LNF Leons Furniture Ltd

Leon’s Furniture Limited (“Leon’s” or the “Company”) (TSX:LNF), today announced financial results for the fourth quarter 2015 and the full year 2015.

All figures in CAD thousands unless otherwise noted.

Highlights – Q4 2015

• Same store sales grew 1.6% in Q4-2015.
• Total system wide sales grew 1.6% to $670,357 in Q4-2015 compared to $660,120 in Q4-2014.
• Revenue grew 1.5% to $560,229 in Q4-2015 compared to $552,055 in Q4-2014.
• Diluted earnings per share of $0.38 in Q4-2015 compared to $0.38 in Q4-2014.

Highlights – Fiscal year 2015

• Same-store sales grew 1.2% in 2015.
• Total system wide sales grew 1.0% to $2,407,512 in fiscal 2015 compared to $2,383,324 in fiscal 2014.
• Revenue grew 1.2% to $2,031,718 in fiscal 2015 compared to $2,008,480 in fiscal 2014.
• Diluted earnings per share of $0.97 in fiscal 2015 compared to $0.96 in in fiscal 2014.

“Q4 marked a strong end to the year for Leon’s, with effective promotions driving solid same store sales growth in spite of a weaker economic backdrop,” said Edward Leon, President and Chief Operating Officer of Leon’s. “2016 is an important year for the Company. We expect continued growth from both our main banners this year and have just signed a deal that will introduce the Leon’s banner to the key British Columbia market. These initiatives, combined with our strong market presence and the incremental synergies we expect to continue to generate this year, position us to drive value for shareholders.” 

For a full explanation of the Company’s use of non-IFRS measures, please refer to page 10 of this press release. 

Consolidated results summary for the quarters ended December 31, 2015 and 2014

	For the three months ended December 31
(000's of $ except % and per share amounts)		2015			2014		$ Increase (Decrease)			% Increase (Decrease)
Total system wide sales (1)		670,357			660,120			10,237			1.6	%
Franchise sales (1)		110,128			108,065			2,063			1.9	%
Revenue		560,229			552,055			8,174			1.5	%
Cost of sales		311,428			308,158			3,270			1.1	%
Gross profit		248,801			243,897			4,904			2.0	%
Gross profit margin as a percentage of revenue		44.41	%		44.18	%
Selling, general and administrative expenses		207,098			198,351			8,747			4.4	%
SG&A as a percentage of revenue		36.97	%		35.93	%
Income before net finance costs and income tax expense		41,703			45,546			(3,843	)		(8.4	%)
Net finance costs		4,243			3,836			407			10.6	%
Income before income taxes		37,460			41,710			(4,250	)		(10.2	%)
Income tax expense		7,273			11,796			(4,523	)		(38.3	%)
Net income		30,187			29,914			273			0.9	%
Net income as a percentage of revenue		5.39	%		5.42	%
Basic weighted average number of common shares		71,215,941			71,040,021
Basic earnings per share	$	0.42		$	0.42
Diluted weighted average number of common shares		82,363,520			82,332,550
Diluted earnings per share	$	0.38		$	0.38
Common share dividends declared	$	0.10		$	0.10
Convertible, non-voting shares dividends declared	$	0.20		$	0.20
(1) Non-IFRS financial measures. Refer to page 10 for additional information.

Revenue

For the three months ended December 31, 2015, revenue was $560,229,000 compared to $552,055,000 in the prior year’s fourth quarter.  Revenue increased $8,174,000 or 1.5% between the comparative quarters as we continued to see growth in most product categories.

Gross profit

The gross margin for the fourth quarter 2015 increased slightly from 44.18% to 44.41% compared to the prior year’s fourth quarter.

Selling, general and administrative expenses

Selling, general and administrative expenses of $207,098,000 increased $8,747,000 for the fourth quarter 2015 compared to the fourth quarter of 2014.  Compared to the prior year quarter, the change is due to an increase in advertising expenditures in order to further promote our brands and increase sales, the net change of the impact of annual salary increases offset by delivery expense efficiencies and primarily due to an approximately $4,000,000 non-cash decrease in the unrealized value of the Company’s financial derivatives, comprised of foreign exchange forward contracts and a fixed interest rate swap.

Income tax expense

Due to the adjustments in prior year periods, the income tax expense decreased by approximately $3,000,000.  

Net income and earnings per share

As a result of the above, net income for the fourth quarter of 2015 was $30,187,000, $0.42 per common share ($29,914,000, $0.42 per common share in 2014).

