The Brick offers Leon’s growth—but risk to match

LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) 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 rival furniture chain The Brick, which closed on March 28, 2013. [ofie_ad]

Canadian stocks: Leon’s and The Brick will continue to operate as separate chains

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. The Brick continues to report rising sales and is profitable. 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%. In the latest edition of Stock Pickers Digest, we look at whether The Brick will be a sufficiently good fit with Leon’s to offset the considerable risk that comes with a deal this big. We also look at Leon’s prospects of successfully integrating The Brick and paying down its debt. We conclude with our clear buy-hold-sell advice on this stock. (Note: If you are a current subscriber to Stock Pickers Digest, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members When a stock you own takes over another company, are you willing to be patient if the company’s growth slows while it integrates the acquisition? Can you think of an example of an acquisition in which early difficulties were overcome successfully? Or one in which things just continued to get worse over time? Let us know what you think.

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