Transforming
lives through
sleep
2020 Annual Report
S L E E P C O U N T R Y C A N A D A H O L D I N G S I N C .
Letter from the Chair
Dear Fellow Shareholders,
This past year was marked by domestic and international uncertainty and hardship. We would like to open our Annual
Report with recognition of the difficulties experienced in 2020 and extend our thoughts to everyone affected by these
challenging times. Furthermore, we are grateful and would like to offer our sincere thanks to all essential frontline workers
for the hard work over the last year. We applaud their efforts and dedication.
At the start of the year, retailers were forced, if able, to make a quick pivot and
embrace a digital go-to-market strategy. Sleep Country Canada exercised
vigilance, agility, innovation and masterful responsiveness in the wake of
these challenges. This enabled the Company to achieve an exceptional year,
reporting our strongest growth, profitability and cash flow on record. In the
second quarter, the Board decided to suspend the dividend and the purchase
of any shares under the NCIB to preserve liquidity and financial resources in
response to the risks and uncertainties caused by the onset of COVID-19. In the
third quarter, we were pleased to reinstate both activities.
I am proud of the exceptional results that were delivered in 2020 across the
Company’s three brand banners, Sleep Country, Dormez-vous and Endy,
including 23.1% growth in Adjusted Basic Earnings per Share from $1.60 in 2019
to $1.97 in 2020. These results reflect the efforts of our outstanding Associates
and leadership team. Over the last several years, we have strategically added
layers onto our proven business model across infrastructure, channel, partnership, experience and brand. This year’s
results serve as a testament to the efficacy of our growth strategy in serving new customers and deepening relationships
with existing ones. With relentless focus on delivering exceptional customer experience, unmatched channel and product
innovation and passionate commitment to helping all Canadians achieve their best sleep as a pillar of health and
wellbeing, our strategy uniquely positions us for long-term, profitable growth in any market condition.
Looking forward, our top priorities remain providing safe environments for our customers and ensuring the health and
safety of our Associates, whilst focusing and executing against our strategic roadmap. As we build on the success of this
past year, we are confident that our powerful foundation, innovative service model and best-in-class leadership team
will drive continued market share growth, yield attractive returns and expand our leading role as Canada’s sleep retailer
of choice.
I would like to personally thank my fellow Board members. Their strategic leadership, passionate commitment and
constructive contributions during this tenuous period are greatly appreciated. I would also like to thank Douglas Bradley
for his 6 years of service as Chair of the Audit Committee, member of the Nominating and Corporate Governance
Committee and member of the Human Resources and Compensation Committee. Doug’s sound business acumen
provided valuable perspective and his contributions are greatly appreciated. I’m pleased to welcome Mandeep
Chawla, who joined us in August, as the incumbent Chair of the Audit Committee upon election at the 2021 AGM. The
Board remains resolute in its continued oversight and has full confidence in Sleep Country Canada’s ability to serve our
customers, support our Associates and communities and ensure long-term value for our Shareholders.
Thank you to our Shareholders for your continued support. We recognize and appreciate the trust you have placed in us.
Sleep well. Stay well.
Christine Magee
Sleep Country Canada Holdings Inc. | Annual Report 2020
2
Message from the CEO
To the Sleep Country Community,
Allow me to open this letter with gratitude. I have the privilege of working alongside our team of outstanding Associates
across our Sleep Country, Dormez-vous and Endy brands, whose dedication enabled our business to flourish in a year
of uncertainty and challenge. This team consistently provides our customers with world-class experiences, and I am
continuously impressed by their passion and commitment. I thank them for delivering exceptional service and results
this past year.
My thoughts continue to be with those impacted by the ongoing pandemic.
The Sleep Country family remains committed to providing a safe environment
for our Associates and customers while supporting our communities with
quality sleep solutions as an essential component of health and wellbeing.
I am gratified that, in this time of great need, Sleep Country donated $1.5
million in sleep essentials to over 70 community organizations and frontline
workers across the country, adding to the over 155,000 mattresses we
diverted from landfills through donation and recycling.
This year afforded us a valuable opportunity to reflect on what drives us
as an organization and the contribution we strive to make on society. Our
purpose of transforming lives by awakening Canadians to the power of sleep
has never been more important. In service of this purpose, we are proud to
chart our organization’s course against a clear vision of championing sleep
as the key to healthier, happier lives and helping every Canadian achieve
better tomorrows through better tonights. We strive to live our purpose every
day and are grateful to have helped over 700,000 Canadians improve their
lives through sleep last year.
In 2020, we realized tremendous value from past strategic investments and innovations. Over the last several years
we have added layers onto our business to anticipate, adapt and evolve with the customer of today and tomorrow,
culminating in a diversified and enhanced service model that spans infrastructure, channel, experience and brand. The
acquisition of Endy in 2018 and building robust eCommerce platforms for our Sleep Country and Dormez-vous brands
in 2019 have proven to be two of our most successful investments to date. These investments, among others, enabled
us to pivot to the digital marketplace with agility and achieve record results in a challenging year. I am proud that,
despite industry challenges, our business was well-prepared to succeed and grow due to our powerful service model,
exceptional team and prudent financial action.
Our purpose and strategy differentiate us from competitors and solidify our position as Canada’s leading omnichannel
sleep retailer. Coming off a record year, we are energized as we build on our foundation of success and drive
sustainable growth through our three strategic platforms:
1. World-class customer experience.
No matter the channel or touchpoint, we are committed to delivering an exceptional customer journey. In 2020, we
brought our Associates’ sleep expertise to the digital sphere with the launch of our Dreamline digital chat and phone
capability. This service reflects our promise to be where our customers need us and has resonated incredibly well with
new and loyal customers through over 100,000 interactions since launch.
2. Channel and product innovation.
Our goal is to be Canada’s singular sleep partner and gateway to the world’s best sleep assortment, achieved through
channel and product innovation. We have strategically built a fortified omnichannel ecosystem, including 281 stores
from coast-to-coast, robust eCommerce platforms and a wide-reaching marketplace partnership with Walmart.ca.
This channel innovation is complemented by our exclusive product partnerships with leading brands such as Malouf and
Purple Innovation – significant milestones achieved in 2020.
Sleep Country Canada Holdings Inc. | Annual Report 2020
3
3. Commitment to helping customers achieve their best sleep as a pillar of wellbeing.
Sleep Country is dedicated to supporting the wellbeing of all Canadians by championing sleep as an essential pillar of
physical, mental and emotional wellbeing. In 2020, we launched our Sleep Well. Stay Well. campaign to connect with
new and loyal customers as a partner on their wellness journeys. Moving forward, we remain committed to using our
unparalleled sleep expertise to help every Canadian achieve their best night’s sleep as an enabler of healthier and
happier lives.
There is no stronger proof point of the efficacy of our strategy than our business’ exceptional performance. This past
year was the best in Sleep Country’s 26-year history, with record growth, profitability and cash flow. Our revenue was
the highest-ever, increasing by 6.4% to $757.7 million, coupled by accelerated profitability including 10% growth in
Operating EBITDA to $171.5 million and 21.8% growth in Adjusted Net Income to $72.1 million. Further, our Adjusted Basic
Earnings per Share grew substantially by 23.1% from $1.60 in 2019 to $1.97 in 2020. These record results were achieved
despite our stores being closed for 19.8% of store operating days due to COVID-19 retail restrictions.
Our strategy is resonating with Canadians and driving tremendous results, with 21.4% of our 2020 sales derived through
digital platforms. Both digital sales and our growing store network contributed to strong sales growth in 2020 –
including a record-breaking 32.4% increase in same store sales in Q4. It is more evident than ever that our thoughtfully
developed ecosystem is defining how Canadians will choose to shop for sleep solutions for years to come.
Endy continues to lead as an innovator in the eCommerce space, delivering exceptional revenue and earnings growth
in 2020 and cementing its position as one of the country’s fastest-ever growing retail brands. The Endy team remains
focused on setting the gold standard in the eCommerce shopping experience. With more than 250,000 mattresses
sold since launch and an average 4.9/5-star rating based on 20,000 customer reviews, Endy has set itself apart as
Canada’s leader in the digital space. As part of one family, Endy complements Sleep Country and Dormez-vous in
providing an exceptional experience for every customer segment.
The impact of COVID-19 on the retail sector cannot be understated, and we know that retail has permanently changed.
The future requires brands to seamlessly serve customers across physical and digital touchpoints with opportunities to
explore, compare, trial and deliver on their terms. We have been working toward this horizon for years and showcased
our clear ability to succeed in this landscape over the last year. With our purpose as our north star, we are confident
that our business is uniquely positioned to thrive today and tomorrow.
Looking to the future, we are committed to delivering against our three strategic platforms in pursuit of sustainable,
profitable growth for our customers, Associates, communities and shareholders. As a purpose-driven company
dedicated to transforming lives through sleep, we look forward to a bright future with our leading family of brands.
Sleep well. Stay well.
Dave Friesema
Sleep Country Canada Holdings Inc. | Annual Report 2020
4
Purpose & Vision
Our Purpose is to
transform lives by
awakening Canadians
to the power of sleep.
Our Vision is to champion sleep
as the key to healthier, happier lives
and help everyone achieve
better tomorrows through better tonights.
Sleep Country Canada Holdings Inc. | Annual Report 2020
5
Canada’s Purpose-Driven
Leader in Sleep Retail
With our highly differentiated model of service, unmatched sleep ecosystem and expertise,
superior brand trust and commitment to customer experience, Sleep Country strives to
transform lives through sleep.
Leading omnichannel ecosystem
for customers to discover, learn, trial and purchase
seamlessly across physical and digital touchpoints.
Growing network of
281 stores
3 leading eCommerce
platforms
Growing network
of 281 stores
45
BC
37
AB
7
SK
7
MB
114
ON
61
QC
10
NS,PEI,
NB
Robust
Sleep Country
and
Dormez-vous
websites
Endy, Canada’s
premier online
mattress brand
and one of
Canada’s fastest-
ever growing
retail brands
sleepcountry.ca | dormezvous.com | endy.com
#1
Matress
retailer
31%
of National
Market Share
264
Stores
16
Distribution
centres
Elevated sleep expertise
Triple-digit
9
offered in stores and on
eCommerce
growth
Provinces
our Sleep Country and
Dormez-vous websites
via our Dreamline chat
2018
and phone service
Endy Acquisition in
(-. / (0*#")0(
o !
