This article first appeared on GuruFocus .
Release Date: November 06, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Gross profit margin remained essentially flat year over year at 44.52%, demonstrating strong margin management despite sales mix pressures.
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Appliances returned to growth, with sales up in both retail and commercial channels, driven by improved go-to-market strategies and assortment optimization.
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Mattress category grew for the third consecutive quarter, supported by new product launches and marketing initiatives.
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E-commerce sales increased, with online sessions growing strongly, as the digital platform effectively drives store traffic and conversion.
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Balance sheet remains strong with $622.5 million in unrestricted liquidity, providing flexibility for investments and shareholder returns.
Negative Points
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System-wide sales declined 0.8% and same-store sales fell 1.2%, reflecting continued consumer caution and pressure on large discretionary purchases.
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Furniture sales dropped 5.6% due to tough comparison against 11.2% growth last year and inventory delays from tightened shipping lanes.
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SG&A as a percentage of revenue increased 25 basis points to 35.76%, driven by higher last-mile delivery costs and fixed cost deleverage.
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Shipping delays continue into Q4, with spot rates about three times contract rates, potentially impacting inventory availability and sales during the holiday season.
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Normalized adjusted net income and EPS declined year over year, with normalized EPS at $0.61 versus $0.64 last year, indicating underlying earnings pressure.
Q & A Highlights
Q: Can you quantify the furniture sales held back by inventory delays in Q3 and how much you expect to recover in Q4? A: CFO Victor Diab said the best proxy is the year-over-year growth in customer deposits, of which approximately north of 50% was attributable to inventory delays, with the remainder from growth in written business and delivery timing.
Q: What is driving the inventory delays, and when do you expect supply chain normalization? A: CEO Mike Walsh said restrictions are lane by lane, citing Ho Chi Minh and other sourcing lanes, and that spot rates remain about three times contract rates. He noted some normalization, including being back in a good in-stock position on the Skechers furniture line launched in May last year, but said the company remains cautious about preserving its margin framework and will not bring in product unless it is on contract rates. Diab added the impact was multi-category, including appliances, though more pronounced in furniture.
Q: Were the inventory-related shortfalls lost sales or delayed into Q4? A: Diab acknowledged an opportunity cost from not having best sellers available to feature, but said the sales are timing-related rather than permanently lost. He noted furniture is still up 5% on a two-year stack basis and that the company has historically regained momentum when the right inventory and value proposition are in place, as seen in appliances and mattresses this year.
Q: When did the inventory situation improve, and how does it affect Q4? A: Diab said much of the inventory expected late in Q3 was received in October, leaving the company in a better position, though some Q4 receipts may slip into Q1. He expects the inventory delay impact in Q4 to be less meaningful than in Q3 but still present.
Q: What drove the commercial appliance rebound, and how does the project pipeline look? A: Walsh attributed the rebound to deliveries against projects whose pipelines began 18 to 24 months ago, early benefits from a competitor's exit expected to play out over the next 12 to 18 months, and the expansion of Appliance Canada into the Leon's store in Richmond, B.C., with more Western Canada locations under consideration. He also noted construction projects shifting between quarters.
Q: How are you approaching the Black Friday and holiday selling period? A: Walsh said the company will attack the period aggressively as a high-low retailer, with special buys and drop-in products to create in-store excitement, though promotional spend is not expected to increase over last year. He called November the make-or-break month for the quarter and said customers respond when big events offer value.
Q: Have you seen any change in consumer behavior since fuel prices and rates moved higher? A: Walsh said little has changed: premium customers are still spending, mid-price customers continue trading down, and pressure on large discretionary purchases persists, with the strain now prolonged into next year. Diab added there is correlation with macro conditions, noting consumer confidence improved as gas prices fell earlier in the year and weakened again as geopolitical conditions and fuel prices worsened.
Q: How does the rate cycle in Canada affect financing and written sales? A: Diab said higher rates will not impact this year due to a roughly 90-day lag with the financing partner, and that financing remains a strong lever the company pulled in Q3, with penetration up and helping average basket. He said any cost impact next year will be addressed in 2027 planning and offset in other ways.
Q: What is the outlook for the mattress category? A: Walsh said the company is aggressive in mattresses, with the Brick division launching a new Skechers-branded mattress and continued focus on marketing and assortment. He cited green shoots in the premium segment after addressing an assortment gap, supporting a third consecutive quarter of category growth.
Q: Can you clarify the Q4 cash flow items around the Edmonton distribution center? A: Diab said the sale of the former Brick head office and distribution center closed September 30, with $21.4 million received October 1, the same day the company paid approximately $42 million for the remaining half of its current distribution center, resulting in a net cash outflow. He also flagged higher working capital outflows in Q4 due to delayed inventory payments.
Q: Can the assortment playbook used in furniture and mattresses be applied to appliances? A: Walsh said yes, noting the company has begun shrinking the appliance assortment and going deeper on core products, while Leon's has pushed free installation and free haul-away. He said the goal across categories is better in-stock on best sellers and shorter time between written and delivered sales.
Q: What is the status of the centralized distribution test in Ontario? A: Diab said the test was paused this year as the company absorbed more commercial appliance inventory following a competitor's exit, requiring facilities to be reshuffled. He said the test will resume in 2027 and remains a key priority, with ongoing work on capacity needs as Ontario warehouses are vacated over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
