Mr. Mike Walsh reports

LFL, CANADA'S LARGEST HOME RETAILER, RELEASES RECORD REVENUE FOR THE QUARTER ENDED DECEMBER 31, 2023; SAME-STORE SALES INCREASE OF 3.6% IN THE 4TH QUARTER

Leon's Furniture Ltd. has released its financial results for the quarter and year ended Dec. 31, 2023.

Financial highlights -- Q4 2023 (These comparisons are with the 2022 fourth quarter, unless stated otherwise):

• Total system-wide sales for the fourth quarter 2023 were a record $836.5-million, an increase of 4 per cent.
• Revenue for the fourth quarter 2023 was also a record $686.9-million, an increase of 3.9 per cent.
• Same store sales increased 3.6 per cent.
• Gross profit margin in the quarter increased 137 basis points, to 44.94 per cent.
• Adjusted net income for the quarter totalled $48.9-million, an increase of 9.6 per cent.
• Adjusted diluted earnings per share of 72 cents, an increase of 7.5 per cent.
• Given the company's substantial financial liquidity, $60-million in long-term debt was repaid during the fourth quarter.
• On Dec. 31, 2023, unrestricted liquidity was $416.5-million, composed of cash, cash equivalents, debt and equity instruments, and the undrawn revolving credit facility.

Financial highlights -- year ended Dec. 31, 2023 (these comparisons are with the 2022 fiscal year, unless stated otherwise):

• Total system-wide sales were $2.97-billion, a decrease of 2.7 per cent.
• Revenue for the year 2023 was $2.46-billion, a decrease of 2.5 per cent.
• Same store sales decreased 2.6 per cent.
• Gross profit margin in the year increased seven basis points, to 44.13 per cent.
• Adjusted net income for the year totalled $141.5-million, a decrease of 20.2 per cent.
• Adjusted diluted earnings per share of $2.06, a decrease of 20.8 per cent.
• Cash provided by operating activities was $253.3-million for the year in comparison with $14.3-million in the prior year, reflecting the strong cash flow generation of the business operations.
• The company received $20-million in proceeds on the settlement of warrants resulting from CURO Intermediate Holding's sale of Flexiti to Questrade.
• The company repaid $134.4-million in long-term debt during the year.

As announced last quarter, Leon's board of directors approved the company's resolution to create a real estate investment trust (REIT) via initial public offering (IPO).

Subsequent to the year-end, the company announced a 40-acre high-density mixed-use development in Toronto at the crossroads of Highways 401 and 400 as part of its multipronged strategy to unlock the value of its substantial real estate holdings.

Mike Walsh, president and chief executive officer of Leon's Furniture, commented: "Our team delivered record revenues in the fourth quarter and solid bottom-line growth compared to Q4 of last year. Our strong inventory position, combined with our promotional strategy, drove higher customer traffic, higher average basket and improved gross margins. The retail results were complemented with strong growth from our high-margin warranty and insurance businesses as we continue to improve attachment rates on retail transactions. The results of this quarter demonstrate that our trusted brands, scale and value proposition are resonating in the marketplace despite persisting macro-economic challenges. We enter 2024 with continued sales momentum, low-cost and in-stock inventory, and a rock-solid balance sheet to support our growth."

Mr. Walsh continued: "During 2024, we will maintain a focus on driving profitable growth across our divisions while continuing to execute on our real estate strategy of unlocking value for shareholders. The recent announcement of our intention to develop a high-density, mixed-use community on 40 acres of owned land in a core area of Toronto is expected to create significant value both for the community and shareholders over a multiyear time period. In addition, we are working with our advisers to continue the work with respect to our other real estate holdings."

Revenue

For the three months ended Dec. 31, 2023, revenue was $686.9-million compared with $661.2-million in the fourth quarter 2022. Revenue increased $25.7-million, or 3.9 per cent, as compared with the prior-year quarter. The improvement was driven by strong growth in the furniture and appliance categories, which were supported by strong inventory positions and effective promotions.

Same-store sales

Same-store sales in the quarter increased by 3.6 per cent compared with the fourth quarter 2022, driven by factors discussed in the revenue section.

