LNF Leons Furniture Ltd

Leon’s Furniture Limited (“Leon’s” or the “Company”) (TSX:LNF), today announced financial results for the second quarter 2016.

All figures in CAD thousands unless otherwise noted.

Highlights – Q2 2016

• Same store sales1 grew 4.1% in Q2-2016.
• Total system wide sales1 grew 4.4% to $606,453 in Q2-2016 compared to $580,771 in Q2-2015.
• Revenue grew 4.7% to $516,184 in Q2-2016 compared to $492,939 in Q2-2015.
• Adjusted diluted earnings per share1 is $0.20 in Q2-2016 compared to $0.20 in Q2-2015.          

Highlights – six months ended June 30th

• Same store sales1 grew 5.8% in the first six months of 2016.
• Total system wide sales1 grew 5.7% to $1,152,936 in the first six months of 2016 compared to $1,090,438 in the first six months of 2015.
• Revenue grew 6.2% to $979,631 in the first six months of 2016 compared to $922,628 in the first six months of 2015.
• Adjusted EBITDA1 increased 2.9% to $56,458 in the first six months of 2016 compared to $54,844 for the comparative prior year period.
• Adjusted diluted earnings per share1 increased 12.5% to $0.27 in the first six months of the year compared to $0.24 for the comparative prior year period.

1Refer to the Non-IFRS Measures section of this press release

“Effective marketing and strong merchandising programs continued to drive incremental same store sales growth in Q2,” said Edward Leon, President & Chief Operating Officer of Leon’s. “The strategic initiatives we have put in place are driving greater traffic and increasing average ticket price at the store level across all our banners contributing to growth in our top line while maintaining our profitability. Throughout the quarter we continued to make progress on our eight new retail locations across Canada. We look forward to all these stores being opened by the end of September 2016, which will give both banners a meaningful presence in all key areas of the country. We remain confident that through judicious growth, sustained cost control and incremental synergies related to our acquisition of The Brick, we will continue to drive value for our shareholders in the coming years.”

For a full explanation of the Company’s use of non-IFRS measures, please refer below.

Summary of Financial Highlights

	For the three months ended June 30
								$ Increase			% Increase
(000's of $ except % and per share amounts)		2016			2015			(Decrease)			(Decrease)
Total system wide sales (1)		606,453			580,771			25,682			4.4	%
Franchise sales (1)		90,269			87,832			2,437			2.8	%
Revenue		516,184			492,939			23,245			4.7	%
Same store sales (1)		506,888			486,865			20,023			4.1	%
Gross profit margin as a percentage of revenue		41.92	%		43.38	%
SG&A(2) as a percentage of revenue (excluding mark-to-market impact and severance charge)		37.05	%		38.01	%
Adjusted EBITDA(1)		35,300			36,630			(1,330	)		(3.6	%)
Adjusted net income(1)		15,547			15,675			(128	)		(0.8	%)
Adjusted basic earnings per share(1)	$	0.22		$	0.22		$	-			0.0	%
Adjusted diluted earnings per share(1)	$	0.20		$	0.20		$	-			0.0	%
Common share dividends declared	$	0.10		$	0.10		$	-
(1) Non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section in this press release for additional information.
(2) Selling, general and administrative expenses

Revenue

For the three months ended June 30, 2016, revenue was $516,184,000 compared to $492,939,000 in the prior year’s second quarter.  Revenue increased $23,245,000 or 4.7% between the comparative quarters as we continued to see growth in most product categories.

Selling, general and administrative expenses (“SG&A”)

Excluding the mark-to-market impact of the Company’s financial derivatives, comprised of foreign exchange forwards and a fixed interest rate swap, SG&A as a percentage of revenue decreased from 38.01% to 37.05% compared to the prior year’s quarter.  The reduction is due primarily from generating a higher degree of operating leverage as revenues increased 4.7% in the quarter and by controlling fixed costs.

