TORONTO, Aug. 11, 2021 /CNW/ - Leon's Furniture
Limited ("LFL" or the "Company") (TSX: LNF), today
announced record financial results for the second quarter of
2021.
Financial Highlights – Q2-2021
- Record revenue in the quarter of $588.5
million compared to $416.7
million in Q2-2020, an increase of 41.2%, despite
approximately half of the Company's retail store locations being
temporarily closed due to government mandated
pandemic closures that impacted a majority of the
quarter.
- Same-store sales(1) increased 41.1% in Q2-2021
compared to Q2-2020.
- Ecommerce sales growth in the quarter of 46% as compared to the
prior year quarter, which is on top of the 504% growth in eCommerce
sales that occurred in the prior year's quarter as compared to the
second quarter of 2019.
- Gross profit margin improved to 44.11% in Q2-2021 from 43.65%
in Q2-2020, with increases across all product categories.
- Adjusted EBITDA(1) of $94.8
million in Q2-2021 compared to $63.1
million(2) in Q2-2020, an increase of 50.3%.
- Adjusted diluted earnings per share(1) grew by 87.1%
to $0.58 in Q2-2021 from $0.31(2) in Q2-2020.
- A special dividend of $1.25 was
declared by the Board of Directors.
- Under the terms of the Company's share repurchase program
announced in September 2020, 3.3
million common shares with an approximate value of $68.7 million have been purchased through
June 30, 2021.
Financial Highlights – six months ended
June 30, 2021
- System wide sales(1) increased by $303.6 million to $1.4
billion, or 27.4%.
- Revenue increased to $1.16
billion from $914.3 million,
an increase of $245.4 million or
26.8%.
- Same store sales(1) increased 26.3% year to date
June 2021.
- Adjusted EBITDA(1) increased by 27.8% to
$181.9 million year to date
June 2021 compared to June 2020.
- Net income increased by 42.7% to $86.9
million year to date June
2021.
- Adjusted diluted earnings per share(1) grew by 48.6%
to $1.10 in year to date June 2021 from $0.74 in year to date June
2020.
- On a trailing twelve month basis, adjusted diluted earnings per
share(1) is at $2.41 as
compared to $1.62 in the prior year's
trailing twelve month period, an increase of over 48% or
$0.79 per share.
- Year to date the Company has returned $66.5 million to shareholders in the form of
dividends paid and common share repurchases as compared to
$29 million in the prior year
period.
(1) For a full explanation of the
Company's use of non-IFRS financial measures, please refer to the
section of this press release with the heading "Non-IFRS Financial
Measures".
|
(2) These financial results
exclude the $29.8 million dollars that was recorded in the
Company's Q2 2020 financial results due to the Canada Emergency
Wage Subsidy ("CEWS") program. The Company's 2021 financial
results do not include amounts related to the CEWS program since
the Company did not receive any CEWS in 2021.
|
Edward Leon, Chief Executive Officer during the
quarter, commented, "Our record Q2 2021 financial results reflect
the consistent efforts of our associates across the country, solid
execution, as well as the power of the omnichannel sales platform
we have steadily expanded over the past several years. During the
quarter, we achieved double-digit revenue increases in all regions
and product categories, with a 41.1% increase in same store sales
driven by our scalable eCommerce business in a period where almost
half of the Company's retail store locations experienced
government-mandated temporary store closures. Importantly, the
Company's steady focus on operational execution and profitability,
as well as higher operating profit margins in the eCommerce
business drove adjusted diluted EPS growth of 87.1% on a
CEWS-adjusted basis, in an environment where freight costs were
elevated due to COVID-related supply chain disruptions."
