Leon's Furniture says housing boom helps lift Q1 profit 10%

By Laura Bobak
TORONTO (CP) – Canada’s boom in housing starts helped deliver a 10 per cent boost to first-quarter profit at Leon’s Furniture Inc. (TSX:LNF), and the patriarch of the 100-year-old family chain says slowing starts reported last month won’t affect the company for many years to come.
The retailer of furniture, electronics and appliances, which reported first quarter profits of $10.8 million, up one million from the same period in 2016, is also benefiting from a Canadian retail spending spree.


Statistics Canada reported last month that Canadians spent $392.4 billion in retail stores in 2016, a 6.4 per cent increase in consumer spending from the year before.
Meanwhile, housing starts in March rose 7.6 per cent but the first quarter overall was down 10 per cent from last year, Canada Mortgage and Housing Corp. reported Wednesday.
But the slowdown in starts doesn’t worry the Leon family, who is aware of industry statistics showing new homeowners take up to five years to furnish their new dwellings.
Anthony “Tom” Leon, the company’s chairman emeritus, said the company – which reported earnings per share up six cents to 59 cents, and a July quarterly dividend of 28 cents – is enjoying the spinoff effects of suburban growth outside of Toronto.
Leon’s, which just opened a new showroom and warehouse in Newmarket, Ont., said it plans to open a similar facility in Montreal this fall. The company is also renovating stores in Calgary and Kitchener, Ont., where work is expected to be complete before the end of the year.
“If you drive north … leading out to the suburbs of Toronto, thousands of houses have been built. I would tell you that 90 per cent (of those homeowners) haven’t really furnished their homes,” Anthony Leon said. “And we look forward to that business in the years to come, because we’re just drying out now on our regular customers who have built previously 10 years ago or five years ago. We have immense housing. So we’re very optimistic,” Leon said.
“Don’t forget, they pay big mortgages, and they’re buying better homes. And they’re getting more fussy on the kind of furniture they want. So they’re not going to take anything that comes along. If they can’t afford it, they’re going to wait.”
Leon’s sales were about $180 million in the first quarter, including $41 million of franchise sales. In the first quarter of 2016, sales were $155 million, including $35 million of franchise sales, an increase of 16 per cent.
The Toronto-based retail chain, which has 35 corporate and 28 franchise stores across Canada, has typically used deferred payment plans to attract their mortgage-laden customers.
According to Statistics Canada, proportionately, of every $100 in retail spending last year, Canadian consumers spent about $9 on furniture and home furnishings.
Slowdowns in housing take up to 18 months to seep through to consumer spending patterns, since people take months to furnish new homes. In the U.S., spending actually increased in 2016, in the midst of the housing market correction.
Beata Caranci, a senior economist for TD Bank, said a gradual slowdown in growth in Canada’s high rate of housing starts is good for the economy because it helps avert the kind of bubble burst that caused housing starts in the U.S. to plunge by one-fifth in the last three quarters.
She said Canada, which is expected to outperform the U.S. again this year due to positive outlooks for employment and economic growth, is on track to retain a healthy housing market despite the sluggish first-quarter results. Consumer spending is also expected to remain strong.
Meanwhile, Leon’s shareholders approved a four-for-one stock split Monday, which will take effect in trading on the Toronto stock exchange on June 27.
Terry Leon, the company’s CEO, told shareholders at the company’s annual general meeting that the split would allow shareholders more liquidity.
“We’re hoping that retail trading will continue to pick up,” Terry Leon said.
When one skeptical shareholder questioned the benefit of the split, Terry Leon said institutional trading has slowed in the stock, and he hopes lowering the price will encourage more activity on the Toronto stock market.
The stock closed up $1.35 cents to $57.73 on the Toronto Stock Exchange, with a low volume of 3,174 shares traded.
There are currently about 17.7 million shares outstanding.