Leon’s Furniture (TSE:LNF) reported lower second-quarter revenue and earnings as Canadian consumers remained cautious on large discretionary purchases, while the company pointed to growth in mattresses, increased retail unit volumes and early signs of improved demand entering the third quarter.
LFL Group President and Chief Executive Officer Mike Walsh said the operating environment developed largely as management had anticipated, with shoppers focused on value and lower opening price points. System-wide sales declined 2%, while same-store sales fell 2.2%, against what Walsh described as a strong comparison from the prior-year quarter.
Revenue for the quarter totaled C$631.2 million, down 2% from a year earlier. Chief Financial Officer Victor Diab said retail delivered units increased year over year, but average unit prices declined in most categories other than mattresses as shoppers traded down.
Furniture declines offset partly by mattress gains
Furniture sales fell 4.2% from a year earlier, following 6% growth in the second quarter of 2025. Unit sales in the category were slightly lower. Appliance sales declined by low single digits amid softer retail demand and slowing builder pipelines in the commercial channel, though appliance unit sales increased.
Mattress sales rose by the mid-single digits, marking the company’s second consecutive quarter of growth in that category. Walsh said the company’s focused assortment strategy, previously used to support furniture performance, is now helping mattresses gain share across the assortment.
During the analyst question-and-answer session, Walsh said premium customers continue to spend, but the company’s core mid-market customer has shifted toward lower-priced options. “We’re seeing that customer lowering down to more of the opening price point,” he said.
Walsh also said LFL’s digital platform continued to attract customers researching products before making purchases in stores. Online sessions and online-channel sales both increased during the quarter, according to management.
Margins and earnings declined amid costs and prior-year comparisons
Gross margin was 44.63%, down 19 basis points from the prior-year period. Diab attributed the reported decline primarily to a comparison with a benefit recorded in the second quarter of 2025 and a small headwind this quarter. Excluding that swing, he said the underlying gross-margin rate improved.
Improved mattress margins and higher revenue from insurance and delivery service offerings partly offset category mix effects and targeted promotions, Diab said.
Selling, general and administrative expenses represented 36.85% of revenue, an increase of 47 basis points year over year. The increase reflected lower revenue and fixed-cost deleveraging, as well as higher marketing, fuel and occupancy costs. Lower point-of-sale financing fees, tied to lower Bank of Canada interest rates, partially offset those pressures.
On a dollar basis, however, SG&A expenses declined year over year, which Diab said reflected strict cost control despite business investments and inflationary pressures.
Adjusted net income was C$34.8 million, or C$0.51 per diluted share, compared with C$39.4 million, or C$0.57 per diluted share, a year earlier. Diab said the comparison included a 40-basis-point swing in the revaluation of U.S.-dollar payables as well as a C$1.4 million settlement benefit recorded in other income during the second quarter of 2025.
Supply-chain pressure could affect third-quarter deliveries
Management said freight conditions have tightened, with higher rates and container charges affecting certain shipping lanes. The company has begun receiving inventory carrying higher costs, primarily related to fuel, and expects to incorporate those costs into its margin equation in the second half.
Delays on certain Asian shipping lanes could affect inventory availability and furniture deliveries in the third quarter, Diab said. He characterized the issue as a supply consideration rather than a demand issue and said management is pursuing alternative routes to reduce the impact, with the goal of mitigating the pressure by the fourth quarter.
Walsh said the company does not intend to broadly raise prices in response to higher costs, given the consumer’s focus on affordability. Instead, LFL plans to be selective in its pricing decisions.
The promotional environment has become more intense, Walsh said, as retailers seek to appeal to value-oriented consumers. He said marketing needs to emphasize value to drive store traffic.
Store growth, commercial business and capital allocation
LFL opened four franchise locations during the quarter, including three Brick locations that opened on the same day and a Leon’s store in Happy Valley-Goose Bay. After quarter-end, it opened a Leon’s Furniture location in Welland, Ontario, where Walsh said the initial customer response was strong.
The company sees additional network expansion opportunities primarily for The Brick on Canada’s East Coast and Leon’s on the West Coast. It also launched the Shaq-O-Pedic collection with Shaquille O’Neal at The Brick in May and named Canadian men’s national soccer team captain Alphonso Davies as a Brick brand ambassador in June.
Commercial sales were slightly lower, which management said was resilient given weak development activity, particularly in Ontario. The company cited growth in its property-management business, expansion in Western Canada and new customer wins. Walsh said competitor exits from the channel could create opportunities over the next 12 to 18 months.
LFL ended the quarter with C$560.1 million of unrestricted liquidity, including cash, marketable securities and an undrawn revolving credit facility. The company repurchased about 120,000 shares for approximately C$3 million under its normal course issuer bid during the quarter.
Management also disclosed an appraised value of C$1.17 billion for its owned real estate portfolio. Diab said the appraisal was intended to establish a market-based reference point for assets carried at historical cost. The company’s proposed real estate investment trust initiative remains a strategic priority, subject to market conditions and regulatory approvals.
Looking ahead, Walsh said demand showed “green shoots” in July, including improved traffic and average sale values on a written-sales basis. He cautioned that July is the smallest month of the quarter and that written sales must still convert into delivered sales. Management said comparisons should ease in the second half, with the fourth quarter expected to be the most favorable.
About Leon’s Furniture (TSE:LNF)
Leon’s Furniture Ltd is a Canada-based retailer which is involved in the sale of home furnishing, mattresses, appliances, and electronics. The firm is also the country’s commercial retailer of appliances to builders, developers, hotels, and property management companies. It generates maximum revenue from sales of goods by corporate stores.
