TORONTO, May 12 /CNW/ - For the three months ended March 31, 2006, total
Leon's sales were $154,973,000 including $34,955,000 of franchise sales
($148,067,000 including $34,485,000 of franchise sales in 2005), an increase
of 4.7%. Net income was $9,752,000, 55 cents per common share ($7,826,000,
43 cents per common share in 2005), an increase of 28% per common share.
Included in the first quarter 2006 results is a $1,500,000 (8 cents per common
share) after tax gain on the sale of land and building in London, Ontario.
Overall, we are pleased that we were able to improve our financial
results in the first quarter of 2006. Our strong capital position will allow
us to focus on increasing market share in existing and new markets going
forward. Renovation and expansion plans will continue during 2006. We have
just completed a successful opening in the first quarter 2006 of a new
showroom and warehouse in Vaughan, Ontario. We also plan to open new showrooms
and warehouses in Saskatoon, Saskatchewan this fall and Newmarket, Ontario in
early 2007. Major renovations of existing stores in Calgary, Alberta;
Winnipeg, Manitoba; and Halifax, Nova Scotia, are ongoing and should be
completed within the next year.
As previously announced, we paid a quarterly 25 cents dividend on
April 6, 2006 and a special 50 cents dividend on May 5, 2006. Today we are
happy to announce that the Directors have declared a quarterly dividend of
25 cents per common share payable on the 7th day of July 2006 to shareholders
of record at the close of business on the 7th day of June 2006.
<<
EARNINGS PER SHARE FOR EACH QUARTER
-----------------------------------
YEAR
--------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
--------- --------- --------- --------- --------
2006
- Basic 55 cents $0.55
- Fully Diluted 53 cents $0.53
2005
- Basic 43 cents 43 cents 76 cents $1.11 $2.73
- Fully Diluted 41 cents 42 cents 74 cents $1.04 $2.61
2004
- Basic 40 cents 41 cents 75 cents 93 cents $2.49
- Fully Diluted 39 cents 40 cents 73 cents 89 cents $2.41
LEON'S FURNITURE LIMITED
Mark J. Leon
Chairman of the Board
MANAGEMENT'S DISCUSSION AND ANALYSIS
May 12, 2006
Management's Discussion and Analysis should be read in conjunction with
the unaudited consolidated interim financial statements of the Company for the
three months ended March 31, 2006, Management's Discussion and Analysis for
the year ended December 31, 2005, the audited consolidated financial
statements for the year ended December 31, 2005 and the Company's Annual
Information Form dated March 24, 2006.
Financial Statements Governance Practice
Leon's Furniture Limited's financial statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles and the
amounts expressed are in Canadian dollars.
This MD&A is intended to provide readers with the information that
management believes is required to gain an understanding of Leon's Furniture
Limited's current results and to assess the Company's future prospects.
Accordingly, sections of this report contain forward-looking statements that
are based on current plans and expectations. These forward-looking statements
are effected by risks and uncertainties that could have a material impact on
future prospects. Readers are cautioned that actual events and results will
vary.
The Audit Committee of the Board of Directors of Leon's Furniture Limited
reviewed the Management's Discussion and Analysis ("MD & A") and the financial
statements, and recommended the Board of Directors approve them. Following
review by the full Board, the financial statements and MD & A were approved.
Introduction
Leon's Furniture Limited has been in the furniture retail business for
close to 100 years. The company's 32 corporate and 27 franchise stores can be
found in every province across Canada, except British Columbia. Main product
lines sold at retail include furniture, appliances and electronics.
Revenues and Expenses
For the three months ended March 31, 2006, total Leon's sales were
$154,973,000 including $34,955,000 of franchise sales ($148,067,000 including
$34,485,000 of franchise sales in 2005), an increase of 4.7%.
Leon's corporate sales of $120,018,000 in the first quarter of 2006,
increased by $6,436,000, or 5.7%, compared to the first quarter of 2005. The
increase in sales was mainly attributable to the new showroom and warehouse
opened in Hamilton, Ontario in October, 2005 and a new showroom and warehouse
opened in Vaughan, Ontario in January 2006. The trend of bringing in lower
priced offshore furniture products especially from Asia continued. For the
quarter, all regions were up in sales with the exception of Eastern Canada
which was down marginally from the prior year. For the quarter, same store
corporate sales were up by 1.0% compared to the prior year.
