ZZZ Sleep Country Canada Holdings Inc

TORONTO, Aug. 8, 2024 /CNW/ - Sleep Country Canada Holdings Inc. ("Sleep Country" or the "Company") (TSX: ZZZ) released its financial results today for its second quarter ended June 30, 2024.  

All financial results are reported in Canadian dollars unless otherwise stated. 

Second Quarter Financial Highlights

• Revenues increased by $15.3 million or 7.0% to $232.5 million in Q2 2024 from $217.2 million in Q2 2023;
• Same Store Sales ("SSS")¹ increased by 4.8% in Q2 2024 from Q2 2023;
• Revenues attributed to eCommerce increased to 25.4% in Q2 2024 from 21.3% in Q2 2023;
• Gross profit increased by $9.5 million to $88.5 million in Q2 2024 from $79.0 million in Q2 2023;
• Gross profit margin increased to 38.1% in Q2 2024 from 36.4% in Q2 2023;
• Operating EBITDA¹ increased by $6.7 million or 15.1% to $50.9 million in Q2 2024 from $44.2 million in Q2 2023;
• Operating EBITDA¹ margin increased to 21.9% in Q2 2024 from 20.4% in Q2 2023;
• Net income attributable to the Company increased by $3.1 million or 24.9% to $15.8 million in Q2 2024 from $12.7 million in Q2 2023;
• Adjusted net income attributable to the Company¹ increased by $3.7 million or 24.9% to $18.5 million in Q2 2024 from $14.8 million in Q2 2023;
• Diluted earnings per share ("EPS") increased by $0.10 or 27.8% to $0.46 in Q2 2024 from $0.36 in Q2 2023;
• Diluted adjusted EPS¹ increased by $0.12 or 28.6% to $0.54 in Q2 2024 from $0.42 in Q2 2023; and
• Subsequent to quarter-end, on August 8, 2024, the Board declared a dividend of $0.237 per share payable on August 30, 2024 to shareholders of record at the close of business on August 26, 2024. The dividend was designated as an "eligible dividend" for Canadian tax purposes.

YTD 2024 Financial Highlights

• Revenues increased by $18.5 million or 4.4% to $442.2 million YTD 2024 from $423.7 million YTD 2023;
• SSS¹ increased by 1.7% YTD 2024 from YTD 2023;
• Revenues attributed to eCommerce increased to 25.0% YTD 2024 from 21.8% YTD 2023;
• Gross profit increased by $11.7 million to $161.5 million YTD 2024 from $149.8 million YTD 2023;
• Gross profit margin increased to 36.5% YTD 2024 from 35.3% YTD 2023;
• Operating EBITDA¹ increased by $3.7 million or 4.3% to $89.3 million YTD 2024 from $85.6 million YTD 2023;
• Operating EBITDA¹ margin remained unchanged at 20.2% YTD 2024 and YTD 2023;
• Net income attributable to the Company increased by $0.6 million or 2.3% to $24.6 million YTD 2024 from $24.0 million YTD 2023;
• Adjusted net income attributable to the Company¹ remained unchanged at $28.0 million YTD 2024 and YTD 2023;
• Diluted EPS increased by $0.04 or 5.9% to $0.72 YTD 2024 from $0.68 YTD 2023; and
• Diluted adjusted EPS¹ increased by $0.02 or 2.5% to $0.82 YTD 2024 from $0.80 YTD 2023.

President & CEO Commentary

"We are pleased with our Q2 2024 results as we have grown our Revenues by 7.0% and Operating EBITDA¹ by 15.1% from Q2 2023. 

Despite the continued macro pressures that we have seen impact discretionary spending throughout the year, we remain confident that our unique positioning of our family of brands sets us apart from our competition to weather any prolonged downturn." said Stewart Schaefer, President and CEO of Sleep Country. 

"As demonstrated during the Quarter, our Direct to Consumer ("DTC") businesses saw the bulk of our growth, as consumers traded down to lower priced promotions.

The Sleep Country/Dormez-Vous ("SCC/DV") network delivered 0.4% SSS growth for the quarter lapping a negative (10.5%) SSS metric in Q2 2023, while our combined DTC SSS¹ grew by 25.1%.

Despite the strong overall performance in Q2, we have been seeing a trend with our customers trading down to lower priced mattresses at SCC/DV with double digit declines in units in our highest price band.  This trend has continued into Q3 2024, with the SCC/DV network experiencing negative (8.4%) SSS¹ for the month of July, our biggest monthly decline seen this year, while our DTC SSS¹ metric grew 30.0% in July 2024 tied to promotional discounting and accessory bundling," continued Schaefer. 