Adjusted Net Income(1) and Adjusted Earnings Per Share(1)

As a result of the above, adjusted net income for the second quarter of 2016 was $15,547,000, $0.22 adjusted basic earnings per share ($15,675,000, $0.22 adjusted basic earnings per share in 2015).

Consolidated operating results for the six months ended June 30, 2016 and June 30, 2015

	For the six months ended June 30
										$ Increase			% Increase
(000's of $ except % and per share amounts)		2016				2015				(Decrease)			(Decrease)
Total system wide sales (1)		1,152,936				1,090,438				62,498			5.7	%
Franchise sales (1)		173,305				167,810				5,495			3.3	%
Revenue		979,631				922,628				57,003			6.2	%
Same store sales (1)		964,222				911,441				52,781			5.8	%
Gross profit margin as a percentage of revenue		41.89	%			43.25	%
SG&A(2) as a percentage of revenue (excluding mark-to-market impact and severance charge)		38.20	%			39.50	%
Adjusted EBITDA(1)		56,458				54,844				1,614			2.9	%
Adjusted net income(1)		20,717				18,410				2,307			12.5	%
Adjusted basic earnings per share(1)	$	0.29			$	0.26			$	0.03			11.5	%
Adjusted diluted earnings per share(1)	$	0.27			$	0.24			$	0.03			12.5	%
Common share dividends declared	$	0.20			$	0.20			$	-
(1) Non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section in this press release for additional information.
(2) Selling, general and administrative expenses

Revenue

For the six months ended June 30, 2016, revenue was $979,631,000 compared to $922,628,000 for the prior year’s six month period. Revenue increased $57,003,000 or 6.2% for the comparative periods.

Selling, general and administrative expenses (“SG&A”)

Excluding severance payments and the mark-to-market impact of the Company’s financial derivatives, comprised of foreign exchange forwards and a fixed interest rate swap, SG&A as a percentage of revenue decreased from 39.5% to 38.2%. Like the second quarter results, the reduction is due primarily from generating a higher degree of operating leverage as revenues increased 6.2% for the six month period and by controlling fixed costs.

Adjusted Net Income(1) and Adjusted Earnings Per Share(1)

As a result of the above, adjusted net income for the six month period ending June 30, 2016 was $20,717,000, $0.29 per common share ($18,410,000, $0.26 per common share in 2015).

Dividends

As previously announced, we paid a quarterly 10¢ dividend on July 8, 2016. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 7th day of October 2016 to shareholders of record at the close of business on the 7th day of September 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 297 retail stores from coast to coast in Canada under the various banners indicated below which also includes over 100 franchise locations.

Banner		Number of Stores
Leon's banner corporate stores		43
Leon's banner franchise stores		36
Appliance Canada banner stores		3
The Brick banner corporate stores1		114
The Brick banner franchise stores2		66
The Brick Mattress Store banner locations		20
United Furniture Warehouse ("UFW") banner stores		2
UFW and The Brick Clearance Centre banner stores		13
Total number of stores		297
1Includes the Midnorthern Appliance banner
2Includes one UFW Franchise

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 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 measures please refer to the Company’s MD&A for the quarter ended June 30, 2016, which is available on SEDAR at www.sedar.com.

Adjusted Net Income

Leon’s calculates comparable measures by excluding the effect of:

• the mark-to-market adjustments included in the Company’s selling, general and administrative (“SG&A”) income statement line item, related to the net effect of USD-denominated forward contracts and an interest rate swap on the Company’s term credit facility;
• severance charges in the period, a non-recurring expense included in the Company’s SG&A.

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.  Similarly, excluding from income the effect of non-recurring expenses better reflects Leon’s normalized SG&A as a percentage of revenue in the period.

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 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 entities, 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.

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 press release 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 press release 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 press release. 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 press release 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. Finally, with the Midnorthern Appliance banner alongside the Appliance Canada banner, we are also the country’s largest commercial retailer of appliances to builders, developers, hotels and property management companies. The Company has 297 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
Tel: (416) 243-4073

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