Leon’s profit rose despite COVID-19
Cost controls, including staff layoffs, helped this company generate a 33.3% earnings increase in the latest quarter.
The firm continues to grow its e-commerce revenue to compensate for brick-and-mortar store closures due to COVID-19.
LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) had to shut down most of its 86 Leon’s and 204 Brick stores due to the COVID-19 pandemic. However, the company is now seeing the benefits of its decision to transfer its online stores to the Shopify (Toronto symbol SHOP, and a Power Growth Investor recommendation) platform. That has helped it cope with rising e-commerce volumes.
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The retailer has steadily increased shareholder value by raising the number of stores under its Leon’s banner from 27 in 2003 to today’s 86.
In 2013, the company nearly quadrupled with its $700 million purchase of rival The Brick. That chain now has 204 locations across Canada and still operates separately.
Leon’s had to shut down most of its stores due to the COVID-19 pandemic. However, rising revenue at its e-commerce operations helped offset the lower in-store sales.
In the quarter ended March 31, 2020, overall sales fell just 0.4%, to $497.6 million from $499.7 million a year earlier. That missed the consensus forecast of $499.0 million. On a same-store basis, sales declined 1.2%.
Dividend Stocks: Effective Cost Controls Boost Earnings
Excluding one-time items, the company earned $0.16 a share in the latest quarter, up 33.3% from $0.12. That easily beat the consensus estimate of $0.10 a share. The big jump was mainly due to effective cost controls, including laying off over half of its employees.
Leon’s sales and earnings should improve over the next few months as its stores reopen. For now, to conserve cash, it is reducing your quarterly dividend by 25.0%. Starting with the July 2020 payment, investors will receive $0.12 a share instead of $0.16.
The new annual rate of $0.48 yields 3.6%. We’ve also cut Leon’s TSI Dividend Sustainability Rating to Average from Above Average.
Recommendation in Dividend Advisor: Leon’s Furniture Ltd. is a buy.