Leon's Furniture Releases Financial Results for the Second Quarter and Six Months Ended June 30, 2015

TORONTO, Aug. 14, 2015 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced financial results for the three and six months ended June 30, 2015.

All figures in CAD thousands unless otherwise noted.

Highlights – Q2 2015

• Same-store sales grew 1.7% in Q2-2015.
• Total system wide sales grew 1.9% to $572,113 in Q2-2015 compared to $561,438 in Q2-2014.
• Revenue grew 2.1% to $484,281 in Q2-2015 compared to $474,517 in Q2-2014.
• Drove operating expense efficiencies, primarily in the reduction of third party delivery/fuel costs.
• Diluted earnings per share of $0.19 in Q2-2015 compared to $0.21 in Q2-2014.

Highlights – six months ended June 30^th

• Same-store sales grew 0.8% in the first six months of 2015.
• Total system wide sales grew 0.6% to $1,075,768 in the first six months of 2015 compared to $1,069,840 in the first six months of 2014.
• Revenue grew 0.8% to $907,318 in the first six months of 2015 compared to $900,526 in the first six months of 2014.
• Diluted earnings per share of $0.25 in the first six months of 2015 compared to $0.24 in in the first six months of 2014.

"We are pleased with the performance we generated in the second quarter," said Edward Leon, President and Chief Operating Officer of Leon's. "Although we experienced lower gross margins as a result of the decline in the Canadian dollar and aggressive marketing, we are growing same-store sales in a challenging environment and executing on the operating expense efficiencies we identified when we acquired The Brick two years ago. We are well-positioned to drive value for shareholders as we execute against our top-line growth strategy and generate further synergies."

"In May we announced some key changes to our senior leadership team and we are already benefitting from this decision," added Terry Leon, Chief Executive Officer of Leon's. "With Mike Walsh in charge of Leon's and Jim Caldwell responsible for The Brick, we have dedicated presidents driving division-level performance for the first time in this organization's history. This structure will reinforce the differentiated market position of our primary banners and free-up senior management resources to achieve synergies and execute on growth opportunities within our complimentary portfolio of businesses over the next several years."

For a full explanation of the Company's use of non-IFRS measures, please refer to page 8 of this press release.  For further discussion of the Company's financial and operating results, please refer to Management's Discussion and Analysis for the three and six months ended June 30, 2015 available under the Company's profile on SEDAR at www.sedar.com.

Consolidated operating results for the quarters ended June 30, 2015 and June 30, 2014

(000's of $ except % and per share amounts)	2015	(Restated) 2014	$ Increase (Decrease)	% Increase (Decrease)
Total system wide sales ^(1)	572,113	561,438	10,675	1.9%
Franchise sales ^(1)	87,832	86,921	911	1.0%
Revenue	484,281	474,517	9,764	2.1%
Cost of sales	279,122	270,509	8,613	3.2%
Gross profit	205,159	204,008	1,151	0.6%
Gross profit margin as a percentage of revenue	42.36%	42.99%
Operating expenses	179,634	176,919	2,715	1.5%
Operating expenses as a percentage of revenue	37.09%	37.28%
Net finance costs	4,597	4,098	499	12.2%
Income before income taxes	20,928	22,991	(2,063)	(9.0%)
Income tax expense	5,932	6,004	(72)	(1.2%)
Net income	14,996	16,987	(1,991)	(11.7%)
Net income as a percentage of revenue	3.10%	3.58%
Basic weighted average number of common shares	71,152,777	70,888,780
Basic earnings per share	$ 0.21	$ 0.24	(0.03)	(12.5%)
Diluted weighted average number of common shares	82,257,041	82,357,232
Diluted earnings per share	$ 0.19	$ 0.21	(0.02)	(9.5%)
Common share dividends declared	$ 0.10	$ 0.10	-
Convertible, non-voting shares dividends declared	$     -	$      -	-
(1) Non-IFRS financial measures. Refer to page 8 in this press release for additional information.

