TORONTO, Nov. 10, 2020 /CNW/ - Leon's Furniture Limited
("LFL" or the "Company") (TSX: LNF), today announced
record financial results for the third quarter of 2020.
Financial Highlights – Q3-2020
- Total system wide sales(1) increased 7% to
$762.8 million in Q3-2020 compared to
$712.6 million in Q3-2019.
- Achieved record revenue in the quarter of $630.8 million compared to $601.4 million in Q3-2019, an increase of 4.9%.
With increases across all product categories.
- Same-store sales(1) increased 4.5% in Q3-2020
compared to Q3-2019.
- Continued triple digit sales growth of 235% in the quarter from
our eCommerce properties.
- Gross profit margin improved across all product categories to
44.20% in Q3-2020 from 43.13% in Q3-2019.
- Net income increased by 47.9% to $49.1 million in Q3-2020 compared to
Q3-2019.
- Diluted earnings per share grew by 50% to $0.60 in Q3-2020 from $0.40 in Q3-2019.
- Opened 3 new corporate stores in the quarter, 2 Leon's banner
stores and 1 Brick store location.
- Available and unrestricted liquidity is approximately
$638 million which is made up of the
Company's $464 million in cash and
investments and $174 million in
undrawn credit facilities as at September
30, 2020.
Edward Leon, Chief Executive
Officer of LFL Group commented, "In an environment that remains
challenging for many retailers in Canada, Q3 was a record quarter across the
board for LFL. The efforts of our dedicated team generated a same
store sales increase of 4.5%, derived from creating an
enhanced customer experience and increased value. Our consistent
focus on operating efficiency and returns on advertising spend
enabled us to leverage single-digit revenue growth into diluted
earnings per share growth of 50% compared to Q3 of last year. We
continue to selectively expand our footprint, with two Leon's
stores in Calgary, Alberta and
Kelowna, British Columbia
celebrating their grand openings during the quarter, as well as a
new full-line Brick store in Fredericton,
New Brunswick which will be supported beginning in Q1-2021
by our second state of the art distribution centre, located in
Dartmouth, Nova Scotia. The
financial results generated this quarter highlight the power of our
long-term model of financial conservatism and value creation
accompanied with a relentless pursuit of exceeding our customers'
needs; ensuring that they can shop where, when and how they
want."
Mr. Leon added, "The strategic steps we took in 2018 to
strengthen our eCommerce platform to enhance the customer
experience and ensure scalability, continue to pay off. We
have observed a meaningful improvement in engagement and sales
initiation through our online channels over the past several
quarters, with Q3 eCommerce-initiated sales up 235%
quarter-over-quarter
across leons.ca, thebrick.com and furniture.ca.
Despite the uncertainty we face in today's world, LFL is uniquely
positioned as one of the strongest omnichannel retailers in
Canada today. Our retail banners
are supported by a strong foundation, which includes a strategic
coast-to-coast distribution footprint, one of Canada's largest last-mile delivery
operations, a leading portfolio of value-added service businesses,
a rock solid balance sheet with $638
million in unrestricted liquidity and outright ownership
of many of our large, strategically-located, national
real estate properties."
(1) For a full explanation of the Company's
use of non-IFRS financial measures, please refer to the section of
this press release with the heading "Non-IFRS Financial
Measures".
Summary financial highlights for the three months ended
September 30, 2020 and September 30, 2019
For
the
|
Three months
ended
|
(C$ in millions
except %, share and per share amounts)
|
September 30,
2020
|
September 30,
2019
|
$
Increase
|
%
Increase
|
Total system wide
sales (1)
|
762.8
|
712.6
|
50.2
|
7.0%
|
Franchise sales
(1)
|
132.0
|
111.2
|
20.8
|
18.7%
|
Revenue
|
630.8
|
601.4
|
29.4
|
4.9%
|
Same store sales
(1)
|
616.6
|
590.0
|
26.6
|
4.5%
|
Gross profit margin
as a percentage of revenue
|
44.20%
|
43.13%
|
|
|
SG&A
(2)(3)
|
210.6
|
209.3
|
1.3
|
0.6%
|
SG&A
(2)(3) as a percentage of revenue
|
33.39%
|
34.80%
|
|
|
Adjusted
EBITDA
|
96.0
|
80.5
|
15.5
|
19.3%
|
Adjusted net income
(1)
|
49.3
|
33.0
|
16.3
|
49.4%
|
Adjusted diluted
earnings per share (1)
|
$0.61
|
$0.40
|
$0.21
|
52.5%
|
Net income
|
49.1
|
33.2
|
15.9
|
47.9%
|
Common share
dividends declared
|
$0.14
|
$0.14
|
-
|
-
|
(1)
|
Refer to the
"Non-IFRS Financial Measures" section of this press release for
additional information on these measures.
