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> Executive's Message
Events & Press Releases
RECORD FINANCIAL RESULTS
System-wide sales reached $2.64 billion including $426 million of franchise sales, compared to $2.53 billion including $388 of franchise sales in 2016. These results reflect a full year of sales from ten new stores opened in 2016, the effectiveness of our marketing and merchandising campaigns at Leon’s and The Brick, and growing contributions from our online retail channels and other businesses. Same-store sales for the year increased 1.2 percent, as we continued to grow market share in a relatively slow-growing economy. At the same time, we continued to increase adjusted net income – which rose 14.1 percent to $99 million or $1.23 per diluted share – at a faster pace. This reflected an unwavering focus on cost control, the continuing internalization of distribution costs at The Brick, and lower financing costs as a result of continued debt reduction.
Over the same time period, we were able to increase net earnings at a compound annual growth rate of nine percent, while reducing the $400 million of medium-term bank debt and $100 million in convertible debentures issued to fund the acquisition of The Brick to $195 million and $48 million, respectively, by the end of last year.
While we have been careful to preserve the independence of the marketing and merchandising teams at Leon’s and The Brick, we are also benefitting from a shared approach to the way we conduct business that permeates both divisions and we will continue to find new ways to leverage our combined business. Today, these two industry-leading brands make Leon’s Furniture Limited the largest retailer of furniture, mattresses, appliances and consumer electronics in Canada.
A STRONG FOUNDATION FOR GROWTH
Leon’s is well positioned to sustain increased profitability in our core retailing business amid the current industry environment. At the same time, we are advancing five complementary initiatives that will augment revenue and earnings growth as we move ahead:
1. ACQUISITIONS. As Leon’s continues to generate cash flows exceeding our operating and capital investment requirements, we will be open to selective acquisition opportunities. Our investment criteria include businesses with well-established brands and leading market positions that can leverage our existing capabilities and infrastructure. While we occupy a leading position in our market, Leon’s and The Brick together represent less than a 20 percent share of total sales. The market remains highly fragmented in both Canada and the United States and will thus continue to present acquisition opportunities as it consolidates.
2. DIGITAL COMMERCE. Over the past year, we have continued to refine an omni-channel marketing strategy that combines the strengths of our Canada-wide retail, distribution and service networks with the endless selection of our leons.ca, thebrick.com and furniture.ca websites. We want to make it easier and more rewarding for customers to do business with us – no matter how, when or where they choose – whether they are comparing our products online or visiting our stores for specialized sales information or value-added warranty and service advice.
As part of this process, we are planning to take a larger role in the operation of leons.ca, thebrick.com and furniture.ca to better drive innovation and more effectively advance our efforts to create a seamless customer experience across all retail channels.
Our omni-channel marketing initiatives are built on a strong foundation. As the world’s largest online retailers are beginning to recognize the advantages of brick and mortar stores and dedicated distribution facilities, we already possess the valuable infrastructure required to display, sell, distribute and service a rapidly expanding product offering almost anywhere in Canada.
3. THIRD PARTY DISTRIBUTION. The recent opening of our state-of-the-art distribution centre in Delta, BC represents an important step in the modernization of our national distribution network to more efficiently meet the combined needs of our Leon’s and The Brick store networks. Yet it also represents the beginning of a larger business opportunity. The so-called “last mile” in product fulfillment is an expensive and sometimes costprohibitive one for many traditional and online retailers. That’s why Leon’s is planning to increase capacity, not only in its Delta distribution facility, but also at many of its other existing warehouses by digitally integrating them to create greater efficiencies and allow for third party distribution. We are planning to develop this business as a separate profit centre as the optimization of our national distribution network continues.
4. MAJOR APPLIANCE WARRANTY AND THIRD PARTY SERVICE. TransGlobal Service (TGS) was created in 1980 to provide after-sales service for appliances sold by The Brick and today fulfills installation, repair and service requirements for multiple retailers and wholesalers of all brands of major appliances as well as electronics, installations and home mechanical systems. Already the largest operation of its kind in Canada, this business is benefitting from the increasing tendency of manufacturers and retailers to outsource service and warranty work, as well as a rapidly growing direct-toconsumer business. We expect these trends to continue and are positioning TGS, with its unequalled scale and geographic footprint, to become an increasingly important contributor to Leon’s revenue and earnings growth.
5. REAL ESTATE. Many of our stores in our retail network occupy company-owned commercial real estate that are situated in the heart of Canada’s largest and fastest growing metropolitan areas. This 4.2 million square foot real estate portfolio is carried on Leon’s balance sheet at historical cost. Over the past year, we have been working with industry consultants to more accurately determine the market value of our real estate, identify the most promising development opportunities and evaluate different scenarios for value creation.
108 YEARS YOUNG
After more than 108 years in business, Leon’s has prospered and grown through many economic cycles. We’ve also witnessed, and sometimes initiated, continuing change in the Canadian retailing landscape. Today, we are proud of how far we’ve come, yet in many ways we are just getting started. We are better positioned than ever in the Canadian marketplace with two storied and market-leading retail banners and an unrivalled store and distribution network. This is a strong foundation for the continued growth of our core retailing business as well as the complementary growth initiatives that will play an increasing role in our success.
In closing, I would like to extend our appreciation to the executive leadership of Leon’s and The Brick, their talented corporate and franchise store management teams, and the valued associates at all of our businesses, for helping to make 2017 our best year yet. With your continued support, we look forward to reporting on Leon’s progress in the years ahead.
“Terrence T. Leon”
Terrence T. Leon
Chief Executive Officer