Leon's Furniture Limited reported that for the three months ended September 30, 2009, total Leon's sales were $236,674,000 including $49,243,000 of franchise sales ($259,204,000 including $56,219,000 franchise sales in 2008), a decrease of 8.7% from the third quarter 2008. Net income was $15,643,000, 22 cents per common share ($17,499,000, 25 cents per common share in 2008), a decrease of 12% per common share.
For the nine months ended September 30, 2009, total Leon's sales were $641,805,000 including $136,611,000 of franchise sales ($680,333,000 including $146,045,000 of franchise sales in 2008), a decrease of 5.7% and net income was $32,834,000, 46 cents per common share ($40,185,000, 57 cents per common share in 2008), a decrease of 19.3% per common share.
In addition, Leon's Furniture releasee the following information:
We continue to experience lower sales and profits in the third quarter 2009 when compared to the prior year. We continue celebrating our 100th Anniversary with an active marketing campaign and excellent consumer value. At the same time we are pleased with the efforts put in place to keep expenses in check. As a result, we believe we are well positioned to take advantage of any improvements in general economic conditions. In the third quarter of 2009 we opened a new showroom store in downtown Toronto, Ontario known as the "Roundhouse" and we are pleased with its performance to date. Renovations were also completed at our Barrie and Whitby, Ontario stores. We plan to begin construction on two new superstores in the spring of 2010; one in Thunder Bay, Ontario (75,000 sq ft.) and the other in Regina, Saskatchewan (85,000 sq. ft.).
The Directors have declared a quarterly dividend of 7 cents per common share payable on January 11, 2010 to shareholders of record at the close of business on December 11, 2009. In addition, the annual dividend on the convertible non-voting series shares of 14 cents, will be payable on January 11, 2010 to the shareholders of record at the close of business on December 11, 2009. As stated in our press release dated February 20, 2007, as of 2006, dividends paid by Leon's Furniture Limited are "eligible dividends" and for further clarification, all future dividends are eligible dividends unless otherwise stated.
During our 100th anniversary we have been able to give back to communities across Canada, including donations to many charities, special events for our customers, and gifts for all of our associates. We are pleased that our continuing success, positive cash position, and very strong balance sheet, allow us to include our shareholders in our 100th anniversary celebrations by declaring a special dividend of 20 cents, per common share, payable on December 16, 2009 to the shareholders of record at the close of business on November 30, 2009.
Introduction:
Leon's Furniture Limited has been in the furniture retail business for 100 years. The company's 38 corporate and 28 franchise stores can be found in every province except British Columbia. Main product lines sold at retail include furniture, appliances and electronics.
Revenues and Expenses:
For the three months ended September 30, 2009, total Leon's sales were $236,674,000 including $49,243,000 of franchise sales ($259,204,000 including $56,219,000 of franchise sales in 2008), a decrease of 8.7% from the third quarter 2008.
Leon's corporate sales of $187,431,000 in the third quarter of 2009, decreased by $15,554,000 or 7.7%, compared to the third quarter of 2008. The decrease in sales in the third quarter compared to the prior year was the result of a continuation of the general economic slowdown that began in 2008. In order to help offset declining consumer confidence, we continued running a very active marketing campaign to coincide with the Company's 100th Anniversary. Same store corporate sales were down 8.1% compared to the prior year. (Same store sales are calculated for stores that have been open at least 12 months).
During the quarter, the Company opened the first downtown Toronto, Ontario showroom store known as the "Roundhouse" and is satisfied with results to date.
Leon's franchise sales of $49,243,000 in the third quarter of 2009, decreased by $6,976,000 or 12.4%, compared to the third quarter of 2008. The economic slowdown has impacted all regions of the country.
Our gross margin of 39.5% for the third quarter 2009 increased by 1.5% from the third quarter 2008. The increase in the gross margin is mainly attributed to the decrease in costs of imported furniture as a result of the strengthening Canadian dollar. We also saw a slight increase in gross margins earned by our Appliance Canada division. Appliance Canada is involved in the wholesale of appliances to the building and apartment trades as well as some retail of high end appliances to the public.
Net operating expenses of $51,171,000 were down $1,360,000 or 2.6% for the third quarter 2009 compared to the third quarter 2008. Payroll and commission costs were down 7.7% in the third quarter compared to the prior year. This decrease was the result of lower sales and a planned effort to reduce payroll costs in response to our expectation of a slowdown in sales for 2009. As previously stated, the Company created an enhanced marketing campaign to celebrate the Company's 100th Anniversary. As a result, advertising expenses increased by $441,000 or 6.3% for the third quarter compared to the prior year, well within our budget. For the most part, all other operating costs were down compared to the prior year third quarter. We are pleased with the continued efforts of our Associates in helping reduce operating expenses in light of the economic slowdown.
As a result of the above, net income for the third quarter 2009 was $15,643,000, 22 cents per common share (as compared to $17,499,000, 25 cents per common share in 2008), a decrease of 12% per common share.
For the nine months ended September 30, 2009, total Leon's sales were $641,805,000 including $136,611,000 of franchise sales ($680,333,000 including $146,045,000 of franchise sales in 2008), a decrease of 5.7% and net income was $32,834,000, 46 cents per common share ($40,185,000, 57 cents per common share in 2008), a decrease of 19.3% per common share. The first quarter 2008 includes an after tax gain on sale of land of $1,135,000 or 2 cents per common share.
Cash, cash equivalents and marketable securities (including restricted marketable securities) increased by $15,589,000 in the quarter mainly as a result of net income and the reduction in working capital balances.
Marketable securities consist primarily of bonds with maturities not exceeding 11 years with an interest rate range of 2.5% to 7.7% and are stated at market value.
As part of the warranty reinsurance agreement with a subsidiary, the Company has pledged assets, which are part of the investment portfolio. The pledged assets are for the benefit of the primary insurance company for the purposes of insuring customer product warranty sales. The assets are in the form of a trust with a financial institution amounting to $17,163,000.
Inventory decreased by $6,745,000 from the second quarter 2009 due to a concentrated effort to lower inventory levels because of reduced sales.
A new downtown Toronto, Ontario showroom store known as the "Roundhouse" had a grand opening in the third quarter 2009. We are pleased with initial results from this most recent store addition. Renovations were also completed in the third quarter 2009 at our Barrie and Whitby, Ontario stores.
At the present time all funding for new store projects, renovations, dividends and working capital needs are scheduled to come from our existing cash resources. In the third quarter of 2009, the Company generated $21,690,000 cash from operating activities, contributing to the Company's strong liquidity position.
Outlook:
Similar to a trend that began in the latter part of 2008, we saw a decrease in same store sales from the prior year's quarter. At this point we do not see any clear signs as to when we will see an economic turnaround. However, we just opened a new store in the third quarter 2009 known as the "Roundhouse" which should help reinforce sales for the balance of this year. This will also be aided by a continuation of a robust marketing campaign to coincide with celebrating the Company's 100th Anniversary. However, even with these measures in place, growing sales and profits for the balance of this year will be very challenging. Despite these concerns, our strong financial position coupled with past experience in dealing with economic slowdowns should allow us to look to the future with cautious optimism.