Leon’s Furniture (TSE:LNF), operating as LFL Group, reported a slight decline in third-quarter revenue as cautious consumers and furniture inventory delays offset growth in appliances and mattresses.
Revenue fell 0.9% year over year to C$672.8 million. System-wide sales declined 0.8%, while same-store sales fell 1.2%. Furniture sales dropped 5.6% against growth of 11.2% in the same quarter last year, Chief Financial Officer Victor Diab said.
President and CEO Mike Walsh said consumers remained value-focused and continued to pull back on large discretionary purchases. Shipping delays also held back furniture deliveries and limited the company’s ability to feature some best-selling products, affecting written sales.
Property Gain Lifts Earnings
Adjusted net income was C$51.2 million, or C$0.74 per diluted share, including a C$12.5 million gain from the sale of the former Brick head office and distribution center in Edmonton. Adjusted diluted earnings per share were C$0.65 a year earlier.
Excluding the property gain and a small legal settlement in the prior-year quarter, normalized adjusted net income was C$41.9 million, or C$0.61 per diluted share, compared with C$43.9 million, or C$0.64 per share, a year earlier. Diab described those figures as a cleaner comparison of the underlying business.
Gross margin was 44.52%, essentially flat from a year earlier. A lower proportion of furniture sales weighed on the margin because furniture is the company’s highest-margin category. Improved margin rates in furniture, appliances and electronics, along with more revenue from insurance and delivery services, largely offset that pressure.
Selling, general and administrative expenses were 35.76% of revenue, up 25 basis points year over year. Diab attributed the increase to higher fuel-related delivery costs and fixed costs spread over lower revenue. Expenses in dollar terms were slightly lower than a year earlier, he said.
Inventory Delays Continue
Walsh said some shipping lanes had begun to ease, and the company had returned to a good inventory position in its Shaquille O’Neal furniture line after stronger-than-expected demand. However, spot shipping rates remained about three times contract rates, he said, and the company was cautious about paying higher rates to protect margins.
Diab said much of the inventory expected late in the third quarter arrived in October. Some products expected in the latter half of the fourth quarter could be pushed into the first quarter, although he expects the overall effect of delays to be less significant than in the third quarter.
Asked whether sales had been lost or delayed, Diab acknowledged an opportunity cost from not having the right inventory available to feature. He said management believes the company can regain sales over time as inventory improves.
Appliance sales grew in both retail and commercial channels, despite supply challenges at some vendors. Mattress sales also increased for a third consecutive quarter. Walsh said commercial growth partly reflected business available after a large competitor exited the market, as well as the expansion of Appliance Canada into a Leon’s store in Richmond, British Columbia.
Fourth-Quarter Plans and Capital Spending
The company expects to open two franchise stores in the fourth quarter after ending the third quarter with 304 stores. Walsh said the company plans to approach Black Friday aggressively with special buys and products outside its usual assortment, though he did not expect promotional spending to increase from last year.
Diab said the company’s objective is to keep its full-year gross margin rate close to last year’s level. Fuel remains the main pressure on delivery expenses. He also said higher interest rates would not affect financing costs this year because of a typical 90-day delay under the company’s arrangement with its financing partner, although some cost impact could emerge next year.
LFL ended the quarter with C$622.5 million in unrestricted liquidity, including cash, marketable securities and its undrawn revolving credit facility. The C$21.4 million proceeds from the former Edmonton property arrived on October 1, the same day the company paid approximately C$42 million for the remaining half of its current Edmonton distribution center, Diab said.
The company also repurchased approximately 120,000 shares for about C$2.9 million during the fourth quarter, Diab said. Its real estate investment trust initiative remains subject to market conditions and regulatory approvals. A test of centralized distribution in Ontario was paused to accommodate additional commercial appliance inventory and is expected to resume in 2027.
About Leon’s Furniture (TSE:LNF)
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 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 301 retail stores from coast to coast in Canada under various banners.