"As we embark on our next chapter, we are pleased to have reached an agreement with Fairfax that will unlock significant and immediate Shareholder Value for this proudly Canadian business celebrating its 30^th year.  Our new partners are prepared for this exciting journey despite the current macro headwinds, as we all look forward to growing our business for many years to come, proudly serving multiple generations with a great night's sleep. 

I want to extend my extreme gratitude to my Team and the achievements that we have accomplished together over the last 30 years, plus the many years of support and partnerships with our Vendors, Board and Shareholders. This Transaction clearly demonstrates the value and strength of all our Brands and the Organization that we have built." continued Schaefer.

"We are looking forward to joining the Fairfax Team, as we continue to transform lives by "Awakening Canadians to the power of SLEEP." concluded Schaefer.

Summary of Second Quarter Financial Results

Revenues increased by $15.3 million or 7.0% from $217.2 million in Q2 2023 to $232.5 million in Q2 2024 mainly due to an increase in SSS¹ by 4.8%, as well as, incremental revenue earned from new stores and wrap stores opened in 2023.

Gross profit margin increased by 170 basis points from 36.4% for Q2 2023 to 38.1% for Q2 2024 mainly due to lower product and transportation costs while leveraging of sales and distribution compensation and depreciation expenses; partially offset by an increase in third-party marketplace fees, delivery and supplies expenses. 

Total SG&A expenses increased by $2.6 million or 4.7% from $54.7 million in Q2 2023 to $57.3 million in Q2 2024 mainly due to an increase in compensation and telecommunication and information technology costs.

Operating EBITDA¹ was $50.9 million for Q2 2024, or 21.9% of Revenues, compared to $44.2 million for Q2 2023, or 20.4% of Revenues, representing an increase of $6.7 million or 15.1% mainly due to an improved gross profit margin, partially offset by an increase in SG&A expenses.

Finance related expenses increased by $3.0 million from $6.6 million in Q2 2023 to $9.6 million in Q2 2024 mainly due to higher interest expenses by $1.4 million on the Company's lease obligations and its senior secured credit facility which were impacted by the higher interest rates and debt levels. Accretion expenses increased by $1.1 million mainly impacted the accelerated and final buyout of non-controlling interests of Hush Blankets Inc. Additionally, the Company had a $0.5 million loss on change in fair value on the interest rate swap that settled on April 1, 2024. 

Other expenses (income) decreased by $0.6 million from expenses of $0.1 million in Q2 2023 income of $0.5 million in Q2 2024, mainly due to a decrease in net losses on foreign exchange.

Net income before income taxes increased by $4.6 million from $17.5 million in Q2 2023 to $22.1 million in Q2 2024. The Company's effective income tax rate increased by 110 basis points from 27.2% in Q2 2023 to 28.3% in Q2 2024. This resulted in an increase in income taxes of $1.5 million in Q2 2024 versus Q2 2023.

Net income attributable to the Company increased by $3.1 million from $12.7 million ($0.36 per share) in Q2 2023 to $15.8 million ($0.47 per share) in Q2 2024.

Adjusted net income attributable to the Company¹ increased by $3.7 million from $14.8 million ($0.43 per share) in Q2 2023 to $18.5 million ($0.55 per share) in Q2 2024.

Summary of Year-to-date Financial Results

Revenues increased by $18.5 million or 4.4% from $423.7 million in YTD 2023 to $442.2 million in YTD 2024 mainly due to an increase in SSS¹ by 1.7%, as well as, incremental revenue earned from new stores and wrap stores opened in 2023.

Gross profit margin increased by 120 basis points from 35.3% in YTD 2023 to 36.5% in YTD 2024 mainly due to lower product, sales and distribution compensation costs, partially offset by higher delivery costs and deleveraging tied to occupancy costs.

Total SG&A expenses increased by $7.2 million or 7.0% from $102.9 million in YTD 2023 to $110.1 million in YTD 2024. This change was mainly driven by an increase in advertising, compensation and telecommunication and information technology expenses.

Operating EBITDA¹ was $89.3 million for YTD 2024, or 20.2% of Revenues, compared to $85.6 million for YTD 2023, or 20.2% of Revenues, representing an increase of $3.7 million or 4.3% mainly due to an improved gross profit margin in YTD 2024, partially offset by an increase in SG&A expenses.

Finance related expenses increased by $4.9 million from $13.1 million in YTD 2023 to $18.0 million in YTD 2024 mainly due to higher interest expenses by $3.7 million on the Company's lease obligations and its senior secured credit facility which were impacted by the higher interest rates and debt levels. Accretion expenses increased by $0.8 million mainly impacted the accelerated and final buyout of non-controlling interests of Hush Blankets Inc. Additionally, the Company had a $0.6 million loss on change in fair value on the interest rate swap that settled on April 1, 2024. 

Other expenses (income) decreased by $1.7 million from expenses of $0.6 million in YTD 2023 to income of $1.1 million in YTD 2024. This change was mainly due to a decrease in net losses on foreign exchange and an increase in interest income earned on the convertible note receivable.