Revenue

For the three months ended June 30, 2015, revenue was $484,281,000 compared to $474,517,000 in the prior year's second quarter. Revenue increased $9,764,000 or 2.1% between the comparative quarters as we saw good growth in most product categories in the quarter.

Gross margin

Despite the weak Canadian dollar, we have been able to mitigate our foreign currency exposure.  As a result we only saw a decline in our gross margin in going from 42.99% to 42.36% compared to the prior year's second quarter.

Operating expenses

Net operating expenses of $179,634,000 increased $2,715,000 for the second quarter 2015 compared to the second quarter of 2014.  Compared to the prior year quarter, we experienced a $2,613,000 increase with respect to occupancy costs.  The increase related primarily to inflationary increases of property taxes, increase in repairs and maintenance and significant property tax refunds received in the second quarter of 2014 not received in the second quarter of 2015.  Sales and marketing expenses as a percentage of sales was similar to the prior year's second quarter.

Net income and earnings per share

As a result of the above, net income for the second quarter of 2015 was $14,996,000, $0.21 per common share ($16,987,000, $0.24 per common share in 2014), a decrease of $0.03 per common share.

Consolidated operating results for the six months ended June 30, 2015 and June 30, 2014

Revenue

For the six months ended June 30, 2015, revenue was $907,318,000 compared to $900,526,000 for the prior year's six month period.  Revenue increased $6,792,000 or .8% for the comparative periods.

Gross margin

The gross margin for the six months ended June 30, 2015 decreased from 42.58% to 42.29% compared to the prior year's six month period.  Since the beginning of the fiscal year there has been a significant weakening of the Canadian dollar.  Despite this factor, for the most part we have been able to maintain our gross profit margin.

Operating expenses

Net operating expenses of $348,174,000 have decreased $1,764,000 or .5% for the six month period ending June 30, 2015 when compared to the prior year's six month period.  This decrease is primarily the result of lower delivery costs due to expanded use of our own fleet of delivery trucks as opposed to relying on third party cartage companies, and lower fuel costs.

Net income and earnings per share

As a result of the above, net income for the six month period ending June 30, 2015 was $19,102,000, $0.27 per common share ($18,323,000, $0.26 per common share in 2014), an increase of $0.01 per common share.

Dividends

As previously announced, we paid a quarterly 10¢ dividend on July 8, 2015. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 9th day of October 2015 to shareholders of record at the close of business on the 9th day of September 2015. 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

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 stores^1	112
The Brick banner franchise stores^2	67
The Brick Mattress Store banner locations	25
UFW banner stores	6
UFW and The Brick Clearance Centre banner stores	10
Total number of stores	303
^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 and six months ended June 30, 2015 and June 30, 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 unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2015 and June 30, 2014 available under the Company's profile on SEDAR at www.sedar.com.

Consolidated Statements of Income
(Unaudited)
	Three months ended June 30		Six months ended June 30
		Restated		Restated
(000's of $ except per share amounts)	2015	2014	2015	2014
Revenue	484,281	474,517	907,318	900,526
Cost of sales	279,122	270,509	523,620	517,039
Gross profit	205,159	204,008	383,698	383,487
Operating expenses
General and administrative expenses	75,072	76,288	148,130	148,024
Sales and marketing expenses	57,671	56,535	108,356	110,605
Occupancy expenses	41,977	39,364	84,212	82,270
Other operating expenses	4,914	4,732	7,476	9,039
Total operating expenses	179,634	176,919	348,174	349,938
Operating profit	25,525	27,089	35,524	33,549
Finance costs	(4,920)	(4,759)	(9,719)	(10,379)
Finance income	323	661	768	1,113
Net income before income tax	20,928	22,991	26,573	24,283
Income tax expense	5,932	6,004	7,471	5,960
Net income for the period	14,996	16,987	19,102	18,323
Earnings per share
Basic	$ 0.21	$ 0.24	$ 0.27	$ 0.26
Diluted	$ 0.19	$ 0.21	$ 0.25	$ 0.24