(
!"#$%&'(&)*$#"+(#,
(
69
New stores
since 2012
Exclusive assortment
16.2%
of the world’s leading
CAGR in
accesories
sleep brands and
revenue
since 2014
in-house innovation
position us as Canada’s
gateway to the world
of sleep. Recent brand
partnerships include:
Simba mattresses in stores
Unparalleled logistics and
stable supply chain ensure
a consistently best-in-class
experience
•
17 distribution centres
• White glove delivery
service from
coast-to-coast
Strong retail channel
partnerships
reaching broad and
complementary
customer segments
• Walmart Canada
Urban Barn
•
®
Sleep Country Canada Holdings Inc. | Annual Report 2020
6
2020 Highlights
•
•
Showcased agility and strength
of digital platforms – eCommerce
sales represented 21.4% of total
revenue
Expanded and enhanced
physical network with six new
stores and 19 renovations
• Demonstrated innovation by
bringing sleep expertise to
the digital sphere through the
Dreamline chat and phone
channel
•
Announced exclusive partnerships
with leading international sleep
brands Malouf and Purple
• Donated $1.5M in sleep products
to support local communities
during COVID-19 health crisis
•
•
•
Endy Mattress voted Product of
the Year 2020 for Mattress-in-
a-Box category by Product of
the Year Canada, and received
coveted Seal of Approval from
Parent Tested, Parent Approved™
Both Sleep Country and Endy
certified as a Great Place to
Work, with Sleep Country also
recognized as one of Canada’s
Best Workplaces for Retail &
Hospitality
Endy achieved an average 4.9/
5-star rating based on 20,000
customer reviews
•
•
•
•
•
Achieved highest revenue in
company history, increasing
by 6.4% to $757.7M despite
store closures for 19.8%1 of store
operating days
Increased adjusted net income
by 21.8% to $72.1M
Achieved best-ever diluted
adjusted earnings per share,
increasing by 22.6% to $1.95
Paid down $97.8M of the
Company’s debt on its senior
secured credit facility from
$175.1M in 2019 to $77.3M in 2020
Paused dividend payments in Q2
and Q3 to prudently maintain
financial flexibility amid COVID-19,
subsequently restored at $0.195
per share in Q4 2020
1 Operating Days are defined as the total
calendar days in the period less statutory
days on which the stores are closed.
Sleep Country Canada Holdings Inc. | Annual Report 2020
7
Growth Strategy
Building on our strong 2020 results, we are committed to living our purpose. We will
continue to execute against our strategic growth platforms to further expand our
leadership position and deliver sustainable value for our customers, shareholders,
Associates and communities.
1
2
3
World-class customer experience.
With relentless focus on the customer, we are committed
to delivering an exceptional and seamless journey across
all channels and touchpoints.
Channel and product innovation.
Our goal is to be Canada’s singular sleep partner
and gateway to the world’s best sleep assortment,
achieved through unwavering dedication to
channel and product innovation.
Commitment to helping customers achieve their
best sleep as a pillar of wellbeing.
We are dedicated to supporting the wellbeing
of all Canadians by championing sleep as an
essential pillar of physical, mental and emotional
wellbeing. With our sleep expertise, we strive to
help every Canadian achieve their best sleep in
pursuit of healthier and happier lives.
Sleep Country Canada Holdings Inc. | Annual Report 2020
8
Financial Highlights
Our record 2020 results demonstrate the efficacy of our strategy in delivering profitable,
long-term growth. These powerful results were achieved despite our stores being closed for
19.8% of store operating days due to COVID-19 retail restrictions.
712.4
20.7%
757.7
20.7%
Revenue
(C$ MILLI ONS)
ACCESSORY REVENUE
MATTRESS REVENUE
586.9
19.2%
523.8
19.7%
623.0
20.2%
80.3%
2016
80.8%
2017
79.8%
2018
79.3%
79.3%
2019
2020
1 Figures includes IFRS 16 impact
Gross Profit
(C$ MILLIONS)
Operating EBITDA
(C$ M ILLI ONS)
Gross Profit Margin
Operating
(% PERCENT)
EBITDA Margin
(% PERCENT)
17.0%
30.4%
105.8
189.5
17.0%
100.0
29.9%
16.2%
29.8%
85.0
175.3
151.4
1
1
22.6%
1
32.3%
171.5
1
244.5
21.9%
1
1
155.9
1
31.3%
223.3
1
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
1 Figures includes IFRS 16 impact
Total Sales Growth & Same Store Sales Growth
(% PERCENT)
33.5%
TOTAL SALES GROWTH
SAME STORE SALES GROWTH
15.9%
14.2%
16.5%
15.6%
8.9%
8.1%
10.4%
4.4%
4.2%
33.5%
5.1%
4.4%
0.2%
Q1’18
Q2’18
Q3’18
(2.7%)
Q4’18
(3.4%)
Q1’19
1.9%
Q2’19
0.5%
1.9%
Q3’19
Q4’19
1.9%
-0.9%
Q1’20
14.5%
32.4%
Q2’20*
Q3’20
Q4’20
*Due to non-reporting
Sleep Country Canada Holdings Inc. | Annual Report 2020
9
712.4
20.7%
757.7
20.7%
Revenue
(C$ MILLI ONS)
ACCESSORY REVENUE
MATTRESS REVENUE
523.8
19.7%
623.0
20.2%
586.9
19.2%
Operating EBITDA
(C$ M ILLI ONS)
Operating
EBITDA Margin
(% PERCENT)
17.0%
105.8
17.0%
100.0
16.2%
85.0
22.6%
171.5
1
1
21.9%
1
155.9
1
80.3%
2016
80.8%
2017
79.8%
2018
1 Figures includes IFRS 16 impact
79.3%
79.3%
2019
2020
2016
2017
2018
2019
2020
Adjusted Net Income
(C$ MILLI ONS)
72.1
Diluted Adjusted EPS
($ PER SHARE)
1.95
62.2
63.9
59.3
1.64
1.71
1.592
51.1
1.36
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
1 Figures includes IFRS 16 impact
2 Diluted EPS for fiscal 2019 was negatively impacted by additional items in 2019 that were not included in 2018 results. These items
negatively impacted diluted EPS by ($0.21) per share and related to the Endy acquisition and the adoption of IFRS 16.
Sleep Country Canada Holdings Inc. | Annual Report 2020
10
Environmental &
Social Responsibility
We remain committed to meaningfully and positively supporting our environment, our people
and our communities. As we strive to live our purpose of transforming lives through sleep, we
are honoured to donate quality sleep solutions to Canadian organizations in need. Further, we
are proud of our leading Mattress Recycling Program that diverts over 100,000 mattresses from
landfills every year through recycling.
Caring through
COVID
In response to COVID-19, we
assisted more than 70 non-
profit organizations and
hospitals by donating $1.5M
in sleep essentials to support
Canada’s most vulnerable
communities.
Additionally, through the Endy
Donation Project, we donated
mattresses and bedding that
helped transform hospital
call rooms to provide frontline
workers with moments of
comfort and rest when they
need it most.
Sleep Country Cares
From the very beginning, it has always been a privilege
to give back to the communities where we work and live.
Through the Sleep Country Cares Program, we are committed
to supporting local charities that focus on helping children
and families in need.
Bed Donation & Recycling Program
We are proud to be the only national sleep retailer offering
a comprehensive Mattress Recycling Program. In 2020, we
diverted over 155,000 mattresses and foundations from
landfills through our Bed Donation & Recycling Program –
equivalent to over 85 times the height of the CN Tower.
Since 2015, Sleep Country, Dormez-vous and Endy have
successfully donated 314,000 mattresses and foundations
to Canadians in need with a further 662,000 recycled and
diverted from landfill over the same timeframe.
Donation beneficiaries include Canadian Mental Health
Association, Covenant House, Welcome Collective, Dans la
Rue and Furniture Bank.
Reducing Environmental Impact
We are committed to mitigating our environmental footprint.
In 2020 we formed a Sustainability Leadership Team with a
focus on reducing environmental impact through Products,
Transportation, Buildings and Waste.
In 2020 the Endy Mattress obtained GREENGUARD Gold
certification for meeting rigorous and comprehensive standards
for low emissions of pollutants to ensure healthier indoor
environments.
Sleep Country Canada Holdings Inc. | Annual Report 2020
11
Management’s
Discussion
and Analysis
Sleep Country Canada Holdings Inc. | Annual Report 2020
12
The following Management’s Discussion and Analysis (“MD&A”) is prepared as of March 2, 2021 and is intended
to assist readers in understanding the financial performance and financial condition of Sleep Country Canada
Holdings Inc. (“SCC” or “Sleep Country” or the “Company”) for the year ended December 31, 2020 and should be
read in conjunction with the audited consolidated financial statements of SCC and the accompanying notes for the
years ended December 31, 2020 and December 31, 2019 and the related MD&A.
1 Basis of Presentation
All references in this MD&A to “Q4 2020” are to SCC’s quarter ended December 31, 2020, “Q4 2019” are to SCC’s
quarter ended December 31, 2019 and “Q4 2018” are to SCC’s quarter ended December 31, 2018. All references
in this MD&A to “2020” are to SCC’s fiscal year ended December 31, 2020, “2019” are to SCC’s fiscal year ended
December 31, 2019 and “2018” are to SCC’s fiscal year ended December 31, 2018.
The Company’s audited consolidated financial statements for fiscal years ended December 31, 2020 and December
31, 2019 and the accompanying notes have been prepared in accordance with the International Financial Reporting
Standards as issued by the International Accounting Standards Board (“IFRS”) using the accounting policies
described therein. All amounts are presented in thousands of Canadian dollars, except number of stores, per share
amounts or unless otherwise indicated.
The audited consolidated financial statements of SCC and the accompanying notes for year ended December 31,
2020 and this MD&A were reviewed by the Company’s Audit Committee. This MD&A was approved by the
Company’s Board of Directors (“The Board”) on March 2, 2021.
2 Forward-looking Information
This MD&A, including, in particular, the sections below entitled “Factors Affecting the Results of Operations”,
“Outlook”, “Liquidity and Capital Resources” and “Risk Factors”, contains forward-looking information and forward-
looking statements which reflect the current view of management with respect to the Company’s objectives, plans,
goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities.
Wherever used, the words “may”, “will”, “anticipate”, “intend”, “estimate”, “expect”, “plan”, “believe” and similar
expressions identify forward-looking information and forward-looking statements. Forward-looking information and
forward-looking statements should not be read as guarantees of future events, performance or results, and will not
necessarily be accurate indicators of whether, or the times at which, such events, performance or results will be
achieved. All of the information in this MD&A containing forward-looking information or forward-looking statements
is qualified by these cautionary statements.
Forward-looking information and forward-looking statements are based on information available to management at
the time they are made, underlying estimates, opinions and assumptions made by management and management’s
current good faith belief with respect to future strategies, prospects, events, performance and results, and are
subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties
include, but are not limited to, those described below under the sections “Risk Factors” and “Impact of COVID-19
Pandemic on the Company”, the impact of the novel coronavirus (“COVID-19”) pandemic, and those described in
the Company’s 2020 annual information form (the “AIF”) filed on March 2, 2021. A copy of the AIF can be accessed
under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at
www.sedar.com. Additional risks and uncertainties not presently known to the Company or that the Company
currently believes to be less significant may also adversely affect the Company.
