# The Brick



## Pano (Oct 16, 2012)

What's going on with the brick? I'm trying to figure out why it's dropping so much recently? 
They just issued a dividend. 
Is this a good buy?

Thanks


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## ddkay (Nov 20, 2010)

Probably has to do with the cooling RE market... retail stocks are high risk and very sensitive to downturns


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## HaroldCrump (Jun 10, 2009)

Stocks like The Brick and Leons are based on debt-fueled consumer spending.
Which in turn is based on the housing market and credit expansion.
None of which is looking good right now.

Just yesterday, the Canadian household debt-to-disposable income ratio was revised upwards to 160%.

If or when the Canadian conspicious consumption market corrects, these stocks will be like a house of cards.


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## jcgd (Oct 30, 2011)

HaroldCrump said:


> If or when the Canadian conspicious consumption market corrects, these stocks will be like a house of cards.


And the may be the time to buy in, right when everyone else thinks you are crazy.


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## PMREdmonton (Apr 6, 2009)

FWIW, Fabrice Taylor, an investment analyst who studies the Canadian small cap space pitched this one earlier this year on the basis of large amounts of FCF and decreasing levels of debt. He expected the cash flow generation to lead to a big dividend or a large stock buyback. The fact that they have not pursued those avenues and the fact that sales are now declining has turned him bearish on the company. He has now recommended his followers to sell their holdings.


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## HaroldCrump (Jun 10, 2009)

PMREdmonton said:


> He has now recommended his followers to sell their holdings.


Classic buy high sell low.
Nice recommendation by that analyst dude.


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## PMREdmonton (Apr 6, 2009)

HaroldCrump said:


> Classic buy high sell low.
> Nice recommendation by that analyst dude.


He has a fairly good track record in this space.

Sometimes it is good to cut your losses.

I do follow him but did not follow his advice on this one as was unconvinced that they would act in shareholder's interests. I am always leary of public companies that are majority owned by one family/person.

If real estate is weak, the Brick will be weak, too. They are probably sliding right now for a good reason.


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## jcgd (Oct 30, 2011)

If they can continue to do reasonably well through the housing bust and take advantage of the depressed share price that may result over the next few years they may be able to rebound well when our market gets going again. Who knows, it's a stock to watch over the next few years.


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## timelessfinance (Aug 24, 2012)

HaroldCrump hit this nail on the head. The Brick's 40%+ gross margin (see financial statements) is sustainable so long as people are dumb and have access to money. "A fool and his money" as it were. Now that home equity is beginning its brutal evaporation -- and evaporate it will -- companies like The Brick are in for a long dry spell. There are still plenty of fools, but they're going belly-up on their "genius" investments in dog-kennels-in-the-sky a.k.a. condos.

I do think, however, that when their sales people actually need to negotiate (rather than acting like Realtors and doing nothing all day but accept offers on their overpriced wares), their gross margin/profitability/dividend (in that order) will take a hit, but that The Brick will survive. It may be a few years, but they'll be back at it paying their dividend.


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## Pano (Oct 16, 2012)

Leons just bought them. How will this affect the stock price? 

I guess I'll find out tomorrow. This "marriage" should be positive no?


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## ddkay (Nov 20, 2010)

Obviously up, it says they paid C$5.40 per share so people will get at least that much. Congrats if you held it.


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## scomac (Aug 22, 2009)

Pano said:


> Leons just bought them. How will this affect the stock price?
> 
> I guess I'll find out tomorrow. This "marriage" should be positive no?


Not if you're a Leon's shareholder, IMO. They just bought an underperforming asset at a huge premium and then intend to let it continue to run independently with current management in place. ISTM that it is just wishful thinking on the part of the Leon family that their astute operational practices are just going to rub off by osmosis. This strikes me as a case of the current generation striving to make their mark as much as any enunciated objective. :rolleyes2:


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## jamesbe (May 8, 2010)

Whoa, it's at $3.50 and they bought for $5.40? Damn!


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## BullAllTheWay (Feb 29, 2012)

scomac said:


> Not if you're a Leon's shareholder, IMO. They just bought an underperforming asset at a huge premium and then intend to let it continue to run independently with current management in place. ISTM that it is just wishful thinking on the part of the Leon family that their astute operational practices are just going to rub off by osmosis. This strikes me as a case of the current generation striving to make their mark as much as any enunciated objective. :rolleyes2:


You obviously have not been following what was going on with The Brick the last few years. If you had, you would know that it has gone through a restructuration, paid down its debt and is now as profitable as its competitors, BMTC Group and Leon's.


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## timelessfinance (Aug 24, 2012)

Huge win for Brick shareholders who entered since 2009. Congrats!

Consolidation in this market, before the housing market slides, is a smart move. It does, however, seem like a big stretch for a company like Leon's ($800 mil market cap) to acquire a competitor for $700 mil. I can't say how this will play out for Leon's shareholders. A lack of competition will probably support their grotesque profit margins. For now. I'm not buying in.


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## PMREdmonton (Apr 6, 2009)

The Brick and Leon's are both decent companies but they are highly levered into indebted consumers and the housing market in Canada. Both of these segments look to be weak and who knows if the government isn't going to step in to attack their business model of do-not-pay and the silent ticking of the interest clock ready to explode if you can't pay it all off when the clock expires. Without those interest rates they are no cash cow.

It is also hard to see what operating efficiencies they'll eek out since they will run them as separate entities with severe overlap in business models but significant geographic differences. I'm not sure if they'll get better margins due to less competition or better pricing on inventory from more bulk ordering.