Consolidated results summary for the year ended December 31, 2015 and 2014

	For the year ended December 31
(000's of $ except % and per share amounts)		2015			2014		$ Increase(Decrease)			% Increase(Decrease)
Total system wide sales (1)		2,407,512			2,383,324			24,188			1.0	%
Franchise sales (1)		375,794			374,844			950			0.3	%
Revenue		2,031,718			2,008,480			23,238			1.2	%
Cost of sales		1,145,593			1,131,651			13,942			1.2	%
Gross profit		886,125			876,829			9,296			1.1	%
Gross profit margin as a percentage of revenue		43.61	%		43.66	%
Selling, general and administrative expenses		767,079			756,936			10,143			1.3	%
SG&A as a percentage of revenue		37.76	%		37.69	%
Income before net finance costs and income tax expense		119,046			119,893			(847	)		(0.7	%)
Net finance costs		17,627			16,759			868			5.2	%
Income before income taxes		101,419			103,134			(1,715	)		(1.7	%)
Income tax expense		24,790			27,610			(2,820	)		(10.2	%)
Net income		76,629			75,524			1,105			1.5	%
Net income as a percentage of revenue		3.77	%		3.76	%
Basic weighted average number of common shares		71,217,958			70,898,590
Basic earnings per share	$	1.08		$	1.07			0.01			0.9	%
Diluted weighted average number of common shares		82,364,539			82,177,519
Diluted earnings per share	$	0.97		$	0.96			0.01			1.0	%
Common share dividends declared	$	0.40		$	0.40
Convertible, non-voting shares dividends declared	$	0.20		$	0.20
(1) Non-IFRS financial measures. Refer to page 10 for additional information.

Revenue

For the year ended December 31, 2015, revenue was $2,031,718,000 compared to $2,008,480,000 for the prior year’s period.  Revenue increased $23,238,000 or 1.2% for the comparative period.

Gross profit

The gross margin for the year ended December 31, 2015 decreased slightly from 43.66% to 43.61% compared to the prior year’s period.  Since the beginning of the fiscal year there has been a significant weakening of the Canadian dollar.  Currency hedging helped to minimize the effect of this on our gross profit margin.

Selling, general and administrative expenses

For the year, selling, general and administrative expenses of $767,079,000 were up $10,143,000 or 1.3% as compared to 2014.  The increase was mainly the result of incremental selling costs as SG&A expenses as a percentage of revenue in 2015 were 37.76% as compared to 37.69% in the prior year’s period.  Additional marketing dollars were also spent in an attempt to generate higher consumer traffic into our stores.

Net income and earnings per share

As a result of the above, net income for the year was $76,629,000, $1.08 per common share ($75,524,000, $1.07 per common share in 2014), an increase of $0.01 per common share.

Dividends

As previously announced, we paid a quarterly 10¢ dividend on January 8, 2016. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 8th day of April 2016 to shareholders of record at the close of business on the 8th day of March 2016. 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.

Store Network

The Company has 301 retail stores from coast to coast in Canada under the various banners indicated below which also includes 103 franchise locations.

Banner	Number of Stores
Leon's banner corporate stores	44
Leon's banner franchise stores	36
Appliance Canada banner stores	3
The Brick banner corporate stores1	113
The Brick banner franchise stores2	67
The Brick Mattress Store banner locations	22
UFW banner stores	2
UFW and The Brick Clearance Centre banner stores	14
Total number of stores	301
1Includes the Midnorthern Appliance banner
2Includes one UFW Franchise

Selected Consolidated Financial Information

The summary financial information set out below has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, for the three months and year ended December 31, 2015 and 2014. The unaudited financial information presented has been prepared on a basis consistent with our audited consolidated financial statements for Fiscal 2014. The information presented herein does not contain disclosures required by IFRS and should be read in conjunction with the Company’s audited consolidated financial statements available under the Company’s profile on SEDAR at www.sedar.com.

Consolidated Statements of Income(Unaudited)
	Three months ended December 31						Year ended December 31
(000's of $ except per share amounts)		2015			2014			2015			2014
Revenue		560,229			552,055			2,031,718			2,008,480
Cost of sales		311,428			308,158			1,145,593			1,131,651
Gross profit		248,801			243,897			886,125			876,829
Selling, general and administrative expenses		207,098			198,351			767,079			756,936
Income before net finance costs and income tax expense		41,703			45,546			119,046			119,893
Net finance costs		4,243			3,836			17,627			16,759
Net income before income tax		37,460			41,710			101,419			103,134
Income tax expense		7,273			11,796			24,790			27,610
Net income for the year		30,187			29,914			76,629			75,524
Earnings per share
Basic	$	0.42		$	0.42		$	1.08		$	1.07
Diluted	$	0.38		$	0.38		$	0.97		$	0.96