13
In these unprecedented times, the Company believes that the COVID-19 pandemic creates a number of additional
risks and uncertainties for the Company's business, which could impact the results of operations going forward and
the forward-looking statements made herein. These include:
(a) a material reduction in revenue and/or profitability as a result of any of the following which may occur:
•
•
•
•
another partial or complete closure of the Company’s retail stores and/or distribution centres;
significant economic challenges that lead to financial constraints on customers;
decline in product demand causing the need to discount products to drive revenue; and
additional legislation, regulation and/or other government intervention measures impeding normal
operations.
(b) uncertainty associated with the costs and availability of resources required to provide the appropriate/required
levels of service to the Company’s customers including the availability and cost of training the Company’s sales,
warehouse, customer service and delivery associates;
(c) issues in the Company’s ability to offer certain products due to possible supply chain disruptions and/or another
partial or full closure of its retail stores and/or distribution centres;
(d) uncertainty associated with potential cost increases, delays and resource availability required to complete major
projects on time and on budget;
(e) the uncertainty around the shift in long-term consumer behaviour, such as increased online purchases compared
to retail store purchases, could have a material adverse effect on the Company’s business, operations, capital
resources and/or financial results of operations;
(f) the negative impact on debt and equity capital markets, including the ability to access capital at a reasonable
cost and the trading price of the Company’s securities, could impact the Company’s future capital raising efforts,
if required; and
(g) the uncertainty of the impact of the pandemic on the Company’s competitive landscape.
The duration and continued impact of the COVID-19 pandemic is unknown at this time. Any estimate of the length
and severity of these developments is therefore subject to significant uncertainty, and accordingly, estimates of the
extent to which the COVID-19 pandemic may, directly or indirectly, materially and adversely affect the Company’s
operations, financial results and condition in future periods are also subject to significant uncertainty.
SCC cautions that the list of risk factors and uncertainties described in this MD&A and the AIF is not exhaustive
and that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual
strategies, prospects, events, performance and results may vary significantly from those expected. There can be
no assurance that the actual strategies, prospects, results, performance, events or activities anticipated by the
Company will be realized or even if substantially realized, that they will have the expected consequences to, or
effects on, the Company. Readers are urged to consider the risks, uncertainties and assumptions carefully in
evaluating the forward-looking information and forward-looking statements and are cautioned not to place undue
reliance on such information and statements. SCC does not undertake to update any such forward-looking
information or forward-looking statements, whether as a result of new information, future events or otherwise, except
as required by applicable laws.
14
3 Overview
Sleep Country is Canada’s leading omnichannel specialty sleep retailer with a national brick-and-mortar footprint
and robust eCommerce platforms. Sleep Country operates under three retail banners (the “Banners”):
• “Sleep Country Canada™”, with omnichannel operations in Canada excluding Québec;
• “Dormez-vous?™”, with omnichannel operations in Québec; and
• “Endy™”, Canada’s leading online mattress-in-a-box retailer.
Sleep Country continues to grow its customer base and take greater market share across the country with new and
renovated stores, expanding eCommerce platforms, strategic partnerships, a growing product assortment and
targeted marketing. On December 31, 2020, Sleep Country had 281 stores (2019 - 276 stores) and 17 distribution
centres (2019 - 17 distribution centres) across Canada. Sleep Country’s stores are, on average, approximately
5,000 square feet and offer customers Canada’s largest selection of mattresses, both made in Canada and imported
from countries around the world, along with bases, metal frames and lifestyle bases. Sleep Country also sells a
wide assortment of complementary sleep related products (“Accessories”) which include pillows, pillowcases,
sheets, blankets, throws, duvets, duvet covers, mattress toppers, mattress protectors, pet beds, sleep essentials,
weighted blankets, headboards, footboards and platforms. Each store is staffed by the Company’s Sleep Experts
who are dedicated to supporting the health and wellbeing of Canadians by matching each customer to their best
night’s sleep. All the Company’s stores are corporate-owned thereby enabling it to develop and maintain a strong
culture resulting in a consistent and superior in-store and home delivery customer experience.
The Company continues to grow and optimize its eCommerce platforms through continued investment in the
Company’s Sleep Country, Dormez-vous? and Endy websites. In addition, the Company retails through the
Walmart.ca marketplace as the exclusive vendor of traditional mattresses. The Company continues to invest in
omnichannel capabilities to seamlessly link the physical and digital shopping experiences. These investments
enable the Company to evolve alongside the Canadian consumer and holistically serve the sleep needs of
Canadians across channels and brands.
Sleep Country Canada
Sleep Country Canada launched its concept in the Vancouver market with four stores in 1994 and has since
expanded across Canada. As at December 31, 2020, the Banner has 220 corporately owned stores and 14
distribution centres in British Columbia, Alberta, Manitoba, Saskatchewan, Ontario, Nova Scotia, New Brunswick
and Prince Edward Island. The Company’s regional footprint includes the following distribution centres: Victoria,
BC; Richmond, BC; Kelowna, BC; Calgary, AB; Edmonton, AB; Winnipeg, MB; Regina, SK; Brampton, ON; London,
ON; Ancaster, ON; Cobourg, ON; Ottawa, ON; Moncton, NB and Halifax, NS.
Dormez-vous?
In Quebec, Sleep Country operates under the “Dormez-vous?” Banner. Dormez-vous? launched its first store in
April 1994 and has continued to expand over the last 26 years. As of December 31, 2020, the Dormez-vous? Banner
has 61 stores with three distribution centres in Montréal and Québec City.
Endy
Launched in 2015, Endy is Canada’s leading mattress-in-a-box eCommerce retailer. The brand’s award-winning
Endy mattress-in-a-box is engineered to offer the perfect balance of comfort and support. Endy’s product
assortment includes The Endy Pillow, The Endy Sheets, The Endy Mattress Protector, The Endy Duvet, The Endy
Duvet Cover, The Endy Bed Frame and The Endy Weighted Blanket.
In December 2018, the Company acquired substantially all the operating assets of Endy, further strengthening its
position as Canada’s leading omnichannel specialty sleep retailer. The acquisition diversified the Company’s brand
portfolio and channel structure, added best-in-class eCommerce and digital marketing capabilities and positioned
the Company to expand its customer reach and meet the evolving sleep needs of Canadians.
15
4 Dividends and Share Purchases
Dividends:
In response to the risks and uncertainties caused by the COVID-19 pandemic since its onset in Q1 2020, the
Company temporarily suspended dividends with an intent to reinstate payments at a time and payment level
considered prudent by the Company's Board. The Company intended to reinstate the dividends at a future date
with the resumption of normal operating conditions and when the Board considered the risks and uncertainties
associated with COVID-19 to be unlikely to have a material ongoing impact. As at November 9, 2020, the Board
approved and restored the Company’s dividend. As the COVID-19 pandemic continues, the Company may
consider it advisable to reduce or suspend dividends in the future.
All dividends are designated as “eligible dividends” for Canadian tax purposes. The Board of the Company has
periodically declared dividends on the Company’s common shares as follows:
Date of declaration
Record date
Payment date
January 29, 2016
May 10, 2016
July 28, 2016
November 1, 2016
January 26, 2017
May 9, 2017
August 2, 2017
November 1, 2017
January 26, 2018
May 7, 2018
August 2, 2018
November 1, 2018
February 5, 2019
May 6, 2019
August 8, 2019
October 31, 2019
February 4, 2020
November 9, 2020
February 9, 2021
February 16, 2016
May 20, 2016
August 16, 2016
November 18, 2016
February 17, 2017
May 19, 2017
August 18, 2017
November 17, 2017
February 16, 2018
May 22, 2018
August 20, 2018
November 19, 2018
February 15, 2019
May 21, 2019
August 20, 2019
November 19, 2019
February 14, 2020
November 20, 2020
February 18, 2021
February 26, 2016
May 30, 2016
August 26, 2016
November 28, 2016
February 27, 2017
May 29, 2017
August 28, 2017
November 27, 2017
February 26, 2018
May 31, 2018
August 30, 2018
November, 29, 2018
February 26, 2019
May 31, 2019
August 29, 2019
November 29, 2019
February 25, 2020
November 30, 2020
February 26, 2021
Dividend declared
(per share)
$ 0.130
$ 0.130
$ 0.150
$ 0.150
$ 0.150
$ 0.165
$ 0.165
$ 0.165
$ 0.165
$ 0.185
$ 0.185
$ 0.185
$ 0.185
$ 0.195
$ 0.195
$ 0.195
$ 0.195
$ 0.195
$ 0.195
* As part of the Company’s business continuity measures due to the COVID-19 pandemic, the Company
suspended its Q2 2020 and Q3 2020 dividends.
*
16
Share Purchases:
On March 4, 2020, the Company received approval from the Toronto Stock Exchange (the "TSX") to commence a
Normal Course Issuer Bid ("NCIB") and purchase through the facilities of the TSX of up to 1,368,363 of the
Company’s common shares, representing approximately 4.8% of the public float as of February 29, 2020.
Purchases were permitted to commence through the TSX on March 9, 2020 and will conclude on the earlier of the
date on which purchases under the bid have been completed and March 8, 2021. In accordance with the rules and
by-laws of the TSX, the Company has been permitted to purchase up to a daily maximum of 28,010 Shares
(representing 25% of the average daily trading volume of the Shares on the TSX for the six months prior to
commencement of the NCIB), except where such purchases are made in accordance with the "block purchase"
exception under the applicable TSX rules and policies.
In Q2 2020, in response to the risks and uncertainties caused by the onset of the COVID-19 pandemic onset, the
Board suspended the purchase of any shares under the Company’s NCIB to preserve liquidity and financial
resources. As at November 9, 2020, the Board reinstated the option for the Company to purchase common shares
for cancellation under the NCIB. As at December 31, 2020, the Company had not purchased any shares under the
NCIB program for cancellation.
Subsequent to year end, the Company submitted a Notice of Intention to the TSX to pursue a NCIB. Pursuant to
the NCIB, the Company proposes to purchase through the facilities of the TSX, from time to time over the next 12
months, if considered advisable, up to a maximum of 928,933 common shares of the Company, being approximately
3.0% of its public float as of February 28, 2021. Purchases may commence through the TSX on March 9, 2021 and
will conclude on the earlier of the date on which purchases under the bid have been completed and March 8, 2022.
The Company may purchase up to a daily maximum of 30,661 shares (representing 25% of the average daily
trading volume of the Shares on the TSX for the six months prior to commencement of the NCIB), except where
such purchases are made in accordance with the "block purchase" exception under applicable TSX rules and
policies.
17
5 Factors Affecting the Results of Operations
Revenues
Revenues are derived primarily from the retail sales of mattresses, lifestyle bases and Accessories which are
recognized when the performance obligation is fulfilled. The performance obligation is deemed fulfilled when the
control of the products has transferred to the customer and there is no unfulfilled obligation that could affect the
customer’s acceptance of the products. Provisions for returns relating to the Company’s various customer
satisfaction programs are accrued based on historical experience. Revenue from the sale of third party warranties
is recognized based on the net amount of consideration retained after monies owed to the third party provider.
