Leon's Furniture Releases Financial Results for the Fourth Quarter Ended December 31, 2018
Leon's Furniture Limited ("Leon's" or the "Company") (TSX:LNF.TO), today announced financial results for the fourth quarter 2018.
Highlights - Q4-2018
-- Total system wide sales(1) were $726,547,000 in Q4-2018 compared to $723,255,000 in Q4-2017. -- Revenue was $601,660,000 in Q4-2018 compared to $596,851,000 in Q4-2017. -- Adjusted net income(1) increased by 6% to $38,289,000 in Q4-2019 compared to $36,119,000 in Q4-2017 -- Adjusted diluted earnings per share(1) grew 4.4% to $0.47 in Q4-2018 compared to $0.45 in Q4-2017. -- Net debt including the convertible debenture totaled $14,259,000 at December 31, 2018 compared to $138,909,000 at December 31, 2017.
Highlights - Fiscal year 2018
-- Total system wide sales(1) grew 1.6% to $2,684,759,000 in fiscal 2018 compared to $2,641,254,000 in fiscal 2017. -- Revenue grew 1.2% to $2,241,437,000 in fiscal 2018 compared to $2,215,379,000 in fiscal 2017. -- Adjusted net income(1) increased by 7.7% to $106,691,000 in fiscal 2018 compared to $99,022,000 in fiscal 2017. -- Adjusted EBITDA(1) increased 2.1% to $188,756,000 in fiscal 2018 compared to $184,798,000 in fiscal 2017. -- Adjusted diluted earnings per share(1) grew 6.5% to $1.31 in fiscal 2018 compared to $1.23 in fiscal 2017.
(1) Refer to the non-IFRS financial measures section of this press release
"Despite some weakness in consumer spending across the country, the ongoing execution of our strategy and the combined effort of our entire team led to both record sales and adjusted earnings during 2018", said Edward Leon, Chief Executive Officer and President of Leon's. "This year, we will be pushing forward in an even more concerted way in an attempt to prudently grow market share in all categories, through innovative marketing programs and strong promotional campaigns. We continue to enjoy increased efficiencies in all aspects of our business through our application of best practices between the Company's divisions. As a management team, we are confident that our efforts will continue to translate into the generation of meaningful shareholder value, leveraging: our national retail footprint; a portfolio of industry-leading service businesses; a substantial real estate portfolio; successful and rapidly growing on-line properties; and our dominant national distribution infrastructure."
For a full explanation of the Company's use of non-IFRS financial measures, please refer to the heading "Non-IFRS Financial Measures" in this document
Summary of Financial Highlights
For the three months ended December 31 (000's of $ except % and per share amounts) 2018 2017 $ Increase/ % Increase/ (Decrease) (Decrease) --- --- Total system wide sales (1)(2) 726,547 723,255 3,292 0.5% Franchise sales (1) 124,887 126,404 (1,517) (1.2%) Revenue (2) 601,660 596,851 4,809 0.8% Same store sales (1) 587,800 588,398 (598) (0.1%) Gross profit margin as a percentage of revenue 44.61% 44.24% SG&A(3) 214,734 213,047 1,687 0.8% SG&A(3)as a percentage of revenue 35.69% 35.70% Adjusted EBITDA(1) 62,362 61,600 762 1.2% Adjusted net income(1) 38,289 36,119 2,170 6.0% Net income 38,785 34,778 4,007 11.5% Adjusted basic earnings per share(1) $ 0.50 $ 0.48 $ 0.02 4.2% Adjusted diluted earnings per share(1) $ 0.47 $ 0.45 $ 0.02 4.4% Common share dividends declared $ 0.14 $ 0.12 $ 0.02 16.7% === === (1) Non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section in this press release for additional information. (2) Reclassified comparative results to conform to the presentation of the three months ended December 31, 2018 (3) Selling, general and administrative expenses
For the three months ended December 31, 2018, revenue was $601,660,000 compared to $596,851,000 in the prior year's fourth quarter. Revenue increased by 0.8% as compared to the prior quarter mainly due to increases in mattress sales and commercial sales.
