TORONTO, Feb. 23, 2022 /CNW/ - Leon's Furniture Limited
("LFL" or the "Company") (TSX: LNF), today announced
record financial results for the year ended December 31, 2021.
Financial Highlights – year ended December 31, 2021
On a year to date basis as compared to prior year:
- Total system wide sales increased 13.2% to a record
$3.1 billion.
- Achieved record revenue of $2.5
billion, an increase of $292.5
million or 13.2%.
- Same store sales(1) increased by 13.6%.
- Adjusted EBITDA(1) increased by 16.5% to
$401.2 million
- Net income increased by 26.9% to $207.2
million.
- Adjusted diluted earnings per share(1) grew by 27.5%
to $2.60 from $2.04 in the prior year.
- Opened 4 new stores in the year, 2 new corporate stores and 2
franchise stores comprised of 1 Leon's banner store and 3 Brick
banner store locations.
- The Company generated approximately $300
million in free cash flow(1).
- The Company returned $210.6
million to its shareholders in the form of dividends
declared and common share repurchases as compared to $118.1 million in the prior year.
- Available and unrestricted liquidity is approximately
$613.6 million which is made up of
the Company's $486.6 million in cash
and investments and $127 million in
undrawn credit facilities as at December 31,
2021.
Financial Highlights – Q4 -2021
- Total system sales achieved in the quarter was $820.5 million, compared to $830.9 million in Q4-2020.
- Revenue of $669.8 million in
comparison to quarterly revenue of $675.1
million in Q4-2020.
- Achieved net income in the quarter of $56.5 million, an increase of 6% in comparison to
Q4-2020.
- Adjusted diluted earnings per share(1) grew by 4.2%
to $0.74 in Q4-2021 from $0.71 in Q4-2020.
- The Company carried out a substantial issuer bid to purchase
for cancellation $200 million of its
common shares in Q4-2021, which closed subsequent to year end. At
that time 7,999,993 shares, representing approximately 10.4% of
outstanding shares, were repurchased and cancelled.
|
(1) For
a full explanation of the Company's use of non-IFRS and
supplementary financial measures, please refer to the sections of
this press release with the headings "Non-IFRS Financial Measures"
and "Supplementary Financial Measures".
|
Mike Walsh, President
and CEO of LFL commented, "We are generally pleased
with the performance of our team during 2021. Against a backdrop of
turmoil and uncertainty for Canadian retailers, LFL continued to
demonstrate the power of its omnichannel retail and distribution
platform, generating record total system-wide sales of over
$3 billion in fiscal 2021, and
growing revenue and same store sales by 13.2% and 13.6%,
respectively. Furthermore, our team's consistent focus on cost
discipline drove a full year 123 basis point improvement in
operating cost efficiency, which translated into 27.5% growth in
adjusted diluted earnings per share. Supported by these strong
results and a rock-solid balance sheet, LFL returned over
$400 million in capital to its
shareholders, through a combination of regular and special
dividends, share buybacks and a substantial issuer bid."
"During the fourth quarter, well-publicized global supply chain
disruptions led to increased freight costs for all retailers,
including LFL. However, the Company's network of warehouses and
efficient distribution centers across the country gave our team the
flexibility to more effectively manage inventory flows to minimize
the impact during the quarter, while still providing our customers
with access to a market-leading breadth and depth of product. The
LFL platform was built not only to weather difficult environments,
but to generate profitable growth in challenging conditions and
gain market share. Quarter after quarter, our team has proven its
ability to leverage the strength and agility of the Company's
scalable, rapidly growing eCommerce platform, national retail
footprint and dominant national distribution system, to drive
results for shareholders. I would like to personally thank our
associates coast-to-coast for their dedication and hard work over
the past year. 2022 will be an exciting year for LFL, and I look
forward to continuing to update our loyal shareholders."