Leon's franchise sales of $34,955,000 in the first quarter of 2006,
increased by $470,000 or 1.4%, compared to the first quarter of 2005.
Regionally we saw some marginal sales growth in Western and Eastern Canada,
with slightly lower sales in Central Canada compared to the same quarter the
prior year.
Our gross margin for the first quarter 2006 of 42.3% was up just over one
percentage point from the first quarter 2005. This was mainly the result of an
improvement in product margins and a more favorable product mix.
Net operating expenses of $38,304,000 were up $3,535,000 or 10.1% for the
first quarter 2006 compared to the first quarter 2005. Payroll and commission
costs were up 10.7% in the quarter compared to the prior year. This was mainly
due to higher sales in the quarter as well as higher start-up payroll costs
associated with new stores opening in Hamilton and Vaughan, Ontario. We saw
advertising expenses increase by $393,000 or 5.8% for the first quarter
compared to the prior year. A large portion of the increase in advertising
dollars over the prior year were associated with marketing costs related to
the grand opening of our new showroom and warehouse in Vaughan, Ontario. With
the exception of inflationary increases, all other operating costs in the
quarter were in line with the prior year first quarter.
As a result of the above, net income for the first quarter 2006 was
$9,752,000, 55 cents per common share ($7,826,000, 43 cents per common share
in 2005), an increase of 28% per common share. Included in the first quarter
2006 results is $1,500,000 (8 cents per common share) after tax gain on the
sale of land and building in London, Ontario.
Annual Financial Information
($ in thousands, except
earnings per share) 2005 2004 2003
Net Corporate Sales 547,744 504,591 455,702
Leon's Franchise Sales 173,043 165,252 133,422
Total Leon's sales 720,787 669,843 589,124
Net Income 48,964 46,104 38,438
Earnings per Share
Basic $2.73 $2.49 $1.99
Diluted $2.61 $2.41 $1.92
Total Assets 381,702 370,931 340,093
Common Share Dividends Declared $0.80 $0.74 $0.50
Convertible Non-Voting Shares
Dividends Declared $0.40 $0.40 $0.24
Liquidity and Financial Resources
In $000 - except Per Share Data
Balances as at: Mar. 31/06 Dec. 31/05 Mar. 31/05
---------- ---------- ----------
Cash and marketable securities $92,419 $95,720 $74,403
Accounts receivable 8,602 20,705 8,009
Inventory 69,134 72,644 76,815
Total assets 366,688 381,702 341,094
Working capital 91,743 90,111 95,660
Current Prior First
Quarter Quarter Quarter
For the 3 Months Ended Mar. 31/06 Dec. 31/05 Mar. 31/05
---------- ---------- ----------
Cash flow from operations $ 4,228 $33,454 $(18,976)
Purchase of capital assets 6,319 6,303 2,265
Dividends paid 3,535 3,563 3,656
Dividends paid per share $0.20 $0.20 $0.20
Cash, investments and marketable securities decreased by $3,301,000 in
the quarter mainly as the result of the acquisition of land and buildings of
$6,319,000.
Marketable securities consist primarily of bonds with maturities not
exceeding ten years with an interest rate range of 3.19% to 6.75% and are
stated at the lower of cost and market value. As of March 31, 2006 the market
value exceeds the cost of the marketable securities.
As part of the warranty reinsurance agreement with a subsidiary, the
Company has pledged assets, which are part of the investment portfolio. The
pledged assets are for the benefit of the primary insurance company for the
purposes of insuring customer product warranty sales. The assets are in the
form of a trust with a financial institution amounting to $11,672,000.
Inventory decreased by $3,510,000 from the last quarter 2005. Efforts
were made in the quarter to clear out 2005 stock in order to make room for the
2006 line up which we start to build in the spring for the summer and fall
sales season.
The cash provided by operating activities of $4,228,000 is the result of
the improvement in after tax profits in the quarter and the net changes in non-
cash working capital balances.