Consolidated Statements of Financial Position (Unaudited)
(000's of $)	As at December 31, 2015	As at December 31, 2014
Cash and cash equivalents	-	17,941
Restricted marketable securities	18,691	18,310
Available-for-sale financial assets	22,960	22,358
Trade receivables	117,832	112,171
Income taxes receivable	24,920	-
Inventories	303,961	266,628
Deferred acquisition costs	8,329	4,957
Deferred financing costs	473	923
Total current assets	497,166	443,288
Other assets	6,214	6,192
Deferred acquisition costs	13,093	11,093
Property, plant and equipment	323,218	334,052
Investment properties	18,496	21,992
Intangible assets	318,214	321,302
Goodwill	418,079	418,079
Deferred income tax assets	9,083	7,478
Total assets	1,603,563	1,563,476
Bank overdraft	20,100	-
Trade and other payables	206,076	197,044
Provisions	5,343	4,576
Income taxes payable	7,266	34,773
Customers' deposits	112,446	97,705
Finance lease liabilities	1,954	2,002
Dividends payable	7,141	7,105
Deferred warranty plan revenue	49,380	51,111
Loans and borrowings	50,000	30,000
Total current liabilities	459,706	424,316
Loans and borrowings	237,357	285,363
Convertible debentures	92,628	91,773
Finance lease liabilities	11,895	13,849
Deferred warranty plan revenue	95,775	92,254
Redeemable share liability	880	401
Deferred rent liabilities and lease inducements	8,858	6,794
Deferred income tax liabilities	96,062	99,621
Total liabilities	1,003,161	1,014,371
Common shares	34,389	31,169
Equity component of convertible debentures	7,089	7,089
Retained earnings	558,526	510,398
Accumulated other comprehensive income	398	449
Total shareholders' equity	600,402	549,105
Total liabilities and shareholders' equity	1,603,563	1,563,476

Consolidated Statements of Cash Flows  (Unaudited)
	Year ended December 31
(000's of $)		2015			2014
Operating Activities
Net income for the year		76,629			75,524
Add (deduct) items not involving an outlay of cash
Depreciation of property, plant and equipment and investment properties		33,694			35,431
Amortization of intangible assets		8,044			7,289
Amortization of deferred warranty plan revenue		(55,180	)		(61,974	)
Net finance costs		17,627			16,759
Deferred income taxes		(5,317	)		(5,513	)
Gain on sale of property, plant and equipment		(1,072	)		(126	)
Loss(gain) on sale of available-for-sale financial assets		1,514			(399	)
		75,939			66,991
Net change in non-cash working capital balances related
to operations		(74,426	)		19,180
Cash received on warranty plan sales		56,970			65,817
Cash provided by operating activities		58,483			151,988
Investing Activities
Purchase of property, plant and equipment and investment properties		(22,756	)		(16,562	)
Purchase of intangible assets		(4,956	)		(3,754	)
Proceeds on sale of property, plant and equipment and investment properties		4,464			224
Purchase of available-for-sale financial assets		(8,093	)		(12,801	)
Proceeds on sale of available-for-sale financial assets		5,524			10,429
Interest received		1,308			2,501
Cash used in investing activities		(24,509	)		(19,963	)
Financing Activities
Repayment of finance leases		(1,936	)		(1,949	)
Dividends paid		(28,465	)		(28,328	)
Decrease of employee loans-redeemable shares		3,699			3,358
Repayment of debenture		-			(15,000	)
Repayment of term loan		(30,000	)		(60,000	)
Interest paid		(15,313	)		(17,997	)
Cash used in financing activities		(72,015	)		(119,916	)
Net (decrease) increase in cash and cash equivalents
during the year		(38,041	)		12,109
Cash and cash equivalents, beginning of year		17,941			5,832
(Bank overdraft) cash and cash equivalents, end of year		(20,100	)		17,941

Non-IFRS Measures

Same Store Sales

Same store sales are defined as sales generated by stores that have been open or closed for more than 12 months on a yearly 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; The Brick Mattress Store; The Brick Clearance Centre and United Furniture Warehouse (“UFW”). Finally, the addition of the Brick’s Midnorthern Appliance banner alongside with Leon’s Appliance Canada banner, makes the Company the country’s largest commercial retailer of appliances to builders, developers, hotels and property management companies. The Company has in excess of 300 retail stores from coast to coast in Canada under various banners

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.

 

For further information, please contact:
Dominic Scarangella, EVP & CFO
Leon’s Furniture Limited
416-243-4073

Jonathan Ross, CFA
LodeRock Advisors, Leon’s Investor Relations
jon.ross@loderockadvisors.com 
Tel: (905) 334-0095