TORONTO, May 12, 2022
/CNW/ - Leon's Furniture Limited ("LFL" or the
"Company") (TSX: LNF), today announced financial results for
the three months ended March 31,
2022.
Financial Highlights – three months ended
March 31, 2022
- Total system sales achieved in the quarter was $662.9 million, compared to $697.1 million in Q1-2021 and $598.1 million in Q1-2020.
- Revenue of $547.2 million in
comparison to quarterly revenue of $571.1
million in Q1-2021 and $497.6
million in Q1-2020.
- The current quarter compares favorably to the Company's
historical results before the COVID pandemic began in the early
part of the 2020 fiscal year.
- Same store sales(1) of $532.9
million, a decrease of 4.5%.
- Net income in the quarter totaled $24.8
million, a decrease of 39.4% in comparison to Q1-2021.
- Adjusted diluted earnings per share(1) decreased by
25.5% to $0.38 in Q1-2022 from
$0.51 in Q1-2021.
- Amended the Company's total credit facilities to $350 million and extended the maturity to
May 31, 2024.
- Repurchased and subsequently cancelled approximately
$240 million of the Company's common
shares, which included the previously announced $200 million substantial issuer bid.
(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, "I am pleased with our current team's
performance during Q1, against a very strong comparable period from
last year. During the quarter, we generated total system-wide sales
of $663 million, while effectively
managing our gross margin and maintaining strict cost discipline.
We continued to actively manage inventory flow during the quarter
to minimize the impact of higher freight costs that are affecting
all retailers in the current environment. As a result of these
efforts, our team generated $0.38 in
adjusted diluted earnings per share, as compared to a record
$0.51 from the Q1 2021 results, when
the bottom line grew by more than 200% compared to the prior year
period."
Mr. Walsh continued, "Supply chain and consumer
inflationary pressures are likely to persist through 2022, and we
expect the retail landscape to remain challenging as a result.
Today, the Company is better positioned than ever to continue
gaining share in a fragmented sector where smaller players are
likely to feel a disproportionate amount of the current market
pressures. LFL's national omnichannel retail and distribution
platform provides an enduring competitive advantage. The Company
has the ability to source product in bulk and manage inventory
flow. The preferred retail financing arrangement will ensure we are
able to offer our best rates to customers. This is a business with
tremendous earning power, backed by a rock-solid balance sheet and
4.8 million square feet of owned real estate. LFL has a long
history of generating profitability for its shareholders and I look
forward to continuing to update our shareholders as the year
progresses."
Summary of Consolidated Results
For the
|
Three months ended
|
|
|
(C$ in millions except
%, share and per share amounts)
|
March 31, 2022
|
March 31, 2021
|
$ Increase (Decrease)
|
% Increase (Decrease)
|
|
|
|
|
|
Total system-wide sales
(1)
|
662.9
|
697.1
|
(34.2)
|
(4.9%)
|
Franchise sales
(1)
|
115.7
|
126.0
|
(10.3)
|
(8.2%)
|
|
|
|
|
|
Revenue
|
547.2
|
571.1
|
(23.9)
|
(4.2%)
|
Cost of
sales
|
313.6
|
321.0
|
(7.4)
|
(2.3%)
|
Gross profit
|
233.7
|
250.1
|
(16.4)
|
(6.6%)
|
Gross profit margin as
a percentage of revenue
|
42.71%
|
43.79%
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses (2)
|
196.0
|
191.2
|
4.8
|
2.5%
|
SG&A as a
percentage of revenue
|
35.82%
|
33.48%
|
|
|
|
|
|
|
|
Income before net
finance costs and income tax expense
|
37.7
|
58.9
|
(21.2)
|
(36.0%)
|
Net finance
costs
|
(4.5)
|
(3.9)
|
0.6
|
15.4%
|
Income before income
taxes
|
33.2
|
54.9
|
(21.7)
|
(39.5%)
|
Income tax
expense
|
7.4
|
13.7
|
(6.3)
|
(46.0%)
|
Adjusted net income
(1)
|
25.8
|
41.2
|
(15.4)
|
(37.4%)
|
Adjusted net income as
a percentage of revenue (1)
|
4.71%
|
7.21%
|
|
|
|
|
|
|
|
After-tax
mark-to-market loss on financial
|
|
|
|
|
derivative instruments
(1)
|
1.0
|
0.4
|
0.6
|
150.0%
|
Net income
|
24.8
|
40.9
|
(16.1)
|
(39.4%)
|
|
|
|
|
|
Basic
weighted average number of common shares
|
67,759,043
|
78,537,931
|
|
|
Basic earnings per
share
|
$0.37
|
$0.52
|
$(0.15)
|
(28.8%)
|
Adjusted basic earnings
per share (1)
|
$0.38
|
$0.52
|
$(0.14)
|
(26.9%)
|
|
|
|
|
|
Diluted weighted
average number of common shares
|
68,576,755
|
80,343,168
|
|
|
Diluted earnings per
share
|
$0.36
|
$0.51
|
$(0.15)
|
(29.4%)
|
Adjusted diluted
earnings per share (1)
|
$0.38
|
$0.51
|
$(0.13)
|
(25.5%)
|
|
|
|
|
|
Common share dividends
declared
|
$0.16
|
$0.16
|
-
|
-
|
(1) Refer
to the Non-IFRS financial measures section for additional
information.