Building on the Company’s strong brands and market position, the Company plans to grow its Same Store Sales
(or “SSS”- see “Non-IFRS Measures”), which is inclusive of revenues from both existing stores and eCommerce
channels. The Company’s revenue growth initiatives also include:
continuing to add stores in both new and existing markets;
growing and optimizing its eCommerce platforms;
expanding its product assortment;
reaching more customers through targeted marketing; and
growing lifetime value with existing customers through serving more sleep needs and growing revenue
through strategic partnerships;
•
•
•
•
•
SCC’s revenue is impacted by competition from other retailers that sell similar products and by seasonal patterns.
SSS is primarily driven by:
•
•
•
•
changes in customer traffic across sales channels, including the Company’s eCommerce platforms, through
effective marketing, customer loyalty and word of mouth;
changes in the conversion rate of converting shoppers into buyers;
changes in the average transaction size; and
changes in economic conditions and consumer confidence.
The COVID-19 pandemic has had a significant economic impact in Canada and on the Company’s revenues. On
March 21 2020, in response to the pandemic, the Company decided to temporarily close all its retail store locations
and shift all business to its eCommerce platform to aid in curbing the spread of the virus through physical distancing.
Shortly thereafter, government authorities placed further restrictions mandating all non-essential businesses to
close their physical locations until further notice. In May 2020, as provincial and municipal governments eased
restrictions, the Company began reopening its network of stores beginning May 11, 2020. All of the Company’s
stores reopened and resumed operations by June 24, 2020.
In Fall 2020, as the number of verified COVID-19 cases grew significantly across Canada, municipal and provincial
governments increased restrictions to contain the spread of the virus. These restrictions included the closure of
non-essential services in certain locations across Canada. As a result, in November 2020, the Company was
required to temporarily close 16% of its retail stores. As restrictions continued to increase across Canada, 65% of
Company’s retail stores were closed as at December 31, 2020. The Company continues to operate curbside pickup,
delivery and eCommerce services in regions where permitted.
SSS is an operating metric reported in the Company’s MD&A. The initial extended temporary closure of the
Company’s retail stores in Spring 2020 resulted in the Company’s retail stores being closed for an average of 54%
of its normal operating days (see “Non-IFRS Measures”) in Q2 2020. The timing and partial temporary closure of
the Company’s stores in Q4 2020 did not have a material impact on delivered sales in Q4 2020 and consequently,
the Company will report Q4 SSS. The Company did not report Q2 2020 SSS and consequently, the annual SSS
will not be reported as it is not a representative measure of the Company’s performance.
For risks and uncertainties related to COVID-19, refer to the section “Forward-looking Information” in this MD&A.
18
Product Expansion Opportunities
One of the Company’s goals is to build market share of its Banners’ and to grow its revenue by strategically
continuing to expand its product assortment in the sleep ecosystem, including mattresses and Accessories
categories.
Over the last few years, the Company has continued to drive significant growth in Accessories through launching
exciting new products, brands and categories such as cushions, throws, duvets, pillows, headboards, sheets, silk
pillowcases, baby mattresses and pet beds. The Company will continue to expand its product assortment through
in-house innovations and strategic business partnerships with the world’s most innovative sleep brands.
In addition to Endy’s mattress-in-a-box, the Company developed Bloom™, a private label mattress-in-a-box brand.
The line has continued to expand and now consists of 5 mattresses at various price points offering customers
options for every room and every budget. The Bloom mattresses continue to be one of the most successful
mattress-in-a-box product offerings in Canada.
To further serve the growing mattress-in-the-box category, Sleep Country and Simba, a leading mattress-in-a-box
retailer based in the U.K., formed a partnership to exclusively sell the Simba Hybrid mattress-in-a-box in Canada.
The Simba Hybrid mattress-in-a-box was launched in Q1 2019 through both the Company’s eCommerce platforms
and retail store network.
In Q3 2020, the Company entered into an exclusive Canadian partnership with Malouf, a U.S. industry leader in
innovative bedding and furniture products, to sell Malouf's artisanal bedding and luxury sleep collection which
includes pillows, mattress protectors, sheets, designer headboards and travel accessories, through both the
Company’s eCommerce platforms and retail store network.
In October 2020, the Company announced its newest strategic partnership with Purple Innovation, LLC, a U.S.
mattress and bedding leader, that uses innovation and technology to create comfort solutions including the
renowned Purple® Mattress. This exclusive Canadian partnership further elevates Sleep Country’s extensive
premium sleep product assortment and will be available through both the Company’s eCommerce platforms and
retail store network.
In Q4 2020, in order to provide customers with a larger assortment of Accessories both in-stores and online, the
Company initiated drop ship programs with select vendors which enables the delivery of the product(s) directly from
our vendors to our customers. This capability allows Sleep Country to offer Canadians an increased assortment
without taking on inventory risk or logistics. The Company plans to strategically expand the drop ship program in
the next few quarters.
Given the uncertainty caused by the COVID-19 pandemic, the Company’s ability to source new products may be
negatively impacted, resulting in the deferral of new product launches. The availability of products and the
transportation of these products to the Company’s distribution centres could be impacted by border restrictions as
well as any closure of certain non-essential businesses. For risks and uncertainties related to COVID-19, refer to
the section entitled “Forward-looking Information” in this MD&A.
Online Expansion Opportunities
In Q4 2019, the Company launched its new Sleep Country and Dormez-vous? websites providing customers with
a best-in-class online experience. The new websites deliver an enhanced omnichannel experience and offer the
complete product assortment offered in the Company’s retail store network. Customers now have the flexibility to
shop when they want, how they want and where they want.
19
The sudden temporary closure of all the Company’s retail stores from March 2020, and subsequent re-openings
ranging from mid-May to late June 2020 in certain provinces, resulted in a shift of all our business to our eCommerce
platforms. The Company swiftly created an exclusive online Sleep Experts team to service new and loyal customers
through its eCommerce platforms. Customers are able to connect with online Sleep Experts to get live support
through a dedicated phone line and/or the Live Chat support available on the Company’s eCommerce platforms.
This capability enables the Company to offer its differentiated sleep expertise in the digital world.
Sleep Country serves as the exclusive partner for traditional mattresses (non-mattress-in-a-box) on the Walmart.ca
marketplace. In addition to mattresses, Sleep Country sells a variety of sleep accessories on the Walmart.ca
marketplace including pillows, pillowcases, sheets, weighted blankets, mattress protectors, mattress toppers,
platforms and pet beds. Walmart receives millions of unique visitors to its Canadian website every month and over
80 per cent of Canadian households shop at Walmart. In addition to mass exposure to a target customer segment,
this partnership diversifies the Company’s sales channels and further bolsters Sleep Country's omnichannel
offering.
Store Expansion Opportunities
SCC has the ability to add new stores in existing markets (in-fill stores), in satellite markets and in new markets. An
existing market or in-fill opportunity is a pre-existing built out region in which SCC already has an established store
presence serviced by one or more existing distribution centres. A satellite market is a new region that is adjacent
or close to a pre-existing built-out region, which benefits from advertising spill and is serviced logistically from the
nearby distribution centre. A new market is a brand new territory in which the Company did not previously operate,
requiring incremental advertising and distribution logistics.
The Company has successfully expanded every year since its inception in 1994. The capacity to expand its store
presence depends on SCC’s ability to choose new locations and new markets, to hire and train new associates for
its stores and distribution centres and, in the case of expansion into new markets, create top-of-mind brand
awareness for its Banners.
Stores in enclosed malls provide the Company with an unique opportunity to gain the attention of a captive audience,
shopping in these malls, while capitalizing on the decline of departmental stores in recent years. As at December
31, 2020, the Company had 12 mall stores in Canada.
SCC’s site selection strategy is focused on maximizing sales per store and per region throughout its store network.
Prior to identifying and ultimately selecting locations for new stores, the Company conducts extensive analysis
utilizing the following factors:
•
•
•
•
•
•
demographics including population density, household income and population growth rates;
store visibility and accessibility;
lease and advertising economics;
competitive dynamics;
overlap with existing stores and distribution footprint; and
potential cannibalization of existing stores.
In terms of regional expansion, once a target area has been determined, the Company focuses on ensuring SCC
can successfully incorporate its culture, vision and mission into the new region. To attain this goal, SCC starts by
ensuring its new core regional team is comprised of existing associates in leadership roles who are willing to
relocate. The experienced team is then supplemented with local hires, who receive extensive training including in
classroom, in store and throughout the Company (i.e. distribution centres, thereby learning SCC’s service model
and culture).
20
The following table summarizes SCC’s store count for each of the three-month periods and years ended December
31, 2020 and December 31, 2019.
Q4 Annual
2019
264
12
-
276
193
-
26
Number of stores, beginning of period
Stores newly opened
Stores closed
Number of stores, end of period
Number of stores in new store design, end of period
Stores relocated
Stores renovated
2019
275
1
-
276
-
-
5
2020
280
2
1
281
-
-
12
2020
276
6
1
281
220
2
19
In response to the COVID-19 pandemic and its associated uncertainties, the Company has limited its new store
openings. Refer to the section entitled “Outlook” for additional information and specific guidance on further capital
investments for fiscal 2021. For risks and uncertainties related to COVID-19, refer to the section “Forward-looking
Information” in this MD&A.
Enhanced Store Design
The Company continues to enhance and evaluate the design and layout of its stores to provide customers with the
optimal shopping experience. An enhanced store design was first introduced in certain existing stores in 2014. As
at December 31, 2020, there are 220 stores or 78% of the store network that feature the enhanced store design, of
which 72 are new stores, 138 are renovated stores and 10 are relocations of existing stores. Over time, the
Company intends to select additional stores to renovate to this new design. The Company will continue to feature
the enhanced design in all new stores opened.
In response to the COVID-19 pandemic and its associated uncertainties, the Company closely monitors and
evaluates the timing of its scheduled store renovations to its enhanced store design. Refer to section entitled
“Outlook” for additional information and specific guidance on further capital investments for fiscal 2021. For risks
and uncertainties related to COVID-19, refer to the section entitled “Forward-looking Information” in this MD&A.
Competition
The retail mattress and bedding industry is highly competitive and includes national and regional full-line furniture
retailers, departmental retailers, mass merchants, small regional specialty bedding retailers, online mattress-in-a-
box retailers and online marketplaces. In Canada, Sleep Country is the only specialty sleep retailer with a national
footprint and unparalleled eCommerce platforms. Management believes it can maintain and strengthen its leading
market position through its highly differentiated and elevated service and operating model that has been unrivalled
in execution over the last 26 years and serves as a significant barrier to entry. Management continues to add
strategic layers to this successful model across infrastructure, channel, partnership and experience, in order to
predict and serve Canadians’ sleep needs.
