Leon's Furniture Stock

Good morning, everyone, and welcome to LFL Group's Second Quarter 2026 Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jonathan Ross of Investor Relations for LFL Group. Please go ahead.

Thank you. Good day, everyone, and welcome to LFL Group's Second Quarter 2026 Conference Call and Webcast. LFL's second quarter 2026 financial results were released yesterday. The press release, financial statements and management's discussion and analysis are available on SEDAR+ 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 from these assumptions and beliefs. 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. 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, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted.

With that, I will turn the call over to Mike Walsh. Mike?

Good morning, everyone, and thank you for joining us. The second quarter played out largely as we described earlier in the year. The consumer remained cautious and value focused with continued pressure market-wide on large discretionary purchases, and we were also comparing against strong performance last year.

In this environment, our team executed with discipline and continued to strengthen our position in our core categories. System-wide sales were down 2% with same-store sales down 2.2% Victor will take you through the drivers in more detail.

The story under those numbers is clear. Customers are still shopping, but they are doing it with a sharper focus on value and opening price points. That showed up most clearly in average ticket. In an environment like this, our priority is to stay positioned against what Canadians are looking for, keep gaining share in core categories and translate disciplined execution into profitability.

Category performance was mixed during the quarter, but that is consistent with our portfolio approach to the overall business. Furniture sales were lower against a very strong second quarter last year when we grew the business 6%. That is the comparison we knew we were facing. We drove 2 years of strong growth in furniture through a market that was under pressure. We managed the category this quarter the same way we built that track record, disciplined assortment, deeper inventory behind our best performers, and targeted promotional activity.

Mattresses grew again this quarter, our second consecutive quarter of growth in the category. The same focused assortment playbook that drove our furniture performance over the past 2 years is now delivering in mattresses and the category performed well across the assortment. The dynamic underneath is one we've been talking about for several quarters.

Our digital platform is increasingly a research and qualification engine, drawing customers into our stores with clear purchase intent. Online sessions grew again this quarter and sales in the channel grew as well. But we have always managed digital as a channel that works with our stores rather than apart from them, and that has not changed.

Whichever way the customer comes to us, our salespeople are well positioned to convert that intent into the right product, the right add-ons and the right solutions for their needs. We also kept investing in our banners this quarter in the products they carry and in how they connect with the customers.

In May, we launched the Shaq-O-Pedic collection with Shaquille O'Neal at The Brick, bringing oversized comfort to a segment of the market we believe was underserved. And in June, Alphonso Davies, captain of Canada's men's national soccer team, joined The Brick as a brand ambassador in summer when Canada was co-costing the World Cup. Partnerships like these keep our banners in front of Canadians in ways that matter well beyond a single quarter.

On the store network, we continue to expand in a measured way. During the quarter, we opened 4 franchise locations, including 3 Brick locations that opened all on the same day and Leon stored Happy Valley-Goose Bay. Shortly after quarter end, we held the grand opening of our Leon's furniture location in Welland, where the initial customer response has been very strong.

More broadly, we continue to see opportunities to expand our network where we can, earn attractive long-term returns, primarily for The Brick on the East Coast and for Leon's on the West Coast.

In the commercial channel, sales were down slightly, which is solid performance in the context of a very challenged segment of the market. That resilience reflects progress we've been making on a few fronts. We've continued to grow the property management side of the business and our expansion in Western Canada is paying off, helping offset continued softness in Ontario.

We are also winning new business even as builder activity has slowed across the market. We are taking share, and that comes back to our reputation for delivering for our customers when we say we will. With some competitors exiting the channel, we believe there will be further opportunities over time.

Looking ahead, the operating environment remains challenging, but we have seen encouraging signs on the demand side early in the third quarter. We are planning the balance of the year prudently. Comparisons eased through the back half with the fourth quarter setting up most favorably. Our focus remains on gaining share through this cycle and coming out of it in an even stronger position as conditions normalize.

The fundamentals that drive this business have not changed, trusted banners coast to coast, the scale to source directly and secure expansion pricing, one of the largest final mile delivery networks in the country and a balance sheet that gives us flexibility through the cycle. These are durable advantages and they matter most in environments like this.

Before I turn it over to Victor, I want to recognize our associates across the country. Periods like this ask a lot of our people, in our stores, on our trucks, in our warehouses, and on the phone with our customers. And once again, they delivered.

Victor, over to you.

Thanks, Mike, and good morning, everyone. I'll start with the second quarter walkthrough, then move to capital allocation and a few considerations for the back half of the year. Revenue for the quarter was $631.2 million, down 2% year-over-year.

The quarter reflected the dynamics Mike described. Customers remained active, but more value focused, and we were comparing against a strong second quarter last year. Average unit price was lower in most categories other than mattress as consumers continue to prioritize value, while retail delivered units were up against last year.

The combination is the clearest way to see the trade down. Customers are still buying and they are choosing lower price points when they do.

Furniture sales were 4.2% lower against 6% growth in the second quarter of last year, with unit sales down slightly year-over-year. Appliance sales were down low single digits, reflecting softer retail demand and slowing builder pipelines in the commercial channel. Appliance units were up.

Mattress sales were up mid single digits and units were higher as well, reflecting the assortment work Mike described and the team's ability to translate merchandising initiatives into share gains.

Gross margin was 44.63%, down 19 basis points year-over-year, primarily reflecting us lapping the benefit recorded in last year's second quarter compared with a small headwind this quarter.

Normalizing for that swing, the underlying margin story was solid and gross margin rate improved. Improved margin rate in mattresses and increased revenue from higher-margin insurance and delivery service offerings helped offset category mix and targeted promotional activity.

SG&A as a percentage of revenue was 36.85%, an increase of 47 basis points over the second quarter of 2025. The increase reflects lower revenue and the related fixed cost deleverage, increased marketing costs due to the timing of promotions and the launch of new product partnerships, increased fuel costs, and higher occupancy costs. This was partially offset by lower point-of-sale retail financing fees due to the lower Bank of Canada interest rates.

On a dollar basis, expenses were down year-over-year, which reflects the strict cost discipline we maintained through the quarter despite investments in our business and ongoing inflationary pressures.

Adjusted net income was $34.8 million and adjusted diluted EPS was $0.51 compared with $39.4 million and $0.57 respectively last year.

The year-over-year comparison reflects the 40 basis point swing in the revaluation of U.S. dollar payables mentioned earlier as well as a $1.4 million settlement benefit recognized in other income in the second quarter of 2025. Both factors contributed to the decline in adjusted earnings.

Turning to the balance sheet. We ended the quarter with $560.1 million in unrestricted liquidity, including cash, marketable securities and our undrawn revolving credit facility. That liquidity continues to be a strategic asset in this environment. It gives us the flexibility to invest in the business, navigate volatility, and act opportunistically.

Our approach to capital allocations remain 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 our regular dividend.

We are also attuned to returning more to shareholders when it makes sense. Consistent with our opportunistic approach to buybacks, we were active under our NCIB during the quarter, repurchasing approximately 120,000 shares for approximately $3 million.

Looking ahead, the freight environment has tightened. Rates and container charges are higher, and we are seeing pressure on certain shipping lanes we use. That shows up for us in 2 places. The first is margin. We have begun to receive inventory carrying higher costs primarily related to fuel, and we are working that into the margin equation through the back half.

The second is availability. The lane pressure is creating some inventory delays and our teams are focused on keeping product flowing so we protect sales. That could be a factor in the third quarter. To be clear, it's a supply consideration, not a demand one.

Our REIT initiative remains an important strategic priority. Timing continues to be guided by market conditions and regulatory approvals, and we'll share updates when appropriate. The near-term environment remains dynamic and retailers across the sector are navigating a more selective consumer. Our scale, disciplined sourcing and strong balance sheet provides the foundation to continue driving profitable growth and shareholder value over the long term.

With that, I'll turn it back to Mike.

Thanks, Victor. To wrap up, the second quarter was a demanding one for the consumer, and our top line reflected that. But the execution underneath was strong. Customers kept choosing to shop with us. We protected margin where accounted, kept tight control on costs despite ongoing inflationary pressure and continue to strengthen our position in our core categories.

Most importantly, we continue to invest in our stores in what we offer customers and the capabilities that will matter well beyond this cycle. We are navigating this environment from a position of strength, and we are confident in our ability to keep building long-term value for our shareholders.

Thank you to our associates across the country for their execution through a demanding quarter and to our shareholders for their continued support. With that, we'll be happy to take your questions.

[Operator Instructions] And our first question comes from Ahmed Abdullah from National Bank of Canada.

You delivered -- the delivered retail units increased year-over-year per your commentary, even though revenue declined given the lower pricing. Can you help us perhaps understand how these unit trends progressed through the quarter and maybe some commentary around July and how that's been progressing? And are you seeing any evidence that perhaps demand is beginning to recover? Or is the unit growth that we were seeing primarily a function of consumers trading down, but buying more?

Yes, I'll try and unpack that. I think from an assortment perspective, if you think about it in terms of good, better, best and best being premium, we're seeing the premium customer still spending money in that place. What we're seeing though is really our target is in the midpoint, we're seeing that customer lowering down to more of the opening price point. So yes, we're selling more units at a lower average sale.

Okay. And how is that progressing kind of into July? Are you seeing anything different? Or is it more of the same?

