarter of 2019 reflects lease
accounting under IFRS 16, the comparative quarter has not been
restated.
|
|
|
|
For the three
months ended
|
|
March
31
|
|
2019
(1)
|
IFRS
16
Adjustments
|
2019
(2)
|
2018
(1)
|
Basic earnings per
share
|
$
|
0.12
|
$
|
0.06
|
$
|
0.18
|
$
|
0.19
|
Diluted earnings per
share
|
$
|
0.11
|
$
|
0.06
|
$
|
0.17
|
$
|
0.18
|
Adjusted basic
earnings per share
|
$
|
0.12
|
$
|
0.06
|
$
|
0.18
|
$
|
0.15
|
Adjusted diluted
earnings per share
|
$
|
0.11
|
$
|
0.06
|
$
|
0.17
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
(1) As reported in the Company's Q1 2019 Interim
Condensed Consolidated Statements of Income for basic and diluted
earnings per share amounts
|
(2) These amounts exclude the impact of IFRS 16
adjustments in the current quarter
|
In 2016, the IASB issued IFRS 16, "Leases", replacing IAS
17 and related interpretations. The standard introduces a single,
on-balance sheet recognition and measurement model for lessees,
eliminating the distinction between operating and finance leases.
The Company implemented the standard on January 1, 2019 using the modified retrospective
approach. As a result, the Company's first quarter of 2019 results
reflected lease accounting under IFRS 16. Prior year results have
not been restated. See Section 10,
"Recent Accounting Pronouncements", in the Company's MD&A for
more information on the implementation of IFRS 16.
The implementation of IFRS 16 significantly increased the assets
and liabilities of the Company's balance sheet and changed the
timing and presentation of lease-related expenses in the Company's
financial results. The Company recorded a right-of-use asset
of $430,480,000 and a lease liability
of $414,940,000 under this new
standard. Under IFRS 16, the depreciation expense on leased
assets and interest expense on lease liabilities replaced rent
expense, which was previously recognized on a straight-line basis
in operating income under IAS 17 over the term of a lease.
Adjusted EBITDA
Adjusted earnings before interest, income taxes, depreciation
and amortization, mark-to-market adjustment due to the changes in
the fair value of the Company's financial derivative instruments
and any non-recurring charges to income ("Adjusted EBITDA") is a
non-IFRS financial measure used by the Company. The Company
considers adjusted EBITDA to be an effective measure of
profitability on an operational basis and is currently regarded as
an indirect measure of operating cash flow, a significant indicator
of success for many businesses. Adjusted EBITDA is a non-IFRS
financial measure used by the Company. The Company's Adjusted
EBITDA may not be comparable to the Adjusted EBITDA measure of
other companies, but in management's view appropriately reflects
Leon's specific financial condition. This measure is not
intended to replace net income, which, as determined in accordance
with IFRS, is an indicator of operating performance.
The following is a reconciliation of reported net income to
adjusted EBITDA:
|
For the three
months ended
|
|
March
31
|
($ in
thousands)
|
2019
(1)
|
2018
|
Net Income
(1)
|
9,334
|
14,526
|
Income tax expense
(1)
|
3,204
|
5,104
|
Net finance costs
(1)
|
6,297
|
1,848
|
Depreciation and
amortization (1)
|
31,724
|
9,160
|
Mark-to-market
(gain)/loss on financial derivative instruments
|
110
|
(4,062)
|
Adjusted EBITDA
(1)
|
50,669
|
26,576
|
(1) The Company implemented IFRS 16, "Leases", on
January 1, 2019 using the modified retrospective approach. As
a result, the Company's first quarter of 2019 reflects lease
accounting under IFRS 16, while the comparative quarter has not
been restated.
|
Adjusted EBITDA excluding the impact of IFRS 16
|
|
|
For the three
months ended
|
|
March
31
|
($ in
thousands)
|
2019
|
2018
|
Adjusted EBITDA
(1)
|
50,669
|
26,576
|
Impact of IFRS 16
(net)
|
(21,929)
|
-
|
Adjusted EBITDA
excluding the impact of IFRS 16
|
28,740
|
26,576
|
(1) The Company implemented IFRS 16, "Leases", on
January 1, 2019 using the modified retrospective approach. As
a result, the Company's first quarter of 2019 reflects lease
accounting under IFRS 16, while the comparative quarter has not
been restated.
|
Under IFRS 16, the depreciation and amortization expense on
leased assets and interest expense on lease liabilities replaced
rent expense, which was previously recognized on a straight-line
basis in operating income under IAS 17 over the term of the
lease. Normalized for the year-over-year impact of increased
depreciation, amortization and lease interest expenses due to the
implementation of IFRS 16 on January 1,
2019, adjusted EBITDA increased $2,164,000 in the quarter, an increase of 8.1%
over the three months ended March 31,
2018.
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
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; Brick Outlet; and The Brick Mattress Store.
Finally, with The Brick's Midnorthern Appliance banner alongside
with Leon's 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 302 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