As mentioned a new showroom and warehouse was opened in Vaughan, Ontario
(70,000 sq. ft.), in the first quarter, 2006 and to date sales are meeting
management expectations. Construction has commenced on a new warehouse and
showroom in Saskatoon, Saskatchewan (80,000 sq. ft.) which we anticipate
opening late fall 2006. Construction has also commenced on a new warehouse and
showroom in Newmarket, Ontario (98,000 sq. ft.) which will most likely open in
early 2007. Renovations have also begun at existing stores in Winnipeg,
Manitoba; Calgary, Alberta and Dartmouth, Nova Scotia. We anticipate
completion of these projects in 2006. All funding for new store projects and
renovations is scheduled to come from our existing cash resources.
Common Shares
At March 31, 2006 there were 17,697,423 common shares issued and
outstanding. During the first quarter of 2006, 20,405 convertible, non-voting
series 1998 shares were converted to common shares.
Commitments
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Payments Due by Period 000's
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Contractual Less than 2-3 4-5 After
Obligations Total 1 year Years years 5 years
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Operating Leases(1) 10,437 905 1,786 1,661 6,085
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Purchase Obligations(2) 28,234 28,234
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Total Contractual
Obligations 38,671 29,139 1,786 1,661 6,085
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(1) The Company is obligated under operating leases to future minimum
annual rental payments for various land and building sites across
Canada.
(2) The estimated cost to complete construction in progress at five
locations in Canada.
In addition, the Company has commitments related to redeemable shares as
follows:
($ in thousands) As at March 31, 2006 As at December 31, 2005
Authorized
350,000 convertible,
non-voting, series 1998 shares
571,000 convertible,
non-voting, series 2002 shares
201,500 convertible,
non-voting, series 2005 shares
Issued
164,170 series 1998 shares
(2005 - 186,195) $ 2,889 $ 3,249
387,320 series 2002 shares
(2005 - 407,623) 11,135 11,135
199,500 series 2005 shares
(2005 - nil) 7,535 7,535
Less employees share
purchase loans (20,919) (21,513)
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Redeemable Share Liability $ 640 $ 406
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Under the terms of its Management Share Purchase Plan, the Company
advanced non-interest bearing loans to certain of its employees in 1998, 2002
and 2005 to allow them to acquire convertible, non-voting, series 1998 shares,
series 2002 shares and series 2005 shares, respectively, of the Company. These
loans are repayable through the application against the loans of any dividends
on the shares, with any remaining balance repayable on the date the shares are
converted to common shares. Each issued and fully paid for series 1998, 2002
and 2005 share may be converted into one common share at any time after the
fifth anniversary date of the issue of these shares and prior to the tenth
anniversary of such issue. Each series 1998 and 2002 shares may also be
redeemed at the option of the holder or by the Company at any time after the
fifth anniversary date of the issue of these shares and must be redeemed prior
to the tenth anniversary of such issue. The series 2005 shares are redeemable
at the option of the holder for a period of one business day following the
date of issue of such shares. The Company has the option to redeem the series
2005 shares at any time after the fifth anniversary date of the issue of these
shares and must redeem prior to the tenth anniversary of such issue. The
redemption price is equal to the original issue price of the shares adjusted
for subsequent subdivisions of shares plus accrued and unpaid dividends. The
purchase prices of the shares are $17.60 per series 1998 share, $28.75 per
series 2002 share and $37.77 per series 2005 share.
Dividends paid to holders of series 1998, 2002, 2005 shares of
approximately $309,000 (2005 - $251,000) have been used to reduce the
respective shareholder loans.
During the period 20,405 convertible, non-voting, series 1998 shares were
converted into common shares with a stated value of $359,000 (2005 - 12,202
for a stated value of $215,000).
