Leon's Furniture Q3 2025 Earnings Call Transcript

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Provided by Quartr
November 7, 2025

Key Takeaways

  • Positive Sentiment: Top-line and profitability strength: System-wide sales were up 3.7% (same-store +3.9%) and revenue +4.1%, while adjusted diluted EPS rose 20.4% and gross margin expanded 79 bps to 44.6%, which management attributes to sourcing, promotional optimization and cost control.
  • Positive Sentiment: Furniture outperformance: Furniture—the company's largest and highest‑margin category—was a standout due to a narrowed assortment and deeper best‑seller focus, driving share gains and higher-margin sales.
  • Negative Sentiment: Commercial/appliance headwinds ahead: Q3 appliance strength was driven by previously booked developer projects, but management expects developer revenue to moderate in 2026 as builder pipelines slow, prompting a strategic push into the replacement/property‑manager channel.
  • Positive Sentiment: Strong liquidity and disciplined capital allocation: The company ended the quarter with CAD 549.6 million in unrestricted liquidity, targets maintenance CapEx of ~CAD 35–40M, and plans to remain opportunistic on M&A, dividends and buybacks.
  • Negative Sentiment: Promotional risk from Canada Post disruption: Ongoing Canada Post strikes, which began earlier this year, may reduce flyer reach and store traffic during key Q4 promotional periods and could weigh on revenue if the disruption continues through year‑end.
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Earnings Conference Call
Leon's Furniture Q3 2025
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Operator

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the LFL Group Third Quarter 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If any research analysts would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jonathan Ross, Investor Relations for LFL Group. Please go ahead.

Jonathan Ross
Head of Investor Relations at LFL Group

Thank you. Good day, everyone, and welcome to LFL Group's Third Quarter 2025 Conference Call and Webcast. LFL's Q3 2025 financial results were released yesterday. The press release, financial statements, and management's discussion and analysis are available on SEDAR Plus and on our website at lflgroup.ca. Joining me on the call today are Mike Walsh, President and Chief Executive Officer, and Victor Diab, Chief Financial Officer. Today's discussion includes forward-looking statements. These statements are based on management's current assumptions and beliefs and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially. We encourage listeners to refer to the risk factors outlined in our management's discussion and analysis and annual information form, which provide additional detail on the risks and uncertainties that could affect future results. This call also includes non-IFRS financial measures.

Jonathan Ross
Head of Investor Relations at LFL Group

Definitions, reconciliations, and related disclosures for these measures can be found in the management's discussion and analysis and press release issued yesterday. Forward-looking statements made during this call are current as of today, and LFL Group disclaims any intention or obligation to update or revise them as required by applicable law. All financial figures discussed today are in CAD unless otherwise noted. With that, I'll now turn the call over to Mike Walsh to discuss our third quarter results.

Mike Walsh
President and CEO at LFL Group

Good morning, everyone, and thank you for joining us. This is our first quarterly call, and we appreciate you being here. We are looking forward to using this format to provide more regular insight into our performance, our strategy, and how we are thinking about the business going forward. Let us get right into the quarter. We delivered strong top-line performance in the third quarter, with system-wide and same-store sales up 3.7% and 3.9%, respectively. I am particularly pleased with our continued performance given the broader backdrop. Consumer discretionary spending remains pressured, and the retail environment continues to be highly promotional. Canadians are looking for value from retailers they trust, and our strategy is built to outperform when value matters most, and we are seeing that play out in the numbers. Even more importantly, we continue to translate our top-line momentum into profitability growth.

Mike Walsh
President and CEO at LFL Group

Adjusted diluted earnings per share grew 20.4% year-over-year, reflecting not just sales strength but disciplined execution across sourcing, category management, promotional optimization, and cost control. Underpinning our third quarter performance is the consistency of our execution and the strength of our platform. Our scale enables us to negotiate directly with suppliers and secure advantage pricing. Our banners are trusted by Canadians coast to coast, and our integrated logistics network, including one of the largest final-mile delivery systems in the country, gives us a level of service differentiation that is difficult for others to replicate. These are durable strengths that position us to win across cycles and help us continue to take share. Furniture was once again the standout category in Q3, supported by our focused assortment strategy. We have narrowed the range, gone deeper in our best sellers, and leaned into categories where we can offer real value.