Yes. I would say we're cautiously optimistic. As we went through July, we saw some green shoots on a written perspective. We saw some of the traffic coming back. We saw some of the average sales coming back, but July is the smallest month of the quarter. And so I just want to balance that that's based on written, not delivered. We still have to translate those written sales into delivered. So early days, cautiously optimistic.

Okay. And acknowledging what Victor said about supply issues, demand kind of picture where you noted that comps ease through the back half. Can you perhaps help us square that off with how modeling should look like from top line and profitability? Do you expect profitability to be down in the back half because of the supply constraints where you're not able to deliver versus the expected sales?

Yes. As you know, Ahmed, we're not going to give specific guidance on that. I think just to kind of build off of Mike's points there, we're seeing some improvement in traffic in July, some improvement in average unit price. So I think we take that as a positive. Very early days in the quarter. And so we haven't necessarily seen a significant shift in the consumer environment, but we've seen some improvements. And so we'll have to see where August and September come in.

I think the other thing we got to consider is we are comping a monster furniture quarter last year where we were up 11%. So that's a consideration. And then the inventory -- some of the inventory delays we're seeing is a consideration as it comes -- as it relates to delivered sales. That said, we're -- the teams are working really, really hard to make sure we're getting the right flow and that we can mitigate some of those risks to the quarter.

And then we've got -- on the positive side, we have the 4 franchise stores that opened. We'll get a full quarter of that. We've got 2 corporate stores opening midway through the quarter in Q3. And then as I think you suggested and we suggested on -- in our call, Q4, the comps start to ease, and we feel that we're still really well positioned for Q4, especially with the flyer issues we had last year and the weather issues we had last year. We think Q4 is still set up favorably for us.

Okay. That's helpful. And I'll give it a shot, but not sure I'll get much out of it. You now disclosed an appraisal value of $1.17 billion of the owned real estate. Can you give us any color as to how that came about? And also, what are the milestones that you're still kind of progressing towards before you can formally launch the REIT IPO that you have mentioned before?

Yes. Ahmed, thanks for the question. I think on just the real estate appraisal value, as we've talked about for the last number of years, we've been very forward around real estate being a valuable asset for us. And obviously, real estate on our books is at historical cost. And we thought it was important for us to get a good market reference. I think analysts have taken a shot at what the value of our real estate is or was. And we thought it was time and important for us to establish a market-based reference point for our portfolio. And that's all there is to that.

And so I think we're feeling good about that. And it validates what we've been saying all along. I think as it relates to the REIT process, it remains a strategic priority subject to market conditions and regulatory approvals. There's no change there. It does remain a strategic priority for us.

The next question comes from Martin Landry from Stifel.

I would like just to go back to the inventory availability. I'm sorry, I didn't understand fully, what was the cause for maybe a bit of a shortage on inventory. If you could just expand on that, it would be great.

Yes. I wouldn't say -- so the shortage midway through, I would say, Q2, we started to experience some delays or hear back from our carriers around some delays as it relates to specific lanes in Asia. And so the -- those delays may result in some of the inventory, obviously, that we need to deliver for customers not coming in exactly when we need it to come in. So that's all that was about, Martin. We're working hard, obviously, with our carriers and our brokers to find alternative ways to get that inventory in. But we're just trying to signal that there may be some delays in certain lanes.

Related to some of the geopolitical supply-demand issues that we're seeing, spot market rates have jumped up quite a bit over the last couple of months as well. So I think it's just that dynamic where spot rates jump up and supply tightens, which is typically what happens in the environment, then we start to see delays in certain lanes, and we're starting to see that now, which may impact our ability to deliver furniture in Q3. That being said, we're obviously working very hard to try to find alternative ways and mitigate any of that risk.

Okay. And just to be clear, this was not just in Q2, but it's still ongoing, right?

Yes. The delays in certain lanes that we're seeing is ongoing. It didn't impact Q2 because it's inventory on the water and it takes a few months to start to impact your inventory position, but yes, on a go-forward basis, beginning Q3. And we're planning by Q4 that we would have mitigated some of that -- some of those impacts, you never know, but we're working hard to find alternative routes to ensure Q4 is not impacted.

Okay. You have also talked about starting to receive inventory with higher costs. And I was just trying to understand what's going to be your pricing strategy in relation to that? Do you intend to pass these higher costs to consumers or absorb them?

Yes, Martin, what I would say is the -- as we've said past the last number, probably 6 quarters is that we're still in a very value-oriented mood with the consumer. The consumer is really constrained from disposable income.

Discretionary purchases are always going to be challenged. And so we're very, very strategic. We've incurred lots of increased costs as it relates to fuel, whether it's from containers, from rail, from our delivery trucks. And we definitely do not want to raise prices across the board, but we will be strategic in nature where we can.

But again, as I said, it's a challenging environment. It's going to continue to be that way. The consumer is -- affordability is a big challenge, and we play in a large discretionary purchase area. And so we're very cognizant of the value proposition that we need to play in.

Okay. And then last one for me. I know mix is important for you in terms of a margin driver. Mattress was -- mattress sales were higher from a mix perspective this quarter. So remind us what should we expect in terms of -- Q3 in terms of your mix, given your comps? Do you expect mattress to still be a favorable driver of gross margin in Q3 when we look at it on a year-over-year basis?

Yes, Martin, thanks for the question. Yes. So I think we've been pretty consistent around our margin framework. I think going into the year, our objective was consistency throughout the year on rate. And I think through the first half of the year, we've certainly seen that.

And that has been a good mix story, especially in Q2, where lower furniture sales being our highest margin category was offset by really strong mattress and good mattress rate improvement. We are expecting to continue to see strong mattress performance throughout the year, and that should continue to help drive a favorable benefit for us.

It will depend. Again, in Q3, as Mike has said, we've been very surgical and strategic around our pricing decisions. So where rate comes in will largely be dependent on mix and the mix of furniture and mattress specifically as the 2 highest margin categories. But we don't look at it as quarter-to-quarter necessarily. We look at it as here's where we'd like to land for the year. And if we need to make adjustments, if we're seeing rate come in not exactly where we want it to be, we'll need to make adjustments there and look through that. But that's the color I think I would provide for now.

[Operator Instructions] And our next question comes from Nevan Yochim from BMO Capital Markets.

Hoping you can provide an update on the commercial business and your visibility into the builder pipeline. How should we think about the sales headwind in the second half of the year? Is the comp getting more difficult as we move through Q3 and then into Q4?

Yes. I would say that the headwind, we signaled this, like, 18 months ago when we really dialed up the property management business, which we've seen some good movement on. But as you know, it's still a challenging environment as it relates to development, especially in Ontario. And then there's been an exit of some competitors, which won't be immediate, but over time, we believe that we'll get a benefit from that to our commercial business. It won't be a step-up, like, immediately, but over the next 12 to 18 months, we see that unfolding positively.

And just to build on that, Nevan, like, our -- we commented that commercial sales were slightly down. And I think that's actually beating expectations just given how slow the environment has been. So we're quite proud of that performance. And we think we're continuing to gain significant share off of multiyear significant growth in that category. So I think it's trending in the right direction for us despite where the environment is.

Okay. Great. Good to hear that. And then on the SG&A outlook, you called out several items driving costs higher in Q2, including some promotional timing. Can you help frame whether some of those items begin to ease in the second half and where you expect SG&A to trend as we move into Q3 and Q4?

Yes, for sure. Like, I think on SG&A, when you think about dollars, like, dollars being down for us in the quarter and for the year-to-date, we've been very disciplined around cost management. I think what you're seeing in Q2 was obviously what we didn't anticipate going into the year was where fuel was going to land. So we saw some fuel inflation due to the geopolitical issues. We saw some marketing timing related to -- partly related to the launch of our partnership with Shaq, which has been a huge success for us. So we're really proud of that one.

And that -- those marketing dollars will start to ease on a year-over-year basis as we did plan for higher costs in Q2, and those will start to ease into Q3 and Q4. But the SG&A rate story, if you're commenting about that, that will largely -- as it always will, will largely depend on sales mix and where that comes in because we have invested in our business. We're investing in our stores. We've invested in our people. So we're not backing away just given the environment. We're continuing to do that. So it will largely depend on where sales mix lands -- not sales mix, sorry, where sales growth lands.

Yes. Understood. And then just lastly, on your M&A strategy. Within the context that we've seen some mattress firms under duress in the U.S., are you looking at these types of opportunities? And can you remind us about your appetite for expansion into the U.S. market?

Yes. Great question. I would say, as we have previously said, that we look at every M&A opportunity, whether it's in Canada or the U.S. The U.S. is a little bit more challenging in today's -- as it relates to today, but we continue to look at all of that.

Our key things -- we have 3 key things that we're looking for from an M&A perspective, which is strong leadership team, runway for growth, and the ability to dovetail our insurance warranty business. And so we're very opportunistic. We're not going to do something for the sake of doing it, but we'll continue to look and challenge ourselves to look whether it's in Canada or the U.S.

Our next question comes from Ryland Conrad from RBC Capital Markets.

Just to start, can you provide an update on the promotional environment across your key categories and maybe how that's evolved through Q2 and into Q3 just as -- obviously, the industry is trying to cater to a more cautious consumer, but you're also managing through the inflationary pressures?