Summary of Consolidated Results
|
For
the
|
Three months
ended
|
|
|
|
(C$ in millions except
%, share and per share amounts)
|
December 31,
2021
|
December 31,
2020
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|
|
|
|
|
|
Total system-wide sales
(1)
|
820.5
|
830.9
|
(10.4)
|
(1.3%)
|
|
Franchise sales
(1)
|
150.7
|
155.8
|
(5.1)
|
(3.3%)
|
|
|
|
|
|
|
Revenue
|
669.8
|
675.1
|
(5.3)
|
(0.8%)
|
|
Cost of
sales
|
373.2
|
366.5
|
6.7
|
1.8%
|
|
Gross profit
|
296.7
|
308.7
|
(12.0)
|
(3.9%)
|
|
Gross profit margin as
a percentage of revenue
|
44.30%
|
45.73%
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses (2)
|
218.6
|
230.8
|
(12.2)
|
(5.3%)
|
|
SG&A as a
percentage of revenue
|
32.64%
|
34.19%
|
|
|
|
|
|
|
|
|
Income before net
finance costs and income tax expense
|
78.0
|
77.9
|
0.1
|
0.1%
|
|
Net finance
costs
|
(2.9)
|
(3.9)
|
(1.0)
|
(25.6%)
|
|
Income before income
taxes
|
75.1
|
74.0
|
1.1
|
1.5%
|
|
Income tax
expense
|
18.1
|
17.7
|
0.4
|
2.3%
|
|
Adjusted net income
(1)
|
57.0
|
56.3
|
0.7
|
1.2%
|
|
Adjusted net income as
a percentage of revenue (1)
|
8.51%
|
8.34%
|
|
|
|
|
|
|
|
|
After-tax
mark-to-market loss on financial
|
|
|
|
|
|
derivative instruments
(1)
|
0.5
|
3.0
|
(2.5)
|
(83.3%)
|
|
Net
income
|
56.5
|
53.3
|
3.2
|
6.0%
|
|
|
|
|
|
|
Basic
weighted average number of common shares
|
76,818,991
|
78,356,607
|
|
|
|
Basic earnings per
share
|
$0.74
|
$0.68
|
$0.06
|
8.8%
|
|
Adjusted basic earnings
per share (1)
|
$0.74
|
$0.72
|
$0.02
|
2.8%
|
|
|
|
|
|
|
Diluted weighted
average number of common shares
|
77,662,535
|
80,285,965
|
|
|
|
Diluted earnings per
share
|
$0.73
|
$0.67
|
$0.06
|
9.0%
|
|
Adjusted diluted
earnings per share (1)
|
$0.74
|
$0.71
|
$0.03
|
4.2%
|
|
|
|
|
|
|
Common share dividends
declared
|
$0.16
|
$0.46
|
$(0.30)
|
(65.2%)
|
|
Convertible, non-voting
shares dividends declared
|
$0.32
|
$0.29
|
$0.03
|
10.3%
|
|
(1) Refer to the
Non-IFRS financial measures section for additional
information.
|
|
(2) Selling,
general and administrative expenses ("SG&A").
|
Same Store Sales (1)
|
For
the
|
Three months
ended
|
|
|
|
(C$ in millions, except
%)
|
December 31,
2021
|
December 31,
2020
|
$
Decrease
|
%
Decrease
|
|
Same store sales
(1)
|
652.4
|
653.1
|
(0.7)
|
(0.1%)
|
|
(1) Refer to the
supplementary financial measures section for additional
information.
|
Revenue
For the three months ended December
31, 2021, revenue was $669.8 million compared to $675.1 million in the fourth quarter 2020.
The decrease in revenue of $5.3
million or 0.8% as compared to the prior year quarter was
driven by a decrease in the sale of furniture in the quarter,
primarily due to disruptions occurring from global supply chain
delays. Despite these inventory supply delays that significantly
affected imported furniture from Asia, consumer demand for all product
categories remained strong in the quarter, as evidenced by the
Company's robust open order book of customer deposits which at the
end of the fourth quarter remained at historical highs. In
addition, the decrease in furniture sales in the quarter was offset
by an increase in sales of all other product categories.
Furthermore, the Company's continued focus on eCommerce,
including its live chat initiatives, generated a quarter over
quarter 37% increase in eCommerce driven sales during the quarter,
which is on top of the growth in eCommerce sales of 227% in the
fourth quarter of 2020 as compared to the fourth quarter of 2019.
The digital platform is a key component 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. The increase in eCommerce-initiated
sales during the quarter was also achieved despite all the
Company's retail stores being open, as compared to the prior year
quarter's provincially mandated retail showroom closures that began
on November 12, 2020, in Manitoba. This then continued to impact the
municipalities of Toronto and Peel
in the province of Ontario which
began on November 23, 2020,
ultimately leading to all retail showrooms being closed in
Ontario and Quebec on December 26,
2020, and remaining so for the balance of the prior year's
quarter and into the first quarter of fiscal year 2021.