Mike Walsh
President and CEO at LFL Group

This laser focus on solidifying our leadership in this most important category continues to deliver results. Furniture is our largest and highest-margin category, and in the current environment, it represented the most effective opportunity to gain share. Our performance in furniture is the result of the deliberate and disciplined execution of our strategy, prioritizing areas of our business with the greatest near-term opportunity while continuing to advance our broader categories. While industry-wide traffic headwinds have continued, we've maintained our focus on maximizing every customer interaction. Both average transaction value and conversion rates strengthened during the quarter. In our stores, we're seeing more purposeful visits translate directly into purchase activity. Our omnichannel infrastructure is instrumental here. We're strategically utilizing our digital ecosystem not only as a revenue channel but as a qualification funnel that delivers customers with clear purchase intent.

Mike Walsh
President and CEO at LFL Group

Once in the stores, our highly trained sales associates and attractive financing offers work together to drive a stronger average transaction size and higher total ticket profitability. Our overall appliance business was also strong in the quarter, led by the commercial channel, as has been the case for the past several quarters. We continue to deliver on projects booked over the past couple of years, and while we're mindful that builder pipelines are slowing across the board as we approach 2026, our team is laser-focused on continuing to gain traction in the replacement market, especially with property managers. That is a segment we believe can be a more meaningful contributor over time, and our warranty and insurance businesses remain a key part of our value proposition. These are profitable, capital-light businesses that support the core and extend our relationship with the customer.

Mike Walsh
President and CEO at LFL Group

We also continue to see strong attachment rates and growth in these business lines, and we believe there's more opportunity to grow these platforms both inside and outside the LFL ecosystem. From a capital allocation standpoint, our priorities remain consistent. We're focused on maintaining a strong balance sheet and reinvesting in the business where we see attractive returns. We remain attuned to potential acquisition opportunities that could enhance the long-term value of the company, and we continue to grow our regular dividend over time. Our retail store count remained consistent from last quarter at 300 stores, including 201 corporate stores and 99 franchise stores. As we continue to optimize our footprint, it's worth reiterating that our strategy is not about maximizing store count. Our stores are designed to be destinations, with larger catchment areas and a focus on delivering a full-service experience that drives meaningful returns.

Mike Walsh
President and CEO at LFL Group

We evaluate every investment through the lens of a four-wall profitability and long-term value creation. That discipline is reflected in how we approach new locations, renovations, and reopenings. It's also why we're comfortable growing selectively rather than chasing unit expansion for its own sake. Now, looking ahead to the fourth quarter and into early 2026, we expect consumer confidence and discretionary spending to remain selective. Consumers are being careful with their dollars, but they are spending. The environment remains dynamic. Similar to last year, the Canada Post disruption is creating near-term headwinds during a very important promotional period. While this does affect all retailers that rely on flyer distribution, we remain competitively well-positioned. We faced a similar situation late in the fourth quarter of 2024, and while the disruption began earlier this year, we're drawing on last year's experience to adjust quickly.

Mike Walsh
President and CEO at LFL Group

That said, if the strike continues through year-end, we do expect some impact to key promotional events in the quarter. Before I hand it over to Victor, I truly want to thank our associates across banners and regions, from our warehouses to our sales floors to our drivers on the road and the customer service folks manning the phone lines. Their execution in the quarter was outstanding. Victor will take you through the financial details and provide some additional context on the quarter. I'll come back with a few closing thoughts before we open it up for questions. Victor, over to you.

Victor Diab
CFO at LFL Group

Thanks, Mike, and good morning, everyone. As Mike mentioned, we delivered strong top-line growth in Q3, with system-wide sales up 3.7%, revenue up 4.1%, and store sales up 3.9%. From a category standpoint, furniture was a key contributor. We also saw continued strength in appliances led by our commercial channel, which added to growth this quarter. That strength was driven by the delivery of previously booked projects, particularly in multi-unit residential, as we continue to fulfill orders tied to developments moving through to completion despite a softer new construction market. We expect revenue from developers, in particular, to begin moderating as we move into 2026, and we are certainly seeing that across the market. Our team is actively working to increase our share of the replacement business, where we are seeing good traction with property managers.