I would say, it's -- the promotional has hit an intensity with whether it's us or competition. As I said before, the customer is still in a very value-oriented mode. And so you need to -- you need the marketing to be super value-oriented. We've seen on our big VIP events, we've seen that the customers are still shopping. They're still buying, but they truly want value. And so your marketing has to screen value to the consumer to attract them into your stores.

Okay. Got it. And then on Appliance Canada and the expansion there in BC, like, how has that store-within-a-store concept been performing versus your expectations? And longer term, how are you thinking about the opportunity to expand that banner further outside of Ontario?

Yes. We're really actually happy with the results so far. Again, it's still early days. But as you recall, the reason why we did it was because Ontario was depressed from a building standpoint and Appliance Canada was primarily in Ontario, and so by getting them into Western Canada, allowed them to be able to service their customers that were in Ontario as well as Western Canada. And so we've seen that as a success, and we'll continue to look at other markets where it could be viable. But early days, we're very happy with the results.

Okay. Great. And then just as a follow-up there, I guess, are those locations primarily focused on the commercial channel? Or do you also see some retail consumer upside there as well?

Yes, I would say both commercial and retail are important. Appliance Canada has -- is a much higher end. They have folks that come in that are doing their kitchens with designers and other folks. And so it's a very, very integral part. It sets us apart from Brick and Leon. And so it caters to a more premium customer. So still very, very important to us from a retail channel.

There are no further questions at this time. This concludes today's conference call. Thank you for participating, and have a pleasant day.

Good morning, everyone, and welcome to the LFL Group's First Quarter 2026 Conference Call. [Operator Instructions] I would now like to turn the conference over to Jonathan Ross, Investor Relations for LFL Group. Please go ahead.

Thank you. Good day, everyone, and welcome to LFL Group's First Quarter 2026 Conference Call and Webcast. LFL's First Quarter 2026 financial results were released earlier. The press release, financial statements and management's discussion and analysis are available on SEDAR+ 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 from these assumptions and beliefs. 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. Definitions, reconciliations and related disclosures for these measures can be found in the management's discussion and analysis and press release issued earlier. 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, except as required by applicable law. All financial figures discussed today are in Canadian dollars, unless otherwise noted. With that, I'll turn the call over to Mike Walsh. Mike?

Good morning, everyone, and thank you for joining us. The first quarter played out largely as we described on our February call. The consumer remained cautious and value focused with continued pressure market-wide on larger discretionary purchases, and we faced a particularly demanding prior year comparables we had flagged coming into the year. In this environment, our team executed with discipline, and we continue to outperform the market and gain share across our categories, which remains our priority through the cycle. System-wide sales were down 3.5% with same-store sales down 4.2%. Victor will walk you through the drivers in more detail.

Furniture sales were lower against an exceptionally strong Q1 of last year, but the underlying story is a strong one. On a 3-year compound annual growth basis, our furniture business is up nearly 7% in Q1, meaningful outperformance against an industry that's been under real pressure for some time. We continue to gain share in the category in the first quarter. Our priority in environments like this is not just any absolute sales, it's strengthening our position through the cycle. We stay disciplined on assortment, deeper on our best-performing SKUs and continue to be surgical in how and where we promote. Mattresses were a real standout this quarter, delivering mid-single-digit growth in a highly promotional category, reflecting the same focused assortment playbook that drove our furniture performance last year. The dynamic underneath is one we've been talking about for several quarters.

Our digital platform is increasingly a research and qualification destination, drawing customers in the store with clear purchase intent. Our salespeople are well positioned to convert that intent into the right product, the right add-ons and a healthier total ticket. This dynamic, along with our targeted approach to promotional activity is also showing up in our gross margin, which expanded year-over-year on a consolidated basis. Category performance was mixed, but that's consistent with our portfolio approach to the overall business. Our warranty, insurance and service businesses continue to perform well. These are profitable platforms that support the core business, deepen our relationship with the customer and contribute to earnings.

In the commercial channel, trends in Q1 were broadly in line with what we outlined last quarter with some near-term variability. While we expected moderation heading into 2026, winter weather delayed builder activity and shifted project completions, which we expect will support volumes in the second quarter. We also saw a competitor in the channel file for creditor protection following quarter end, which we believe creates an incremental share opportunity for us. Taken together, while the commercial business is still expected to moderate through 2026 as builder inventories clear, we now see that moderation occurring at a slower pace than originally anticipated.

We continue to make progress on the replacement side, which has been a deliberate focus over the past 12 to 18 months and remains an important priority going forward. We're also taking a selective approach to growing our store network. In the second quarter, we expect to add 4 franchise locations. Looking ahead, we expect the consumer to remain cautious in the near term with some of the Q1 headwinds carrying into Q2. That said, comparisons ease as we move through the year, and we continue to look for gradual improvement in the back half. The fundamentals that drive this business haven't changed, trusted banners coast to coast, the scale to source directly and secure advantaged pricing, one of the largest final mile delivery networks in the country and a balance sheet that gives us flexibility through the cycle.

These are durable advantages and they matter most in environments like this. Our focus is unchanged, delivering value to our customers, executing with discipline and continuing to make the right investments in the business. Before I turn it over to Victor, I want to thank our associates across the country, our teams in the store, our drivers and warehouse teams and our customer service teams. Environments like this are where their experience and commitment really show. Victor, over to you.

Thanks, Mike, and good morning, everyone. I'll start with the first quarter walk-through, then move to capital allocation and a few considerations as we look to the second quarter and the balance of the year. Revenue for the quarter was $557.2 million, down 3.8% year-over-year. To put some shape around the drivers Mike just walked through, the majority of the decline reflects the expected furniture normalization following last year's timing benefit, compounded by a more challenging macro backdrop and unfavorable weather, which impacted traffic to the stores. The appliance and electronics categories were impacted by the same factors, while mattresses were a bright spot during the quarter, reflecting the team's ability to translate strategic merchandising initiatives into market share gains.

Gross margin expanded 21 basis points year-over-year to 44.8%. The improvement was driven primarily by favorable category mix, reflecting strength in the higher-margin mattress category, along with improved appliance rate performance. These gains reflect disciplined pricing and promotional execution during the quarter, supported by the sourcing and vendor initiatives we've been working on. SG&A as a percentage of revenue increased to 39.48%, reflecting fixed cost leverage and a lower revenue environment, along with higher commission expense tied to sales mix and property-related costs, partially offset by lower retail financing fees. On a dollar basis, we maintained strict cost discipline through the quarter, which is particularly meaningful given the broader inflationary backdrop.

Adjusted net income was $20.1 million, down from $24.1 million in the prior year, reflecting the sales and cost dynamics I just described. Earnings remain meaningfully above pre-normalization levels. For context, adjusted net income in the first quarter of 2023 was $13 million, which speaks to the structurally higher earnings base the business operates from today. So we have gained share and kept that share. Adjusted diluted EPS was $0.29 compared to $0.35 last year. On the commercial side, as Mike noted, builder activity slowed more than initially expected in Q1 due to weather-related delays, shifting a portion of volume into Q2. While we continue to expect moderation in the segment through 2026, the competitive dynamics we're seeing, including the exit of a competitor, support our view that this will unfold more gradually than originally anticipated. As always, we'll continue to manage the business with the same discipline and selectivity that has served us well.

Turning to the balance sheet. We ended the quarter with $560.8 million in unrestricted liquidity, including cash, marketable securities and our undrawn revolving credit facility. That liquidity continues to be a strategic asset in this environment. It provides the flexibility to invest in the business, navigate volatility and act opportunistically. Our approach to capital allocation 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 our regular dividend. We're also attuned to returning more to shareholders when it makes sense. The $0.50 special dividend declared in February and paid in April reflects that approach.

As we outlined coming into the year, we expect to expand our footprint in a measured and strategic way. We currently anticipate 4 franchise openings in the second quarter. On operational efficiency, centralized distribution remains a multiyear priority with Ontario the most significant opportunity. As with Mississauga, we're approaching this deliberately using a phased test-and-learn approach with a clear focus on maintaining service levels while driving longer-term efficiency and working capital benefits. We will provide updates as we make progress through the year. On our REIT initiative, this remains an important strategic priority. Timing continues to be guided by market conditions and regulatory approvals, and we'll share updates when appropriate.

A couple of cost items worth flagging. On fuel and freight, fuel impacts not only our delivery fleet, but our entire value chain. It's a challenging cost driver because it's largely indexed and shows up broadly across the ecosystem. On tariffs, the impact of the recently implemented steel-related tariffs remains narrow and manageable, and any cost pass-through will be targeted and measured. Both are industry-wide pressures and few in the sectors are better equipped to manage them. We'll balance the customer and profitability the way we always have. Looking ahead, the near-term environment remains dynamic with retailers across the sector navigating a more selective consumer.

We've never been better positioned to compete and take share. Our track record of delivering profitability driven by sustained progress on our merchandising and sourcing initiatives is what gives us the room to invest tactically when conditions warrant. Any near-term margin investment is always tested against a return inside a 12-month period. We expect comparisons to ease as the year progresses with some commercial activity shifting into Q2, as I previously outlined. Our scale, disciplined sourcing and strong balance sheet provide the foundation to continue driving profitable growth and shareholder value. With that, I'll turn it back to Mike.

