Leon's Furniture Releases Financial Results for the Third Quarter and Nine Months Ended September 30, 2015

TORONTO, Nov. 12, 2015 /CNW/ - Leon's Furniture Limited ("Leon's" or the "Company") (TSX: LNF), today announced financial results for the three and nine months ended September 30, 2015.

All figures in CAD thousands unless otherwise noted.

Highlights – Q3 2015

• Same store sales grew 1.1% in Q3-2015.
• Total system wide sales grew 1.0% to $635,347 in Q3-2015 compared to $629,152 in Q3-2014.
• Revenue grew 1.2% to $538,130 in Q3-2015 compared to $531,685 in Q3-2014.
• Excluding the costs related to the ongoing integration of The Brick for which we expect benefits in the future, operating expenses as a percentage of sales have declined.
• Diluted earnings per share of $0.34 in Q3-2015 compared to $0.34 in Q3-2014.

Highlights – nine months ended September 30^th

• Same-store sales grew 1.0% in the first nine months of 2015.
• Total system wide sales grew 0.7% to $1,711,114 in the first nine months of 2015 compared to $1,698,991 in the first nine months of 2014.
• Revenue grew 0.9% to $1,445,448 in the first nine months of 2015 compared to $1,432,211 in the first nine months of 2014.
• Diluted earnings per share of $0.59 in the first nine months of 2015 compared to $0.58 in the first nine months of 2014.

"During Q3, we generated solid same store sales, maintained consistent gross margins through effective promotional activity and set the stage to realize future operating expense efficiencies," said Edward Leon, President and Chief Operating Officer of Leon's. "In October, we converted the last region of The Brick to our IT system, concluding a nearly two year undertaking with minimal disruption to the business. We are well-positioned to drive value for shareholders in the coming years, given our dominant market position in all key categories and the incremental synergies we expect to continue to generate."

For a full explanation of the Company's use of non-IFRS measures, please refer to page 10 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 nine months ended September 30, 2015 available under the Company's profile on SEDAR at www.sedar.com.

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

			For the three months ended September 30
(000's of $ except % and per share amounts)			2015		2014			$ Increase (Decrease)	% Increase (Decrease)
Total system wide sales ^(1)				635,347		629,152		6,195	1.0%
Franchise sales ^(1)				97,217		97,467		(250)	(0.3%)
Revenue				538,130		531,685		6,445	1.2%
Cost of sales				310,545		306,454		4,091	1.3%
Gross profit				227,585		225,231		2,354	1.0%
	Gross profit margin as a percentage of revenue			42.29%		42.36%
Operating expenses				185,766		184,433		1,333	0.7%
	Operating expenses as a percentage of revenue			34.52%		34.69%
Net finance costs				4,433		3,657		776	21.2%
Income before income taxes				37,386		37,141		245	0.7%
Income tax expense				10,046		9,854		192	1.9%
Net income				27,340		27,287		53	0.2%
	Net income as a percentage of revenue			5.08%		5.13%
Basic weighted average number of common shares				71,237,230		71,001,666
Basic earnings per share			$	0.38	$	0.38		-	-
Diluted weighted average number of common shares				82,316,642		82,335,180
Diluted earnings per share			$	0.34	$	0.34		-	-
Common share dividends declared			$	0.10	$	0.10		-
Convertible, non-voting shares dividends declared			$	-	$	-		-
(1) Non-IFRS financial measures. Refer to page 10 for additional information.

Revenue

For the three months ended September 30, 2015, revenue was $538,130,000 compared to $531,685,000 in the prior year's third quarter.  Revenue increased $6,445,000 or 1.2% between the comparative quarters as we continued to see growth in most product categories.

Gross profit

The gross margin for the third quarter 2015 decreased slightly from 42.36% to 42.29% compared to the prior year's third quarter.  We saw an increase in promotional pricing in the quarter which helped increase sales at lower margins but we were able to mitigate our foreign currency exposure.