Victor Diab
CFO at LFL Group

It will take time for that portion of the business to catch up with the new build market, which is lumpier but can be meaningful, as we have seen this year as builders finish up projects. Gross profit margin expanded by 79 basis points year-over-year to 44.6%. This improvement reflects both the impact of higher margin furniture sales and our continued focus on strengthening sourcing and vendor relationships. We've deepened relationships with our top vendors and increased purchasing penetration through our First Ocean subsidiary, driving improved cost efficiencies and supply consistency. At the same time, disciplined promotional activity and optimized pricing strategies have supported margin performance across categories. As we move into the end of the year and early 2026, gross margin will continue to be influenced by category mix, promotional intensity, and our ongoing sourcing work.

Victor Diab
CFO at LFL Group

We're always looking for opportunities to drive improvement, but we also take a balanced and dynamic approach. We'll make the investments necessary to drive traffic and market share when it makes sense to do so. That's just part of how we manage the business. At G&A rate was 35.51% of revenue, an improvement of 14 basis points year-over-year. This improvement was driven by lower retail financing fees due to declining interest rates. This helped offset expected increases in advertising costs due to event timing shifts, as well as higher occupancy expenses from the Edmonton DC lease commencement and other facility renewals. Adjusted diluted EPS came in at $0.65, up 20.4% compared to last year. We're also pleased with where inventory levels sit today.

Victor Diab
CFO at LFL Group

Great disruptions that impacted the start of the year are now behind us, and our written-to-delivered sales relationship has normalized, with a focus on going deeper on certain SKUs, enabling us to improve written-to-delivered timelines. We're in a healthy in-stock position heading into the back half of the year, with good availability across key categories and no material constraints on flow. From a capital allocation standpoint, I'll build on Mike's comments. Our approach remains disciplined and consistent. We prioritize reinvestment in the business where we see attractive returns, maintain a strong balance sheet, and return capital to shareholders over time, primarily through growth and irregular dividends. Annual maintenance CapEx is running in the range of approximately CAD 35 million-CAD 40 million annually, which supports our ability to continue generating strong free cash flow.

Victor Diab
CFO at LFL Group

On the balance sheet, we ended the quarter with CAD 549.6 million in unrestricted liquidity, including cash, marketable securities, and our undrawn revolver. That level of flexibility is a strategic asset in this environment. It enables us to stay agile, pursue opportunities as they arise, and continue investing in the business without compromising our financial strength. Given our 100-plus year track record of navigating cycles and making the right long-term investments, we're comfortable maintaining this financial flexibility. We will continue to be opportunistic in our approach to buybacks, taking advantage of volatility where it aligns with our long-term strategy. We did not repurchase any shares under our existing NCIB during the quarter. Overall, we remain confident in our ability to deliver consistent financial performance in the context of the market and versus the industry.

Victor Diab
CFO at LFL Group

Our scale, disciplined sourcing, and promotional strategies and solid balance sheet provide the foundation to continue driving profitable growth and shareholder value over the long term. Before handing it back to Mike, I'd like to briefly address the previously announced initiatives to create a real estate investment trust. This remains an important strategic priority for us. The timing will be driven by market conditions and regulatory approvals, and we'll share additional updates when appropriate. That's the only update we can provide on today's call. With that, I'll turn it back to Mike for closing remarks before we open the line for questions.

Mike Walsh
President and CEO at LFL Group

Thanks, Victor. To wrap up, we're really pleased with how the business performed for the first nine months of the year. Over that period, we have delivered total system-wide sales growth of 3.5% and adjusted diluted EPS growth of 28.7% in a dynamic consumer and industry environment. What's just as important is how we're delivering that performance. We're seeing stronger conversion in our stores, more consistency in execution across banners, and better alignment between what customers want and what we're delivering. That's the outcome of deliberate long-term choices, not quick wins, and it's showing in both our results and how resilient the business has become. We're not immune to the macro, but we are well-positioned to navigate it and continue delivering value for our customers and our shareholders. Thanks again for joining us today. With that, I'll pass it back to the operator for questions.