|
(2)
|
Selling, general and
administrative expenses ("SG&A").
|
(3)
|
SG&A as a
percentage of revenue for the three months ended September 30,
2020, includes the impact of the Canada Emergency Wage Subsidy
("CEWS") of $2 million. Therefore, excluding the impact of the
CEWS, the total SG&A as a percentage of revenue in the quarter
amounted to 33.70%
|
Revenue
For the three months ended September
30, 2020, revenue was $630.8 million compared to $601.4 million in the third quarter 2019.
Revenue increased $29.4 million or
4.9% as compared to the prior year quarter due to increases in all
product categories which was driven by increased consumer demand
during the quarter. The Company's continued focus on eCommerce,
including its live chat initiative, generated a year over year 235%
increase in eCommerce initiated sales during the quarter.
The ongoing strength in eCommerce sales in the quarter also
continue to validate that the Company's digital platform is quite
scalable and capable of significantly contributing higher operating
profit margin percentages due to its current operating cost
structure. The digital platform is key to allowing the Company to
attract new customers as they begin their shopping experience
online and then continue in store to be assisted by our
knowledgeable sales associates.
Selling, General and Administrative
Expenses ("SG&A")
SG&A as a percentage of revenue in the current quarter was
down by 141 basis points due to effectively managing overall
SG&A expenses throughout the quarter while at the same time
adjusting advertising spend to drive traffic to both the retail
stores and to the Company's websites.
Net Income and Diluted Earnings Per Share
Net income for the third quarter of 2020 was $49.1 million, or $0.60 per diluted earnings per share as compared
to the net income of $33.2 million in
the prior year's quarter, or $0.40
per diluted earnings per share.
Summary financial highlights for the nine months ended
September 30, 2020 and September 30, 2019
For
the
|
Nine months
ended
|
(C$ in millions
except %, share and per share amounts)
|
September
30,
2020
|
September 30,
2019
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
Total system wide
sales (1)
|
1,870.6
|
1,977.4
|
(106.8)
|
(5.4%)
|
Franchise sales
(1)
|
325.6
|
315.4
|
10.2
|
3.2%
|
Revenue
|
1,545.0
|
1,662.0
|
(117.0)
|
(7.0%)
|
Same store sales
(1)
|
1,504.6
|
1,630.3
|
(125.7)
|
(7.7%)
|
Gross profit margin
as a percentage of revenue
|
43.71%
|
43.30%
|
|
|
SG&A
(2)(3)
|
520.2
|
610.1
|
(89.9)
|
(14.7%)
|
SG&A
(2)(3) as a percentage of revenue
|
33.67%
|
36.71%
|
|
|
Adjusted
EBITDA
|
238.2
|
202.6
|
35.6
|
17.6%
|
Adjusted net income
(1)
|
110.4
|
67.5
|
42.9
|
63.6%
|
Adjusted diluted
earnings per share (1)
|
$1.34
|
$0.82
|
$0.52
|
63.4%
|
Net income
|
110.0
|
67.6
|
42.4
|
62.7%
|
Common share
dividends declared
|
$0.42
|
$0.42
|
-
|
-
|
(1)
|
Refer to the
"Non-IFRS Financial Measures" section of this press release for
additional information on these measures.
|
(2)
|
Selling, general and
administrative expenses ("SG&A").
|
(3)
|
SG&A as a
percentage of revenue for the nine months ended September 30, 2020,
includes the impact of the CEWS of $31.8 million or 2.1% as a
percentage of revenue in the nine-month period. Therefore,
excluding the impact of the CEWS, the total SG&A as a
percentage of revenue in the nine-month period amounted to
35.73%.
|
Revenue
For the nine months ended September
30, 2020, revenue was $1,545 million compared to $1,662 million in the prior year 2019, a
decrease of $117 million or 7% as
compared to the prior year nine months ended. This reduction in
revenue was driven by substantial reductions in physical store
traffic due to COVID-19 retail store closures across the country
during the months of April and May
2020. As all of the Company's physical stores reopened
across Canada in early
June 2020, total written merchandise
sales increased significantly as compared to the same prior year
period.