Thanks, Victor. To wrap up, the first quarter was a difficult one for the industry, and our top line performance partly reflected that. But the quality of execution underneath it was strong. We leaned into the categories where we were positioned to win, expanded gross margin, kept tight cost controls and continued to gain share through the quarter. We're navigating this environment from a position of strength, and we're confident in our ability to keep building long-term value for our shareholders. Thank you again to our associates for their continued execution and to our shareholders for their continued support. With that, we'll be happy to take your questions.

[Operator Instructions] And today's first question will come from Ahmed Abdullah with National Bank of Canada.

Can you give us some more color on how sales and perhaps same-store sales and traffic has trended through the quarter and kind of what your exit rate is looking like exiting March post all the noise of weather and into April?

Yes. Thanks for the question. We're seeing similar things that we've talked about in the past, which is we're still seeing the consumer coming to our website, doing their shopping and doing their review of different products, but we're seeing less customers still coming to our store. They're still more qualified. Our salespeople are being able to spend more time with them to sell them the value-added services. As we transition from March into April, we see that continuing. The other dynamic that plays into this is the fuel inflation. And so you're still continuing to see the consumer pullback going into Q2. And that affects not just us, but the consumer. So their wallet remains still challenged, and they're still spending money. So we're still seeing our big events. We're still hitting it out of the park, but there is still consumer pullback sentiment out there in the market.

Okay. And touching on the kind of what you alluded to around promotional intensity and some of the fuel dynamics, how are you balancing your pricing versus your promo levers in order to maintain some traction here?

And what I would say is that we've signaled it for the past number of quarters that we're still in a value environment. And so we have to be very selective where we want to increase cost, and it's more of a surgical thing than across the board. We continue to put our foot down on financing because we believe that plays into the value proposition with the consumer.

Okay. And just one last one for me. If industry demand kind of stays weak throughout this quarter and into the rest of the year, what structurally would allow Leon's to kind of grow earnings going forward? What kind of cost levers do you have to still play around with?

Yes, Ahmed, I can jump in here. Yes. Look, I think, obviously, we have a very disciplined framework around gross margin management, working very closely with our vendors, continuing to work very closely with our vendors to make sure we're getting really good pricing so that we can remain value focused with the consumer. So how we manage margin rate. And then on the SG&A front, look, I mean, we got to balance a couple of things, right? One is rate will largely depend, as we said at the beginning of the year on how sales play out. We are investing in our business. We're not slowing that down. We've invested in our org. We've invested in our stores. We continue to do that. We're prioritizing that. So we're not backing off some of those strategic priorities. But at the same time, we got to be mindful of sort of where we sit today and how we view the world.

At the beginning of -- in February, we thought that the first half of the year was going to be more challenging for a couple of reasons. We saw a more cautious consumer. We have tougher comps. A layer on the inflationary impact of a fuel increase, which we hadn't anticipated at the time. Now in the back half of the year, we think we're hopeful that there's going to be an easier macro environment, easier comps from our perspective. There's going to be unit growth. Like we said, there's 4 franchise stores opening in the quarter and more corporate stores opening as the year progresses.

And I think the commercial side of the business, right, like Mike done on his opening comments, with the competitor exiting, that opens up a share play for us. We're very well positioned to pick up some of that share. We already are picking up some of that share. So that should ease the moderation we expected in that commercial channel. And all those things combined will help us, I think, still deliver growth in the back half of the year.

And our next question comes from Nevan Yochim with BMO Capital Markets.

I wanted to talk about the strength that you delivered in the Mattress category. Can you help unpack what's driving this? Is it all share gains? Or do you believe the overall category is also seeing some improvement as well?

Thanks for the question. No, we believe we're getting share gain. Last year was a focus of a smaller assortment going deeper on the inventory in furniture, and we were successful doing that. And the same thing has played out with mattress. We're really focused on the mattress category, top of bed, bottom of bed, and we truly think we're gaining share. So it's a similar focus that we did with Furniture last year. We're just applying that to Mattress this year.

Got it. And then maybe just on the comps, you talked about the comps being easing to some extent. If we look back at 2025, Q2 and Q3 were also notably strong as well. Is there something within those numbers that varies relative to the Q1 comp?

Well, I think the difference with the Q1 comp is you had a 2-year stack of about 12% entering into Q1. And we had a lot of visibility going into Q1 around the normalization with Furniture. Now we're mindful. Obviously, Furniture was up 6% for the year last year, so with strong comps throughout. But we do feel better, again, with the dynamic around the consumer environment hopefully easing in the back half with unit store growth. And then Q4 is a big opportunity for us. There was a lot of noise in Q4 last year. So we're pretty optimistic about our ability to bounce back in Q4, again, assuming no other macro challenges emerge. So I think it's really about that, Nevan, than anything in particular there, but we are feeling better about the back half than the first half. But to your point, like furniture was strong throughout the year, but we obviously have -- we feel good about our plans going forward, especially in Q4.

And the next question is from Martin Landry with Stifel.

I just want to go back to the rising fuel costs. Just -- I'm not sure if I understood exactly your strategy. Do you intend to pass fuel surcharges to customers or absorb it?

Yes, Martin, we haven't. We're -- as Mike said, we're being very thoughtful just given the environment. We haven't passed any surcharges -- fuel surcharges to customers. It's going to depend on how long this environment and fuel prices remain elevated because it doesn't just impact us from a last mile perspective directly. It does impact our value chain. And if input costs from a supplier perspective start to increase, then obviously, we're going to challenge and push back on that. But it really will depend on how prolonged it is. And if we decide to take price action, it's going to be very, very surgical and strategic in terms of how we approach that as we always do.

We want to remain the leaders from a pricing standpoint. We're very focused on providing value, and that's our #1 priority. So our -- again, from a if you think about a margin rate perspective, we still feel good about stabilizing that over a full year basis relative to last year, holding stable. But there's going to be ebbs and flows, and we have to react to what we're seeing in the environment. And those are real-time conversations that happen on a daily basis. So that's -- I guess that's the extent of color that we can provide at this time. Mike, anything you want to add there?

I think you covered it well. I think if you look at our sourcing, our capabilities and our balance sheet, we're really positioned well to endure these types of cycles. And we'll be very methodical and surgical as we look at where we need to increase prices. But again, the consumer is still in that value mode. And as the leader in our space, we have to play in the value proposition and continue to do that.

Okay. That's helpful. Now I understand it's very dynamic and not easy to deal with. Can you talk a little bit about your new franchise stores, where they will be located?

Sure. We had one open up in April. That was in Goose Bay, Newfoundland. We have 3 more opening up on May 28, Bridgewater, Liverpool and Barrington Passage in Nova Scotia.

Okay. So Atlantic Canada, cool. And then I think you -- did you see you have a corporate store coming up later on?

We have a couple of things happening. We've got the reopening of our Welland store. It's going to be the Leon's store. It's also going to have some commercial pad developments that we're doing there. And then we've got a few other stores in the mix. We'll be in a better position at the end of Q2 to give you timing because there's some shifting from potentially Q4 of 2026 and 2027. So the exact numbers, I think we signaled that we have 4 to 5 franchises opened this year and a couple of new corporate stores.

Yes, somewhere in -- as Mike said, 4 franchise stores. We are expecting one corporate store to open in Q3. The Welland grand reopening, which is not net incremental. That's really -- we have a Welland in store right now, but will just be the grand reopening of a brand-new store. And then a couple of other renovations hitting this year in Q3, Q4 and then potentially one other new store. But to Mike's point, there's some timing considerations around developments that are happening in real time right now, but that's kind of where we stand today.

Okay. And then last question. I understand the consumer is soft right now. But how is your Industrial and builders division? And is that still going fine or you're seeing weakness there as well?

Well, I think we signaled last year that we were seeing some challenges that are going to happen in '26 and '27 in the builder segment. And 18 months ago, we signaled that we were going to really focus on the replacement business with the development and we've been winning in that segment. The company that is going out of business, we're going to hopefully reap some of the benefits of that organically. So we're actually cautiously optimistic on the development in the builder side for 2026.

The next question is from Ty Collin with CBIC.

Maybe just to start, I want to unpack your comments around the consumer a little bit more. So you mentioned that you're seeing some softness carrying into Q2. I'm wondering if you've seen any kind of incremental weakening or trade down activity compared to what you've seen over the last couple of quarters or whether that's kind of stable? And then, Victor, I think you also mentioned that you're expecting or hoping for some macro improvement, a bit of an easier environment in the second half of the year. Can you just unpack that comment a little bit? What's the basis of that hope?

I'll kick it off and then Victor can jump in. We're still seeing the same thing, Ty. We're still seeing the consumer trading down, so from mid to more of the opening price point. So you're seeing more unit growth, which translates into higher unit growth, but it's more challenging sales. Still seeing that. We're still seeing the customers at the top end still continuing to buy there. But definitely, the trend that we've seen for the past number of quarters is still continuing.

Yes. And Ty, like I think it's a really important point that Mike just mentioned. So -- when we think about written units in the quarter, it's actually up, but we are seeing pressure on average basket because customers are trading down. It's a dynamic that I don't think is just specific to us or our segment. We're hearing that across retail. So -- and I think it's just fair given the affordability challenges and inflation -- recent inflation with fuel. So on my speculative comments with respect to hoping that the environment eases, I think peace deal from a geopolitical standpoint that pulls back fuel prices and oil prices takes pressure off our suppliers and their input costs. I think we're hoping that's a factor that plays out, more trade certainty in Canada. I think more housing activity, which was really slow in Q1, I think all of those factors obviously impact our business from an ancillary driver perspective. So that's what my comments allude to. Do I believe that -- do I have a crystal ball? No, but that's what we're hoping for.

