LEON’S FURNITURE LTD. $14.00 (Toronto symbol LNF; TSINetwork Rating: Average) (416-243-7880; www.leons.ca; Shares outstanding: 71.0 million; Market cap: $1.0 billion; Dividend yield: 2.9%) has steadily opened new stores, growing from 27 in 2003 to 79 today.
But the company more than quadrupled in size overnight with its March 2013 purchase of its main rival, The Brick, for $700 million. The Brick has 222 locations across Canada. The chains continue to operate separately.
In the quarter ended June 30, 2014, the company’s sales fell 1.3%, to $474.5 million from $480.6 million a year earlier. The year-ago quarter included the first full three months of sales from The Brick. On a samestore basis, sales declined 1.3%.
But even with the lower sales, earnings gained 14.4%, to $16.5 million, or $0.23 a share. A year earlier, Leon’s earned $14.4 million, or $0.20 a share. Earnings rose because the company sold more highprofit- margin furniture in the latest quarter, rather than appliances and electronics. Meanwhile, costs fell as a result of savings from combining Leon’s and The Brick.
Growth by acquisition can be risky, especially with a deal as big as The Brick purchase. However, Leon’s is integrating its distribution networks and computer systems with The Brick, and that’s already improving its efficiency.
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