Mr. Edward Leon reports
LFL, CANADA'S LARGEST HOME FURNISHINGS RETAILER, RELEASES RECORD FINANCIAL RESULTS FOR FOURTH QUARTER ENDED DECEMBER 31, 2020
Leon's Furniture Ltd. has released record financial results for the fourth quarter of 2020.
Financial highlights -- Q4 2020:
Total systemwide sales increased 10.6 per cent to a record $830.9-million in Q4 2020, compared with $751.3-million in Q4 2019;
Achieved record revenue in the quarter of $675.1-million, compared with $621.4 million in Q4 2019, an increase of 8.6 per cent; with increases across all product categories;
Same-store sales increased 7.3 per cent in Q4 2020, compared with Q4 2019;
E-commerce sales growth of 227 per cent in the quarter, continuing the trend of triple-digit growth in the company's e-commerce business;
Gross profit margin improved across all product categories to 45.73 per cent in Q4 2020 from 44.88 per cent in Q4 2019;
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased by 20.2 per cent to $106-million in Q4 2020, compared with Q4 2019;
Adjusted diluted earnings per share grew by 47.9 per cent to 71 cents in Q4 2020 from 48 cents in Q4 2019.
Financial highlights -- fiscal year 2020:
Achieved free cash flow of $467.9-million in 2020, an increase of $266.2-million over 2019;
Adjusted EBITDA increased 18.4 per cent to $344.3-million in 2020 compared with 2019;
Net income increased by 52.8 per cent to $163.3-million in 2020 compared with 2019;
Adjusted diluted earnings per share grew by 56.9 per cent to $2.04 in 2020 from $1.30 in 2019;
Opened a total of nine new stores in the year, seven new corporate stores and two franchise stores comprising three Leon's banner stores and six Brick store locations;
The company reached a record $1-billion in shareholder equity after returning $118.1-million to its shareholders with a combination of dividends declared and common share repurchases in 2020;
Available and unrestricted liquidity is approximately $661.5-million, which is made up of the company's $487.5-million in cash and investments and $174-million in undrawn credit facilities as at Dec. 31, 2020.
Edward Leon, chief executive officer of LFL Group, commented: "LFL generated solid financial results during fiscal 2020, while at the same time adapting to the challenges presented by the ongoing COVID-19 pandemic. I am particularly proud of our team's performance in Q4, with targeted advertising spending driving high single-digit growth in revenue and same-store sales, and e-commerce-driven sales growth of more than 200 per cent. Even more importantly, the top-line growth during Q4 translated into adjusted diluted earnings per share growth of 47.9 per cent. As we enter 2021, we continue to see momentum across the business, with annualized e-commerce-driven sales exiting 2020 up more than fivefold compared to our 2019 exit rate. The investments we made during 2018 to build out a scalable e-commerce platform continue to pay off, and we are squarely positioned as one of the strongest omnichannel retailers in Canada today. Backed by a coast-to-coast distribution network and one of the country's largest last-mile delivery services, LFL gives customers the chance to shop where they want, when they want and how they want, and that will continue to deliver great results for our shareholders."
Mr. Leon added: "I would like to personally express my thanks to all of our associates across the country for their dedication and work through a very challenging year. We are steadfast in our commitment to the well-being of our people and made the decision again in Q4 to provide both active and temporarily laid-off staff with a special payment in addition to company-paid benefits. In total for 2020, we have provided just over $10-million in special payments and additional benefits over and above our customary compensation practices and we very much look forward to welcoming many of our associates back."
For the three months ended Dec. 31, 2020, revenue was $675.1-million, compared with $621.4-million in the fourth quarter of 2019. Revenue increased $53.7-million, or 8.6 per cent, as compared with the prior-year quarter due to increases in all product categories, which was driven by increased consumer demand that began in the second quarter of 2020 and continued during most of the remainder of 2020. The company's continued focus on e-commerce, including its live chat initiatives, generated a year-over-year 227-per-cent increase in e-commerce-driven sales during the quarter. The continuing strength in e-commerce sales in the quarter also continue to validate that the company's digital platform is quite scalable and capable of significantly contributing higher operating profit margin percentages due to its current operating cost structure. The digital platform is key to allowing the company to attract new customers as they begin their shopping experience on-line and then continue in store to be assisted by the company's knowledgeable sales associates.
