Leon's Furniture Limited Reports Lower Same Store Sales

Furniture World News Desk on 8/15/2014

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three and six months ended June 30, 2014 and 2013
Dated: August 14, 2014

Introduction:  On November 11, 2012 , Leon's Furniture Limited and The Brick Ltd. ("The Brick") announced that they had entered into a definitive agreement (the "Leon's Arrangement") that provided for Leon's to acquire 100% of The Brick's outstanding common shares for $5.40 per outstanding common share, and to acquire for cancellation 100% of the outstanding common share purchase warrants for $4.40 per common share purchase warrant.

Immediately upon completion of the Leon's Arrangement, which occurred on March 28, 2013 , all outstanding common shares and common share purchase warrants were repurchased in accordance with the Leon's Arrangement and are no longer listed for trading on the Toronto Stock Exchange ("TSX"). The total consideration paid to shareholders and warrant holders of The Brick was approximately $700 million . As a result of this transaction, 100% of The Brick's common shares are owned by Leon's Furniture Limited.

With The Brick acquisition, Leon's Furniture Limited is now the largest retailer of furniture, appliances and electronics in Canada . Our retail banners now include: Leon's, The Brick; United Furniture Warehouse; The Brick Mattress Store; and The Brick Clearance Centres. Finally, the addition of the Brick's Midnorthern Appliance banner alongside with Leon's Appliance Canada banner, makes the Company the country's largest commercial retailer of appliances to builders, developers, hotels and property management companies.

As a result of this major acquisition, Leons' now has in excess of 300 retail stores from coast to coast in Canada under the various banners indicated below which also includes over 100 franchise locations.

BANNER NUMBER OF STORES
Leon's banner corporate stores 44
Leons' banner franchise stores 35
Appliance Canada banner stores 3
The Brick banner corporate stores1 111
The Brick banner franchise stores 67
Brick Clearance Centres banner stores 2
The Brick Mattress Store 24
United Furniture Warehouse banner stores 15
Total number of stores 301

1 Includes the Midnorthern Appliance banner

Revenues and Expenses:  For the three months ended June 30, 2014 , total system wide sales were $561,438,000 , which includes $474,517,000 of corporate sales and $86,921,000 of franchise sales, ($573,381,000 , which includes $480,559,000 of corporate sales and $92,822,000 of franchise sales for the three months ended June 30, 2013 ), a decrease of 2.1%. Overall, same store corporate sales decreased by 1.3%.

Gross margin for the second quarter 2014 increased from 43.44% to 43.72% compared to the prior year's second quarter. The increase in gross margin was driven by the change in our sales mix as we saw a slight increase to furniture sales vs. appliance and electronic sales.

Net operating expenses of $179,111,000 were down $3,870,000 from the second quarter of 2013. The decrease compared to the comparative period was mainly due to a reduction in general and administrative expenses. This is the result of cost efficiencies in combining the operations of Leon's and The Brick.

As a result of the above, net income for the second quarter of 2014 was $16,524,000 , $0.23 per common share ( $14,445,000 , $0.20 per common share in 2013), an increase of $0.03 per common share or 15.0% from the comparative year quarter.

For the six months ended June 30, 2014 , total system wide sales were $1,069,840,000 which includes $900,526,000 of corporate sales and $169,314,000 of franchise sales ( $776,936,000 which includes $643,017,000 of corporate sales and $133,919,000 of franchise sales in 2013). Net income was $17,342,000 , $0.25 per common share ( $19,869,000 , $0.28 per common share in 2013), a decrease of 10.7% per common share. The prior six month comparisons only included The Brick sales from the date of acquisition, being March 28, 2013 .