LEON’S FURNITURE LTD. $12.97 - Toronto symbol LNF

LEON’S FURNITURE LTD. $12.97 (Toronto symbol LNF; TSINetwork Rating: Average) (416-243-7880; www.leons.ca; Shares outstanding: 70.6 million; Market cap: $897.5 million; Dividend yield: 3.1%) built its 75-store furniture chain 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.

In the three months ended March 31, 2013, Leon’s sales rose 3.2%, to $162.5 million from $157.4 million a year earlier. However, earnings fell 36.9%, to $5.4 million, or $0.08 a share. A year earlier, it earned $8.6 million, or $0.12 a share. The decline mostly resulted from costs related to its $700-million purchase of The Brick, which closed on March 28, 2013.

The Brick operates 234 stores across Canada, while Leon’s has 75 outlets in every province except British Columbia. Leon’s and The Brick will continue to operate as separate chains.

At the end of March 2013, and after the completion of the Brick purchase, Leon’s had long-term debt of $517.6 million, or a high 58% of its $897.5-million market cap. The shares yield 3.1%.

Growth by acquisition can be risky, especially with a deal this big. Leon’s will now need to successfully integrate The Brick and pay down its debt. However, the purchase looks like a good fit with Leon’s. As well, The Brick continues to report rising sales and is profitable.

Leon’s is still a buy.

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