However, due to the provincially mandated retail showroom closures that began on Nov. 12, 2020, in Manitoba for non-essential items and which then continued to impact the municipalities of Toronto and Peel in the province of Ontario beginning on Nov. 23, 2020, the company was forced to temporarily restrict or temporarily close its retail showrooms in these affected areas. Notwithstanding these showroom restrictions, the provincial governments continued to allow the company to offer curbside pickup at its retail showrooms and warehouses and to continue to offer home deliveries to the company's customers. All the company's retail showrooms in Ontario and Quebec were temporarily closed to the company's customers beginning on Dec. 26, 2020, due to provincewide temporary closures of all non-essential retail showrooms. These further closures did not impact curbside pickup at the company's retail stores and warehouse locations, and they did not impact the company's ability to perform customer deliveries. In addition, they did not restrict the company's ability to provide sales and service to its customers by phone, to perform repair or installation services at their required locations, or to continue to maximize the company's use of its live chat initiatives on-line. This continued focus on e-commerce-driven sales has generated a fivefold increase to the annualized run rate in e-commerce sales subsequent to the quarter ended Dec. 31, 2020. These activities and results are due to the continuing dedication and loyalty exhibited by all of the company's associates across all divisions and subsidiaries of the company. Subsequent to the fourth quarter ended 2020, the vast majority of these provincial shutdown measures have been lifted and most of the affected retail stores have been reopened as of Feb. 22, 2021, albeit with certain indoor capacity restrictions.
The company is very pleased that it now can recall and return almost all associates back to their positions. To financially assist its associates during these unprecedented times, the company approved special payments related to the fourth quarter totalling several million dollars and distributed these funds to both active and laid-off associates. Since the start of this pandemic, the company chose to provide special payments, assistance and benefits to both its actively employed and temporarily laid-off associates. The aggregate total of these company-financed amounts for the 2020 fiscal year is approximately $10-million over and above the company's customary compensation practices. These extra amounts demonstrate how important the company's associates financial and physical well-being continues to be to the company.
Selling, general and administrative (SG&A)
SG&A expenses as a percentage of revenue in the current quarter were down by 128 basis points due to effectively managing overall SG&A expenses throughout the quarter.
Net income and diluted earnings per share
Net income for the fourth quarter of 2020 was $53.3-million, or 67 cents per diluted earnings per share, as compared with net income of $39.3-million in the prior year's quarter, or 48 cents per diluted earnings per share.
As previously announced, the company paid a quarterly dividend of 16 cents and a special dividend of 30 cents per common share on Jan. 7, 2021. On Feb. 23, 2021, the directors declared a quarterly dividend of 16 cents per common share payable on April 8, 2021, to shareholders of record at the close of business on March 8, 2020. 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.
In the short term, the duration and full financial effect of COVID-19 are unknown, as is the efficacy of government and central bank interventions to curb the spread of COVID-19 and stimulate the economy. Federal and provincial governments have instituted social distancing requirements, temporary store closures, bans on non-essential travel and other measures that have directly led to uncertainty regarding customer demand. The company continues to actively monitor the situation and will continue to respond as the impact of the COVID-19 pandemic evolves, which will depend on a number of factors, including the course of the virus, the company's customer and employee reactions and any further government actions, none of which can be predicted with any degree of certainty.
Management anticipates that actions taken to date have positioned the company strongly to weather the current crisis and to take advantage of any accretive opportunities that may arise, including:
The essential nature of some of the company's products and services: Household appliances that are necessary to cook and clean have been acknowledged as essential by provincial governments. The company also owns the largest third party appliance service company in Canada, Transglobal Service, which has been operating across the country with enhanced health and safety protocols to protect both its customers and its technicians.
Rapid scalability of the company's e-commerce business: The company's e-commerce-driven sales have continued to grow significantly in the fourth quarter. Since the company moved its on-line stores to the Shopify Plus platform, the e-commerce offering has become a better customer experience and a more interactive offering. The platform has resulted in improved scalability and enabled significant operating leverage, which has and continues to provide a competitive advantage to the company.
Unencumbered ownership of substantial real estate assets across the country: The company owns 4.4 million square feet (office, retail and industrial) of approximately 13 million square feet in use today by the company. This is a significant competitive advantage in the current environment, resulting in a far lower carrying cost for closed stores or other properties than similar leased properties. In addition, the value inherent in this portfolio could enable the company to readily access additional liquidity to support existing operations and take advantage of accretive opportunities as they arise.
A strong balance sheet as evidenced by the company's repayment of over $440-million in various forms of debt over the last seven years: The company has unrestricted liquidity of approximately $661.5-million as at Dec. 31, 2020, with room to expand further if necessary.
On a longer-term basis, the company still believes that the underlying Canadian economy remains relatively strong. Although it is difficult to gauge future consumer confidence and what impact it may have on retail, Leon's remains cautiously optimistic that the company's sales and profitability will increase. Given the company's strong and continuously improving financial position, the company's principal objective is to increase its market share and profitability. Leon's remains focused on its commitment to effectively manage the company's costs but to also continuously invest in digital innovation that it believes will drive more customers to both its on-line e-commerce sites and its 304 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 304 retail stores from coast to coast in Canada under various banners. The company operates three websites: Leon's, the Brick and Furniture.
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