Selling, General and Administrative Expenses
As a result of COVID-19, and the ensuing rapid deterioration of
customer traffic that began quickly near the end of March 2020 and continued during most of the
second quarter, the Company undertook the necessary steps to
right-size its operations and preserve its liquidity.
In the second quarter, the Government of Canada announced the Canadian Emergency Wage
Subsidy (CEWS) in order to help employers return and keep their
employees on their payrolls. The Company determined that it met the
eligibility criteria and applied for the CEWS in order to be better
positioned to return most of its valued associates back to work by
the end of the third quarter.
Excluding the CEWS, the Company's SG&A as a percentage of
revenue for the nine months ended September
30, 2020 was 35.73%, a decrease of 98 basis points over the
prior year nine months ended of 36.71%. Including the CEWS, the
Company's SG&A as a percentage of revenue was 33.67%, an
improvement of 304 basis points over the prior year nine
months.
Net Income and Diluted Earnings Per Share
Including the mark-to-market impact of the Company's financial
derivatives, net income for the third quarter of 2020 was
$110 million, $1.33 per diluted earnings per share (net income
$67.6 million, $0.82 per diluted earnings per share in
2019).
Dividends
As previously announced, the Company paid a quarterly dividend
of $0.14 on Thursday, October 8, 2020. Today the Directors
have declared an increase to the Company's quarterly dividend
of $0.02 to $0.16 per common share payable on the 7th
day of January 2021 to shareholders
of record at the close of business on the 7th day of December 2020. In addition, the annual dividend
on the convertible non-voting preferred shares of $0.29 will be payable on the 7th day of
January 2021 to the shareholders of
record at the close of business on the 7th day of December 2020. In addition, due to our cash
position, the Directors are pleased to declare a special dividend
of $0.30 per common share payable on
7th day of January 2021 to shareholders of record at the
close of business on the 7th day of December
2020. 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
In the short term, the duration and full financial effect of
COVID-19 is unknown, as is the efficacy of government and central
bank interventions to curb the spread of COVID-19 and stimulate the
economy. Federal and provincial governments have instituted social
distancing requirements, bans on non-essential travel and other
measures that have directly led to uncertainty regarding customer
demand. The Company continues to actively monitor the situation and
will continue to respond as the impact of the COVID-19 pandemic
evolves, which will depend on a number of factors including the
course of the virus, our customer and employee reactions and any
further government actions, none of which can be predicted with any
degree of certainty.
Management anticipates that actions taken to date have
positioned the Company strongly to weather the current crisis and
to take advantage of any accretive opportunities that may arise.
Several of the Company's existing attributes are expected to
function as operating positions of strength which will act as
offsets in the current environment:
- The essential nature of some of the Company's products and
services. Household appliances that are necessary to cook and clean
have been deemed essential by provincial governments. The Company
also owns the largest third-party appliance service company in
Canada, Transglobal Service, that
has been operating across the country with enhanced health and
safety protocols to protect both our customers and our
technicians.
- Rapid scalability of our eCommerce business. The Company's
eCommerce initiated sales have continued to grow significantly in
the third quarter. Since the Company moved its online stores to the
Shopify Plus platform, the eCommerce offering has become a better
customer experience and a more interactive offering. The platform
has resulted in improved scalability and enabled significant
operating leverage, which has and continues to provide a
competitive advantage to the Company.
- Unencumbered ownership of substantial real estate assets across
the country. The Company owns 4.4 million square feet (office,
retail, industrial) of approximately 13 million square feet in use
today by the Company. This is a significant competitive advantage
in the current environment, resulting in a far lower carrying cost
for closed stores or other properties than similar leased
properties. In addition, the value inherent in this portfolio would
enable the Company to readily access additional liquidity to
support existing operations and take advantage of accretive
opportunities as they arise.
- A strong balance sheet as evidenced by the Company's commitment
to deleveraging over $440 million in
various forms of debt. The Company has unrestricted liquidity of
approximately $638 million as at
September 30, 2020, with room to
expand further if necessary.