Same Store Sales (1)
Same store sales in the quarter remained flat compared to the
fourth quarter 2020.
Gross Profit
The gross profit margin of 44.30% in the quarter decreased by
143 basis points from the fourth quarter 2020. This was due to
higher cost of sales which can be attributed to increased freight
costs due to the ongoing disruptions of the global supply chain and
increased product costs that are directly the result of increased
tariffs implemented by the Canada Border Services Agency ("CBSA")
in relation to upholstered product being sourced from China and Vietnam. In order to retain the Company's
gross margin in the fourth quarter, it was necessary to determine
the trade-off between having product available for sale in
Canada for the Company's customers
and determining the Company's tolerance to pay significantly higher
freight costs.
Selling, General and Administrative
Expenses ("SG&A")
The Company's SG&A as a percentage of revenue for the fourth
quarter 2020 was 34.19% compared to 32.64% for the fourth quarter
of 2021, an improvement of 155 basis points over the fourth quarter
2020. This improvement in operating costs leverage and continued
cost reduction initiatives in the quarter are due to effectively
managing the Company's payroll expenses and eCommerce spend while
continuing to drive traffic to both the Company's retail stores and
websites.
Net Income and Diluted Earnings Per Share
Net income for the fourth quarter of 2021 was $56.5 million, or $0.73 per diluted earnings per share as compared
to the net income of $53.3 million in
the prior year's quarter, or $0.67
per diluted earnings per share.
|
(1) Refer to the
supplementary financial measures section for additional
information.
|
Summary financial highlights for the year ended December 31, 2021 and December 31, 2020
|
For
the
|
Year
ended
|
|
|
|
(C$ in millions except
%, share and per share amounts)
|
December 31,
2021
|
December 31,
2020
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|
|
|
|
|
|
Total system-wide sales
(1)
|
3,057.6
|
2,701.6
|
356.0
|
13.2%
|
|
Franchise sales
(1)
|
544.9
|
481.4
|
63.5
|
13.2%
|
|
|
|
|
|
|
Revenue
|
2,512.7
|
2,220.2
|
292.5
|
13.2%
|
|
Cost of
sales
|
1,404.4
|
1,236.3
|
168.1
|
13.6%
|
|
Gross profit
|
1,108.2
|
983.9
|
124.3
|
12.6%
|
|
Gross profit margin as
a percentage of revenue
|
44.10%
|
44.32%
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses (2) (3)
|
819.1
|
751.0
|
68.1
|
9.1%
|
|
SG&A as a
percentage of revenue (3)
|
32.60%
|
33.83%
|
|
|
|
|
|
|
|
|
Income before net
finance costs and income tax expense
|
289.1
|
233.0
|
56.1
|
24.1%
|
|
Net finance
costs
|
(15.0)
|
(17.9)
|
(2.9)
|
(16.2%)
|
|
Income before income
taxes
|
274.1
|
215.1
|
59.0
|
27.4%
|
|
Income tax
expense
|
68.7
|
48.4
|
20.3
|
41.9%
|
|
Adjusted net income
(1)
|
205.5
|
166.7
|
38.8
|
23.3%
|
|
Adjusted net income as
a percentage of revenue (1)
|
8.18%
|
7.51%
|
|
|
|
|
|
|
|
|
After-tax
mark-to-market (gain)/loss on financial
|
|
|
|
|
|
derivative instruments
(1)
|
(1.7)
|
3.4
|
(5.1)
|
(150.0%)
|
|
Net
income
|
207.2
|
163.3
|
43.9
|
26.9%
|
|
|
|
|
|
|
Basic
weighted average number of common shares
|
77,623,382
|
79,798,908
|
|
|
|
Basic earnings per
share
|
$2.67
|
$2.05
|
$0.62
|
30.2%
|
|
Adjusted basic earnings
per share (1)
|
$2.65
|
$2.09
|
$0.56
|
26.8%
|
|
|
|
|
|
|
Diluted weighted
average number of common shares
|
79,062,376
|
82,113,879
|
|
|
|
Diluted earnings per
share
|
$2.62
|
$1.99
|
$0.63
|
31.7%
|
|
Adjusted diluted
earnings per share (1)
|
$2.60
|
$2.04
|
$0.56
|
27.5%
|
|
|
|
|
|
|
Common share dividends
declared
|
$1.89
|
$0.88
|
$1.01
|
114.8%
|
|
Convertible, non-voting
shares dividends declared
|
$0.32
|
$0.29
|
$0.03
|
10.3%
|
|
(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 year ended December 31, 2020,
includes the impact of the Canada Emergency Wage Subsidy (CEWS) of
$31.6 million. Therefore, excluding the impact of the CEWS, the
total SG&A as a percentage of revenue in the twelve-month
period amounted to 35.25%.