Net income before income taxes increased by $1.3 million from $33.2 million in YTD 2023 to $34.5 million in YTD 2024. The Company's effective income tax rate increased by 60 basis points from 27.5% in YTD 2023 to 28.1% in YTD 2024. This resulted in an increase in income taxes of $0.6 million in YTD 2024 versus YTD 2023.

Net income attributable to the Company increased by $0.6 million from $24.0 million ($0.69 per share) in YTD 2023 to $24.6 million ($0.73 per share) in YTD 2024.

Adjusted net Income attributable to the Company¹ remained unchanged from $28.0 million ($0.81 per share) in YTD 2023 to $28.0 million ($0.83 per share) in YTD 2024.

Notes:
¹ See the "Non-IFRS and Other Measures" section of this news release.

About Sleep Country

Sleep Country is Canada's leading specialty sleep retailer with a purpose to transform lives by awakening Canadians to the power of sleep. Sleep Country operates under the retail banners Sleep Country, Dormez-vous, Endy, Silk & Snow, Hush, and Casper Canada. The Company has omnichannel and eCommerce operations, including 307 corporate-owned stores and 18 warehouses across Canada. Recognized as one of Canada's Most Admired Corporate Cultures by Waterstone Human Capital, Sleep Country is committed to building a company culture of inclusion and diversity where differences are embraced and valued. The Company actively invests in its sleep ecosystem, innovative products, world-class customer experience, communities and its people. For more information about Sleep Country, please visit ir.sleepcountry.ca.

Non-IFRS and Other Measures

This news release refers to certain measures that are not recognized under IFRS^® Accounting Standards and do not have a standardized meaning prescribed by IFRS Accounting Standards, including Same Store Sales or SSS, EBITDA, Operating EBITDA, Operating EBITDA margin, Adjusted net income attributable to the Company, Basic adjusted EPS and Diluted adjusted EPS. For more information on these Non-IFRS and other measures refer to "Non-IFRS and Other Measures" in the Company's MD&A for Q2 2024, which is available on SEDAR+ at sedarplus.ca.

Calculation of Non-IFRS and Other Measures 

Forward-Looking Information

Certain information in this news release contains forward-looking information and forward-looking statements, which reflect the current view of management with respect to anticipated events as well as the Company's objectives, plans, goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe" and similar expressions, identify forward-looking information and forward-looking statements. Forward-looking information and forward-looking statements should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the information in this news release, containing forward-looking information or forward-looking statements, is qualified by these cautionary statements.

Forward-looking information and forward-looking statements are based on information available to management at the time they are made, underlying estimates, opinions and assumptions made by management and management's current good faith belief with respect to future strategies, prospects, events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties include, but are not limited to, those described in the Company's MD&A for Q2 2024 under the sections "Risk Factors" and those described in the Company's 2023 annual information form (the "AIF") filed on March 6, 2024, both of which can be accessed under the Company's profile on SEDAR+ at sedarplus.ca. In addition, forward-looking information in this news release is subject to a number of additional risks and uncertainties, including (i) the possibility that the previously disclosed transaction (the "Transaction") contemplated by the arrangement agreement (the "Arrangement Agreement") entered into on July 21, 2024 with a newly-formed and wholly-owned subsidiary of Fairfax Financial Holdings Limited ("Fairfax") and Fairfax will not be completed on the terms and conditions or timing currently contemplated, or at all, due to a failure to obtain, in a timely manner or otherwise, required shareholder, court and regulatory approvals, the failure to satisfy other conditions of closing or other circumstances contemplated by the Arrangement Agreement; (ii) the possibility of adverse reactions or changes in business relationships resulting from the announcement, completion or termination of the Transaction which could have a material impact on the Company's business and financial condition during the period prior to the closing of the Transaction and upon any termination of the Transaction; (iii) risks relating to the Company's ability to retain and attract key personnel in the period prior to the closing of the Transaction; (iv) contractual restrictions imposed on the Company's business under the Arrangement Agreement in the period prior to the closing of the Transaction; and (v) the dedication by the Company of significant resources to pursuing the Transaction. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be less significant may also adversely affect the Company.

The Company cautions that the list of risk factors and uncertainties described in the MD&A for Q2 2024 and the AIF are not exhaustive and that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual strategies, prospects, events, performance and results may vary significantly from those expected. There can be no assurance that the actual strategies, prospects, results, performance, events or activities anticipated by the Company will be realized or even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Readers are urged to consider the risks, uncertainties, and assumptions carefully in evaluating the forward-looking information and forward-looking statements and are cautioned not to place undue reliance on such information and statements. The Company does not undertake to update any such forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.

SOURCE Sleep Country Canada Holdings Inc. Investor Relations