During the period Nil convertible, non-voting series 2002 shares were
cancelled (2005 - 3,393 for a stated value of $97,500)
Quarterly Results (2006, 2005, 2004)
Quarterly Income Statement ($000) - except Per Share Data
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Quarter Ended Quarter Ended
March 31 December 31
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2006 2005 2005 2004
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Leon's Corporate Sales $120,018 $113,582 $170,244 $153,080
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Leon's Franchise sales 34,955 34,485 54,535 54,867
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Total Leon's sales $154,973 $148,067 $224,779 $207,947
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Net Income
Per Share $0.55 $0.43 $1.11 $0.93
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Fully Diluted
Per Share $0.53 $0.41 $1.04 $0.89
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Quarter Ended Quarter Ended
September 30 June 30
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2005 2004 2005 2004
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Leon's Corporate Sales $141,985 $131,145 $121,933 $115,894
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Leon's Franchise sales 45,070 42,076 38,953 38,160
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Total Leon's sales $187,055 $173,221 $160,886 $154,054
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Net Income
Per Share $0.76 $0.75 $0.43 $0.41
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Fully Diluted
Per Share $0.74 $0.73 $0.42 $0.40
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Revenue Recognition
Sales are recognized as revenue for accounting purposes upon the customer
either picking up the merchandise or when merchandise is delivered to the
customers' home.
The Company offers customers the option to finance purchases through
various third party financing companies. In situations where a customer elects
to take advantage of delayed payment terms, the costs of financing these sales
are deducted from sales. Finance costs deducted from sales for the first
quarter 2006 are up $400,000 when compared to the same period for 2005. These
additional costs were the result of increased sales and higher finance rates.
Warranty Revenue
Warranty revenues are deferred and taken into income on a straight-line
basis over the life of the warranty period. Warranty revenues included in
sales year to date 2006 are $2,861,000 compared to $2,680,000 in 2005.
Warranty expenses deducted through costs of goods sold year to date 2006 are
$1,078,000 compared to $925,000 in 2005.
Franchise Royalties
Leon's franchisees operate as independent owners. The Company charges the
franchisee a royalty fee based primarily on a percentage of the franchisees
gross sales. This royalty income is recorded by the Company on an accrual
basis under the heading "other income" and is up 1.8% for the first quarter
2006 compared to 2005 which is in line with the increase in franchise sales
for the quarter.
Volume Rebates
The Company receives vendor rebates on certain products based on the
volume of purchases made during specified periods. The rebates are deducted
from the inventory value of goods received and are recognized as a reduction
of cost of goods sold as sales occur.
Accounting Estimates
Reserves for slow moving and damaged inventory are deducted in our
evaluation of inventories. The reserve for slow moving inventory is based on
many years of historic retail experience. The reserve is calculated by
analyzing all inventory on hand older than one year. Damaged inventory is
coded as such and placed in specific locations. The amount of damaged reserve
is determined by specific product categories.
Outlook
The first quarter sales improved over last year, which was a continuation
of a trend we saw for all four quarters of 2005. The opening of two new stores
this year should help grow sales going forward. We are continuing to
experience a stable retail environment and we feel confident, under these
conditions, in our ability to continue to increase sales for the balance of
the year.
Forward-Looking Statements
This news release, in particular the section under heading "Outlook",
includes forward-looking statements, which are not historic facts based on
certain assumptions and reflect Leon's Furniture Limited's current
expectations. These forward-looking statements are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from current expectations. Some of the factors that can cause actual results
to differ materially from current expectations are: sudden slow down in the
Canadian economy, drop in consumer confidence and dependency of product from
third party suppliers. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a prediction of
actual results.
Leon's Furniture Limited
P.O. Box 1100, Stn. "B"
Weston, ON
M9L 2R8
Phone: (416) 243-4073 Fax: (416) 243-7890
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an
auditor has not performed a review of the interim financial statements,
they must be accompanied by a notice indicating that the financial
statements have not been reviewed by an auditor.
The accompanying unaudited interim financial statements of the company
have been prepared by and are the responsibility of the company's
management.
No auditor has performed a review of these financial statements.
------------------------------ -----------------------------------
Terrence T. Leon Dominic Scarangella
President & Chief Executive Officer Vice President & Chief Financial
Officer
Dated as of the 12th day of May 2006.