Mr. Leon who retired effective July
1, 2021 continued, "I would like to welcome Mike Walsh to the CEO role. Mike joined the
business in 2015 and has been a key contributor to the growth we
have been able to achieve since that time. LFL is better positioned
than ever to continue building shareholder value, leveraging: a
scalable, rapidly growing eCommerce platform; a national retail
footprint featuring some of the most recognizable banners in the
country; a portfolio of industry-leading service businesses; a
substantial real estate portfolio; a dominant national distribution
infrastructure; and a rock-solid balance sheet with half a
billion dollars of unrestricted liquidity. I would like to thank
all of our long-term shareholders for their continued support, and
express my firm belief that despite the Company's growth since its
founding over 100 years ago, the best is yet to come."
Summary of Consolidated Results
In response to the COVID-19 pandemic, in the second quarter of
2020 the federal government announced the Canada Emergency Wage Subsidy ("CEWS") to help
employers return and keep their employees on their payrolls.
The Company met the eligibility criteria and for the three months
ended June 30, 2020, a pre-tax amount
of $29.8 million was
recognized. As a result, the Company's three months ended
June 30, 2020 have been restated in
the selected table below to show comparatives for both the excluded
and included impact of CEWS, given that the Company has not
received for any CEWS amounts in the three months ended
June 30, 2021.
Summary financial highlights for the three months ended
June 30, 2021 and June 30, 2020
For
the
|
Three months
ended
|
|
|
(C$ in millions
except %, share and per share amounts)
|
June 30,
2021
|
June 30,
2020
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|
|
|
|
|
Total system-wide
sales (1)
|
714.4
|
509.9
|
204.5
|
40.1%
|
Franchise sales
(1)
|
125.9
|
93.2
|
32.7
|
35.1%
|
|
|
|
|
|
Revenue
|
588.5
|
416.7
|
171.8
|
41.2%
|
Cost of
sales
|
328.9
|
234.7
|
94.2
|
40.2%
|
Gross
profit
|
259.6
|
181.9
|
77.7
|
42.7%
|
Gross profit margin
as a percentage of revenue
|
44.11%
|
43.65%
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses (2) (3)
|
192.9
|
146.7
|
46.2
|
31.5%
|
SG&A as a
percentage of revenue (3)
|
32.78%
|
35.21%
|
|
|
|
|
|
|
|
Income before net
finance costs and income tax expense
|
66.7
|
35.3
|
31.4
|
89.0%
|
Net finance
costs
|
(4.1)
|
(4.8)
|
(0.7)
|
(14.6%)
|
Income before income
taxes
|
62.6
|
30.5
|
32.1
|
105.2%
|
Income tax
expense
|
16.0
|
5.2
|
10.8
|
207.7%
|
Adjusted net income
(1)
|
46.6
|
25.3
|
21.3
|
84.2%
|
Adjusted net income
as a percentage of revenue (1)
|
7.92%
|
6.07%
|
|
|
|
|
|
|
|
After-tax
mark-to-market loss on financial
|
|
|
|
|
derivative
instruments (1)
|
0.6
|
-
|
0.6
|
100.0%
|
Net
income
|
46.0
|
25.3
|
20.7
|
81.8%
|
|
|
|
|
|
Basic
weighted average number of common shares
|
78,132,709
|
79,662,259
|
|
|
Basic earnings per
share
|
$0.59
|
$0.32
|
$0.27
|
84.4%
|
Adjusted basic
earnings per share (1)
|
$0.60
|
$0.31
|
$0.29
|
93.5%
|
|
|
|
|
|
Diluted weighted
average number of common shares
|
79,890,784
|
81,717,325
|
|
|
Diluted earnings per
share
|
$0.58
|
$0.32
|
$0.26
|
81.3%
|
Adjusted diluted
earnings per share (1)
|
$0.58
|
$0.31
|
$0.27
|
87.1%
|
|
|
|
|
|
Common share
dividends declared
|
$0.16
|
$0.12
|
$0.04
|
33.3%
|
(1)
|
Refer to the Non-IFRS
financial measures section for additional information.
|
(2)
|
Selling, general and
administrative expenses ("SG&A").