The COVID-19 pandemic may have an impact on the Company’s competitive landscape. For risks and uncertainties
related to COVID-19, refer to the section “Forward-looking Information” in this MD&A.
Supply Chain
The Company relies on third party manufacturers to obtain its merchandise. Merchandise is sourced domestically
in Canada as well as from countries around the world (U.S., China, Italy and Spain) and can be adversely impacted
by political, regulatory, economic and legal factors including duties, tariffs, sanctions, pandemics, currency
exchange rates along with other factors relating to foreign trade.
The COVID-19 pandemic may have an impact on the Company’s ability to source certain merchandise. For risks
and uncertainties related to COVID-19, refer to the section “Forward-looking Information” in this MD&A.
21
Seasonality
The retail mattresses industry is affected by seasonal conditions. SCC typically experiences higher sales and a
greater proportion of income during the third and fourth quarters due to a concentration of summer season holidays
in the third quarter and other seasonal factors. Sales have historically trended lower in the first quarter as consumers
tighten their budgets after the holiday season. The cold winter weather in many parts of the country during the first
quarter also tends to lower customers’ desire to shop. The average quarterly share of annual sales over the last
three fiscal years (2017 to 2019), excluding Endy, is as follows:
First quarter
Second quarter
Third quarter
Fourth quarter
Yearly total
21%
24%
30%
25%
100%
Due to the impact and uncertainties of the COVID-19 pandemic in Canada in 2020, the Company has not included
2020 in the above mentioned sales seasonality.
The uncertainty around the physical distancing measures and potential for another full or partial closures of the
Company’s stores may alter the typical seasonal impact. Additionally, the uncertainty around the impact of COVID-
19 on the overall economy leading to possible reductions and/or deferrals of purchases by the Company’s
customers may also have an impact on seasonality. For risks and uncertainties related to COVID-19, refer to the
section “Forward-looking Information” in this MD&A.
Gross Profit
Gross Profit is calculated from Revenues less Cost of sales. Gross Profit Margin is defined as Gross Profit divided
by Revenues.
Cost of sales includes product related costs - net of rebates, sales and distribution costs including compensation,
occupancy and depreciation costs. Rebates are driven by the volume of inventory purchased. As an additional
incentive, certain suppliers offer step-up thresholds for higher volume rebates. Rebates on inventories sold are
recorded as a reduction to cost of sales.
Gross Profit margin is affected by changes in the average unit selling price (“AUSP”), sales product mix and Cost
of sales.
The COVID-19 pandemic may have an impact on the Company’s ability to maintain its gross profit margin.
Pressures on AUSP and the Company’s ability to obtain its merchandise at its current pricing levels may be
negatively impacted by the COVID-19 pandemic. Additionally, the Company’s vendor rebate contracts may be
negatively impacted as certain milestones within the various vendor agreements may not be achieved if purchases
are materially impacted by past and possibly future store closures. For risks and uncertainties related to COVID-
19, refer to the section entitled “Forward-looking Information” in this MD&A.
22
6 Fourth Quarter and Annual Operational Highlights
(C$ thousands unless otherwise stated;
other than store count and earnings per
share)
2020
2019
Change
2020
2019
Change
Q4
Annual
Revenues
SSS(1)
Stores opened
Stores renovated/relocated
$
248,861
$ 186,490
33.4% $
32.4%
2
12
1.9%
1
5
757,699
N/A2
6
21
$ 712,372
6.4%
0.3%
12
26
Gross profit margin
33.0%
32.0%
32.3%
31.3%
Operating EBITDA(1)
Operating EBITDA margin %
53,848
41,310
30.4%
171,469
155,932
10.0%
21.6%
22.2%
22.6%
21.9%
Net income
Earnings per share - Basic
Earnings per share - Diluted
Adjusted Net Income(1)
Adjusted earnings per share - Basic(1)
Adjusted earnings per share - Diluted(1)
$
$
$
$
$
$
26,571
0.72
0.72
27,506
0.75
0.74
$ 14,027
0.38
$
$
0.38
$ 15,744
0.43
$
0.42
$
89.4% $
89.5% $
89.5% $
74.7% $
74.4% $
76.2% $
63,307
1.73
1.71
72,148
1.97
1.95
$ 55,460
1.50
$
$
1.49
$ 59,251
1.60
$
1.59
$
14.1%
15.3%
14.8%
21.8%
23.1%
22.6%
Notes:
(1) See the section titled “Non-IFRS Measures” for further details concerning how the Company calculates SSS, Operating
EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Earnings per Share (“EPS”) and for a reconciliation to
the most comparable IFRS measure.
(2) Please see the “Revenues” subsection of “Factors Affecting the Results of Operations” section of this MD&A.
Highlights of Results in Q4 2020
Q4 2020 compared to Q4 2019 - See “Non-IFRS Measures”.
• Revenues increased by $62.4 million or 33.4% mainly driven by a 32.4% increase in SSS, 2 new stores
and wrap stores;
eCommerce sales represented 20.1% of Revenues;
•
• Gross profit margin increased by 1.0% from 32.0% in Q4 2019 to 33.0% in Q4 2020;
• Operating EBITDA margin decreased by 0.6% from 22.2% in Q4 2019 to 21.6% in Q4 2020;
• Net income increased by $12.6 million from $14.0 million in Q4 2019 to $26.6 million in Q4 2020;
•
•
•
•
Basic EPS increased by $0.34 from $0.38 in Q4 2019 to $0.72 in Q4 2020;
Adjusted Net Income increased by $11.8 million from $15.7 million in Q4 2019 to $27.5 million in Q4 2020;
Basic Adjusted EPS increased by $0.32 from $0.43 in Q4 2019 to $0.75 in Q4 2020; and
As at December 31, 2020, the Company’s cash balance was $38.3 million with an additional $182.0 million
of liquidity available under the Company’s credit agreement.
23
Highlights of Results in 2020
2020 compared to 2019 - See “Non-IFRS Measures”.
• Revenues increased by $45.3 million or 6.4% mainly driven by an increase in SSS, 6 new stores and wrap
stores;
eCommerce sales represented 21.4% of Revenues;
•
• Gross profit margin increased by 1.0% from 31.3% in 2019 to 32.3% in 2020;
• Operating EBITDA margin increased by 0.7% from 21.9% in 2019 to 22.6% in 2020;
• Net income increased by $7.8 million from $55.5 million in 2019 to $63.3 million in 2020;
•
•
•
•
Basic EPS increased by $0.23 from $1.50 in 2019 to $1.73 in 2020;
Adjusted Net Income increased by $12.8 million from $59.3 million in 2019 to $72.1 million in 2020;
Basic Adjusted EPS increased by $0.37 from $1.60 in 2019 to $1.97 in 2020; and
As at December 31, 2020, the Company’s cash balance was $38.3 million with an additional $182.0 million
of liquidity available under the Company’s credit agreement.
24
Outlook
The Company believes that the COVID-19 pandemic will continue to have a significant impact on the Company’s
business in 2021 (refer to section entitled “Impact of COVID-19 Pandemic on the Company”). There remains a
significant degree of uncertainty due to the pandemic that may affect the operations and financial results of the
Company. The Company is continuing to closely monitor the impact of the pandemic on the business and making
appropriate adjustments to reflect the continuously evolving environment.
The Company continues to make significant investments to strengthen the Company’s omnichannel capabilities,
deepen relationships with new and loyal customers, expand its assortment of the world’s most innovative sleep
products and increase its leading market share. These investments support the Company’s long-term, profitable
growth strategy and reinforce its position as Canada’s foremost sleep retailer. Key initiatives planned for 2021
include the following:
•
•
•
•
•
•
continuing to invest in a new ERP system, which includes a new in-store point of sale system, supply chain
demand planning tool and warehouse management system. The ERP is scheduled to go-live nationally in
2021;
continuing to invest in digital infrastructure and omnichannel customer experience across the Sleep
Country, Dormez-vous? and Endy banners;
digital infrastructure includes growth and optimization of eCommerce platforms, expanding third-
party online marketplace channels, investing in customer relationship management tools and
investing in digital marketing capabilities;
enhanced omnichannel customer experience will be enabled through the new ERP system which
enhances the in-store experience and enables enhanced analytics to drive seamless customer
journeys across channels;
continuing to invest in the retail store network and elevated in-store customer experience;
opening a minimum of 6 new stores;
renovating 20 to 30 stores to feature the enhanced store design;
continuing to build brand awareness and champion sleep as a pillar of health and wellbeing while
implementing specific tactics including targeted advertising aimed at aggressively capturing more market
share;
increasing digital marketing spend to drive engagement across the marketing funnel and traffic to the
Company’s website and stores; and
continuing to expand the sleep product assortment through strategic partnerships and in-house innovation.
25
Selected Financial Information
The following table sets out selected IFRS and certain non-IFRS financial measures of SCC and should be read in
conjunction with the audited annual consolidated financial statements of SCC for 2020 and 2019.
(C$ thousands unless otherwise stated; other than
earnings per share)
Consolidated Income Statement
Revenues
Cost of sales
Gross profit
General and administrative expenses
Income before finance related expenses, interest income
and other expenses (income) and income taxes
Finance related expenses
Interest income and other expenses (income) - net
Net Income before provision for income taxes
Provision for Income taxes
Net income
EBITDA(1)
Operating EBITDA(1)
Operating EBITDA Margin
Adjusted Net Income(1)
Earnings per share - Basic
Earnings per share - Diluted
Adjusted earnings per share - Basic(1)
Adjusted earnings per share - Diluted(1)
Dividends declared per share
Q4
Annual
2020
2019
Change
2020
2019
Change
$ 248,861 $ 186,490
126,839
59,651
34,762
166,699
82,162
43,665
33.4% $
31.4%
37.7%
25.6%
757,699 $ 712,372
489,082
513,203
223,290
244,496
125,826
134,926
6.4%
4.9%
9.5%
7.2%
38,497
4,830
25
33,642
7,071
24,889
5,306
(102)
19,685
5,658
26,571 $ 14,027
52,847 $ 39,366
53,848 $ 41,310
21.6%
22.2%
27,506 $ 15,744
0.38
0.38
0.43
0.42
0.195
0.72 $
0.72 $
0.75 $
0.74 $
0.195 $
54.7%
(9.0%)
(124.5%)
70.9%
25.0%
89.4% $
34.2% $
30.4% $
74.7% $
89.5% $
89.5% $
74.4% $
76.2% $
0.0% $
97,464
109,570
21,149
25,363
(788)
200
77,103
84,007
20,700
21,643
63,307 $ 55,460
166,443 $ 151,914
171,469 $ 155,932
12.4%
19.9%
(125.4%)
9.0%
(4.4%)
14.1%
9.6%
10.0%
22.6%
21.9%
72,148 $ 59,251
1.50
1.49
1.60
1.59
0.770
1.73 $
1.71 $
1.97 $
1.95 $
0.390 $
21.8%
15.3%
14.8%
23.1%
22.6%
(49.4%)
$
$
$
$
$
$
$
$
$
Total assets
Long-term lease liabilities and long-term debt
31-Dec-20
$ 902,351
$ 345,575
31-Dec-19
917,052
446,196
$
$
Notes:
(1) See the section entitled “Non-IFRS Measures” for further details concerning how the Company calculates EBITDA, Operating EBITDA,
Adjusted Net Income and Basic and Diluted Adjusted EPS and for a reconciliation to the most comparable IFRS measure.
