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Leon’s Furniture Releases Financial Results for the Fourth Quarter and Year Ended December 31, 2015

/EIN News/ -- TORONTO, Feb. 25, 2016 (GLOBE NEWSWIRE) -- 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

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