AVENTOS Equity Research Report No. 02/2026: Leon's Furniture

Leon’s has delivered consistently strong operating performance over many years, underpinned by steady earnings (see Figure A in the Appendix). Even during periods of economic stress, such as the global financial crisis in 2008 and more recently in 2025, when U.S. tariffs weighed on the Canadian economy and consumer confidence, the company maintained relatively stable earnings with limited volatility. Notably, earnings increased year-over-year in 2025. Despite this track record, Leon’s currently trades at a forward earnings multiple of approximately 11x, compared to the ~17x multiple paid by Fairfax Financial Holdings in October 2024 for Leon’s peer, Sleep Country. Based on our sum-of-the-parts analysis, we estimate the value of the operating business at ~C$1.6 billion, applying the median forward EBITDA multiple of 7.8x of the peer group.¹ The company reduced total financial debt from C$80 million to C$70 million (–12.5%) over the past year while increasing its cash position by approximately 35%, further strengthening balance sheet flexibility. In addition, the dividend was raised by approx. 16% in 2025 compared to 2024, highlighting management’s commitment to enhancing shareholder returns.

The company holds an estimated ~15% share of the Canadian furniture market, generating approximately C$2.6 billion in revenue in 2025 and operating 202 stores alongside 98 franchise locations. The group expanded its offerings and market share significantly after acquiring competitor „The Brick“ in 2013. Across various regions in Canada, it now provides a wide range of merchandise, including furniture, major appliances, and home electronics, via multiple banners and service offerings, including furniture insurances. The retail footprint spans across Canada, with a focus on core markets including Vancouver, Toronto and Montréal.

When “big box” warehouse retail was gaining market share, Leon’s early adoption of that layout and retail space growth strategy positioned them well ahead of the curve. Over subsequent market cycles, competition was gradually pushed out of the furniture business (e.g., Eaton’s, Sears, or Bad Boy Furniture) and moats magnified through natural selection. Meanwhile, across retail categories, mom-and-pop stores were struggling to keep up with larger store formats, especially today, as today’s customers are hard to catch since they hardly show any brand loyalty, and consumer tastes change in increasingly short cycles. The group knows how to capitalize on that market momentum by simultaneously continuing to invest heavily on their marketing spend. In various markets, Leon’s ranks first among top advertisers. Being a leader in the Canadian furniture market allows Leon’s to benefit from economies of scale and demonstrates its efficiency in deploying retained earnings. The company achieved a return on invested capital (ROIC, see Appendix for definition), of approximately 10% in 2025. ROIC has remained broadly stable at this level over the past three years and exceeds the weighted average cost of capital (WACC, defined in Appendix) of 6.7%², suggesting the company creates value for its shareholders.

1 The peer group includes Canadian Consumer Staples and Consumer Discretionary companies with market capitalizations between CAD 1.0 billion and CAD 5.0 billion, including: Premium Brands Holdings Corporation (TSX:PBH), Linamar Corporation (TSX:LNR), Spin Master Corp. (TSX:TOY), Maple Leaf Foods Inc. (TSX:MFI), The North West Company Inc. (TSX:NWC), Pet Valu Holdings Ltd. (TSX:PET), Canada Goose Holdings Inc. (TSX:GOOS), Jamieson Wellness Inc. (TSX:JWEL), Lassonde Industries Inc. (TSX:LAS.A).
2 Derived from an after-tax cost of debt of 3.6% and a cost of equity of 7.5% - calculated using the 3.4% yield on the Canadian 10-year government bond as the risk-free rate, Leon’s Furniture’s beta of 0.98 (Source: Yahoo Finance) and an equity risk premium of 4.2% sourced from Aswath Damodaran’s NYU Stern website.

In addition to their core business, Leon’s owns a portfolio of 50 properties, currently recorded at cost with a net book value of below C$300 million. The company owns around 470,000 square meters of well-located lettable area of which many properties also bring light industrial real estate attributes, given Leon’s warehouse retail acquisition history. Reported asset and land values reflect standard retail use cases, resulting in several owned land plots with significant unbuilt capacity. This creates substantial potential for large-scale densification in core locations. Leon’s has strengthened its in-house real estate capabilities with a strategic hire in the beginning of 2026. The addition to existing expertise is expected to enhance the company’s ability to optimise the value of its property portfolio for the core retail business and its shareholders, while also supporting the execution of ongoing and future development projects.

Vending their real estate assets into a REIT would unlock substantial hidden reserves. Leon’s disclosed plans of an IPO in 2023, with its execution contingent on the right market conditions. Assuming conservative market rent estimates and a weighted average cap rate of 6.9%³, we estimate that operating real estate values would be ~C$1.1 billion. Several assets exhibit typical light industrial characteristics, both in terms of physical structure (e.g., single-story warehouses with high-rack specifications) and location. This supports a credible third-use potential within the light industrial segment. Since 2020, driven by onshoring trends, light industrial has gained importance for domestic infrastructure and supply chain resilience.

An IPO of the real estate portfolio allows Leon’s to unlock value through the structural advantages of a Canadian REIT. By functioning as a flow-through vehicle, the REIT eliminates corporate-level taxation by distributing taxable income directly to unitholders. While taxation occurs at the investor level, this structure significantly increases the total distributable cash flow compared to a traditional corporate model.

Following the proven blueprints of Loblaw and Canadian Tire, Leon’s intends to retain a majority stake of >50% in the new entity. This ensures LFL Group remains the dominant beneficiary of the REIT’s tax-efficient distributions while maintaining strategic control.

3 This assessment is based on the current rent per square foot paid by Leon’s Furniture for the properties it leases; the weighted average is calculated based on the share of owned square footage across Canadian provinces; source: CBRE, Canadian Cap Rates & Investment Insights, Q4 2025.

Within Leon’s land portfolio, there are two specific land plots actively under review for rezoning. The company’s headquarters in North York, Toronto, sits on a treasury of unused land capacities. Clutched by highway 400 and 401, the property is right at the intersection of two of the country’s busiest arterial roads. Leon’s envisages a two-phased mixed-use development, with an initial phase focused on commercial uses under secured rezoning approval enabling broader use and increased density, while the residential component is to be implemented in a second phase through a joint venture that could deliver approximately 4,000 units.

A second development opportunity is located in Burlington, Ontario, where less than half of the site is currently occupied by leasable space. West end of Lake Ontario and close to Hamilton, Burlington sits in the middle of Toronto and Niagara Falls, a border town on the Canada-United States border. Dual zoning on that 32-acre site offers substantial development upside for various uses. The two projects are illustrated in Figure B in the Appendix.

Based on comparable development land transactions, we estimate that these two development projects could add approximately C$210 million in additional capitalizable value.