Operator

At this time, I would like to remind research analysts, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Nevan Yochim with BMO Capital Markets. Please go ahead.

Nevan Yochim
Nevan Yochim
VP of Equity Research Analyst at BMO Capital Markets

Thank you. Good morning, guys, and congratulations on a solid quarter in your first conference call. Help me if we could start on the top line here. Are you able to provide an update on quarter-to-date trends? Have you seen the Q3 momentum continue, as well as any detail on your positioning as we move into the important sales and holiday season?

Mike Walsh
President and CEO at LFL Group

Yeah, thanks very much, Nevan. It's great to talk to you, and you're the first person asking us a question on the live webcast, so congratulations. Just a little bit on the third quarter. The consumer still remains very price-conscious. Value continues to be a key focus area for us, and that's how we think we're winning. The Canadian consumer is still looking for a retailer that they know and trust is going to be around for after-sales service. The trend from the second and third quarter, we've seen a lot of traffic going to our website and traffic being more like flat-ish going into the store. More qualified customers are coming into our stores, allowing our sales associates to spend more time selling the value-added services. We're seeing the attach rates for warranty insurance products are also improving.

Mike Walsh
President and CEO at LFL Group

We feel like we're well-positioned going into the fourth quarter. There are still some macro headwinds. You've got the postal strike effect this last year starting around November 15. This year started near the end of September. We're feeling good about that. It kind of levels the playing field with all retailers, but we learned a lot going through the fourth quarter of last year that we're applying this year.

Nevan Yochim
Nevan Yochim
VP of Equity Research Analyst at BMO Capital Markets

Thanks, Mike. Maybe just a little bit more on that Canada Post strike. Are you able to parse out what the impact was last year, maybe just a magnitude? How does that flow through the P&L? Is that solely a revenue impact, or are there margin pressures there as well?

Mike Walsh
President and CEO at LFL Group

Yeah, great question. I do not think there is margin impact to it, but it is definitely very difficult to quantify what the impact is because last year we were having challenges with inventory position as well. How much of it was a flyer impact? How much of it was the inventory impact? Really difficult to tell. As you pivot going to more of a digital way, how much of that did you get a pickup on? Really difficult to quantify the impact of the flyers, but for sure, there is an impact to all retailers, especially when you are a high-low retailer and the consumer is looking for the flyer. It definitely impacts the traffic that is coming to your stores.

Nevan Yochim
Nevan Yochim
VP of Equity Research Analyst at BMO Capital Markets

Got it. Maybe just one more for me, maybe for Victor. It's nice to see the SG&A leverage again this quarter. You called out lower POS financing fees. As we've seen the Bank of Canada cut rates as recent as just a week ago, does that imply you'd expect this tailwind to continue into the second half of next year?

Victor Diab
CFO at LFL Group

Hey, Nevan. Yeah, great question. Yes, every time the Bank of Canada cuts rates, there's a bit of a delay in terms of when it translates to our numbers, but we'll get a bit more leverage off of that next year. Obviously, most of the cuts happened over the last year, and we've benefited from that this year, and we'll see a little bit more of that next year if rates continue to be cut.

Nevan Yochim
Nevan Yochim
VP of Equity Research Analyst at BMO Capital Markets

Great. Thanks for taking my questions.

Mike Walsh
President and CEO at LFL Group

Thank you.

Operator

Your next question comes from the line of Martin Landry with Stifel. Please go ahead.

Martin Landry
Martin Landry
Managing Director at Stifel

Hi, good morning, guys. Thank you for hosting this earnings call. It's super helpful. I know it's a little bit more work on your end, but for us, it's very much appreciated. My first question, I'd like to understand a little bit how the quarter has evolved. There are some retailers that have talked about a strong July and August and a slower September. I was wondering if you've seen any of that dynamic.

Mike Walsh
President and CEO at LFL Group

Yeah, I would say we were very happy with the quarter as a whole. I think July and August were super strong. September was a little bit weaker, whether that's due to the postal strike, but definitely we saw some weakness in September.

Martin Landry
Martin Landry
Managing Director at Stifel

That weakness, is it, have you seen differences per regions? Has it been Canada-wide or more located in central Canada where the manufacturing base is?