Okay. I join you in hoping that all of those things come to pass in the second half of this year. And maybe just for my last question, I appreciate your comments around the promotional environment and the industry and the consumer remaining value conscious. I guess, can you maybe just give a little more color on how you've actually seen the promotional environment evolve over the last couple of quarters from the holiday season through Q1 and now entering into Q2. Has that remained stable or any changes to call out?

I think the promotional thing, I think all retailers, not just in our space, but all retailers are -- there's more intensity from a promotional offering because sales are challenging. We've been bullish on the fact that we're seeing unit growth. So that tells us we're winning share in a very challenging marketplace. But yes, definitely, the promotional activity has intensified.

And the next question comes from Ryland Conrad with RBC Capital Markets.

Just to start on the 3-year furniture sales CAGR of almost 7%, at a high level, do you have any sense as to maybe how the category performed over that same period?

Sorry, can you clarify that question again?

Yes. Just -- I'm curious about your performance in Furniture at a 3-year sales CAGR of 7% and how that might have compared to the market overall?

Yes. No, fair question. I think, look, tough to get exact data on furniture. If you tend to look at StatCan over that period, it's probably in the 2% range is what I've seen. So again, I think that points to us gaining significant share over that period of time. I think if you talk anecdotally, we also talk to our vendor base, and I think they would agree with the statement that collectively as LFL, we've gained a good amount of share in Furniture over that period of time.

So we're pretty confident on the share gains, can't give you a very specific number, but I think around that 2% range. And again, if you kind of just zoom out a little bit and think about the North American backdrop in home furnishings, then there's a ton of public -- Furniture public companies in the U.S. that we can point to, but it's been a really challenging environment for those folks. And the folks in Canada that they might not be public, but they've put out numbers. Those numbers have been down the last couple of years. So I think just collectively, we feel good about that statement that we have gained share.

Okay. Great. That's super helpful. And then just on the distribution consolidation opportunity in Ontario. I know you guys have a more medium-sized test ongoing there. But with that, what are the key milestones you're looking to hit? And assuming those are met, is this going to be the final test prior to potentially putting shovels in the ground on a DC?

Yes. It really depends on the results of the test and what we see. So we're -- the next test that we're planning is just bigger in nature. It's actually -- it will probably be out West, another big opportunity for us out West that we're looking at. And again, if that's successful, our #1 focus is on customer experience, making sure we're getting -- that we're not we're not taking away from getting products to the customers on time. I think we got to really be cautious around that. And then it's around, okay, are we seeing the right efficiency from a transportation perspective, from an SG&A perspective. And if we start to see that and we feel good about that consolidation, that's going to give us the confidence to roll that out and then potentially invest in a new facility and move a bit quicker on the rest of the consolidation. But the next step, which, again, is still in the planning phases because it's pretty involved and complicated. But if that does go well, I do believe that will give us the confidence to move a bit more quickly on Ontario.

Okay. Got it. And then just lastly for me. Obviously, the balance sheet is in a really good spot. So could you just remind us of your free cash flow priorities for this year? And -- on a related note, I guess, what's your framework for special dividend? Like is there a cash threshold you might target before possibly declaring another one?

Yes. I think typically, the way we approach it, and we talked a bit about that in our last call is focus on -- first of all, we like carrying extra liquidity at this point in time in the cycle, and we continue to feel strongly about that. It positions us to be opportunistic. But we talked about investing more in our business, in our store network specifically. There are strategic opportunities, obviously, that continue to come our way that we will evaluate. There is -- we continue to think about the regular dividend is something we continue to think about. The special dividend we just announced one.

Look, we have conversations around capital allocation all the time. I'm not going to talk about any particular cash threshold. It's really how we're feeling about the underlying business and how we're feeling about the priorities in front of us, how much cash do we feel like we need to hold given where the environment is. And depending on how we feel around those different variables, that's what triggers conversation to whether it's doing a special or accelerating buybacks or any incremental return of capital to shareholders. But that's generally our framework, continues to be our framework. And again, we've been pretty balanced as we just executed on the special. So we'll continue to do that.

There are no further questioners at this time. And this concludes today's conference call. Thank you for attending today's presentation, and you may now disconnect.

Thank you for standing by. This is the conference operator. Welcome to the LFL Group Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jonathan Rose, Investor Relations for LFL Group. Please go ahead.

Thank you. Good day, everyone, and welcome to LFL Group's Fourth Quarter and Full Year 2025 Conference Call and Webcast. LFL's fourth quarter and full year 2025 financial results were released yesterday.

The press release, financial statements and management's discussion and analysis are available on SEDAR+ 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 from these assumptions and beliefs.

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. 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, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted.

With that, I will turn the call over to Mike Walsh. Mike?

Good morning, everyone, and thank you for joining us. In 2025, LFL Group delivered strong operational and financial performance. We grew system-wide sales by 2.8%, expanded gross margins, delivered 16.5% growth in normalized adjusted diluted EPS and increased our quarterly dividend by 20%.

As you would have seen, I'm also excited that yesterday, the Board approved a $0.50 special dividend. These results reflect the efforts of our associates across the country to deliver solid performance day in and day out for our customers and our shareholders.

Consumers were cautious and value-focused during 2025, leading to a challenging backdrop for retailers. At the same time, trust, service and confidence in the retailer became increasingly important in purchase decisions, a dynamic that plays directly to our strengths.

It's worth emphasizing what execution like this requires. Strong performance in 2025 wasn't just about being more promotional. It was about discipline and judgment.

Knowing where to flex in response to the consumer, how to flex and when not to is something that's built over time. That hard-earned knowledge is what enables us to maintain customer loyalty while delivering solid financial results and maintaining long-term pricing power in our core categories.

I'm very pleased with how our teams delivered, driving consistent market share gains that translated into strong financial performance. Furniture was definitely the standout category in 2025 and an important contributor to our results, growing 6.3% for the year.

We continue to execute on a focused assortment strategy, narrowing where appropriate, going deeper in our best-performing SKUs and selectively broadening into areas of opportunity. Strong performance we generated in the category during the year was a direct result of these decisions.

Our appliance category, led by the commercial channel, also contributed meaningfully to results in 2025, supported by the delivery of previously booked multiunit residential projects. We continue to make solid progress across the replacement and property management segment and we're expanding our geographic reach.

Appliance Canada has historically focused its builder and developer partnerships in Ontario. When anticipating a moderation in that market and recognizing that many of these partners operate nationally, we proactively made the decision to pilot a store within a store concept inside our Leon's location in Richmond, BC.

This format gives developers a dedicated destination for customer upgrades while making efficient use of infrastructure we already have in place. In-store execution remains solid in 2025.

As we discussed last quarter, our e-commerce platform continues to play an important role in driving more purposeful store visits. We're seeing higher intent customers walking through our doors and our associates are well-positioned to serve them. They know the product, they understand the customer and are focused on helping them find the right solution.

Turning briefly to the fourth quarter. While we anticipated the impact of Canada Post disruptions on flyers, distribution during key promotional windows, the quarter brought some additional headwinds, increased promotional intensity in certain categories, selective consumer spending, particularly on larger discretionary items and tougher winter weather comparisons.

That said, in the context of the broader market, we're satisfied with how we performed. We managed the business with discipline and delivered profitability for shareholders.

Looking ahead to 2026, we're confident in our strategic position. We do anticipate some carryover of the fourth quarter headwinds into early 2026, but our model is built for an environment like this.

Same focus that has driven our performance will continue to guide us, serving customers with the value they need, growing sales and market share, protecting gross margins, maintaining cost discipline and translating it all into earnings growth.

From a category standpoint, we're building on what worked in 2025. Furniture remains our core strength and we'll continue to go deeper where we have scale, sourcing advantages and a clear value proposition.

At the same time, we're taking a disciplined test-and-learn approach to selectively expanding our offering where we have relevance and where it makes sense for the customer across all of our focus segments.

We also see meaningful growth potential for our warranty, insurance and service businesses over the coming years. These businesses complement the core retail platform, but we also see them becoming more meaningful contributors to results in their own right.

We're also taking a selective approach to growing our store network in 2026. We expect to add a small number of new locations, 2 corporate stores and up to 5 franchise stores weighted towards the back half of the year.

In parallel, we plan to move forward on some capital-light renovations and refreshes where targeted investment can enhance customer experience and drive returns. As we've talked about before, our strategy has never been about maximizing store count.

These are destination format locations with larger catchment areas built around a full-service experience and every decision we make, whether it's a new opening, a renovation or a refresh gets evaluated through the lens of 4-wall profitability and long-term value creation.

The historical results of that discipline give us the confidence to continue to grow at a measured pace rather than pursuing unit expansion for its own sake.

Beyond the store footprint, we continue to make disciplined investments in the organization to better leverage our platform and support LFL's future growth. We have added senior talent across digital and technology, diversified businesses, commercial operations and real estate.

These investments are about building capability, enabling us to move faster, integrate opportunities more effectively and execute with greater consistency across the business. We've been steadily strengthening our technology stack to improve how we operate, how we serve our customers and how we make decisions.

This includes piloting artificial intelligence tools as well as deploying automation across the business in marketing, supply chain, forecasting and document management, among other areas, to drive productivity and organizational efficiency.

