Leon's Furniture Releases Financial Results for the First Quarter Ended March 31, 2017
Furniture World News Desk on
5/21/2017
- Total system wide sales1 grew 5.0% to $573,988,000 in Q1-2017 compared to $546,483,000 in Q1-2016.
- Revenue grew 4.5% to $484,189,000 in Q1-2017 compared to $463,447,000 in Q1-2016.
- Adjusted net income1 increased by 65.2% to $8,543,000 in Q1-2017 compared to $5,170,000 in Q1-2016.
- Adjusted EBITDA1 increased 13.5 % to $24,006,000 in Q1-2017 compared to $21,158,000 in Q1-2016.
- Adjusted diluted earnings per share1 grew 57.1% to $0.11 in Q1-2017 compared to $0.07 in Q1-2016.
- Same store corporate sales1 increased by 1.2% in Q1-2017.
1Refer to the non-IFRS financial measures section of this press release
"In Q1, the consistent execution of our strategy continued to generate solid sales growth and strong growth in adjusted diluted earnings per share", said Edward Leon , President and Chief Operating Officer of Leon's. "Over the past fifteen months we have implemented new marketing and merchandising strategies, which are successfully growing traffic at the store level. In addition, we have been working on improving the professionalism of our Sales Associates which has resulted in a better and more effective experience for our customers. Our Q1 results highlight that with single-digit top line growth, and a persistent focus on cost control, we can drive significant growth in profitability. Leon's is Canada's largest furniture, appliance and electronics retailer. With our established brands and coast-to-coast retail and distribution network, we are well-positioned to gain market share in a fragmented industry. We are confident that the judicious implementation of our strategy will continue to drive significant value for shareholders in the years to come."
Revenue
For the three months ended March 31, 2017 , revenue was $484,189,000 compared to $463,447,000 in the prior year's first quarter. Revenue increased $20,742,000 or 4.5% between the comparative quarters as we continued to see growth in most product categories.
Selling, general and administrative expenses (SG&A)
Excluding severance payments made in the prior year first quarter and 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 decreased from 39.63% to 38.96% compared to the prior year's quarter. The reduction is driven primarily from generating a higher degree of operating leverage by controlling fixed costs while revenues increased 4.5% in the quarter.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
As a result of the above, adjusted net income for the first quarter of 2017 was $8,543,000 , $0.11 adjusted diluted earnings per share ( $5,170,000 , $0.07 adjusted diluted earnings per share in 2016), an increase of 57.1% per share.
Dividends
As previously announced, we paid a quarterly 12¢ dividend on April 28, 2017 . Today we are happy to announce that the Directors have declared a quarterly dividend of 12¢ per common share payable on the 7th day of July 2017 to shareholders of record at the close of business on the 7th day of June 2017 . 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
With the expansion of nine new retail locations, and our growth in ecommerce presence, we expect to see continued growth in sales for 2017. Along with the growth in sales, we intend to maintain gross margins and continue to drive efficiencies.
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:
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, 2017 , 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;
- severance charges in the period, a non-recurring expense included in the Company's SG&A.
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.
More 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. 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.