Mike Walsh
President and CEO at LFL Group

Yeah, I'd say that the trend continues. Ontario has been softer. Again, the flyer distribution in Ontario is really soft, and BC has been soft.

Martin Landry
Martin Landry
Managing Director at Stifel

Okay. And then maybe lastly, my last question. I know you mentioned that in your opening remarks that the story is not about store openings, but I was just wondering, do you have any plans to increase your network across your banners in the next 12 months?

Mike Walsh
President and CEO at LFL Group

I would say we do not have anything pending, Martin, but we do have a focus for Leon's in BC. The challenge has been inventory of retail sites. To be honest with you, it is the leasing costs in BC. There is just no inventory. The Brick continues to focus on the East Coast, but we do not have anything pending. We have the one store in Welland that we are building. We are probably going to open that in the spring of 2027.

Victor Diab
CFO at LFL Group

Hey, Martin, just to build on Mike's comments, we've seen a lot of good success with a couple of the new renovations. With The Brick opening up in Richmond, we released a release in Kelowna, and we're seeing a lot of good success with some of those renovations. We're keeping a close eye on that, and it's something that we'll look to do more of.

Mike Walsh
President and CEO at LFL Group

Yeah, I think the last thing on that is we're really excited because we opened up a store within a store in Richmond, BC, with Appliance Canada taking up the 10,000-12,000 sq ft of a Leon's store. We're seeing some good success there. Appliance Canada has been generally in Ontario, they've got a lot of commercial customers in the East and West. We're going to do that as a bit of a test, and it may be something that we can do on a broader scale.

Martin Landry
Martin Landry
Managing Director at Stifel

Okay. That's helpful. Just to be clear, how many renovations have you done year to date?

Victor Diab
CFO at LFL Group

I would say we've done about three major renos year to date.

Martin Landry
Martin Landry
Managing Director at Stifel

Okay. Great. Thank you for all the color, and best of luck.

Mike Walsh
President and CEO at LFL Group

Thank you, Martin.

Operator

Your next question comes from the line of Jim Byrne with Acumen. Please go ahead.

Jim Byrne
Equity Research Analyst at Acumen

Yeah, thanks. Good morning, guys. Just maybe on the gross margin side, appreciate the color, Victor. Margins were up about 80 basis points this quarter and kind of averaged about 80 so far this year, up over last year. Is that a number that you would kind of expect to continue for the fourth quarter and kind of foreseeable future, or are there moving parts there that might put some pressure on those margins in the coming quarters?

Victor Diab
CFO at LFL Group

Hey, Jim, thanks for the question, for sure. We're very happy with the margin performance year to date. Function of two things, really. Very strong furniture mix, that being our highest margin category. When you sell more furniture, you're also selling more furniture warranties, which tends to be accretive to margin as well. The teams have done a really good job on the rate front, from focusing assortment, getting us better leverage with our suppliers, flowing goods, slightly lower freight rates year-over-year. There's a lot to that. We don't really comment on a quarter-to-quarter basis. We tend to be very disciplined historically around managing within a certain range. That's a focus for us. We think we're going to end the year strong overall holistically. There may be puts and takes in terms of investing some margin back into certain categories.

Victor Diab
CFO at LFL Group

Over the full year, we expect to hold on to some of those gains for sure. Going into next year, again, it's about continuing to edge our margin rate forward, but there will be, it's never going to be a linear, just a straight line. There will be ebbs and flows in terms of when we choose to invest that back into the categories.

Jim Byrne
Equity Research Analyst at Acumen

Okay, that's great. Maybe if you could give any updates on kind of the warehouse initiatives and some of the optimization that you've been working on.

Mike Walsh
President and CEO at LFL Group

Yeah, we're still continuing to test and tune and learn. As we spoke about in the previous quarter, we migrated the Mississauga warehouse to surrounding stores, and we're still measuring the KPIs on that from customer experience to the time between written and delivered. Still going down that path and analyzing that, and we may end up doing another test in the first or second quarter of 2026. Stay tuned, but definitely it's not going to be a short-term project. It's going to be something that's more long-term, figuring out how many warehouse stores do we still need to keep and what that looks like. Stay tuned on that.