|
(3)
|
SG&A for the
three months ended June 30, 2020 excludes the impact of the CEWS of
$29.8 million or 7.1% as a percentage of revenue for the
three-month period.
|
For
the
|
Three months
ended
|
|
|
(C$ in millions
except %, share and per share amounts)
|
June 30,
2021
|
June 30,
2020
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|
|
|
|
|
Total system-wide
sales (1)
|
714.4
|
509.9
|
204.5
|
40.1%
|
Franchise sales
(1)
|
125.9
|
93.2
|
32.7
|
35.1%
|
|
|
|
|
|
Revenue
|
588.5
|
416.7
|
171.8
|
41.2%
|
Cost of
sales
|
328.9
|
234.7
|
94.2
|
40.1%
|
Gross
profit
|
259.6
|
181.9
|
77.7
|
42.7%
|
Gross profit margin
as a percentage of revenue
|
44.11%
|
43.65%
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses (2) (3)
|
192.9
|
116.9
|
76.0
|
65.0%
|
SG&A as a
percentage of revenue (3)
|
32.78%
|
28.05%
|
|
|
|
|
|
|
|
Income before net
finance costs and income tax expense
|
66.7
|
65.1
|
1.6
|
2.5%
|
Net finance
costs
|
(4.1)
|
(4.8)
|
(0.7)
|
(14.6%)
|
Income before income
taxes
|
62.6
|
60.3
|
2.3
|
3.8%
|
Income tax
expense
|
16.0
|
13.2
|
2.8
|
21.2%
|
Adjusted net income
(1)
|
46.6
|
47.2
|
(0.6)
|
(1.3%)
|
Adjusted net income
as a percentage of revenue (1)
|
7.92%
|
11.33%
|
|
|
|
|
|
|
|
After-tax
mark-to-market loss on financial
|
|
|
|
|
derivative
instruments (1)
|
0.6
|
-
|
0.6
|
100%
|
Net
income
|
46.0
|
47.2
|
(1.2)
|
(2.5%)
|
|
|
|
|
|
Basic
weighted average number of common shares
|
78,132,709
|
79,662,259
|
|
|
Basic earnings per
share
|
$0.59
|
$0.59
|
-
|
-
|
Adjusted basic
earnings per share (1)
|
$0.60
|
$0.59
|
$0.01
|
1.7%
|
|
|
|
|
|
Diluted weighted
average number of common shares
|
79,890,784
|
81,717,325
|
|
|
Diluted earnings per
share
|
$0.58
|
$0.58
|
-
|
-
|
Adjusted diluted
earnings per share (1)
|
$0.58
|
$0.58
|
-
|
-
|
|
|
|
|
|
Common share
dividends declared
|
$0.16
|
$0.12
|
$0.04
|
33.3%
|
(1)
|
Refer to the Non-IFRS
financial measures section for additional information.
|
(2)
|
Selling, general and
administrative expenses ("SG&A").
|
(3)
|
SG&A for the
three months ended June 30, 2020 includes the impact of the CEWS of
$29.8 million or 7.1% as a percentage of revenue for the
three-month period.
|
Same Store Sales (1)
For
the
|
Three months
ended
|
|
|
(C$ in millions,
except %)
|
June 30,
2021
|
June 30,
2020
|
$
Increase
|
%
Increase
|
Same store sales
(1)
|
576.9
|
408.9
|
168.0
|
41.1%
|
(1)
|
Refer to the Non-IFRS
financial measures section for additional information.
|
Revenue
For the three months ended June
30, 2021, revenue was $588.5 million compared to $416.7 million in the second quarter of
2020. Revenue increased $171.8
million or 41.2% as compared to the prior year quarter due
to double-digit increases across the country and in all product
categories but with significant strength in the furniture product
category. This notable revenue increase in the second quarter of
2021 was achieved despite almost half of the Company's retail store
locations being temporarily closed due to provincial government
mandated store closures. The Company's continued focus on
eCommerce, including its live chat initiatives, generated a quarter
over quarter 46% increase in eCommerce driven sales during the
quarter, which is on top of the sales growth in eCommerce sales of
504% in the second quarter of 2020 as compared to the second
quarter of 2019. The ongoing strength in eCommerce sales in the
quarter also continue to validate that the Company's digital
platform is very scalable and capable of significantly contributing
higher operating profit margin percentages due to its current
operating cost structure. The digital platform is key 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.
