Leon's Furniture Releases Financial Results for the First Quarter Ended March 31, 2018

TORONTO, May 10, 2018 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced financial results for the first quarter 2018.

Highlights – Q1-2018

• Total system wide sales¹ grew 4.7% to $601,142,000 in Q1-2018 compared to $573,988,000 in Q1-2017.
• Revenue grew 3.4% to $500,719,000 in Q1-2018 compared to $484,189,000 in Q1-2017.
• Adjusted EBITDA¹ increased 10.7 % to $26,576,000 in Q1-2018 compared to $24,006,000 in Q1-2017.
• Adjusted net income¹ increased by 35.1% to $11,545,000 in Q1-2018 compared to $8,543,000 in Q1-2017.
• Adjusted diluted earnings per share¹ grew 27.3% to $0.14 in Q1-2018 compared to $0.11 in Q1-2017.
• Same store corporate sales¹ increased by 2.6% in Q1-2018.

¹Refer to the non-IFRS financial measures section of this press release

"During the first three months of 2018 our team generated another period of record revenue and strong double-digit bottom line growth," said Edward Leon, President and Chief Operating Officer of Leon's. "The strategies we have laid-out and executed over the past two years to increase in-store traffic as well as to contain expenses and drive cost synergies continue to pay off. Over the next 12 months we see additional opportunity to solidify our leading national market presence and realize incremental efficiencies across our network. As a management team and board of directors we would like to thank all of our long-term shareholders for their ongoing support and we can confidently say that over our 100-year history there has never been a more exciting time to be a Leon's shareholder."

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

Summary of Financial Highlights

	For the three months ended March 31
(000's of $ except % and per share amounts)	2018		2017		$ Increase		% Increase
Total system wide sales^(1)	601,142		573,988		27,154		4.7%
Franchise sales^(1)	100,423		89,799		10,624		11.8%
Revenue	500,719		484,189		16,530		3.4%
Same store sales^(1)	491,966		479,357		12,609		2.6%
Gross profit margin as a percentage of revenue	42.80%		41.91%
SG&A^(2)(excluding mark-to-market impact)	196,902		188,646		8,256		4.4%
SG&A^(2)as a percentage of revenue (excluding mark-to-market impact)	39.32%		38.96%
Adjusted EBITDA^(1)	26,576		24,006		2,570		10.7%
Adjusted net income^(1)	11,545		8,543		3,002		35.1%
Net income	14,526		8,614		5,912		68.6%
Adjusted basic earnings per share^(1)	$	0.15	$	0.12	$	0.03	25.0%
Adjusted diluted earnings per share^(1)	$	0.14	$	0.11	$	0.03	27.3%
Common share dividends declared	$	0.12	$	0.12	$	-	0.0%
(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 March 31, 2018, revenue was $500,719,000 compared to $484,189,000 in the prior year's first quarter.  Revenue increased $16,530,000 or 3.4% 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 increased from 38.96% to 39.32% compared to the prior year's quarter. This change was due primarily to the increase in payroll costs which include the minimum wage increase in Ontario and to the increased cost from offering longer term customer finance plans, which generated overall sales and profitability increases.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

As a result of the above, adjusted net income for the first quarter of 2018 was $11,545,000, $0.14  adjusted  diluted earnings per share ($8,543,000, $0.11 adjusted diluted earnings per share in 2017), an increase of  27.3% per share.

Dividends

As previously announced, we paid a quarterly 12¢ dividend on April 9, 2018. Today we are happy to announce that the Directors have declared a quarterly dividend of 12¢ per common share payable on the 6th day of July 2018 to shareholders of record at the close of business on the 6th day of June 2018. 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

Overall, we are pleased that we were able to improve our financial results in the first quarter of 2018.  Our strong financial position will allow us to focus on increasing market share in existing and new markets going forward.  Along with our continuing strong growth in online sales, we expect to see continued revenue growth this year, to maintain gross margins and continue to drive efficiencies.

Store Network

The Company has 303 retail stores from coast to coast in Canada under the various banners indicated below which also includes over 100 franchise locations. Including our franchises, we have over 10,000  employees across Canada.

	Number of Stores			Number of Stores
	as at December 31,			as at March 31,
Banner	2017	Opened	Closed	2018
Leon's banner corporate stores	50	—	—	50
Leon's banner franchise stores	36	—	—	36
Appliance Canada banner stores	4	—	—	4
The Brick banner corporate stores^1	114	—	—	114
The Brick banner franchise stores	65	—	(1)	64
The Brick Mattress Store banner locations	23	—	—	23
Brick Outlet	12	—	—	12
Total number of stores	304	0	(1)	303
^1Includes the Midnorthern Appliance banner

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

For a reconciliation of the Company's non-IFRS financial measures please refer to the Company's MD&A for the quarter ended March 31, 2018, 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 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;

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 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 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; 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.

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.

SOURCE Leon's Furniture Limited

Constantine Pefanis, CFO, Leon's Furniture Limited, Tel: [phone]; Jonathan Ross, LodeRock Advisors, Leon's Investor Relations, [email protected], Tel: [phone]

Related Links

http://www.leons.ca