(2) Selling, general and administrative expenses
("SG&A").
|
Same Store Sales (1)
For the
|
Three months ended
|
|
|
(C$ in millions, except
%)
|
March 31, 2022
|
March 31, 2021
|
$ Decrease
|
% Decrease
|
Same store sales
(1)
|
532.9
|
558.3
|
(25.4)
|
(4.5%)
|
(1) Refer
to the supplementary financial measures section for additional
information.
|
Revenue
For the three months ended March 31,
2022, revenue was $547.2
million compared to $571.1
million in the first quarter 2021. Revenue decreased
$23.9 million or 4.2% comparing to
the prior year quarter. The decrease was driven by a reduction in
furniture sales which was partly offset by increases in all other
product categories, with delivered mattress sales being up
significantly in the quarter. Despite the prior year's
quarter being a record for the Company in terms of revenue, the
current quarter compares favorably to the Company's historical
results before the COVID pandemic began in the early part of the
2020 fiscal year. The Company is continuing to show increases
across all categories for the three months ended March 31, 2022, when comparing to the revenue
achieved in the first quarter of 2020 and the first quarter of
2019. When comparing to these periods, revenue has increased 10.2%
and 8.9%, respectively.
Same Store Sales (1)
Despite the high amount of customer deposits the Company
currently holds as deferred revenue, the Company still experienced
a 4.5% decrease in same store sales in the quarter compared to the
first quarter 2021. Comparing to the first quarter 2020, as
reported, the current quarter same store sales have therefore
increased 11.9% over this period of time.
Gross Profit
The gross profit margin for the first quarter 2022 was 42.71%
compared to 43.79% for the first quarter 2021, a decrease of 108
basis points. This was primarily driven by a less than optimal
product mix due to the reduced furniture sales in the quarter as
described in the revenue section above, as well as very strong
demand in the Company's wholesale appliance business.
Additionally, we continued to see further increases in costs that
affected the Company's cost of sales, more specifically as it
related to the ongoing global pandemic-related disruptions of the
global supply chain and the associated increases in both overseas
and domestic freight costs.
Selling, General and Administrative Expenses
("SG&A")
The Company's SG&A as a percentage of revenue for the first
quarter 2021 was 33.48% compared to 35.82% for the first quarter
2022, an increase of 234 basis points over the first quarter
2021. The Company's SG&A as a percentage of revenue for
the current quarter increased primarily due to slightly higher
sales and marketing costs, as well as a reduction in operating
leverage due to same store sales being down in the quarter as
compared to the prior year's quarter.
Adjusted Net Income (1) and Adjusted Diluted
Earnings Per Share (1)
Adjusted net income for the quarter totaled $25.8 million, a decrease of $15.4 million or 37.4% over the prior year's
quarter. In comparison to the first quarter of 2020, adjusted net
income increased significantly by $11.9
million, or 85.6%.
The adjusted diluted earnings per share in the first quarter
2021 was $0.51 per share compared to
$0.38 per share in the current
quarter, a decrease of $0.13 per
share or 25.5%. Adjusted diluted earnings per share increased from
$0.16 in the first quarter of 2020 to
$0.38 in the first quarter of 2022,
representing an increase of 137.5%.
Net Income and Diluted Earnings Per Share
Net income for the first quarter 2022 was $24.8 million, or $0.36 per diluted earnings per share as compared
to the $0.51 per diluted earnings per
share recorded in the prior year's quarter, a decrease of
$0.15 per share or 29.4% (net income
$40.9 million in first quarter 2021).
In comparison to the first quarter of 2020, net income
significantly increased by 81.0%, or $11.1
million.
(1) Refer to the
supplementary financial measures section for additional
information.
|
Dividends
As previously announced, the Company paid a quarterly dividend
of $0.16 per common share on
8th day of April 2022.
Today the Directors have declared a quarterly dividend of
$0.16 per common share payable on the
8th day of July 2022 to shareholders
of record at the close of business on the 8th day of June 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. 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, despite the central bank's decision to
continue to raise interest rates to temper inflation, 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 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
|
(C$ in
millions)
|
March 31, 2022
|
March 31, 2021
|
Net income
|
24.8
|
40.9
|
Income tax
expense
|
7.1
|
13.6
|
Net finance
costs
|
4.5
|
3.9
|
Depreciation and
amortization
|
27.8
|
28.3
|
Mark-to-market loss on
financial derivative instruments
|
1.4
|
0.5
|
Adjusted EBITDA
|
65.6
|
87.2
|
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