26
The following table sets out selected IFRS and certain non-IFRS financial measures of SCC and should be read in
conjunction with the audited annual consolidated financial statements of SCC for 2019 and 2018.
Q4
Annual
(C$ thousands unless otherwise stated; other than
earnings per share)
Consolidated Income Statement
Revenues
Cost of sales
Gross profit
General and administrative expenses
Income before finance related expenses, interest income
and other expenses (income) and income taxes
Finance related expenses
Interest income and other expenses (income) - net
Net Income before provision for income taxes
Provision for Income taxes
Net income
EBITDA(1)
Operating EBITDA(1)
Operating EBITDA Margin
Adjusted Net Income(1)
Earnings per share - Basic
Earnings per share - Diluted
Adjusted earnings per share - Basic(1)
Adjusted earnings per share - Diluted(1)
Dividends declared per share
2019(2)
2018
Change (3)
2019(2)
2018
Change (3)
$ 186,490 $ 160,104
112,669
47,435
27,199
126,839
59,651
34,762
16.5% $
12.6%
25.8%
27.8%
712,372 $ 622,977
442,615
489,082
180,362
223,290
93,760
125,826
14.3%
10.5%
23.8%
34.2%
24,889
5,306
(102)
19,685
5,658
20,236
1,287
-
18,949
5,636
14,027 $ 13,313
39,366 $ 24,300
41,310 $ 25,896
23.0%
312.3%
3.9%
0.4%
5.4% $
62.0% $
59.5% $
86,602
97,464
4,475
21,149
(89)
(788)
82,216
77,103
21,643
22,575
55,460 $ 59,641
151,914 $ 101,422
155,932 $ 105,775
12.5%
372.6%
785.4%
(6.2%)
(4.1%)
(7.0%)
49.8%
47.4%
22.2%
16.2%
21.9%
17.0%
15,744 $ 14,776
0.36
0.36
0.40
0.40
0.185
0.38 $
0.38 $
0.43 $
0.42 $
0.195 $
6.6% $
5.6% $
5.6% $
7.5% $
5.0% $
5.4% $
59,251 $ 63,861
1.61
1.59
1.72
1.71
0.720
1.50 $
1.49 $
1.60 $
1.59 $
0.770 $
(7.2%)
(6.8%)
(6.3%)
(7.0%)
(7.0%)
6.9%
$
$
$
$
$
$
$
$
$
Total assets
Long-term lease liabilities and long-term debt
31-Dec-19
$ 917,052
$ 446,196
31-Dec-18
602,106
170,036
$
$
Notes:
(1) See the section entitled “Non-IFRS Measures” for further details concerning how the Company calculates EBITDA, Operating EBITDA,
Adjusted Net Income and Basic and Diluted Adjusted EPS and for a reconciliation to the most comparable IFRS measure.
(2) On January 1, 2019, the Company adopted the accounting standard IFRS 16 - Leases and comparative figures have not been
restated. As a result, the financial results and the non-IFRS measures for Q4 2019 and 2019 have been impacted compared to Q4
2018 and 2018.
(3)
See the Q4 2019 MD&A for discussion related to performance analysis.
27
7 Fourth Quarter 2020 versus Fourth Quarter 2019
Revenues
Revenues increased by $62.4 million or 33.4% from $186.5 million in Q4 2019 to $248.9 million in Q4 2020. The
increase is primarily driven by a 32.4% increase in SSS, 2 new stores and wrap stores. In Q4 2020, eCommerce
sales were 20.1% of Revenues. See “Non-IFRS Measures”.
The increase in total revenues was comprised of an increase in mattresses and Accessories sales over Q4 2019.
(C$ millions unless otherwise stated)
Q4
Change (%)
34.6%
29.3%
33.4%
Change
$ 50.6
$ 11.8
$ 62.4
2019
$ 146.2
$ 40.3
$ 186.5
2020
$ 196.8
$ 52.1
$ 248.9
Mattresses
Accessories
Total
Gross profit
Gross profit was $82.2 million in Q4 2020 compared to $59.7 million in Q4 2019, representing an increase of $22.5
million. Gross profit margin increased by 1.0% from 32.0% for Q4 2019 to 33.0% for Q4 2020 primarily as a result
of the following:
•
•
•
•
•
inventory and other directly related expenses, net of volume rebates, increased as percentage of revenue
from 45.3% in Q4 2019 to 45.9% in Q4 2020. The increase was due to higher delivery costs and inventory
adjustments that were partially offset by a decrease in direct products costs – net of volume rebates;
sales and distribution compensation expenses increased as a percentage of revenue from 12.8% in Q4
2019 to 13.3% in Q4 2020. This increase was mainly attributable to COVID-19 related severance costs,
higher temporary wages and sales incentive expenses. This increase was partially offset by lower associate
benefits expenses and commissions costs due to the shift of revenue earned from the Company’s retail
stores to its eCommerce platforms;
other expenses increased as a percentage of revenue from 0.7% in Q4 2019 to 0.8% in Q4 2020 mainly
driven by personal protective equipment purchased as a result of the COVID-19 pandemic to ensure the
safety and comfort of the Company’s customers and associates;
store occupancy costs decreased as a percentage of revenue from 3.3% in Q4 2019 to 2.5% in Q4 2020
due to the Company leveraging on its occupancy costs; and
depreciation expenses decreased as a percentage of revenue from 5.8% in Q4 2019 to 4.4% in Q4 2020
due to the Company leveraging on its depreciation costs.
28
General and administrative (“G&A”) expenses
Total G&A expenses increased by $8.9 million or 25.6% from $34.8 million in Q4 2019 to $43.7 million in Q4 2020,
and, as a percentage of revenue, G&A expenses decreased from 18.6% of revenue in Q4 2019 to 17.5% of revenue
in Q4 2020.
(C$ millions unless otherwise stated)
Media and advertising expenses(1)
Salaries, wages and benefits(2)
Credit card and finance charges
Occupancy charges(3)
Professional fees
Telecommunication and information technology(4)
Mattress recycling and Donations
Depreciation and Amortization(5)
Other(6)
Total G&A expenses
2020
$ 18.2
9.9
5.1
2.0
1.3
2.3
0.9
3.3
0.7
$ 43.7
Notes:
% of
revenue
2019
% of
revenue
7.3% $ 13.5
7.0
4.0%
5.0
2.0%
1.2
0.8%
1.1
0.5%
1.7
0.9%
0.5
0.4%
3.6
1.3%
1.2
0.3%
17.5% $ 34.8
7.2% $
3.8%
2.7%
0.6%
0.6%
0.9%
0.3%
1.9%
0.6%
18.6% $
Q4
Change
4.7
2.9
0.1
0.8
0.2
0.6
0.4
(0.3)
(0.5)
8.9
(1) Media and advertising expenses increased by $4.7 million. This change was due to an increase in online and
newspaper advertising which was partially offset by a decrease in radio advertising and an increase in advertising
credits received in Q4 2020.
(2) Salaries, wages and benefits increased by $2.9 million mainly as a result of an increase in compensation expenses
incurred in the regular course of business including merit increases and the annual bonus compensation. This increase
was partially offset by decrease in share-based compensation and associate benefit expenses.
(3) Occupancy charges increased by $0.8 million mainly due to an increase in operating costs at the Company’s distribution
centres.
(4) Telecommunication and information technology increased by $0.6 million mainly due to increased software support.
(5) G&A depreciation expense decreased by $0.3 million mainly due to a decrease in intangible depreciation which was
partially offset by an increase in the IFRS 16 related depreciation on the Company’s leased warehouse and property
and equipment depreciation.
(6) Other expenses decreased by $0.5 million mainly due lower administrative expenses and lower meals, entertainment
and travel expenses.
EBITDA
EBITDA was $52.8 million for Q4 2020 compared to $39.4 million for Q4 2019, representing an increase of $13.4
million or 34.2%. The increase was primarily due to strong revenue growth in Q4 2020 combined with an improved
gross profit margin and partially offset by an increase in G&A expenses. See “Non-IFRS Measures”.
Operating EBITDA
Operating EBITDA was $53.8 million for Q4 2020 or 21.6% of revenue, compared to $41.3 million for Q4 2019, or
22.2% of revenue, representing an increase of $12.5 million or 30.4% mainly due to the increase in EBITDA and
the favorable impact from the adjustments related to the non-recurring ERP implementation and lower share-based
compensation expenses. See “Non-IFRS Measures”.
29
Finance related expenses
Finance related expenses decreased by $0.5 million from $5.3 million in Q4 2019 to $4.8 million in Q4 2020 mainly
due to the decrease in interest expenses on the senior secured credit facility.
Income taxes
Net income before income taxes in Q4 2020 increased by $13.9 million from $19.7 million in Q4 2019 to $33.6
million in Q4 2020 resulting in an increase to income taxes of $1.4 million.
The net change in income taxes was also impacted by a decrease in the Company’s effective tax rate from Q4 2019
to Q4 2020. The change in the Company’s effective tax rate is due to the change in the Company’s position in 2020
on the deductibility of LTIP expenses including prior year adjustments due to the application of this tax position to
prior year tax returns.
Net Income
Net Income for Q4 2020 increased by $12.6 million from $14.0 million in Q4 2019 to $26.6 million in Q4 2020 (Q4
2020 – $0.72 per share; Q4 2019 - $0.38 per share). This increase was mainly driven by the increase in EBITDA
and decrease in finance related expenses and partially offset by an increase in income taxes. See “Non-IFRS
Measures”.
Adjusted Net Income
Adjusted Net Income for Q4 2020 increased by $11.8 million or 74.7% from $15.7 million ($0.43 per share) in Q4
2019 to $27.5 million ($0.75 per share) in Q4 2020. See “Non-IFRS Measures”.
30
8 Annual Financial Results 2020 versus 2019
Revenues
Revenues increased by $45.3 million or 6.4% from $712.4 million in 2019 to $757.7 million in 2020 mainly driven
by an increase in SSS, 6 new stores and wrap stores. The increase in revenue was partially offset by the decrease
of in-store revenue during the temporary closure of the Company’s retail stores for an average of 19.8% of its normal
operating days in 2020 due to the COVID-19 pandemic. In 2020, eCommerce sales were 21.4% of Revenues. See
“Non-IFRS Measures”.
