The Faceoff: Leon’s and La-Z-Boy both rake in revenue — but can either sit back and relax?

Leon’s posts record second quarter fiscal 2021 results

While a new couch from Leon’s may not come with the bragging rights of a couch from La-Z-Boy, Leon’s patrons definitely have a leg up when it comes to frugality.

Looking at Leon’s website, a full-price recliner starts at $ 599, excluding tax. At La-Z-Boy, a similar model will cost you $ 1,349 plus tax (although with the current sale, it is only $ 699 before taxes).

Founded over 100 years ago, the company — headquartered in Toronto — operates under banners such as Leon’s and The Brick.

In its second-quarter fiscal 2021 results, Leon’s reported an increase in revenues of 41 per cent to a best-ever $ 589 million, from $ 417 million in 2020, despite almost half of the company’s retail locations being closed due to lockdowns. Net income is up 82 per cent to $ 46 million, from $ 25 million in 2020.

Edward Leon, CEO of Leon’s during the second quarter, noted that the company “achieved double-digit revenue increases in all regions and product categories,” with a 41.1 per cent increase in same-store sales “driven by (Leon’s) scalable eCommerce business.” As of July 1, Leon retired and was replaced by Mike Walsh.

David Soberman, a professor of marketing at the Rotman School of Management at the University of Toronto, said that lead times for supply of products are closely tied to waves of the pandemic.

“If we find that our vaccines are very effective and the level of vaccination in the population is above a threshold, we could probably resist the waves. Once you resist the waves you have more of a normal (supply chain),” he said.

“Disruptions in the supply chain can be anything from cities going into curfew, factories closing down due to an outbreak, or shipments being delayed because the ships are being quarantined. All of these things affect (global supply chains).”

La-Z-Boy’s revenue almost doubles in its first quarter 2022 fiscal year

When it comes to the world of furniture, La-Z-Boy is to recliners what Kleenex is to tissues. The company, founded in 1927 and headquartered in Monroe, Mich., has locations in Canada, the United States and around the world.

La-Z-Boy had a blockbuster first quarter of its 2022 fiscal year. The company reported an 84 per cent jump in revenues to $ 525 million (U.S.), from $ 285 million in 2020. Overall net income is up to $ 25 million, from $ 5 million the prior year.

Joybird, an online custom-furniture company, was bought by La-Z-Boy in 2018 to increase the company’s online presence. In the most recent quarterly results, Joybird’s delivered sales grew 188 per cent compared to last year’s quarter, to $ 39 million.

Melinda D. Whittington, president and chief executive officer of La-Z-Boy, was pleased with the results but cautioned investors about rising “commodity and freight costs, which have not shown signs of abating.” To address this issue, Whittington noted that the company “imposed a surcharge on pending dealer orders in our backlog to help mitigate these significant cost increases in the near term.”

Brad Thomas, equity research analyst at KeyBanc Capital Markets, released a report on June 16 detailing the company’s fiscal 2021 results.

Thomas notes that lead times for products have increased to four to nine months, compared to the company’s typical four to six weeks. The company has also “seen delays in international shipment and component part availability, such as electrical components for higher-margin power units,” resulting in lower gross margins.

Despite this, “management noted that (first quarter fiscal 2022) is off to a good start with continued robust written order rates and a record backlog,” Thomas wrote.

The bottom line

Rising freight costs have put pressure on Leon’s and La-Z-Boy to implement measures to maintain its gross margin. Looking at the most recent quarterly results, Leon’s appears to be more successful as suggested by an increase in its gross margin, compared to a decrease for La-Z-Boy. While La-Z-Boy tops Leon’s for revenue at roughly $ 665 million (in Canadian dollars) compared to $ 589 million, the Canadian-domiciled company reported net income of $ 46 million, compared to La-Z-Boy’s $ 31 million (again, in loonies). Leon’s ability to increase its gross margin during the pandemic is impressive, and for this reason I’m giving it the thumbs up this week.

TORONTO STAR