On a longer-term basis, we still believe that the underlying
Canadian economy remains relatively strong. Although it is
difficult to gauge future consumer confidence and what impact it
may have on retail, we remain cautiously optimistic that our sales
and profitability will increase. Given the Company's strong and
continuously improving financial position, our principal objective
is to increase our market share and profitability. We remain
focused on our commitment to effectively manage our costs but to
also continuously invest in digital innovation that we believe will
drive more customers to both our online eCommerce sites and our 305
store locations across Canada.
Store Network
The Company has 305 retail stores in Canada at September 30,
2020. The following table illustrates the Company's store
count continuity from December 31,
2019 to September 30, 2020 by
retail banner:
|
Number of stores
as at
|
|
|
Number of stores
as at
|
Banner
|
At December 31,
2019
|
Opened
|
Closed
|
September 30,
2020
|
Corporate
Stores
|
|
|
|
|
Leon's
|
52
|
2
|
-
|
54
|
Appliance
Canada
|
5
|
-
|
-
|
5
|
The Brick
(1)
|
115
|
4
|
(2)
|
117
|
The Brick Mattress
Store
|
24
|
-
|
(2)
|
22
|
Brick
Outlet
|
9
|
-
|
(2)
|
7
|
Corporate
Subtotal
|
205
|
6
|
(6)
|
205
|
|
|
|
|
|
Franchise
Stores
|
|
|
|
|
Leon's
|
34
|
1
|
-
|
35
|
The Brick
|
65
|
1
|
(1)
|
65
|
Franchise
Subtotal
|
99
|
2
|
(1)
|
100
|
|
|
|
|
|
Total Corporate
& Franchise Stores
|
304
|
8
|
(7)
|
305
|
(1) Includes
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
|
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. The Company uses
derivative instruments to manage its financial risk 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.
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 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 companies, but in management's view appropriately reflects
LFL'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, both
in store and through online transactions, 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 305
retail stores from coast to coast in Canada under various banners. The Company
operates three websites: leons.ca, thebrick.com and
furniture.ca.
Cautionary Statement
This press release may contain forward-looking statements that
are subject to known and unknown risks and uncertainties that could
cause actual results to vary materially from targeted results. Such
risks and uncertainties include those described in Leon's Furniture
Limited's periodic reports including the annual report or in the
filings made by Leon's Furniture Limited from time to time with
securities regulatory authorities.
This News Release may include certain "forward-looking
statements" which are not comprised of historical facts.
Forward-looking statements include estimates and statements that
describe the Company's future plans, objectives or goals, including
words to the effect that the Company or management expects a stated
condition or result to occur. Forward-looking statements may be
identified by such terms as "believes", "anticipates", "expects",
"estimates", "may", "could", "would", "will", or "plan". Since
forward-looking statements are based on assumptions and address
future events and conditions, by their very nature they involve
inherent risks and uncertainties. Although these statements are
based on information currently available to the Company, the
Company provides no assurance that actual results will meet
management's expectations. Risks, uncertainties and other factors
involved with forward-looking information could cause actual
events, results, performance, prospects and opportunities to differ
materially from those expressed or implied by such forward-looking
information. Forward looking information in this news release
includes, but is not limited to, the Company's objectives, goals or
future plans, and estimates of market conditions. Factors that
could cause actual results to differ materially from such
forward-looking information include, but are not limited to failure
to identify beneficial business opportunities, failure to convert
the potential in the pursued business opportunities to tangible
benefits to the Company or its shareholders, the ability of the
Company to counteract the potential impact of the COVID-19
coronavirus on factors relevant to the Company's business, delays
in obtaining or failures to obtain required shareholder and TSX
approvals, changes in equity markets, inflation, changes in
exchange rates, fluctuations in commodity prices, delays in the
development of projects, and those risks set out in the Company's
public documents filed on SEDAR. Although the Company believes that
the assumptions and factors used in preparing the forward-looking
information in this news release are reasonable, undue reliance
should not be placed on such information, which only applies as of
the date of this news release, and no assurance can be given that
such events will occur in the disclosed time frames or at all. The
Company disclaims any intention or obligation to update or revise
any forward-looking information, whether as a result of new
information, future events or otherwise, other than as required by
law.
SOURCE Leon's Furniture Limited