Operating expenses

Net operating expenses of $185,766,000 increased $1,333,000 for the third quarter 2015 compared to the third quarter of 2014.  Compared to the prior year quarter, sales and marketing expenses increased $1,889,000. This increase was primarily related to advertising expenditures which increased $1,321,000 in order to promote our brands and increase sales.  General and administrative expenses decreased $1,755,000 for the comparative quarter.  The impact of annual salary increases was partially offset by the increase in the unrealized value of the Company's financial derivatives, comprised of foreign exchange forward contracts and a fixed interest rate swap.

Net income and earnings per share

As a result of the above, net income for the third quarter of 2015 was $27,340,000, $0.38 per common share ($27,287,000, $0.38 per common share in 2014).

Consolidated operating results for the nine months ended September 30, 2015 and 2014

			For the nine months ended September 30
(000's of $ except % and per share amounts)			2015		2014			$ Increase (Decrease)	% Increase (Decrease)
Total system wide sales ^(1)				1,711,114		1,698,991		12,123	0.7%
Franchise sales ^(1)				265,666		266,780		(1,114)	(0.4%)
Revenue				1,445,448		1,432,211		13,237	0.9%
Cost of sales				834,165		823,493		10,672	1.3%
Gross profit				611,283		608,718		2,565	0.4%
	Gross profit margin as a percentage of revenue			42.29%		42.50%
Operating expenses				533,940		534,370		(430)	(0.1%)
	Operating expenses as a percentage of revenue			36.94%		37.31%
Net finance costs				13,384		12,923		461	3.6%
Income before income taxes				63,959		61,425		2,534	4.1%
Income tax expense				17,517		15,814		1,703	10.8%
Net income				46,442		45,611		831	1.8%
	Net income as a percentage of revenue			3.21%		3.18%
Basic weighted average number of common shares				71,163,685		70,851,440
Basic earnings per share			$	0.65	$	0.64		0.01	1.6%
Diluted weighted average number of common shares				82,322,677		82,125,786
Diluted earnings per share			$	0.59	$	0.58		0.01	1.7%
Common share dividends declared			$	0.30	$	0.30		-
(1) Non-IFRS financial measures. Refer to page 10 for additional information.

Revenue

For the nine months ended September 30, 2015, revenue was $1,445,448,000 compared to $1,432,211,000 for the prior year's nine month period.  Revenue increased $13,237,000 or 0.9% for the comparative periods.

Gross profit

The gross margin for the nine months ended September 30, 2015 decreased slightly from 42.50% to 42.29% compared to the prior year's nine month period. Since the beginning of the fiscal year there has been a significant weakening of the Canadian dollar. We saw an increase in promotional pricing which helped increase sales at lower margins but we were able to mitigate our foreign currency exposure.

Operating expenses

Net operating expenses of $533,940,000 for the nine month period ending September 30, 2015 are basically flat when compared to the prior year's nine month period.

Net income and earnings per share

As a result of the above, net income for the nine month period ending September 30, 2015 was $46,442,000, $0.65 per common share ($45,611,000, $0.64 per common share in 2014), an increase of $0.01 per common share.

Dividends

As previously announced, we paid a quarterly 10¢ dividend on October 9, 2015. 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 January 2016 to shareholders of record at the close of business on the 8th day of December 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

Leon's has 301 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		44
Leon's banner franchise stores		36
Appliance Canada banner stores		3
The Brick banner corporate stores^1		113
The Brick banner franchise stores^2		66
The Brick Mattress Store banner locations		23
UFW banner stores		6
UFW and The Brick Clearance Centre banner stores		10
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 and nine months ended September 30, 2015 and September 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 nine months ended September 30, 2015 and September 30, 2014 available under the Company's profile on SEDAR at www.sedar.com.

Consolidated Statements of Income (Unaudited)
		Three months ended September 30				Nine months ended September 30
(000's of $ except per share amounts)			2015		2014		2015		2014
Revenue			538,130		531,685		1,445,448		1,432,211
Cost of sales			310,545		306,454		834,165		823,493
Gross profit			227,585		225,231		611,283		608,718
Operating expenses
General and administrative expenses			80,845		82,600		236,451		239,663
Sales and marketing expenses			62,137		60,248		170,493		170,852
Occupancy expenses			42,784		41,585		126,996		123,855
Total operating expenses			185,766		184,433		533,940		534,370
Operating profit			41,819		40,798		77,343		74,348
Finance costs			(4,775)		(4,220)		(14,494)		(14,599)
Finance income			342		563		1,110		1,676
Net income before income tax			37,386		37,141		63,959		61,425
Income tax expense			10,046		9,854		17,517		15,814
Net income for the period			27,340		27,287		46,442		45,611
Earnings per share
Basic		$	0.38	$	0.38	$	0.65	$	0.64
Diluted		$	0.34	$	0.34	$	0.59	$	0.58