Consolidated Statements of Financial Position
(Unaudited)
	As at June 30	As at December 31
(000's of $)	2015	2014
Cash and cash equivalents	-	17,941
Restricted marketable securities	19,097	18,310
Available-for-sale financial assets	23,550	22,358
Trade receivables	92,161	112,171
Income taxes receivable	24,920	-
Inventories	279,475	266,628
Deferred acquisition costs	5,127	4,957
Deferred financing costs	697	923
Total current assets	445,027	443,288
Other assets	13,851	6,192
Deferred acquisition costs	12,810	11,093
Property, plant and equipment	325,277	334,052
Investment properties	22,273	21,992
Intangible assets	321,625	321,302
Goodwill	418,079	418,079
Deferred income tax assets	9,840	7,478
Total assets	1,568,782	1,563,476
Bank overdraft	38,347	-
Trade and other payables	190,854	197,044
Provisions	3,939	4,576
Income taxes payable	4,724	34,773
Customers' deposits	90,531	97,705
Finance lease liability	2,002	2,002
Dividends payable	7,118	7,105
Deferred warranty plan revenue	50,869	51,111
Loans and borrowings	40,000	30,000
Total current liabilities	428,384	424,316
Loans and borrowings	281,327	285,363
Convertible debentures	92,196	91,773
Finance lease liability	12,846	13,849
Deferred warranty plan revenue	91,099	92,254
Redeemable share liability	881	401
Deferred rent liabilities and lease inducements	7,773	6,794
Deferred income tax liabilities	99,580	99,621
Total liabilities	1,014,086	1,014,371
Common shares	32,250	31,169
Equity component of convertible debentures	7,089	7,089
Retained earnings	515,270	510,398
Accumulated other comprehensive income	87	449
Total shareholders' equity	554,696	549,105
Total liabilities and shareholders' equity	1,568,782	1,563,476

Consolidated Statements of Cash Flows
(Unaudited)
	Six  months ended June 30
		Restated
(000's of $)	2015	2014
Operating Activities
Net income for the period	19,102	18,323
Add (deduct) items not involving an outlay of cash
Depreciation of property, plant and equipment and investment properties	16,288	18,305
Amortization of intangible assets	3,980	3,559
Amortization of deferred warranty plan revenue	(31,158)	(31,167)
Net finance costs	8,951	9,266
Deferred income taxes	(2,525)	(3,893)
(Gain)loss on sale of property, plant and equipment	(52)	3
Loss(gain) on sale of available-for-sale financial assets	6	(19)
	14,592	14,377
Net change in non-cash working capital balances related
to operations	(70,477)	(17,704)
Cash received on warranty plan sales	29,761	30,102
Cash (used in) provided by operating activities	(26,124)	26,775
Investing Activities
Purchase of property, plant and equipment and investment properties	(7,827)	(4,300)
Purchase of intangible assets	(4,303)	(1,793)
Proceeds on sale of property, plant and equipment	85	66
Purchase of available-for-sale financial assets	(6,203)	(7,122)
Proceeds on sale of available-for-sale financial assets	3,724	4,632
Interest received	674	708
Cash used in investing activities	(13,850)	(7,809)
Financing Activities
Repayment of finance leases	(971)	(1,752)
Dividends paid	(14,217)	(14,130)
Decrease of employee loans-redeemable shares	1,560	2,701
Issuance of revolving credit	14,987	-
Repayment of debenture	-	(15,000)
Repayment of term loan	(10,000)	(10,000)
Interest paid	(7,673)	(13,723)
Cash used in financing activities	(16,314)	(51,904)
Net decrease in cash and cash equivalents
during the period	(56,288)	(32,938)
Cash and cash equivalents, beginning of period	17,941	5,832
Bank overdraft, end of period	(38,347)	(27,106)

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 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 ("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. Leon's 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.

SOURCE Leon's Furniture Limited

Dominic Scarangella, EVP & CFO, Leon's Furniture Limited, 416-243-4073; Jonathan Ross, CFA, LodeRock Advisors, Leon's Investor Relations, [email protected], Tel: [phone]