Improved online sales contributed to a 41.1% revenue boost for this company during the second quarter.
A rebounding economy has also let the company restore its dividend to pre-COVID-19 levels.
The stock trades at 9.1 times the company’s 2022 earnings forecast.
LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) has 303 stores that sell furniture and home appliances, mainly under the Leon’s and The Brick banners.
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Leon’s has built its chain of furniture stores on its four main strengths: a huge selection of furniture, appliances and electronics; a lowest price guarantee; strong after-sales service; and aggressive TV, radio and print advertising.
The company also uses strategic acquisitions to spur its growth. In March 2013, it paid $686.0 million for rival furniture chain The Brick. The Brick now operates 209 stores across Canada, while Leon’s has 89 outlets. Leon’s and The Brick continue to operate as separate chains.
In January 2018, Leon’s paid an undisclosed sum for Appliance Canada Ltd. That business sells appliances to builders and apartment landlords through five stores in Ontario.
The company recently opened a new Brick store in St. John’s, Newfoundland. As a result, The Brick now has stores in all 10 provinces. In all, the chain has 209 locations.
Leon’s has also opened a new distribution centre in Dartmouth, Nova Scotia. This new facility will help its stores in Atlantic Canada avoid shortages of popular items, particularly as the COVID-19 lockdowns prompt consumers to upgrade their homes.
In the second quarter of 2021, overall sales rose 41.2% to $588.5 million from $416.7 million a year earlier. Same-store sales gained 41.1%, while online orders jumped 46%. Excluding one-time items, earnings in the quarter soared 84.2%, to $46.6 million from $25.3 million. Per-share earnings jumped 93.5%, to $0.60 from $0.31, on fewer shares outstanding.
As of June 30, 2021, Leon’s held cash of $381.2 million, while its long-term debt of $90.0 million is a low 5% of its market cap.
The stock has gained over 20% in the past year and now trades at just 9.1 times the $2.64 a share that Leon’s should earn in 2021. The Leon family still controls 55% of outstanding shares, which is why the stock is a thin trader. However, we feel its improving prospects offset that reduced liquidity.
To conserve cash during the COVID-19 pandemic, Leon’s cut your quarterly dividend by 25.0% in July 2020, to $0.12 a share from $0.16. However, as its stores re-opened, Leon’s raised the quarterly dividend to $0.14 a share in October 2020. It then increased that quarterly payment by 14.3% to $0.16 in January 2021. The current rate of $0.64 yields a solid 2.7%.
In addition to the regular dividend, Leon’s rewarded investors with two special payments: $0.30 a share in January 2021 and $1.25 a share on October 8, 2021.
The company’s dividend has now grown an average of 9.9% annually over the last 5 years. Leon’s TSI Dividend Sustainability Rating is Average.
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