We are in the early stages of this work, but we are encouraged by what we are seeing. Our focus remains on building a stronger, more capable organization for the long term.

We have a proven track record of navigating cycles like this. Our scale, sourcing capabilities, distribution network and financial strength position us well to manage near-term variability and continue gaining market share over time.

With that, I'll turn it over to Victor to walk through the financial details and provide more context on the quarter and the year.

Thanks, Mike, and good morning, everyone. I'll start with the full year walk-through, move to a discussion of the fourth quarter and then touch on capital allocation and a few considerations as we enter 2026.

Overall, we're very pleased with our performance in 2025. For the year, revenue was $2.57 billion, up 3% year-over-year. Growth was led by furniture, along with a solid contribution from the appliance categories led by the commercial channel, as Mike highlighted.

In commercial, performance reflected the completion of previously secured multiunit residential projects that moved through deliveries during the year. As we've outlined, we expect developer-related revenue to moderate and we're beginning to see that trend emerge in the early part of 2026.

Gross margin expanded 65 basis points to 45.04%. This improvement reflects both the impact of higher-margin furniture sales and our continued focus on strengthening sourcing and vendor engagement.

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 improvements across categories. SG&A rate improved to 36.48% compared to 36.72% in 2024.

This improvement was primarily driven by lower retail financing fees due to declining interest rates. We also maintained strict cost discipline and realized leverage as we grew the top line, even in an environment where there was an upward cost pressure across many areas of the P&L.

Net income for the year was $157 million or $2.29 per diluted share. Normalizing for the one-time gain from the CURO settlement, adjusted net income increased by $22.2 million or 16.6% and adjusted diluted earnings per share increased 16.5%.

We're also pleased with where inventory levels sit today. Our written-to-delivered relationship is in good shape. We've continued to go deeper on certain SKUs, which has enabled us to tighten the written-to-deliver time line. We headed into 2026 with a healthy in-stock position, good availability across key categories and no material constraints on flow.

Turning to the fourth quarter. Revenue was $671.4 million, up 0.7% with same-store sales up 0.6%. The story is consistent with what we've seen through the year. Growth was led by furniture, where a stronger inventory position and an improved assortment enabled us to capture demand and by appliances, where we continue to see solid growth in the commercial channel.

Gross margin in the quarter was 46.08%. The year-over-year improvement reflects a favorable mix shift into higher-margin furniture as well as a better furniture and appliance margin rate from the assortment and sourcing work we've done over the past year. This was partly offset by a higher mix of sales in the lower-margin commercial channel.

SG&A as a percentage of revenue was 35.51%, an increase of 13 basis points versus last year. The change was primarily driven by higher occupancy and amortization with the lease commencement of our Edmonton distribution center and other renewals, higher sales commissions and a slight deleveraging of fixed costs.

These were partially offset by lower POS retail financing fees as Bank of Canada interest rates moved lower. On a reported basis, adjusted diluted EPS for the quarter was $0.74, down from $0.98 last year, reflecting the onetime $23.4 million legal settlement we recorded in Q4 of 2024.

If you normalize for that item, adjusted diluted EPS increased modestly year-over-year to $0.74 from $0.73, an increase of 1.3%. It's important to view our fourth quarter results in the context of the market-related headwinds that Mike described earlier. Even considering those factors, we continue to execute and delivered growth in normalized earnings.

From a balance sheet perspective, we generated strong cash flow through 2025 and ended the year with $603 million in unrestricted liquidity, including cash, marketable securities and our fully available revolver.

We also increased the quarterly dividend by 20%, underscoring our confidence in the strength of the business and our ability to continue generating solid cash flow. In addition, we stay attuned to returning capital to shareholders where it makes sense to do so. And as Mike said, yesterday, our Board approved a $0.50 special dividend.

Maintaining this level of liquidity is a deliberate strategic choice and one we're comfortable with. Our approach to capital allocation has been guided by a consistent focus on returns and that means being strategic about liquidity, holding more in certain environments, less in others.

Our track record reflects that discipline. And with a liquidity position that very few others in this market have, we're well-positioned to act when and where it makes sense for the long-term growth of the business.

Our approach to capital deployment remains disciplined and consistent with our long-term focus. We prioritize reinvestment in the business where we see attractive returns, maintain a strong balance sheet and return capital to shareholders over time with a primary focus on our regular dividend. We also remain attuned to acquisition opportunities that fit strategically and create long-term value.

Looking at 2026. On reinvestment, we expect maintenance capital expenditures to be modestly higher than our typical range. Historically, we've talked about maintenance CapEx in the $35 million to $40 million range.

This year, we expect that to be approximately $45 million to $50 million, reflecting an increase in planned renovations and category level refreshes across a portion of our network in addition to our typical maintenance program.

On the growth side, we expect to open 2 new corporate stores along with up to 5 franchise locations towards the back half of the year. Importantly, this level of maintenance and growth investments remains very manageable and enables us to continue generating strong free cash flow. In addition to store investments, we continue to look for opportunities to improve operating efficiency across the network.

Centralized distribution is a core part of our long-term strategy as we transition from the legacy-attached warehouse model toward a more efficient hub-and-spoke network over time. The closure of our Mississauga warehouse in February of 2025 delivered expected operational results, including SG&A savings and working capital benefits and we continue to track key service level metrics as part of that evaluation, including customer experience and written-to-deliver time line.

Based on what we learned from Mississauga, we're evaluating a further centralized distribution initiative in another region. This would be a phased measured test designed to build confidence on a larger scale.

These initiatives take time to implement, but the objectives are clear: reduce inefficiencies and inventory flows, improve working capital management and drive meaningful SG&A efficiencies over the longer term while maintaining service levels.

The most significant opportunity is in Ontario, which is our largest market. We are approaching this deliberately and we'll continue to provide updates as we make progress.

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 fourth quarter of the year.

On M&A, we continue to evaluate opportunities that align with our core categories and retail focus, involve recognizable brands, offer a clear runway for growth and are synergistic with our broader ecosystem. In an environment like this, opportunities can emerge and our balance sheet puts us in a position to act if the right fit presents itself.

I also want to briefly address tariffs as this is an important topic for the sector. Steel derivative tariffs were implemented by the government of Canada on December 26, 2025. Inventory already in transit was not impacted.

For new orders placed after December 26, we're evaluating the impact and we'll adjust pricing where appropriate. Any pricing increases would be surgical, carefully balancing customer value with financial returns as we have done many times before across a range of market conditions.

This is an industry-wide factor and we are well-positioned to manage it given our scale, sourcing relationships and supply chain capabilities.

One item to flag on comparisons. As we move through 2026, we are lapping strong performance in 2025, which creates more demanding year-over-year comparisons, particularly in the first half. This is most evident in Q1, where results last year benefited from a timing dynamic that pulled some sales forward from Q4 2024 into Q1 2025.

Before handing it back, I'd like to briefly address the previously announced initiative 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.

As Mike mentioned, we've also strengthened our real estate capabilities by adding a dedicated senior resource to provide in-house expertise across our property portfolio. This role is focused on helping us drive greater value from our assets, supporting our development agenda and ensuring we are making informed strategic decisions across the portfolio that both strengthen our core business and create value for shareholders.

Entering 2026, we remain confident in our positioning. Our approach to managing the business will be consistent as we move forward regardless of the environment.

We remain focused on outperforming the market and gaining share while protecting gross margins, staying disciplined on SG&A and driving profitability. Overall, our scale, disciplined sourcing, promotional strategies and solid balance sheet provides the foundation to continue driving profitable growth and shareholder value over the long term.

With that, I'll turn it back to Mike for closing remarks before we open the line for questions.

Thanks, Victor. To wrap up, 2025 was a strong year for LFL and one that demonstrates the consistency of our execution. In a challenging environment for many retailers, we grew revenue, expanded margins, delivered solid earnings growth and increased our dividend.

More importantly, we did that by staying focused on the fundamentals, disciplined merchandising, targeted promotions, strong execution in our stores and a clear focus on value for the customer.

These results weren't driven by short-term actions. They are a direct product of how we built this business, the scale to negotiate directly with suppliers and secure advantaged pricing. Banners that Canadians trust coast to coast, backed by a large and growing omnichannel presence and integrated logistics infrastructure, including one of the largest final mile delivery networks in the country.

That sets us apart in how we serve customers from the store to their door. Together, these are durable advantages that matter most when consumers are being more deliberate with their spending and they are the foundation we continue to build on.

As we move into 2026, our focus on execution and on continuing to gain market share in our core categories. We're investing thoughtfully where we see opportunity and we're doing so from a position of strength with a solid balance sheet and durable competitive advantages that will enable us to continue to win across cycles.

Before we open the line, I want to truly thank our associates across the country in our stores, distribution centers and support teams for their continued commitment. Their work drives the results every day. And to our shareholders, thank you for your continued support.

With that, we'll be happy to take your questions.

We will now begin the analysts question-and-answer session. [Operator Instructions]

Our first question comes from Ty Collin from CIBC.

So yes, maybe just to start off on the same-store sales growth. How can we kind of understand the deceleration in Q4 compared to your fairly brisk year-to-date pace up to then? And maybe specifically, you can just touch on how you've seen consumer behavior evolve into Q4 and to start off 2026 so far.