|
Revenue
For the year ended December
31, 2021, revenue was $2,512.7 million compared to $2,220.2 million in the prior year, an
increase of $292.5 million or 13.2%
as compared to the prior year due to increases in all product
categories driven by continuing customer demand. This increase was
achieved despite being impacted by COVID related factors in the
first half of the year related primarily to provincially mandated
retail store closures, ongoing global supply chain issues in
relation to importing product to Canada and significant product cost increases
primarily due to CBSA tariffs on certain upholstered seating
products that are imported by the Company from Asia.
Gross Profit
The gross profit margin remained relatively flat from 44.32% for
the year ended December 31, 2020 to
44.10% in the year ended December 31,
2021. This slight decrease was due to higher cost of sales
with the ongoing supply chain issues and increased freight
costs.
Selling, General and Administrative Expenses
The Company's SG&A as a percentage of revenue for the year
ended December 31, 2021 improved to
32.60%, a decrease of 123 basis points over the prior year of
33.83%. This reduction in SG&A percentage was due to
effectively managing payroll and advertising spend.
In addition, in the second quarter 2020, the Government of
Canada announced the CEWS in order
to help employers return and keep their employees on their
payrolls. Excluding the CEWS, the Company's SG&A as a
percentage of revenue for the year ended December 31, 2020 was 35.25%. This results in a
decrease of SG&A costs of 265 basis points for the year ended
December 31, 2021. No CEWS was
received by the Company in 2021.
Net Income and Diluted Earnings Per Share
Including the mark-to-market impact of the Company's financial
derivatives, net income for the year ended December 31, 2021 was $207.2 million, or $2.62 per diluted earnings per share (net income
$163.3 million, $1.99 per diluted earnings per share in
2020).
Dividends
As previously announced, the Company paid a quarterly dividend
of $0.16 per common share on
7th day of January 2022.
Today the Directors have declared a quarterly dividend of
$0.16 per common share payable on the
8th day of April 2022 to shareholders
of record at the close of business on the 8th day of March 2022. 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, temporary store closures, 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.
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. This cautious optimism is
predicated on taking a measured approach as it relates to striking
the correct balance of driving revenue growth and finding
incremental efficiencies. 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 306
store locations across Canada.
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
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
|
Year
ended
|
|
(C$ in
millions)
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
|
Net
income
|
56.5
|
53.3
|
207.2
|
163.3
|
|
Income tax
expense
|
17.9
|
16.6
|
69.2
|
47.2
|
|
Net finance
costs
|
2.9
|
3.9
|
15.0
|
17.9
|
|
Depreciation and
amortization
|
27.7
|
28.1
|
112.0
|
111.3
|
|
Mark-to-market
(gain)/loss on financial derivative instruments
|
0.7
|
4.1
|
(2.2)
|
4.6
|
|
Adjusted
EBITDA
|
105.7
|
106.0
|
401.2
|
344.3
|
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.
Free Cash Flow
Free cash flow is calculated as net cash flows from operating
activities less additions to property, plant and equipment. The
Company uses free cash flow as an indicator of the financial
strength and performance of its business, indicating the amount of
cash the Company can generate from operations and after capital
expenditures. Free cash flow is a non-IFRS financial measure used
by the Company. The Company believes free cash flow is useful in
assessing the Company's cash available for additional financing and
investing activities.
Supplementary Financial Measures
The Company uses supplementary financial measures to disclose
financial measures that are not (a) presented in the financial
statements and (b) is, or is intended to be, disclosed periodically
to depict the historical or expected future financial performance,
financial position or cash flow, that is not a non-IFRS financial
measure as detailed above.
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 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.
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 306
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