Gross profit

The gross profit margin of 44.94 per cent in the quarter increased by 137 basis points from the fourth quarter 2022. This increase in gross margin percentage during the quarter was primarily driven by more favourable business mix, improved furniture margin due to lower freight costs, optimized promotional initiatives, and continued growth of the warranty and insurance businesses.

Selling, general and administrative expenses (SG&A)

The company's SG&A as a percentage of revenue for the fourth quarter of 2023 was 34.88 per cent compared with 33.74 per cent for the fourth quarter 2022, an increase of 114 basis points. The company's SG&A as a percentage of revenue for the current quarter increased primarily because of an increase in point-of-sale retail financing fees due to the increased Bank of Canada interest rates compared with same quarter last year.

Adjusted net income and adjusted diluted earnings per share

The adjusted net income in the current quarter totalled $48.9-million, which represents an increase of $4.3-million over the prior-year's quarter. The improvement is driven by strong operational results and reduced interest costs due to lower debt.

The adjusted diluted earnings per share in the fourth quarter of 2023 was 72 cents per share, an increase of 7.5 per cent over the prior-year's quarter.

Net income and diluted earnings per share

Net income for the fourth quarter of 2023 was $46.2-million, or 68 cents diluted earnings per share, as compared with the net income of $43.2-million in the prior year's quarter, or 65 cents diluted earnings per share.

Revenue

For the year ended Dec. 31, 2023, revenue was $2,454.8-million compared with $2,517.7-million in the prior year, a decrease of $62.9-million, or 2.5 per cent, as compared with the prior year. This is driven by macro-economic factors that led to a decrease in consumer demand in the first half of the year, offset by a return to growth in the second half of the year. Despite the cautious consumer sentiment, the mattress product category grew year-over-year, partly as a result of the company's partnership with Resident, the largest direct-to-consumer mattress company in North America.

Same-store sales

Same-store corporate sales decreased by 2.6 per cent, or $64.2-million, comparable with the year ended Dec. 31, 2022, driven by the factors discussed in the revenue section above.

Gross profit

The gross profit margin increased by seven basis points, from 44.06 per cent for the year ended Dec. 31, 2022, to 44.13 per cent in the year ended Dec. 31, 2023. This favourable result is due to a decrease in ocean and overland transportation costs, and a more favourable product mix for the year.

Selling, general and administrative expenses

The company's SG&A as a percentage of revenue for the year ended Dec. 31, 2023, increased to 36.57 per cent, an increase of 262 basis points over the prior year of 33.95 per cent. The company's SG&A as a percentage of revenue for the year increased due to a decline in sales, increases due to provincial wage increases, an increase in point-of-sale retail financing fees due to the continuing Bank of Canada interest rate increases and an overall increase in marketing spend to drive revenue.

Adjusted net income and adjusted diluted earnings per share

Adjusted net income for the year ended Dec. 31, 2023, totalled $141.5-million, a decrease of $35.7-million, or 20.2 per cent, over the prior year.

Adjusted diluted earnings per share for the company decreased to $2.06 per share compared with $2.60 per share in the year ended Dec. 31, 2022, a decrease of 54 cents per share.

Net income and diluted earnings per share

Including the mark-to-market impact of the company's financial derivatives, net income for the year ended Dec. 31, 2023, was $138.9-million, or $2.02 diluted earnings per share (net income of $179.4-million, $2.64 diluted earnings per share in 2022).

Dividends

As previously announced, the company paid a quarterly dividend of 18 cents per common share on Jan. 8, 2024. Today, the directors have declared a quarterly dividend of 18 cents per common share payable on the April 8, 2024, to shareholders of record at the close of business on the March 8, 2024. As of 2007, dividends paid by Leon's Furniture are eligible dividends pursuant to the changes to the Income Tax Act under Bill C-28, Canada.

Outlook

Given the company's strong and continuously improving financial position, its principal objective is to increase the company's market share and profitability. Leon's remains focused on its commitment to effectively manage its costs, but to also continuously invest in the business to drive growth initiatives that will drive more customers to both its on-line e-commerce sites and its 303 store locations across Canada.

About Leon's Furniture Ltd.

Leon's Furniture is the largest retailer of furniture, appliances and electronics in Canada. The company's 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.

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