Jim Byrne
Equity Research Analyst at Acumen

Okay, thanks for that, Mike. Maybe just, Victor, you kind of mentioned the maintenance CapEx at 35. Looks like you're kind of tracking towards that for this year. Does not sound like next year will be much different given the lack of new stores, etc. Is that fair to say for 2026?

Victor Diab
CFO at LFL Group

Yeah, I think that's fair from a core CapEx target in line around CAD 35 million-CAD 40 million. I think any strategic initiative that we do end up moving forward with may be over and above, but we'll keep you posted on that. I think that's a good target to have in mind for now.

Jim Byrne
Equity Research Analyst at Acumen

Okay. That's it for me, guys. Thanks.

Mike Walsh
President and CEO at LFL Group

Thank you.

Operator

As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Ahmed Abdullah with National Bank Capital Markets. Please go ahead.

Ahmed Abdullah
Equity Research Analyst at National Bank Capital Markets

Good morning, and thank you for taking my question. Q4 seems like an easier comp given the inventory dynamic that took place last year. Are you better prepared from an inventory standpoint to drive sequentially improving growth in fourth year?

Victor Diab
CFO at LFL Group

Hey, Ahmed, I appreciate the question. Thanks. A couple of things that we planned going into Q4, and we thought about, obviously, one being in a much stronger inventory position, which we are, and the teams have done a really good job there, and it's paying off for us. Two, we were hopeful that a year later, the Canada Post challenges would be behind us, right? That, unfortunately, has kind of been a storyline early into the quarter. Now, we will comp having a Canada Post strike later in the quarter, but that's certainly going to be an impact there as well. I think there's different puts and takes. That being said, we feel really well-positioned to continue competing for value in the space, but there's a couple of considerations there for you in Q4.

Ahmed Abdullah
Equity Research Analyst at National Bank Capital Markets

Okay. That's fair. Just I know you've mentioned that customer traffic and basket sizes and conversion rates have improved, but I would like to just press you a bit more on that. Can you give us some sort of magnitude of how much of this quarter's results was driven by perhaps pricing versus volume or any more specific color around these factors would be appreciated?

Victor Diab
CFO at LFL Group

Yeah, I think you would have seen sort of our furniture performance was really strong in the quarter. I think that just really driven off of volume and just being really well-positioned for value. I think we've got sale advantages there, and we've done a really good job around focusing our assortment and being sharp on pricing and promo optimization. I just think it's more around our go-to-market strategy. To Mike's point, in-store traffic is softer, but we're seeing really good traffic to and engagement on our websites that are ultimately leading more qualified shoppers into our stores and allowing our folks to drive higher closing ratios. Of course, the ancillary businesses along with that. Like I mentioned, you're selling more furniture, you're selling more furniture warranty, and our attachment rates are going up inside our stores. It's a function of a bunch of different factors.

Victor Diab
CFO at LFL Group

It's not really on price. We're very focused on being sharp on price and being sharp on our promo strategy, Ahmed, but that's the extent of what I could provide there.

Mike Walsh
President and CEO at LFL Group

Okay. That's fair. One last one for me. Your comments of growth rates moderating in 2026, are you still budgeting some revenue growth or more of a flat to down next year?

Victor Diab
CFO at LFL Group

Yeah, I think it's an interesting question, Ahmed. As you think about 2026, right, we never go into a year thinking we're not going to grow. Our mindset's always to grow, but we do think about it more along the lines of a three- to five-year horizon. Have we sustainably grown the business from a top-line and bottom-line perspective over that period? That's what we go. That's our primary goal, is to continue to win share. We still feel really well-positioned to compete for value. That being said, a couple of considerations as you think about 2026. We mentioned our commercial business has been on a tremendous run. That's going to normalize a little bit just given the challenges with the development community. That's something that we're being mindful of. Obviously, at this stage, we're probably going to comp some pretty strong furniture numbers as well.

Victor Diab
CFO at LFL Group

It is another consideration. Do we believe going into the year we can drive growth? That is always our mindset, but of course, we have to be realistic around some of the considerations I just mentioned.

Martin Landry
Martin Landry
Managing Director at Stifel

Okay. That's fair. Thank you for taking my questions. That's it for me.

Mike Walsh
President and CEO at LFL Group

Thank you.