Great question, Ty. I think how I'd characterize the Q4 was it was a little choppy. We started out the first quarter or the fourth quarter with the Canada Post strike. And as you know, that's one of our highest ROI channels with the consumer.

So definitely, that impacted. So 50% of our network didn't have flyers going out to them, which really impacted Ontario and Quebec. The weather disruptions, so our 2 biggest days of the year, Black Friday and Boxing Day, which had both had weather events.

And it's really tough because in 2024, in the fourth quarter, we had Canada Post strike, but it started later in November. And this year -- or in 2025, it started in September. And so as you look at Boxing Day, Boxing Day is kind of a month or 2-month event now given what happened in the pandemic.

And so it's spread out over a period of time. And so leading up to Black Friday, we had literally 50% of our flyers not going out. And for sure, we lean more heavily into TV, digital, SEO, SEM and e-mail. But those channels don't fully replace the lost flyer impressions.

And then just to add there, Ty, just to build on Mike's point. So I think, obviously, a slower start to the quarter, just given the 50% of our network was either fully or partially impacted with no flyers.

And then I would say we did see -- on top of weather, we did see a consumer slowdown, a broader slowdown in December just across our brands, which tells us it's a bit of a macro thing to Mike's point, the shopping period is getting -- holiday shopping period is getting longer and longer.

By the time you get to December and between Black Friday and Boxing Day, we just noticed a bit more of a lull period there. That tells us and we did see this throughout the year, shoppers are waiting for more value. They're waiting for the bigger days. Our bigger promotional days outperformed our average days.

And we continue to see evidence of a strained consumer and that we're seeing trade-down happening. So all of that just tells us the consumer is being cautious. They're constrained. They've got to prioritize where their share of wallet is going. So that's just a bit more color there.

Okay. Great. So is it fair to say that you've seen that more cautious consumer behavior in December kind of carrying over into the first couple of months of 2026 so far?

Yes. I think what we saw in December, which is a little tricky, right? It was a combination of weather and the consumer pulling back. What we've seen in January is similar in that really cold January, lots of snowfall. So we think that impacted traffic in addition to a more cautious consumer. So we did see that to start the year as well.

Okay. Great. And then maybe for my follow-up, I'm just wondering if you could comment a little more on the promotional environment, which you called out in your comments. I mean, is there any particular set of competitors where that increased promotional activity is coming from? And is there any sign of that abating so far in 2026?

No, I think Q4 carried into Q1 from a competitive set, I think consumers are value-driven right now and they have been as we've stated in previous quarters. And I think all retailers are trying to play in the value prop game on different channels. And so that's going to continue, and I don't see that abating throughout 2026.

The next question comes from Ahmed Abdullah from National Bank of Canada.

On the commercial appliance growth that's been helping some of the top line, you've mentioned that it's a lower margin mix. As you see some weakness perhaps in other higher-margin categories, what levers do you have to kind of protect your margins if commercial keeps outperforming?

Well, we -- as we stated in previous quarters, we continue to focus on the category of furniture because that's got one of the highest gross margins that we have. And so we continue to focus on that through a reduced assortment and going deeper on our inventory.

So we have the product available and we can spin up the delivery time between -- and the lag time between written and delivered.

We also, as we said, Appliance Canada is primarily in Ontario, but they have lots of their customers that are in other parts of Canada. And so leveraging a store within a store in Richmond, BC really helps us to enable Appliance Canada to play outside of Ontario, which has been severely impacted from a development perspective.

Yes. And then just to answer the mix question there, to build on Mike's point there, Ahmed. Like we said, we know and we've signaled that the commercial business is slowing down.

So from a sales mix perspective, we're not necessarily expecting the same level of growth going forward. We're expecting moderation. And it is a lower margin category.

So the way we've been offsetting despite tremendous growth in that channel over the last couple of years, our margin rate has been improving and that's because we've been improving rate on the retail side through stronger furniture sales mix and some of the rate initiatives that we've had. So net-net, we don't expect that to be a margin headwind going forward from a mix standpoint.

Okay. So on the flip side of that comment, are you thinking about your promotional cadence into 2026 to drive margin tailwind as such that would push your adjusted EBITDA margin for 2026, assuming there's revenue growth higher?

Yes. I think the way you got to look at rate, right, we're pretty -- we operate pretty proud of sort of the improvement that the team has been able to make over the last couple of years. We're happy with kind of where we are at this level. We've got to balance a few things.

Obviously, sales mix. The way we've done it is primarily through sales mix and rate -- core product rate improvements, not through price. And so we've got to keep the consumer in mind there, right?

So our primary focus is to provide value to the consumer, grow market share and grow it profitably. And we tend to operate margin within a range, right? So if you look at our history, we're pretty disciplined. We're consistent and we gradually improve over time.

But we pick and choose when we're going to do that. And we've got to be very cautious in this environment in a value-oriented environment in terms of when we flex up or down on categories and overall.

So again, I would kind of point you to, we've made good improvements. We're kind of satisfied at this level today. There is upside in the medium and longer term, but it will depend on overall sales mix. It's kind of the way we look at it.

Okay. And just if I can squeeze one more follow-up. On Ty's comment around the Canada Post disruption, clearly, you see value in the medium and continuing the use of flyers going forward. Were you able to estimate or quantify the impact that Canada Post cost you this quarter?

Look, the way I would answer, we're not going to throw out numbers. Obviously, there's lots of variables in terms of sales and we're not going to specifically break those things out. But I would point to, again, the key drivers in terms of -- one, we thought the quarter in the grand scheme of things, we thought the top line growing sales, growing profitability, that's a good result, right?

I think the momentum heading into the quarter and your comment about the step back, I think those are 3 factors that we talked about. The flyer impact to start the quarter, the broader December slowdown and weather on some of our -- weather just in general, but on some of the bigger days like Boxing Day and leading up to Black Friday was adverse weather conditions, especially relative to last year.

So I would just kind of look at it like that, but we're not going to throw specific numbers out there. There's just too many variables.

Our next question comes from Martin Landry from Stifel.

It's [ Jesse ] filling in for Martin. I was wondering how promotions performed over the last year and how you expect them to perform going to go over into the new year? And particularly maybe get some color on which campaigns worked and which didn't.

Yes. Listen, thanks for the question. Like as I said maybe earlier, what we saw throughout the year is our bigger promotional days just outperform on our average days.

So it does tell us that our promotions are working. The one sort of element for LFL, just in general is we're -- our objective is to provide value to the consumer throughout the year, right? So we're always focused on value.

We leverage our scale and we leverage it well to provide value throughout the year. But we did see, in general, our bigger promotional days outperform our average days and that just tells you where the consumer mindset is, but it does tell us that our promotions are working really well for us.

Okay. Great. And maybe -- I know you touched on it a little bit this call, but I was wondering about the replacement business. Can you maybe provide a little bit more color on that? I know the builder pipeline was moderating a little bit. So if you could touch on that, that would be helpful.

Yes. I think we signaled it 12 to 18 months ago that the pipeline for the builder segment was going to be a challenge in '26 and '27. So we pivoted to increase our replacement business, which we have been doing and continue to do.

It won't necessarily make up the shortfall from the development segment, but it definitely helps. But it's a continued focus that we have on the replacement business.

[Operator Instructions] And our next question comes from Nevan Yochim from BMO Capital Markets.

I appreciate the color so far on the January trends. Hoping you could just give an update here on what you're seeing across product lines and region to start the quarter.

Yes, it's a good question. So we continue to see strength out West. We're seeing a bounce back in BC and more softness in East Ontario in general, just a bit slower to start the quarter. But in general, I think January just has been colder, more snow and I would characterize it as a bit tepid across the board. But it's our smallest month of the quarter.

So we'll continue to see how the quarter progresses. And we're optimistic as we think about the back half of the year. We're optimistic in terms of, hopefully, some of the macro headwinds ease and we're optimistic about some of our initiatives going forward in terms of, again, being positioned for value and continuing to outperform the market and gain share across our categories.

Okay. Great. And is it fair to say that the trends you saw in Q4 in terms of product lines that those have continued into the year as well?

Well, listen, as we think about Q1, I think a couple of things we need to flag, right? So last year, we would have highlighted to you that we had a shift in written to delivered from Q4 into Q1.

That's primarily a furniture category dynamic, right? So we're going to see a bit more -- as we think about category performance in Q1, we're going to see a bit more pressure on the furniture category because of that shift.

Otherwise, I would characterize the performance sort of across the categories as pretty consistent with our historical trend. We're still pretty bullish on our ability to drive share growth in furniture, we believe we're really well-positioned in that category, but that comparable year-over-year, especially in Q1, is going to be hard to comp, especially as it relates to the furniture category.

And then again, we're off to a slower start in January as we characterized. So Q1 will be a tougher comp and then we feel pretty good about our positioning for the balance of the year.

Great. And then just on the commercial appliances, I know some details so far. Just hoping you could expand a little bit. Is there a certain quarter in 2026 where you begin to lap these tougher comps? And can you frame the headwind on same-store sales growth?

Yes. So I think with respect to commercial, look, it is moderating. It's going to be tough to comp. That category, that channel, we've seen tremendous growth over the last since -- frankly, since 2019, that category has grown at a CAGR of 6-plus percent just to kind of put it out there.

So we're expecting a bit of a moderation, but we've gained a lot of share in that category. So our goal is to obviously mitigate that through the replacement business, mitigate that through geographical expansion, as Mike highlighted in his comments.