Selling, general and administrative expenses ("SG&A")
SG&A as a percentage of revenue in the current quarter was down marginally as compared to the prior year's fourth quarter. This was due to effectively managing overall SG&A expenses throughout the quarter while at the same time increasing advertising spend in the current quarter to drive traffic to both the retail stores and to the Company's websites.
Adjusted Net Income and Adjusted Diluted Earnings Per Share((1))
As we continue to pay down debt, we have reduced our net debt finance charges by $771,000 between the comparative quarters. As a result of the factors above, adjusted net income for the fourth quarter of 2018 was $38,289,000. This resulted in an adjusted diluted earnings per share of $0.47 in the quarter (adjusted net income $36,119,000 and $0.45 adjusted diluted earnings per share in 2017).
Consolidated operating results for the year ended December 31, 2018 and December 31, 2017
For the year ended December 31 (000's of $ except % and per share amounts) 2018 2017 $ Increase % Increase --- --- Total system wide sales (1)(2) 2,684,759 2,641,254 43,505 1.6% Franchise sales (1) 443,322 425,875 17,447 4.1% Revenue (2) 2,241,437 2,215,379 26,058 1.2% Same store sales (1) 2,196,767 2,190,664 6,103 0.3% Gross profit margin as a percentage of revenue 43.58% 43.07% SG&A(3) 825,276 809,025 16,251 2.0% SG&A(3)as a percentage of revenue 36.82% 36.52% Adjusted EBITDA(1) 188,756 184,798 3,958 2.1% Adjusted net income(1) 106,691 99,022 7,669 7.7% Net income 111,030 96,593 14,437 14.9% Adjusted basic earnings per share(1) $ 1.40 $ 1.36 $ 0.04 2.9% Adjusted diluted earnings per share(1) $ 1.31 $ 1.23 $ 0.08 6.5% Common share dividends declared $ 0.52 $ 0.48 $ 0.04 8.3% --- --- (1) Non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section in this press release for additional information. (2) Reclassified comparative results to conform to the presentation of the year ended December 31, 2018 (3) Selling, general and administrative expenses
For the year ended December 31, 2018, revenue was $2,241,437,000 compared to $2,215,379,000 for the prior year. Revenue increased $26,058,000 or 1.2% for the comparative period mainly due to increases in overall mattress sales.
Selling, general and administrative expenses ("SG&A")
SG&A as a percentage of revenue was higher at 36.82%, an increase of 30 basis points over the prior year, due to increases in minimum hourly wages, advertising expenditures and increases to finance charges related to financed sales.
Adjusted Net Income and Adjusted Diluted Earnings Per Share((1))
As we continue to reduce our debt this has enabled us to reduce our net debt finance charges by $3,574,000 between comparative periods. As a result of the factors above, adjusted net income for the year ended December 31, 2018 was $106,691,000. This resulted in an adjusted diluted earnings per share of $1.31 (adjusted net income $99,022,000 and $1.23 adjusted diluted earnings per share in 2017), an increase of 6.5%.
As previously announced, we paid a quarterly 14¢ dividend on the 7(th) day of January 2019. Today we are happy to announce that the Directors have declared a quarterly dividend of 14¢ per common share payable on the 8(th) day of April 2019 to shareholders of record at the close of business on the 8(th) day of March 2019. 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.
Despite the uncertainty over certain key economic indicators, we believe that the overall economy remains relatively strong, as we were still able to increase sales and profitability in 2018. Although it is difficult to gauge future consumer confidence and what impact it may have on retail, we remain confident our sales and profitability will increase. Given the Company's strong financial position, our principal objective is to increase market share and profitability. We remain focused on our commitment to continuously invest in digital innovation that will drive more customers to both our online eCommerce properties and our 303 physical locations across Canada.
