Leon's Furniture earnings jump 41.7% in second quarter

Company's board raises quarterly stock dividend

Michael J. Knell -- Furniture Today, August 17, 2010

TORONTO — Leon's Furniture's net earnings improved dramatically in the second quarter on a modest increase in sales, prompting the retailer to raise its quarterly dividend by almost a third.

The profit improvements were attributed to the strengthening of the Canadian dollar and improved productivity and expense control.

While consolidated sales of C$212.3 million were up just 1.1% gain from the same period last year, net income of C$11.9 million or 17 cents per share was up 41.7% from a year ago.

Sales by Leon's 38 corporate stores inched up 0.8% to C$166.8 million while those by the company's 28 franchise locations were up 1.8% to C$45.5 million.

"Higher sales reflect a general improvement in the economy," Terry Leon's, president and CEO of the family-managed retailer, said in a note to shareholders.

"The profit improvement was mainly the result of three key factors: higher sales compared to the prior year's quarter; an improvement in our gross margin, which was aided by the strengthening of the Canadian dollar along with a more favorable product mix; and the continuation of improved productivity and expense controls that were initiated in the prior year," he added.

Leon's sources some of its products offshore, for which it pays in U.S. dollars. The stronger Canadian dollar created higher gross margins for these goods.

For the first six months of the year, consolidated sales of C$413.4 million were up 2% from the first half of 2009, while net income of C$23.8 million or 34 cents per share was up 41.7% year-over-year.

After the improved performance, Leon's board raised the quarterly dividend to 9 cents per share from 7 cents beginning this October.

Leon's also said that since September 2009, it bought back 413,317 of its shares at an average price of C$10.38 per share. The company intends to renew the buyback authorization when it expires next month.

Leon's also is proceeding with its store renovation and expansion plan. Planned stores included a 73,000-square-foot facility in Thunder Bay, Ontario, to open this year, and stores of 84,000 square feet in Regina, Saskatchewan; 76,000 square feet in Guelph, Ontario; and 46,700 square feet in Rosemère, Quebec, to open in 2011.

Renovations are under way at two other Ontario stores, in Sault Ste. Marie and Sudbury.

Leon said two new franchisees in Collingwood and Fort Frances, Ontario, expect to have grand openings this fall.

Looking to the rest of the year, Leon was cautiously optimistic.

"Similar to the first quarter of 2010, we saw a slight improvement in same store sales from the prior year quarter which was aided by the general improvement in consumer confidence," he said. "However, current trends are indicating that there may be a slight slowdown in the Canadian economy going forward."