Operator

Your next question comes from the line of Ty Collin with CIBC. Please go ahead.

Ty Collin
Ty Collin
Director of Institutional Equity Research at CIBC

Hey, good morning, Mike and Victor. Great to hear from you guys in this format. Thanks for doing it. Just for my first question, can you kind of speak to the different competitive dynamics within your key product categories? It seems like, obviously, mattress and electronics were more promotional, but maybe furniture a bit less so. Can you just help us understand what's going on there? Is the promotional activity being driven by any specific subset of competitors worth noting?

Victor Diab
CFO at LFL Group

Yeah. I mean, it's a great question. Look, over the last couple of years, we've had a really strong focus on the furniture category and being able to position ourselves for value, right? We've been seeing really good traction there. I think as it relates to the other categories, we have to be balanced in our approach. In some cases, it is highly promotional, for example, in retail appliances across the board. More people are doing buy more, save more, and things of that nature. That's always been done. It's just being done at a greater magnitude in terms of our observations. As it relates to mattress, the mattress category, again, very promotional, more promotional than we've seen in the past, and you've got a lot more online players as well in that category.

Victor Diab
CFO at LFL Group

We're being selective in terms of, in some cases, whether we want to participate in being more highly promotional. In some cases, we're choosing not to to protect margin. Just given how our overall business is performing, we're kind of satisfied not doing that. In some other cases, we've identified opportunities where we can better position ourselves moving forward. I think it's a combination of those things, Ty.

Mike Walsh
President and CEO at LFL Group

Yeah, and I think to just build on that, because there's no other comp we can really look at, in Canada, we think we're winning share in the furniture space, although it's very fragmented. The competitors are very fragmented, but definitely, we feel like we're winning share there.

Ty Collin
Ty Collin
Director of Institutional Equity Research at CIBC

Okay. Got it. Yeah. Appreciate that color. Then shifting to the commercial business, yeah, I appreciate that you're trying to diversify that business into the replacement channel, but as you alluded to, condo completions really are kind of expected to fall off a cliff after 2026. Should probably be a headwind for you guys, which you mentioned. I guess I'm just wondering, at what point do you think you might be able to sort of fully offset the lower new build business with replacement business, or should we kind of expect the commercial business to ultimately take a step back after next year?

Mike Walsh
President and CEO at LFL Group

Yeah, definitely there'll be softening, especially in the Toronto market as it relates to condo, but we still do a lot of housing. We do things other than just condo. I think we started the thing about 12 months ago, migrating to more of the property manager, and we're seeing success at both Midnorthern Appliance as well as Appliance Canada. That's the other reason why we did the store within a store of Appliance Canada. They've got customers in Ontario that are also west and in the east, and we're feeling pretty strong that they can build on the commercial business as well. Not sure if I could answer the question on timing, but definitely, we started this some time ago, and we think it'll be soft in 2026 and 2027, and then building back up in 2028.

Mike Walsh
President and CEO at LFL Group

Definitely, we've been exploring options about how to compensate for any shortfall in the commercial business.

Ty Collin
Ty Collin
Director of Institutional Equity Research at CIBC

Okay. Got it. Maybe if I could just sneak in one more and kind of press you guys a little bit on capital allocation. I mean, the net cash balance does continue to climb up. I know you've talked about the need to hold on to some of that for maybe potential real estate-related investments and just to remain opportunistic. Given that the timeline on some of those more opportunistic investments are ultimately unclear, I mean, at what point would you get more comfortable looking at stepping up, returning some of that capital to shareholders, either through a special dividend or buyback activity?

Victor Diab
CFO at LFL Group

Hey, Ty. No, appreciate the question. Yes, you kind of hit it on the nail, right? We really like our cash and liquidity position right now. It is by design, building up this year to help us navigate any volatility in the market, but also to be opportunistic. When we say opportunistic, we're actively exploring what that could mean for us. We typically go through our capital allocation funnel around, obviously, first and foremost, investing in our core business, evaluating strategic opportunities, whether that relates to the core of our business or potential M&A opportunities. Then we go down the funnel around returning capital to shareholders. In Q2, we increased our dividend by 20%. We have these conversations as a management team and with our board all the time.

