Leon’s Furniture (TSE:LNF) reported a decline in second-quarter revenue and earnings as Canadian consumers pulled back on discretionary spending, though the company noted early signs of recovery heading into the third quarter.
Shifting Consumer Behavior and Sales Performance
LFL Group President and CEO Mike Walsh noted that the current operating environment aligns with management’s expectations, characterized by shoppers prioritizing value and lower entry-level pricing. System-wide sales dipped 2%, while same-store sales fell 2.2% compared to a robust performance in the same period last year.
“Customers are still shopping,” Walsh stated. “They’re doing it with a sharper focus on value and opening price points.”
Total revenue for the quarter reached C$631.2 million, a 2% decrease year-over-year. CFO Victor Diab explained that while the company increased its retail unit volume, average prices dropped across most categories—with the notable exception of mattresses—as customers opted for more affordable alternatives.
Category Breakdown: Mattresses Lead the Way
Furniture sales saw a 4.2% decline, a sharp contrast to the 6% growth experienced in Q2 2025. Appliance sales also saw low single-digit declines, hampered by softer retail demand and a slowing construction pipeline. However, mattress sales bucked the trend, rising by mid-single digits for the second consecutive quarter. Walsh attributed this success to a focused assortment strategy that has successfully captured greater market share.
During the Q&A session, Walsh clarified that while premium customers remain active, the core mid-market demographic has shifted decisively toward lower-priced products. Meanwhile, the company’s digital strategy continues to pay off, with online sessions and digital channel sales showing growth as customers research products before finalizing purchases in-store.
Margins, Costs, and Operational Efficiency
Gross margin settled at 44.63%, down 19 basis points. Diab attributed this primarily to a favorable one-time benefit recorded in the prior-year quarter. When excluding these comparisons, the underlying gross-margin rate actually showed improvement, supported by stronger mattress margins and increased revenue from insurance and delivery services.
Operating expenses (SG&A) rose 47 basis points to 36.85% of revenue, driven by fixed-cost deleveraging, higher marketing spend, and increased fuel costs. Despite these pressures, the company maintained strict cost controls, resulting in an absolute decrease in SG&A expenses compared to the previous year.
Adjusted net income was C$34.8 million, or C$0.51 per diluted share, down from C$39.4 million (C$0.57 per share) in the previous year. This variance was influenced by currency revaluation swings and a C$1.4 million settlement benefit recognized in Q2 2025.
Supply Chain Challenges and Strategic Outlook
Management cautioned that tighter freight conditions, higher shipping rates, and potential delays on Asian shipping lanes could impact inventory availability in the third quarter. To mitigate these pressures, the company is exploring alternative logistics routes. Walsh emphasized that Leon’s does not plan a broad price hike, preferring to remain selective to accommodate the value-conscious consumer.
Expansion remains a key focus. The company opened four new franchise locations during the quarter and continues to target growth for The Brick on the East Coast and Leon’s on the West Coast. Furthermore, the company highlighted an appraised value of C$1.17 billion for its real estate portfolio, reaffirming that the creation of a real estate investment trust remains a strategic priority.
Looking ahead, Walsh reported “green shoots” of demand in July, including improved traffic and higher written-sales values. With easier comparisons expected in the second half of the year, management anticipates the fourth quarter will be the most favorable period for the business.