Big acquisition continues to pay off for this Canadian stock

This big Canadian retailer continues to enjoy the benefits of a major acquisition made five years ago.

The acquisition not only adds steadily to sales, but enhances the company’s future growth prospects as it opens more outlets. Sales rose and earnings jumped in the latest quarter. Meanwhile, the stock trades at a moderate 13 times projected earnings, and the dividend yields 2.7%.


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LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) has steadily increased the number of stores under its banner from 27 in 2003 to today’s 79.

In March 2013, the company nearly quadrupled in size with the $700 million purchase of its main rival, The Brick. That chain now has 218 locations across Canada and still operates separately.

In the three months ended March 31, 2018, Leon’s overall sales rose 3.4%, to $500.7 million from $484.2 million a year earlier. On a same-store basis, sales gained 2.6%.

The company earned $11.5 million in the latest quarter, up 35.1% from $8.4 million. Earnings per share rose 27.3%, to $0.14 from $0.11, on more shares outstanding. The jump is the result of better sales, but also cost cutting.

Growth by acquisition can be risky, especially with a deal as big as the Leon’s purchase of the Brick. However, the integration went well, and the move has enhanced long-term prospects for Leon’s. The company still has lots of opportunity to open new Leon’s and Brick outlets.

Dividend Stocks: State-of-the-art distribution centre holds $40 million in inventory

Leon’s big acquisition has also contributed to a 20.0% dividend increase.With the April 2017 payment, the company raised its quarterly payment to $0.12 from $0.10. The shares yield 2.7%.

In 2017, Leon’s opened its state-of-the-art 432,346-square-foot distribution centre in Delta, B.C. That facility is the largest capital investment the company has made in a single property; it will significantly increase Leon’s inventory capacity in the province.

Two of its existing warehouses in B.C. were consolidated into the Delta centre. This distribution hub is expected to generate cost savings and efficiencies over the next several years as the company’s online and bricks and mortar businesses in B.C. continue to grow.

Leon’s owns 50% of the facility, with Beedie Development of Vancouver holding the other 50% stake. Combined, they invested over $65 million. At full capacity, the Delta centre can hold about $40 million in retail inventory and features state-of-the-art equipment, systems and processes to ensure furniture is moved efficiently through its more than 100 loading doors.

Leon’s earnings will probably rise 8.1%, from $1.24 a share in 2017 to $1.34 in 2018. The stock trades at a moderate 13.4 times this year’s forecast. 

Recommendation in TSI Dividend Advisor: Leon’s is a buy.

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