The Company has 303 retail stores from coast to coast in Canada under the various banners indicated below which also includes 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 December 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 1 5 The Brick banner corporate stores(1) 114 (1) 113 The Brick banner franchise stores 65 (1) 64 The Brick Mattress Store banner locations 23 3 (1) 25 Brick Outlet 12 (2) 10 Total number of stores 304 4 (5) 303
(1)Includes 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 Earnings per share - share - diluted 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 year ended December 31, 2018, which is available on SEDAR at www.sedar.com.
Adjusted Net IncomeLeon'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.
The following is a reconciliation of reported net income to adjusted net income, basic and diluted earnings per share to adjusted basic and diluted earnings per share:
For the three months ended For the year ended December 31 December 31 ($ in thousands except per share amounts) 2018 2017 2018 2017 --- Net Income 38,785 34,778 111,030 96,593 After-tax mark-to-market (gain)/loss on financial derivative instruments (496) 1,341 (4,339) 2,429 --- Adjusted net income 38,289 36,119 106,691 99,022 --- Basic earnings per share $ 0.51 $ 0.46 $ 1.45 $ 1.32 Diluted earnings per share $ 0.48 $ 0.43 $ 1.36 $ 1.20 Adjusted basic earnings per share $ 0.50 $ 0.48 $ 1.40 $ 1.36 Adjusted diluted earnings per share $ 0.47 $ 0.45 $ 1.31 $ 1.23 ---
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.
The following is a reconciliation of reported net income to adjusted EBITDA:
For the three months ended For the year ended December 31 December 31 ($ in thousands) 2018 2017 2018 2017 --- Net Income 38,785 34,778 111,030 96,593 --- Income tax expense 13,995 12,083 39,560 34,836 Net finance costs 1,545 2,316 6,928 10,502 Depreciation and amortization 8,719 10,603 37,156 39,556 Mark-to-market (gain)/loss on financial derivative instruments (682) 1,820 (5,918) 3,311 --- Adjusted EBITDA 62,362 61,600 188,756 184,798 ---
Same Store Sales
Same store sales are defined as sales generated by stores 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 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 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.
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 months and year ended December 31, 2018 and 2017. The unaudited financial information presented has been prepared on a basis consistent with our audited consolidated financial statements for Fiscal 2017. The information presented herein does not contain disclosures required by IFRS and should be read in conjunction with the Company's audited consolidated financial statements available under the Company's profile on SEDAR at www.sedar.com.
Leon's Furniture Limited CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) As at December 31 As at December 31 ($ in thousands) 2018 2017 --- ASSETS Current assets Cash and cash equivalents 90,267 36,207 Restricted marketable securities 5,994 13,778 Debt securities 54,759 41,128 Equity securities 33,862 26,199 Trade receivables 122,131 138,516 Income taxes receivable 8,413 2,042 Inventories 329,317 317,914 Deferred acquisition costs 7,899 5,841 Deferred financing costs 276 541 Prepaid expenses and other assets 8,335 6,382 --- Total current assets 661,253 588,548 --- Other assets 484 - Deferred acquisition costs 11,751 14,632 Loan receivable 13,191 - Property, plant and equipment 321,597 336,748 Investment properties 17,072 17,529 Intangibles 300,896 306,286 Goodwill 390,120 390,120 Deferred income tax assets 7,208 7,592 --- Total assets 1,723,572 1,661,455 === LIABILITIES AND SHAREHOLDERS' EQUITY --- Current liabilities Trade and other payables 247,136 234,478 Provisions 11,687 8,791 Income taxes payable 7,338 7,517 Customers' deposits 146,362 128,078 Finance lease liability 1,415 1,421 Dividends payable 10,690 9,140 Deferred warranty plan revenue 38,180 24,979 Loans and borrowings 