Annual
Change (%)
6.4%
6.4%
6.4%
(C$ millions unless otherwise stated)
Mattresses
Accessories
Total
Change
$ 35.9
$ 9.4
$ 45.3
2019
$ 564.7
$ 147.7
$ 712.4
2020
$ 600.6
$ 157.1
$ 757.7
Gross profit
Gross profit increased by $21.2 million from $223.3 million in 2019 to $244.5 million in 2020. Gross profit margin
increased by 1.0% from 31.3% for 2019 to 32.3% for 2020 primarily as a result of the following:
•
•
•
•
•
inventory and other directly related expenses, net of volume rebates, increased as a percentage of revenue
from 45.1% to 45.7%. The increased percentage was driven by higher delivery costs and inventory adjustments
which were partially offset by a decrease in direct product costs - net of volume rebates;
other expenses increased as a percentage of revenue from 0.6% in 2019 to 0.9% in 2020 mainly driven by
personal protective equipment purchased as a result of the COVID-pandemic to ensure the safety and comfort
of the Company’s customers and associates;
store occupancy costs were constant as a percentage of revenue at 3.3% in 2019 and 2020.
depreciation expenses decreased as a percentage of revenue from 6.0% in 2019 to 5.8% in 2020. This
decrease is due to the Company leveraging on its depreciation costs; and
sales and distribution compensation expenses decreased as a percentage of revenue from 13.7% in 2019 to
12.0% in 2020. This decrease was primarily attributable to lower commission costs due to the shift of revenue
earned from the Company’s retail stores to its eCommerce platforms. Government wage subsidies that the
Company qualified for under the Canada Emergency Wage Subsidy (“CEWS”) federal program also contributed
to the decrease as percentage of revenue.
31
General and administrative expenses
Total G&A expenses increased by $9.1 million, or 7.2%, from $125.8 million in 2019 to $134.9 million in 2020, and,
as a percentage of revenue, G&A expenses increased from 17.7% of revenue in 2019 to 17.8% of revenue in 2020.
Annual
(C$ millions unless otherwise stated)
Media and advertising expenses(1)
Salaries, wages and benefits(2)
Credit card and finance charges(3)
Occupancy charges(4)
Professional fees(5)
Telecommunication and information technology(6)
Mattress recycling and Donations(7)
Depreciation and Amortization(8)
Other
Total G&A expenses
Notes:
% of
2019 revenue
$
% of
2020 revenue
51.8
29.3
17.6
6.2
4.4
6.9
3.4
12.8
2.5
$ 134.9
6.8% $ 52.7
3.9% 24.8
2.3% 18.6
4.3
0.8%
2.3
0.6%
5.3
0.9%
0.5%
2.3
1.7% 11.8
3.7
0.3%
17.8% $ 125.8
Change
(0.9)
4.5
(1.0)
1.9
2.1
1.6
1.1
1.0
(1.2)
9.1
7.4%$
3.5%
2.6%
0.6%
0.3%
0.7%
0.3%
1.7%
0.5%
17.7%$
(1) Media and advertising expenses decreased by $0.9 million. This decrease was due to a reduction in advertising activity
in 2020. The Company decided to cancel or reduce certain advertising initiatives as a result of the temporary closure
of its stores for an average of 19.8% of its normal operating days in 2020 due to the pandemic. The Company
experienced a shift in its advertising spend from traditional, such as TV and newspaper, to digital channels.
(2) Salaries, wages and benefits increased by $4.5 million mainly as a result of an increase in compensation expenses
incurred in the regular course of business including merit increases, bonuses and share-based compensation. This
increase was partially offset by government wage subsidies that the Company qualified for under the CEWS program.
(3) Credit card and finance charges decreased by $1.0 million. These variable costs decreased mainly due to lower
financed sales in addition to lower financing rate charges.
(4) Occupancy charges increased by $1.9 million due to an increase in operating costs at the Company’s distribution
centres.
(5) Professional fees increased by $2.1 million mainly due to expenses related to the ERP implementation and the new
long term incentive plan for associates.
(6) Telecommunication and information technology increased by $1.6 million mainly due to increased software support
and licensing fees related to the new ERP. This increase was partially offset by a decrease in telephone expenses.
(7) Mattress recycling and donations expenses increased by $1.1 million mainly due to increased donations to provide
support to at-risk and vulnerable communities impacted by the pandemic.
(8) G&A depreciation expense increased by $1.0 million mainly due to an increase in property and equipment depreciation
in addition to IFRS 16 related depreciation on the Company’s leased warehouses. In addition, we saw an increase in
our intangible depreciation tied to the revamped eCommerce platform and Finance and Merchandising module of the
new ERP which was completed in Q4 2019.
(9) Other expenses decreased by $1.2 million mainly due lower administrative expenses and lower meals, entertainment
and travel expenses.
32
EBITDA
EBITDA was $166.4 million for 2020 compared to $151.9 million for 2019, representing an increase of $14.5 million
or 9.6%. The increase was primarily due to an increase in earned revenue aided by an improved gross profit margin
and offset by an increase in G&A expenses. See “Non-IFRS Measures”.
Operating EBITDA
Operating EBITDA was $171.5 million for 2020 or 22.6% of revenue, compared to $155.9 million for 2019, or 21.9%
of revenue, representing an increase of $15.6 million or 10.0%. This change is mainly due to the increase in
EBITDA, the favorable impact of adjustments related to higher share-based compensation and non-recurring ERP
implementation costs. See “Non-IFRS Measures”.
Finance related expenses
Finance related expenses increased by $4.3 million from $21.1 million in 2019 to $25.4 million in 2020 due to a
one-time $4.3 million adjustment on Endy’s contingent consideration liability in addition to the accretion expense
related to the Endy acquisition in December 2018. These increases are partially offset due to the decrease in
interest expenses on the senior secured credit facility.
Income taxes
Income taxes decreased by $0.9 million from $21.6 million in 2019 to $20.7 million in 2020. This decrease was
impacted by the change in the effective tax rate from 28.07% in 2019 to 24.64% in 2020. The decrease in the
Company’s effective tax rate is due to the change in the Company’s position in 2020 on the deductibility of LTIP
expenses including prior year adjustments due to the application of this tax position to prior year tax returns.
Net income
Net income for 2020 increased by $7.8 million from $55.5 million in 2019 compared to $63.3 million in 2020 (2020
- $1.73 per share; 2019 - $1.50 per share). This increase was mainly driven by the increase in EBITDA and decrease
in income tax expenses, partially offset by an increase in finance related expenses. See “Non-IFRS Measures”.
Adjusted Net Income
Adjusted Net Income in 2020 increased by $12.8 million or 21.8% from $59.3 million ($1.60 per share) in 2019 to
$72.1 million ($1.97 per share) in 2020. See “Non-IFRS Measures”.
33
34
10 Impact of COVID-19 Pandemic on the Company
As a result of the arrival of the COVID-19 pandemic in March 2020 to Canada, the Company enacted its business
continuity measures to support ongoing operations, liquidity and financial flexibility. The Company continued using
these measures throughout the remaining fiscal year as required. The primary focus of these measures were to
keep associates safe, to secure business continuity with suppliers and customers, to offer the government and the
community support and to maintain the Company’s long-term viability and shareholder value.
Some of the specific measures the Company undertook in response to the pandemic included:
1. Closing its retail stores on March 21, 2020 while its delivery and eCommerce services were permitted to
continue operations. Beginning May 11, 2020, as provincial and municipal restrictions eased, SCC began
to re-open its store network. All of the Company’s stores reopened and resumed operations by June 24,
2020.
In Fall 2020, as the number of verified COVID-19 cases grew significantly across Canada, closing its retail
stores in certain locations as required by municipal and provincial governments to contain the spread of the
virus. As a result, in November 2020, the Company was required to temporarily close 16% of its retail
stores. As restrictions continued to increase across Canada, temporary closures grew to 65% of our retail
stores as at December 31, 2020.
2.
The Company’s municipal and provincial mandated store closures are:
Regions
Manitoba
Toronto and Peel
York
Windsor -Essex
Hamilton
Quebec
North Bay – Parry
Sound
Remaining Ontario
Lockdown Start
Date
12-Nov-20
Stores Reopened
Date
23-Jan-21
23-Nov-20
14-Dec-20
14-Dec-20
21-Dec-20
25-Dec-20
26-Dec-20
26-Dec-20
TBD
22-Feb-21
10-Feb-21
16-Feb-21
8-Feb-21
TBD
16-Feb-21
# of Stores
7
38
13
2
6
61
1
54
3.
Implementing new safety protocols in its stores, offices and delivery services which include a contactless
delivery option;
4. Retaining its furloughed associates with reduced pay during the mandated temporary closure of its stores
5.
in Spring 2020, with the financial support provided by the CEWS federal government program;
In Fall 2020, during the mandated partial lockdown of its retail stores, putting the affected sales associates
on temporary leave without pay;
In Q1 2021, upon the reopening of the temporarily closed stores, the Company reinstated
employment to all associates on temporary leave;
6. Continuing to have open dialogues with key suppliers, landlords and partners;
7. Actively managing liquidity to be prudent and to ensure financial flexibility through various measures
including the following:
Securing an incremental $50 million accordion on its senior secured credit agreement;
Temporarily deferring 25% to 50% of the base salaries of the Company’s Named Executive Officers
(“NEO”), as defined in the Company’s Management Information Circular available on SEDAR,
which was reinstated by the Board on November 9, 2020 and subsequently paid in Q4 2020;
Temporarily deferring the Board’s remaining 2020 cash compensation which was reinstated by the
Board on November 9, 2020 and subsequently paid in Q4 2020;
35
•
•
•
•
•
• Cancelled dividend payments in Q2 2020 and Q3 2020. Dividends payments were restored by the
Board on November 9, 2020. Refer to section entitled “Dividends and Share Purchases” for
additional information; and
Temporarily suspending the purchase of shares under the Company’s NCIB program which was
reinstated by the Board on November 9, 2020. Refer to section entitled “Dividends and Share
Purchases” for additional information.
•
8. Continually evaluating and using available eligible government programs that are beneficial to the
Company. The Company qualified for wage subsidies under the CEWS government program from March
15, 2020 to July 4, 2020, which provided the Company with a 75% wage subsidy, on eligible remuneration
for eligible associates to a weekly maximum of $847.
9. Deferring certain capital expenditures and implementing certain cost-saving measures across the business.
Refer to section entitled “Liquidity and Capital Resources” for additional information.
The duration and continued impact of the COVID-19 pandemic is unknown at this time. Any estimate of the length
and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the
extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations, financial
results and condition in future periods are also subject to significant uncertainty. Refer to the section entitled
“Forward-looking information” for certain specific risks and uncertainties related to COVID-19.
11 Segment Performance
As at December 31, 2020, the Company manages its business on the basis of two operating segments, SCC and
Endy, which is consistent with the internal reporting provided to the chief operating decision-maker, the Chief
Executive Officer. The Company has only one reportable segment as the operating segments meet the aggregation
criteria of IFRS 8. The Company aggregates these reporting segments because the nature of products, services,
methods of distribution and economic characteristics are similar. The Company operates in Canada, which is its
country of domicile.