And -- but nonetheless, it's probably going to moderate this year. And it will -- our objective is to mitigate that as much as possible. We still feel like we're outside of Q1.

We think we're going to drive good growth across our retail business. We plan to open a few -- like we said, we're going to grow our network. We have a couple of corporate stores planned to open this year in the back half of the year. We've got up to 5 franchisee locations that we're going to open. So all of that is going to help with top line growth.

Okay. And then maybe just one more for me. You talked about renovating the stores. Are you able to provide a bit more detail on the cost per store, maybe the payback period and how you're thinking about returns on those investments?

Yes. No, for sure. I mean, when we think about our renovations, we look at it as major, minor and sort of refreshes. And we've obviously got a couple of new stores like we said. So it all has to fit within our return framework.

We have pretty high hurdle rates, well above our cost of capital. So these are pretty high-returning projects. We're basing it on some of the comps that we've seen in our network, some of the recent renovations that we've seen where we've seen really good results and we're quite pleased. We're very selective.

As Mike said in his comments, we're pretty capital-light in our approach. The major renovations obviously cost more than the minor renovations and the refreshes.

But -- and then I'm going to add in their category level refreshes. So in some cases, we'll go into a store and refresh the furniture category or the mattress category and not do an entire refresh.

So it really depends on the store itself, the market, what we're seeing as an opportunity and it needs to fit within our return framework. And again, our hurdle rates are pretty high. I'll leave it at that.

Yes. I think the only thing I would add is that retailers have to consistently look at their stores, the refresh, concept renewal, payback. And I think one of the things coming out of the pandemic, we had 2 or 3 years where you weren't touching stores.

And so it's really difficult to try and catch that up in 1 year. And so over time, we want to be able to continue to refresh our stores and look at a go-forward and a go-back strategy, what's working in any new developments or any concept renewal and take that back to the broader groupings of stores. So it's just something retailers have to consistently look at and do.

There are no further questions at this time. This concludes today's conference call. Thank you for participating and have a pleasant day.

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. [Operator Instructions]

I would now like to turn the call over to Jonathan Ross, Investor Relations for LFL Group. Please go ahead.

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+ 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. 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, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted.

With that, I'll now turn the call over to Mike Walsh to discuss our third quarter results.

Good morning, everyone, and thank you for joining us. This is our first quarterly call, and we appreciate you being here. We're looking forward to using this format to provide more regular insight into our performance, our strategy and how we're thinking about the business going forward. So let's 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're seeing that play out in the numbers.

Even more importantly, we continue to translate our top line momentum into profitability growth. 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 advantaged 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's 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've narrowed the range, gone deeper in our best sellers and leaned into categories where we can offer real value. 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 represented the most effective opportunity to gain share.

Our performance in furniture is a 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 maintained our focus on maximizing every customer interaction. Both average transaction value and conversion rate 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.

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's 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. 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.

We evaluate every investment through the lens of a 4-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. 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.

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 same-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 multiunit 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're certainly seeing that across the market. Our team is actively working to increase our share of the replacement business where we're seeing good traction with property managers. But 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. 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.

SG&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 D.C. 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. Freight 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 in our regular dividend.

Annual maintenance CapEx is running in the range of approximately $35 million to $40 million annually, which supports our ability to continue generating strong free cash flow.

On the balance sheet, we ended the quarter with $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 the 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. 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.

Thanks, Victor. To wrap up, we're really pleased with how the business performed for the first 9 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 Instructions] Your first question comes from the line of Nevan Yochim with BMO Capital Markets.

Congratulations on a solid quarter and your first conference call. Hoping 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?

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. So 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 and is going to be around for after sales service.

The trend from the second and third quarter, we're seeing a lot of traffic going to our website and traffic being more like flattish going into the stores. So more qualified customers 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. And so we feel like we're well positioned going into the fourth quarter.

There's still some macro headwinds. You've got the coastal strike affected last year starting around November 15th. This year started near the end of September. So 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.

And 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? And then, how does that flow through the P&L? Is that solely a revenue impact or are there margin pressures there as well?

Great question. I don't think there's margin impact to it. But it's definitely very difficult to quantify what the impact is because last year we were having challenges with inventory position as well. So how much of it was a flyer impact, how much of it was the inventory impact. So really difficult to tell. And then as you pivot going to more ,of a digital way, how much of that did you get a pickup on. So really difficult to quantify the impact of the flyers. But for sure, there is an impact to all retailers, especially when you're a high-low retailer and the consumer is looking for the flyer. It definitely impacts the traffic that's coming to your stores.

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 1 week ago, does that imply you expect this tailwind to continue into the second half of next year?

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.

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

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‘re 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?

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.

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

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

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?

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

And 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 the release in Kelowna, and we're seeing a lot of good success with some of those renovations. So we're keeping a close eye on that and it's something that we'll look to do more of.

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 about 10,000 to 12,000 square feet of Leon store, and we're seeing some good success there. And because Appliance Canada is generally in Ontario, they've got a lot of commercial customers in the East and West. And so 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.

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

I would say we've done about 3 major renos year-to-date.

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

Just maybe on gross margin side. I 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?

Jim, thanks for the question for sure. We're very happy with the margin performance year-to-date. A function of 2 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. And 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. So 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. So 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.

But over the full year, we expect to hold on to some of those gains for sure. And 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.

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?

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-to-delivered.

So still going down that path and analyzing that and we may end up doing another test in the first or second quarter of '26. So 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. So stay tuned on that.

Okay. And then maybe just, Victor, you kind of mentioned the maintenance cap at $35 million. It looks like you're kind of tracking towards that for this year. It doesn't sound like next year will be much different given the lack of new stores, et cetera. Is that fair to say for 2026?

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

Your next question comes from the line of Ahmed Abdullha with National Bank Capital Markets.

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 4Q?

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. And two, we were hopeful that 1 year later, the Canada Post challenges would be behind us, right?

So that unfortunately has kind of been a storyline early into the quarter. Now we will comp being -- having a Canada Post strike later in the quarter but that's certainly going to be an impact there as well. So 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.

Okay. That's fair. And just -- I know you've mentioned the customer traffic and basket sizes and conversion rates have improved, but I would like just you to touch 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?

Yes. I think you would have seen sort of our furniture performance was really strong in the quarter. I think that's just really driven off of volume and just being really well positioned for value. I think we've got scale advantages there and we've done a really good job around focusing our assortment and being sharp on pricing and promo optimization. So 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. And then, 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. So it's a function of a bunch of different factors. 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.

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

Yes. Like I think -- it's a interesting question, Ahmed. Like as you think about 2026, right, we never go into a year thinking we're not going to grow. Our mindset is always to grow. But we do think about it more along the lines of a 3 to 5-year horizon, have we sustainably grown the business from a top line and bottom line perspective over that period. And 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. So that's something that we're being mindful of. And obviously, at this stage, we're probably going to comp some pretty strong furniture numbers as well. So it's another consideration. But do we believe going into the year we can drive growth? That's always our mindset. But of course, we have to be realistic around some of the considerations I just mentioned.

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

Great to hear from you guys in this format. So 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? And is the promotional activity being driven by any specific subset of competitors worth noting?

Yes. I mean it's a great question. Look, like we -- 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? And then -- and 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. So 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.

And then, 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.

So 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. And just given how our overall business is performing, we're kind of -- we're satisfied not doing that. And in some other cases, we've identified opportunities where we can better position ourselves moving forward. So I think it's a combination of those things, Ty.

Yes. And I think just to 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 a very fragmented -- the competitors are very fragmented. But definitely, we feel like we're winning share there.

Okay. Got it. Yes. I appreciate that color. And then shifting to the commercial business. So yes, 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. But 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?

Yes, 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. And 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 as well as Appliance Canada. And 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 out West and in the East. And we're feeling pretty strong that they can build on the commercial business as well.

So not sure if I can answer the question on timing, but definitely, we started this some time ago. And we think it will be soft in '26 and '27 and then building back up in '28. But definitely, we've been exploring options about how to compensate for any shortfall in the commercial business.

Okay. Got it. And maybe if I could just sneak in one more and kind of press you guys a little bit on capital allocation. So, 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. But given that the time line 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?

No, I appreciate the question. And yes, you kind of hit it on the nail, right? So 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. And when we say opportunistic, like we're actively exploring what that could mean for us. So 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. And then we go down the funnel around returning capital to shareholders. In Q2, we increased our dividend by 20%.

And we have these conversations with -- as a management team and with our Board all the time. And when we built that -- look, we're sitting on too much liquidity and there isn't something imminent. We're not afraid to return capital to shareholders. We've been very consistent with that strategy over many years. So it's 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.

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

Congrats on the first conference call. So maybe just continuing that conversation on M&A with the balance sheet in a really healthy spot. Can you maybe just provide an update on the criteria you're looking for and target?

Yes. 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 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. And again, we're very opportunistic. So 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.

Okay. Great. And then 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?

I -- Yes -- Not -- 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? So 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.

So, 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. But 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 just -- it's not going to be as high of an ROI relative to the flyer channel, because each channel has its kind of own unique ROI. So 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. So that's the dynamic that we're competing with.

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

Yes. I mean if you -- 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, et cetera, et cetera. So we're deepening some of those relationships with some of our partners and we continue to explore new partnerships. So 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.

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.