144,712 - Other liabilities - 5,434 --- --- Total current liabilities 607,520 419,838 --- Loans and borrowings - 194,439 Convertible debentures 48,435 48,004 Finance lease liability 7,784 9,053 Deferred warranty plan revenue 110,126 122,773 Redeemable share liability 13 157 Deferred rent liabilities and lease inducements 11,021 10,791 Deferred income tax liabilities 81,311 83,352 --- Total liabilities 866,210 888,407 --- Shareholders' equity attributable to the shareholders of the Company --- Common shares 111,956 93,392 Equity component of convertible debentures 3,546 3,555 Retained earnings 743,399 674,883 Accumulated other comprehensive income (1,539) 1,218 --- Total shareholders' equity 857,362 773,048 --- Total liabilities and shareholders' equity 1,723,572 1,661,455 ===
Leon's Furniture Limited CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Year ended December 31st (Amounts in thousands of Canadian dollars except shares outstanding and earnings per share) 2018 2017 --- --- Revenue 2,241,437 2,215,379 Cost of sales 1,264,561 1,261,112 --- --- Gross profit 976,876 954,267 --- --- Operating expenses Selling, general and administrative expenses 825,276 809,025 --- --- Operating profit 151,600 145,242 --- --- Finance costs (9,396) (11,952) Finance income 2,468 1,450 Change in fair value of derivative instruments 5,918 (3,311) --- --- Net income before income tax 150,590 131,429 Income tax expense 39,560 34,836 --- --- Net income for the year 111,030 96,593 === === Earnings per share Basic $ 1.45 $ 1.32 Diluted $ 1.36 $ 1.20 === ===
Leon's Furniture Limited CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Year ended December 31 ($ in thousands) 2018 2017 --- --- OPERATING ACTIVITIES Net income for the year 111,030 96,593 Add (deduct) items not involving an outlay of cash Depreciation of property, plant and equipment and investment properties 30,628 33,231 Amortization of intangible assets 6,528 6,325 Amortization of deferred warranty plan revenue (64,376) (58,771) Net finance costs 7,122 10,502 Deferred income taxes (1,611) (6,043) (Gain)/loss on sale of property, plant and equipment and investment properties (315) 286 Gain on sale of debt and equity instruments - 123 --- --- 89,006 82,246 Net change in non-cash working capital balances related to operations 28,138 12,962 Cash received on warranty plan sales 64,930 61,395 === === Cash provided by operating activities 182,074 156,603 === === INVESTING ACTIVITIES Purchase of property, plant and equipment and investment properties (19,650) (55,041) Purchase of intangible assets (1,138) (1,164) Proceeds on sale of property, plant and equipment and investment properties 4,950 748 Purchase of debt and equity instruments (42,614) (53,530) Proceeds on sale of debt and equity instruments 25,843 29,639 Interest received 2,468 1,325 --- --- Cash used in provided by investing activities (30,141) (78,023) --- --- FINANCING ACTIVITIES Repayment of finance leases (1,193) (1,346) Dividends paid (38,166) (33,179) Decrease of employee loans- redeemable shares 3,151 4,004 Repurchase of common shares (3,058) Repayment of term loan (50,000) (45,000) Finance costs paid - (56) Interest paid (8,607) (10,781) --- --- Cash used in financing activities (97,873) (86,358) --- --- Net increase (decrease) in cash and cash equivalents during the year 54,060 (7,778) Cash and cash equivalents, beginning of year 36,207 43,985 --- Cash and cash equivalents, end of year 90,267 36,207 === ===
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 the 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 main websites: leons.ca, thebrick.com and furniture.ca.
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
View original content: http://www.newswire.ca/en/releases/archive/February2019/27/c1192.html
SOURCE: Leon's Furniture Limited
Constantine Pefanis, CFO, Leon's Furniture Limited, Tel: (416) 243-4073; Jonathan Ross, LodeRock Advisors, Leon's Investor Relations, firstname.lastname@example.org, Tel: (416) 283-0178