Leon's Furniture Limited-Meubles Leon Ltee
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As at March 31 As at December 31
(in thousands) 2006 2005
$ $
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ASSETS
Current
Cash and cash equivalents 14,907 20,592
Marketable securities 77,512 75,128
Accounts receivable 8,602 20,705
Inventory 69,134 72,644
Income taxes recoverable - 621
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Total current assets 170,155 189,690
Future tax assets 9,901 9,989
Capital assets,net 186,632 182,023
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366,688 381,702
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued
liabilities 54,820 75,485
Customers' deposits 9,145 9,496
Dividends payable 4,424 3,844
Deferred warranty plan revenue 9,971 10,299
Income taxes payable 49 -
Future tax liabilities 3 455
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Total current liabilities 78,412 99,579
Deferred warranty plan revenue 17,143 17,220
Redeemable share liability 640 406
Future tax liabilities 4,368 4,059
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Total liabilities 100,563 121,264
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Shareholders' equity
Common shares 11,327 10,968
Retained earnings 254,798 249,470
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Total shareholders' equity 266,125 260,438
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366,688 381,702
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Period ended March 31st
(in thousands, except earnings per share)
3 months ended
2006 2005
$ $
Sales 120,018 113,582
Cost of sales 69,308 66,801
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Gross profit 50,710 46,781
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Operating expenses (income)
Salaries and commissions 20,648 18,649
Advertising 7,171 6,778
Rent and property taxes 2,691 2,408
Amortization 3,143 2,861
Employee profit-sharing plan 800 733
Other operating expenses 7,970 8,001
Interest income (1,005) (754)
Other income (3,114) (3,907)
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38,304 34,769
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Income before gain on sale of
capital property and income taxes 12,406 12,012
Gain on sale of capital property 2,010 -
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Income before income taxes 14,416 12,012
Provision for income taxes 4,664 4,186
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Net income for the period 9,752 7,826
Retained earnings, beginning
of the period 249,470 239,335
Dividends declared (4,424) (3,659)
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Retained earnings, end of period 254,798 243,502
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Weighted average number of common shares
outstanding
Basic 17,686 18,285
Fully diluted 18,437 18,896
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Earnings per share
Basic $0.55 $0.43
Fully diluted $0.53 $0.41
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period ended March 31st
(in thousands) 3 months ended
2006 2005
$ $
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OPERATING ACTIVITIES
Net income for the period 9,752 7,826
Add (deduct) items not involving
a current cash payment
Amortization of capital assets 3,143 2,861
Amortization of deferred
warranty revenue (3,311) (2,698)
Gain on sale of marketable securities 51 (155)
Future tax expense (211) (186)
Gain on sale of capital assets (2,010) (15)
Cash received on warranty sales 2,907 2,680
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10,321 10,313
Net change in non-cash working
capital balances related
to operations (6,093) (29,289)
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Cash provided by (used in)
operating activities 4,228 (18,976)
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INVESTING ACTIVITIES
Purchase of capital assets (6,319) (2,265)
Proceeds on sale of capital assets 2,090 23
Purchase of marketable securities (488,854) (438,876)
Proceeds on sale of marketable
securities 486,419 450,526
Decrease in employee share
purchase loans 286 127
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Cash (used in) provided by
investing activities (6,378) 9,535
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FINANCING ACTIVITIES
Dividends paid (3,535) (3,656)
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Cash used in financing activities (3,535) (3,656)
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Net decrease in cash and cash equivalents
during the period (5,685) (13,097)
Cash and cash equivalents,
beginning of period 20,592 14,995
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Cash and cash equivalents,
end of period 14,907 1,898
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PREPARATION
The Company prepares its financial statements in accordance with
accounting principles generally accepted in Canada. The disclosures
contained in these unaudited interim consolidated financial statements do
not include all requirements of Generally Accepted Accounting Principles
for annual financial statements. The unaudited interim consolidated
financial statements should be read in conjunction with the annual
consolidated financial statements for the year ended December 31, 2005.
These interim consolidated financial statements were prepared following
the same policies and standards as in in the most recent annual
consolidated financial statements.
2. INCOME TAXES
The Company's total cash payments for income taxes paid in the three
month period ending March 31, 2005 were $8,030,000 (2005-$7,399,000).
3. COMPARATIVE FINANCIAL STATEMENTS
The comparative financial statements have been reclassified from
statements previously presented to conform to the presentation of the
2006 financial statements.
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