Same Store Sales (1)
The Company was able to achieve a 41.1% increase in same store
sales in the quarter compared to the second quarter of 2020. This
was due to strong eCommerce driven sales during the quarter when
the Company's retail store closures were on-going. The reopening of
all store locations in June had a positive impact on the Company's
sales for the last month of the quarter.
Gross Profit
The gross profit margin of 44.11% in the quarter increased by 46
basis points from the second quarter of 2020. This was due to
increases in gross profit margin percentages across all of the
Company's product categories, notwithstanding increased freight
costs due to the pandemic related disruptions of the global supply
chain and significant provisional tariffs implemented by the Canada
Border Services Agency ("CBSA") that came into effect on
May 5, 2021. These provisional
tariffs were implemented in response to a formal written complaint
filed by Canadian producers of like goods. The complaint
contained allegations of dumped and subsidized imports of
upholstered domestic seating from China and Vietnam. Despite these significant cost
increases, the Company was able to improve its gross profit margin
on revenues generated in the quarter. Subsequent to the quarter
ended June 30, 2021, the CBSA
reevaluated and significantly reduced the provisional tariffs for a
majority of the suppliers from which the Company sources upholstery
products. The Canadian International Trade Tribunal is currently
conducting its inquiry on this matter and expects to issue its
ultimate finding on September 2,
2021.
Selling, General and Administrative
Expenses ("SG&A")
The second quarter of 2020 included a wage subsidy of
$29.8 million received from the
Government of Canada under the
CEWS program, however during the second quarter of 2021 the Company
did not receive any additional wage subsidy under the CEWS program.
Therefore, excluding the impact of CEWS from the prior year second
quarter, the Company's SG&A as a percentage of revenue for the
second quarter of 2020 was 35.21% compared to 32.78% for the second
quarter of 2021, an improvement of 243 basis points over the second
quarter of 2020. This improvement in operating costs leverage and
continued cost reduction initiatives in the
quarter demonstrate the Company's ability to adjust and
monitor its cost structure during the provincially mandated and
temporary retail store closures.
Adjusted Net Income (1) and Adjusted Diluted
Earnings Per Share (1)
Excluding the impact of CEWS, adjusted net income in the second
quarter of 2020 totaled $25.3 million
compared to adjusted net income for the second quarter of 2021 of
$46.6 million, an increase of
$21.3 million or 84.2%. Additionally,
excluding the impact of CEWS, the adjusted diluted earnings per
share in the second quarter 2020 was $0.31 per share compared to $0.58 per share in the current quarter, an
increase of $0.27 per share or
87.1%.
Net Income and Diluted Earnings Per Share
Net income for the second quarter of 2021 was $46.0 million, or $0.58 per diluted earnings per share as compared
to the $0.58 per diluted earnings per
share recorded in the prior year's quarter which included the CEWS
amount as detailed above.
(1)
|
Refer to the Non-IFRS
financial measures section for additional information.
|
Dividends
As previously announced, the Company paid a quarterly dividend
of $0.16 per common share on
July 8, 2021. Today the Directors
have declared a quarterly dividend of $0.16 per common share payable on the 8th day of
October 2021 to shareholders of
record at the close of business on the 8th day of September 2021. In addition, the Directors have
declared a special dividend of $1.25
per common share payable on the 8th day of October 2021 to shareholders of record at the
close of business on the 8th day of September 2021. 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, 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. 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 303
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:
Adjusted Net Income
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
|
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
LFL'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, both
in store and through online transactions, that have been open for
more than 12 months on a fiscal 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; 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 303
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