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Michael Knell

Leon's Furniture second-quarter earnings per share fall 18.8%

TORONTO — Leon's Furniture reported its net earnings per share fell 18.8% in the second quarter, driven in part by rising marketing costs, sagging housing starts and waning consumer confidence.

Leon's said system-wide sales were C$207.7 million, down 0.8% from the same period of 2011. Net income was C$9 million or 13 cents per share, compared with C$11.2 million or 16 cents per common share a year ago.

Sales by the company's 44 corporate stores were C$162.1 million, down 1.1% from the same period last year. Same-store sales fell 5.8%.

"The decrease in sales in the second quarter compared to the prior year reflected a continuation of waning consumer confidence, a decrease in housing starts, and continued high consumer debt resulting in reduced consumer spending," Terry Leon, president of the publicly held and family-managed full-line furniture retailer, said in a note to shareholders.

Leon's 32-unit franchise network had sales of C$45.6 million in the second quarter, virtually unchanged from the 2011 period. "The franchise division experienced modest growth in western and eastern Canada and a decrease in Ontario," the company reported.

Also affecting profitability in the second quarter were marketing expenses — up C$2.4 million year-over-year — and occupancy costs, which rose C$1.2 million as a result of the four new stores opened in the closing months of 2011.

For the six months ending June 30, Leon's system-wide sales were C$408.4 million, up 1.9% over the first half of 2011. However, net income fell 19.4% per share to C$17.6 million or 25 cents per share, from C$21.5 million or 31 cents per share a year ago.

Corporate store sales were up 1.5% to C$319.5 million while franchise sales gained 2.9% to C$88.8 million.

Despite the dip in sales and earnings, Terry Leon said the company is continuing its capital improvement and expansion program - all of which the debt-free company funds out of existing resources. He said renovations have just been completed at Leon's Sudbury and Sault Ste. Marie, Ontario, corporate stores while construction has begun for a new franchise store to replace its existing facility in St. John, New Brunswick.

The company has secured sites for four new corporate stores in Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, Alberta, which is just north of Calgary. It plans to open the first of these stores in late 2012 and the balance in 2013.

Leon's board of directors has also announced it has applied to renew its ongoing Normal Course Issuer Bid, which expires on Sept. 9. It intends to repurchase 4.99% of its common shares outstanding on Aug. 31. Over the course of its current bid, it has purchased 130,362 shares at an average price of C$11.93 per share.

In his note to shareholders, Terry Leon said he doesn't foresee any real improvement over the balance of 2012.

"The slowdown in the economy continues to affect our results and we do not see any immediate signs of improvement. As such, we anticipate that consumer discretionary spending will remain soft throughout 2012," he said, noting that Leon's will continue its aggressive marketing and merchandising campaign throughout the rest of the year.

"Even with these measures in place, growing profits in 2012 will be challenging, but our strong financial position coupled with our experience in adjusting to changing market conditions, provide us with the confidence to adapt to the prevailing economic conditions," he said.


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