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## BullAllTheWay (Feb 29, 2012)

PMREdmonton said:


> The Brick and Leon's are both decent companies but they are highly levered into indebted consumers and the housing market in Canada. Both of these segments look to be weak and who knows if the government isn't going to step in to attack their business model of do-not-pay and the silent ticking of the interest clock ready to explode if you can't pay it all off when the clock expires. Without those interest rates they are no cash cow.
> 
> It is also hard to see what operating efficiencies they'll eek out since they will run them as separate entities with severe overlap in business models but significant geographic differences. I'm not sure if they'll get better margins due to less competition or better pricing on inventory from more bulk ordering.


They will probably operate much like their highly profitable competitor, BMTC Group, which operates two different banners, Brault & Martineau and Ameublement Tanguay. There will be a head office, where decisions regarding capital allocations and strategic initiatives will be taken. Each banner will have its own management, but they will get better pricing for their merchandise because of their higher volume. The company should also get better conditions to finance its line of credit.


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## scomac (Aug 22, 2009)

BullAllTheWay said:


> You obviously have not been following what was going on with The Brick the last few years. If you had, you would know that it has gone through a restructuration, paid down its debt and is now as profitable as its competitors, BMTC Group and Leon's.


And this is good for a Leon's shareholder how?


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## GoldStone (Mar 6, 2011)

BullAllTheWay said:


> They will probably operate much like their highly profitable competitor, BMTC Group, which operates two different banners, Brault & Martineau and Ameublement Tanguay.


I took a quick look at BMTC. Yes, they are more profitable than industry average. But, I don't see much growth. Dividend yield is low. Valuation is ok but not screamingly cheap. Why would I want to own them?


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## BullAllTheWay (Feb 29, 2012)

GoldStone said:


> I took a quick look at BMTC. Yes, they are more profitable than industry average. But, I don't see much growth. Dividend yield is low. Valuation is ok but not screamingly cheap. Why would I want to own them?


It's a difficult sector all across the board right now. Canadians hold too much debt.


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## BullAllTheWay (Feb 29, 2012)

@Scomac
They have bought a strong competitor at a reasonable price. Together, the two entities will generate a ton of cash flow. It won't be very long before the debt will be paid.


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## Pano (Oct 16, 2012)

Thanks for the responses. Decided to sell my holdings today. Maybe I'll go buy Tim Hortons layful:


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## scomac (Aug 22, 2009)

BullAllTheWay said:


> It's a difficult sector all across the board right now. Canadians hold too much debt.





BullAllTheWay said:


> @Scomac
> They have bought a strong competitor at a reasonable price. Together, the two entities will generate a ton of cash flow. It won't be very long before the debt will be paid.


The one does not cancel out the other. It brings into sharp focus the merits of such a deal at this time.

The Brick maybe a strong competitor in terms of market share, but they simply aren't up to Leon's operational efficiency. The Brick's net profit margin is still well below Leon's and they still carry far too much debt. As a shareholder I'm not particularly interested in buying any business where essentially all I'm getting is market share and someone else's debt especially when that business is so tied to consumer demand, the housing cycle and low interest rates. It's not cheap at any price when you consider that the housing market has already begun to roll over with the colapse in condo sales in over-heated markets like Toronto and Vancouver.


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## BullAllTheWay (Feb 29, 2012)

scomac said:


> The one does not cancel out the other. It brings into sharp focus the merits of such a deal at this time.
> 
> The Brick maybe a strong competitor in terms of market share, but they simply aren't up to Leon's operational efficiency. The Brick's net profit margin is still well below Leon's and they still carry far too much debt. As a shareholder I'm not particularly interested in buying any business where essentially all I'm getting is market share and someone else's debt especially when that business is so tied to consumer demand, the housing cycle and low interest rates. It's not cheap at any price when you consider that the housing market has already begun to roll over with the colapse in condo sales in over-heated markets like Toronto and Vancouver.


We will see in a few years if the move is good or not. I believe it is.


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## timelessfinance (Aug 24, 2012)

PMREdmonton said:


> It is also hard to see what operating efficiencies they'll eek out... I'm not sure if they'll get better margins due to less competition or better pricing on inventory from more bulk ordering.


Worse than this. The Brick did 1.344 billion in sales in 2011 and their gross margin was 56%. People who believe The Brick hasn't milked their offshore suppliers for every drop already, you are sorely mistaken. These companies have departments of pro-Buyers. Chinese companies have warehouses of backlogged furniture they can't push out. The purchasing efficiencies claim sounds like a red herring from management to encourage Leon's shareholders (not that they even need their votes).

The only benefit is if they operate under different banners and they both maintain their respective market shares without cannibalizing. The high prices from that type of (what essentially amounts to) collusion is bad for consumers in the short-run and invites competition in the long-run.



BullAllTheWay said:


> It's a difficult sector all across the board right now. Canadians hold too much debt.





scomac said:


> As a shareholder I'm not particularly interested in buying any business where essentially all I'm getting is market share and someone else's debt especially when that business is so tied to consumer demand, the housing cycle and low interest rates. It's not cheap at any price when you consider that the housing market has already begun to roll over with the colapse in condo sales in over-heated markets like Toronto and Vancouver.


The Bears are making much more convincing arguments than the Bulls on Leon's. Of course, the Bears on The Brick (like me) were wrong -- anybody who bought in since 09 has made an obscene profit. I'd take my money, count my blessings, and run.


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## HaroldCrump (Jun 10, 2009)

timelessfinance said:


> anybody who bought in since 09 has made an obscene profit.


And anyone who bought just prior to the 2009 low is _still_ underwater, even after the 62% premium.


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