Victor Diab
CFO at LFL Group

When we feel that, look, we're sitting on too much liquidity and there's something imminent, we're not afraid to return capital to shareholders. We've been very consistent with that strategy over many years. It is just continuing to go through that decision process. At this stage, we feel good about where we are, but we'll keep you posted otherwise.

Ty Collin
Ty Collin
Director of Institutional Equity Research at CIBC

All right. Appreciate the questions.

Operator

Your next question comes from the line of Ryland Conrad with RBC. Please go ahead.

Ryland Conrad
Ryland Conrad
Assistant VP at RBC

Hey, good morning, guys, and congrats on the first conference call. Maybe just continuing that conversation on M&A with the balance sheet in a really healthy spot. Could you maybe just provide an update on the criteria you're looking for in targets?

Mike Walsh
President and CEO at LFL Group

Yeah. I would say that we've been reviewing any M&A opportunity for some time. I think our criteria that we look at is we look at a company that has a strong management team, runway for growth, and then lastly, being able to dovetail part of our ecosystem, meaning warranty and insurance into that business. So that's kind of the criteria we're running with. Again, we're very opportunistic. We're not just going to do something for the sake of doing it. We're going to do it because it's in the best interest of growing our business.

Ryland Conrad
Ryland Conrad
Assistant VP at RBC

Okay. Great. Just on the Canada Post strikes, given they're on more of a rotating schedule this year, I believe, are the impacts that you're seeing on flyer distribution, I guess, less meaningful compared to last year?

Victor Diab
CFO at LFL Group

Yeah. Hey, I would say it's very tough to kind of say because it's just as impactful in terms of being able to get our flyers out. We have to, when this strike hits, we have to think about alternative routes, right? Whether it's a full strike or a rotating strike, we have to think about, okay, what are different ways we can either get the flyer out or reallocate some of our marketing funds? It's a similar impact this year versus last year in terms of just our ability to get the flyer out. Last year, there was a lot of noise just given the core of the holiday season, our inventory position at that point in time.

Victor Diab
CFO at LFL Group

Like we commented last year, we definitely saw traffic to our stores moderate over that period of time and pockets within our network and regions be more impacted than others depending on our ability to get flyers out. Now, we're obviously not just sitting on our hands and the teams are working really hard to try and reallocate those marketing funds. It's not going to be as high of an ROI relative to the flyer channel because each channel has its own unique ROI. If you put an extra dollar in TV, for example, it's not going to do as much for you as $1 in a flyer just given there's diminishing returns with each of the channels. That's the dynamic that we're competing with.

Ryland Conrad
Ryland Conrad
Assistant VP at RBC

Okay. Very helpful. I guess just last from me, could you talk a bit to your insurance business and just how conversion rates have been trending following the expansion into some new categories earlier this year?

Victor Diab
CFO at LFL Group

Yeah. I mean, our insurance business has done really well this year. I think if you look at our year-to-date growth for the insurance business, it's up double digits. We feel really good about our attachment rates in stores. And frankly, just the traction we've gained growing that business outside of our own ecosystem, the team continues to work really hard to increase penetration of products with some of our existing partners. For example, you'll start off on a typical putting insurance on a typical loan product, then you'll talk to some of our partners around putting an insurance product on a mortgage, etc., etc. We are deepening some of those relationships with some of our partners, then we continue to explore new partnerships. We feel really good about the attachment in store and what we've seen this year and our ability to grow it outside our network.

Ryland Conrad
Ryland Conrad
Assistant VP at RBC

Great. Thank you very much.

Operator

There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.

Analysts
    • Ahmed Abdullah
      Equity Research Analyst at National Bank Capital Markets
    • Nevan Yochim
      VP of Equity Research Analyst at BMO Capital Markets
    • Martin Landry
      Managing Director at Stifel
    • Ty Collin
      Director of Institutional Equity Research at CIBC
    • Ryland Conrad
      Assistant VP at RBC
    • Mike Walsh
      President and CEO at LFL Group
    • Victor Diab
      CFO at LFL Group
    • Jonathan Ross
      Head of Investor Relations at LFL Group
    • Jim Byrne
      Equity Research Analyst at Acumen
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