Consolidated Statements of Financial Position (Unaudited)
(000's of $)				As at September 30, 2015		As at December 31, 2014
Cash and cash equivalents				-		17,941
Restricted marketable securities				18,631		18,310
Available-for-sale financial assets				22,326		22,358
Trade receivables				101,152		112,171
Income taxes receivable				24,920		-
Inventories				284,350		266,628
Deferred acquisition costs				5,287		4,957
Deferred financing costs				582		923
Total current assets				457,248		443,288
Other assets				14,678		6,192
Deferred acquisition costs				13,512		11,093
Property, plant and equipment				322,879		334,052
Investment properties				18,623		21,992
Intangible assets				319,936		321,302
Goodwill				418,079		418,079
Deferred income tax assets				9,456		7,478
Total assets				1,574,411		1,563,476
Bank overdraft				775		-
Trade and other payables				214,381		197,044
Provisions				4,154		4,576
Income taxes payable				6,439		34,773
Customers' deposits				97,327		97,705
Finance lease liability				2,002		2,002
Dividends payable				7,131		7,105
Deferred warranty plan revenue				50,602		51,111
Loans and borrowings				45,000		30,000
Total current liabilities				427,811		424,316
Loans and borrowings				266,886		285,363
Convertible debentures				92,412		91,773
Finance lease liability				12,337		13,849
Deferred warranty plan revenue				92,108		92,254
Redeemable share liability				881		401
Deferred rent liabilities and lease inducements				8,134		6,794
Deferred income tax liabilities				98,464		99,621
Total liabilities				999,033		1,014,371
Common shares				33,782		31,169
Equity component of convertible debentures				7,089		7,089
Retained earnings				535,480		510,398
Accumulated other comprehensive income				(973)		449
Total shareholders' equity				575,378		549,105
Total liabilities and shareholders' equity				1,574,411		1,563,476

Consolidated Statements of Cash Flows (Unaudited)
			Nine months ended September 30
(000's of $)			2015	2014
Operating Activities
Net income for the period			46,442	45,611
Add (deduct) items not involving an outlay of cash
Depreciation of property, plant and equipment and investment properties			24,714	27,188
Amortization of intangible assets			5,971	5,350
Amortization of deferred warranty plan revenue			(46,575)	(46,577)
Net finance costs			13,384	12,173
Deferred income taxes			(3,216)	(4,779)
(Gain) loss on sale of property, plant and equipment			(996)	(96)
Loss (gain) on sale of available-for-sale financial assets			(10)	(151)
			39,714	38,719
Net change in non-cash working capital balances related to operations			(53,826)	14,591
Cash received on warranty plan sales			45,920	48,060
Cash (used in) provided by operating activities			31,808	101,370
Investing Activities
Purchase of property, plant and equipment and investment properties			(13,531)	(5,893)
Purchase of intangible assets			(4,605)	(2,515)
Proceeds on sale of property, plant and equipment			4,355	184
Purchase of available-for-sale financial assets			(6,866)	(10,980)
Proceeds on sale of available-for-sale financial assets			4,651	7,836
Interest received			995	1,718
Cash used in investing activities			(15,001)	(9,650)
Financing Activities
Repayment of finance leases			(1,463)	(1,460)
Dividends paid			(21,334)	(21,227)
Decrease of employee loans-redeemable shares			3,093	3,020
Issuance of revolving credit			14,990	-
Repayment of debenture			-	(15,000)
Repayment of term loan			(20,000)	(40,000)
Interest paid			(10,809)	(13,159)
Cash used in financing activities			(35,523)	(87,826)
Net decrease in cash and cash equivalents during the period			(18,716)	3,894
Cash and cash equivalents, beginning of period			17,941	5,832
Bank overdraft, end of period			775	9,726

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. 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]