Growth stocks: Leon’s Furniture Ltd. to cut operating costs

The furniture retailer saw sales and earnings improve in the last quarter. It has now acquired six Sears Home locations to further expand its operations in B.C. and other important markets.

LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) has steadily increased its number of stores, from 27 in 2003 to 80 today.

The company more than quadrupled in size overnight with the $700 million purchase of its main rival, The Brick, in March 2013. That chain has 221 locations across Canada and continues to operate separately.

Leon’s plans to expand again: it’s taking over the leases on eight Sears Home stores, operated by money losing Sears Canada. It will convert those showrooms to Leon’s stores over the summer.

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Four of the locations are in British Columbia and will be the first Leon’s stores in the province. (The company already has 27 Brick locations in B.C.) The other new retail centres will be in Brampton, Mississauga and Toronto; another one is in Moncton, New Brunswick.

Growth stocks: Successful integration of Brick enhances long-term prospects

In the three months ended December 31, 2015, the company’s sales rose 1.5%, to $560.2 million from $552.1 million a year earlier. On a same-store basis, sales gained 1.1%. The company was able to increase its sales with promotional prices, but that cut into its profit margins.

Earnings rose just slightly, to $30.2 million, or $0.42 a share, from $29.9 million, or $0.42.

Growth by acquisition can be risky, especially with a deal as big as the Brick purchase. However, the integration is going well, and the move enhances the company’s long-term prospects. The stock trades at 13.6 times this year’s forecast earnings of $1.05 a share. The shares yield 2.8%.

Recommendation in Stock Pickers Digest: BUY.

For our advice on taking full advantage of growth stocks, read Growth investing balances an investor’s portfolio.

For a recent report on another growth stock we recommend in our advisory on more aggressive investing, read Russel Metals manages long-term debt.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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