12 Liquidity and Capital Resources
Liquidity
SCC’s primary sources of cash consist of existing cash balances, operating activities and available credit facilities.
SCC’s primary uses of cash are to fund operating expenses, capital expenditures, finance costs, taxation expenses,
debt principal payments, dividends, business acquisitions and share repurchases. Given the uncertainty tied to the
pandemic, the Company is monitoring results closely and reacting in a prudent and timely manner to preserve
resources. Since March 2020, Sleep Country has been operating in an unprecedented environment due to the
COVID-19 pandemic. The Company took actions, considered prudent and in the best interests of the Company and
its shareholders, to manage its liquidity and ensure financial flexibility.
These measures include the following:
•
•
•
•
•
•
•
expanded the Company’s credit agreement with an incremental $50 million accordion;
the Company qualified for the wage subsidies under the CEWS government program from March 15, 2020
to July 4, 2020, which provided the Company with a 75% wage subsidy, on eligible remuneration for eligible
associates to a weekly maximum of $847;
temporary deferral of 25% to 50% of the NEO’s base salaries which was reinstated by the Board on
November 9, 2020 and subsequently paid in Q4 2020;
temporary deferral of the Board’s remaining 2020 cash compensation which was later reinstated by the
Board on November 9, 2020 and subsequently paid in Q4 2020;
cancelled dividend payments in Q2 2020 and Q3 2020. Dividends payments were restored by the Board
on November 9, 2020. Refer to section entitled “Dividends and Share Purchases” for additional information;
temporary suspension of the purchase of shares under the Company’s NCIB program which was reinstated
by the Board on November 9, 2020. Refer to section entitled “Dividends and Share Purchases” for additional
information; and
continuing to implement additional cost-saving measures across the business.
36
The Company believes cash generated from operations, together with cash on hand and amounts available under
SCC’s credit facilities in conjunction with the temporary liquidity measures described above will be sufficient to meet
its future cash requirements. However, SCC’s ability to fund future cash requirements will depend on its future
operating performance. This could be affected by general economic, financial and other factors including factors
beyond its control, such as the risks associated with the current COVID-19 pandemic, despite the risk management
strategies that the Company puts in place. See the section entitled “Risk Factors” in the AIF for a discussion of the
various risks and uncertainties that may affect the Company’s ability to fund its future cash requirements. For risks
and uncertainties related to COVID-19, refer to the section entitled “Forward-looking Information” in this MD&A.
The Company reviews new store openings, acquisitions and investment opportunities in the normal course of its
business and may, if suitable opportunities arise, realize these opportunities to meet SCC’s business strategy.
Historically, the funding for any such acquisitions or investments has come from cash flow generated from operating
activities and/or additional debt.
A summary of net cash flows by activities is presented below for 2020 and 2019:
(C$ thousands unless otherwise stated)
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided used in financing activities
Net increase (decrease) in cash
Cash at beginning of the year
Cash at end of the year
Net cash flows provided by operating activities
2020
173,700
(17,657)
(161,766)
$
(5,723)
44,040
38,317 $
$
$
2019
132,060
(35,449)
(82,559)
14,052
29,988
44,040
Net cash flows provided by operating activities in 2020 were $173.7 million comprised of the positive impact of cash
generated from operating activities of $145.3 million and cash generated of $28.4 million as a result of a decrease
in non-cash items relating to operating activities (“working capital”). The decrease in working capital in 2020 was
primarily driven by higher trade and other payables, lower trade and other receivables and higher customer
deposits, partially offset by higher inventories and higher prepaid expenses.
Net cash flows generated from operating activities in 2019 were $132.1 million comprised of the positive impact of
cash generated from operating activities of $136.9 million offset by $4.8 million of cash used as a result of an
increase in working capital. The increase in working capital in 2019 was primarily driven by higher trade and other
receivables, inventories and prepaid expenses and deposits, partially offset by higher trade and other payables and
customer deposits.
Net cash flows used in investing activities
Net cash flows used in investing activities in 2020 and 2019 consisted primarily of investments in capital expenditure
related to new store openings, store renovations, initial spend on the investment in the new ERP system and
eCommerce platform and on store hardware refresh.
Net cash flows used in by financing activities
Net cash flows used in financing activities were $161.8 million for 2020, consisting primarily of the repayment of the
net loan of $98.2 million in 2020 to the senior secured credit facility. Additionally, the increase also included
dividends on the common shares of $13.6 million, the repayment of lease obligations of $32.6 million and interest
payments of $17.4 million on lease liabilities and the senior secured credit facility.
Net cash flows used in financing activities were $82.6 million for 2019, consisting primarily of dividends on the
common shares of $29.2 million, repurchase of its common shares of $10.0 million, repayment of lease obligation
of $32.0 million and interest payments of $18.5 million on lease liabilities and the senior secured credit facility;
partially offset by net additional loan of $7.2 million taken in 2019 through the senior secured credit facility.
37
Contractual obligations
The following table summarizes the Company’s significant contractual obligations as at December 31, 2020 based
on undiscounted cash flow including the estimated interest payable as per the terms of the long-term debt:
Trade and other payables
Lease liabilities
Long-term debt
Within
1 year
Between 1
and 5 years
$
$
91,741
46,123
3,221
141,085
-
124,673
84,151
208,824
Over
5 years
$
-
47,557
-
47,557
The existing credit facility represents a senior secured credit facility with a balance outstanding, net of transaction
costs, as at December 31, 2020 of $77.3 million (December 31, 2019 - $175.1 million).
Executive employment agreements allow for total additional payments of approximately $6.3 million if a liquidity
event occurs, $4.2 million if all are terminated without cause, $nil if all are terminated with cause and $3.0 million if
all are terminated as a result of death.
All directors and/or officers of the Company, and each of its various subsidiary entities, are indemnified by the
Company for various items including, but not limited to, all costs to settle lawsuits or actions due to their association
with the Company, subject to certain restrictions. The Company has purchased directors’ and officers’ liability
insurance with maximum coverage of $10,000 to mitigate the cost of any potential future lawsuits or actions to the
directors and officers. The term of the indemnification is not explicitly defined, but is limited to events for the period
during which the indemnified party served as a director or officer of the Company. The maximum amount of any
potential future payment required to be made by the Company cannot be reasonably estimated but could have a
material adverse effect on the Company.
In the normal course of business, the Company has entered into agreements that include indemnities in favour of
third parties, such as purchase and sale agreements, confidentiality agreements, engagement letters with advisers
and consultants, leasing contracts, licence agreements, information technology agreements, and various product
and service agreements. These indemnification arrangements may require the Company to compensate
counterparties for losses incurred by the counterparties as a result of breaches in representations, covenants and
warranties provided by the Company or as a result of litigation or other third party claims or statutory sanctions that
may be suffered by the counterparties as a consequence of the relevant transaction. In some instances, the terms
of these indemnities are not explicitly defined. The Company, whenever possible, tries to limit this potential liability
within the particular agreement or contract; however, due to the unpredictability of future events, the maximum
amount of any potential reimbursement required to be made by the Company or its subsidiary entities cannot be
reasonably estimated, but could have a material adverse effect on the Company.
38
Capital Resources
Senior secured credit facility
On January 1, 2019, SCC held a senior secured credit facility of $210.0 million, which was scheduled to mature on
November 29, 2023.
On May 4, 2020, the Company secured additional liquidity to manage the impact of COVID-19 on the operations.
The senior secured credit agreement was amended to include an incremental $50.0 million accordion. Pursuant to
this amendment, the facility was increased from $210.0 million to $260.0 million. The maturity date was not extended
at this time. Under the terms of the senior secured credit facility, certain financial and non-financial covenants must
be complied with. The Company is in compliance with all covenants as at December 31, 2020.
The senior secured credit facility is secured by all of the present and after acquired personal property of SCC, SCCI
and Endy. As at December 31, 2020, the balance outstanding on the senior secured credit facility was $78.0 million
(2019 – $175.8 million). The long-term debt liability balance in the consolidated statements of financial position is
net of transaction costs of $0.7 million (2019 – $0.7 million).
The senior secured credit facility allows for the debt to be held in Canadian or US dollars. During the year, the
Company held the majority of the debt in US dollars for 313 days as the debt held in US dollars had a lower interest
rate. To mitigate the foreign exchange risk, the Company entered into forward foreign exchange contracts to sell
US dollars in the equal amount of the debt with an overall impact of $nil recorded in general and administrative
expenses in the consolidated statements of income and comprehensive income. As at December 31, 2020, the
debt is held in Canadian dollars and no forward foreign exchange contracts were outstanding. Interest on the senior
secured credit facility is based on the prime or bankers’ acceptance rates plus applicable margins based on the
achievement of certain targets, as defined by the amended and restated senior secured credit agreement. As at
December 31, 2020, the applicable margin for bankers’ acceptances was 295 basis points and the applicable
margin for prime rate loans was 195 basis points.
Off-balance sheet arrangements
SCC did not have any material off-balance sheet arrangements as at December 31, 2020 and December 31, 2019,
nor did it have any subsequent to December 31, 2020.
Related party transactions
As at December 31, 2020 and December 31, 2019, there were no balances due from or payable to a related party.
13 Transactions with Key Management Personnel
Key management personnel are those individuals having authority and responsibility for planning, directing and
controlling the activities of the Company, including members of the Company’s Board of Directors. The Company
considers key management to be the Board of Directors and its executive team. SCC incurred the following
compensation expenses in relation to key management personnel:
(C$ thousands unless otherwise stated)
Salaries and short-term associate benefits
Share-based compensation
Directors’ fees
$
$
2020
4,357
2,586
542
7,485
$
$
2019
2,868
2,542
578
5,988
39
14 Risk Factors
SCC’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and cash flow
and fair value interest risks), credit risk, liquidity risk, capital risk and technology risk. SCC’s overall risk management
program and business practices seek to minimize any potential adverse effects on SCC’s financial performance.
Risk management is carried out by the senior management team and is reviewed by SCC’s Board.
For an understanding of other potential risks, including non-financial risks, see the section entitled “Risk Factors” in
the AIF. For risks and uncertainties related to COVID-19, refer to the section entitled “Forward-looking information”
in this MD&A.
Market Risk
Market risk is the loss that may arise from changes in factors such as interest rates, foreign exchange rates and the
impact these factors may have on other counter-parties.
Foreign Exchange Risk
SCC’s operating results are reported in Canadian dollars. A portion of the Company’s merchandise purchases are
denominated in US dollars which results in foreign currency exposure related to fluctuations between the Canadian
and US dollars. The Company does not currently use foreign exchange options or forward contracts to hedge its
foreign currency risk relating to merchandise purchases. A sudden increase in the US dollar relative to the Canadian
dollar could result in higher costs to the Company, which could in turn result in increased prices and reduced sales,
decreased profit margins and could negatively impact the Company’s business and financial results.
The Company’s senior secured credit facility allows the Company to borrow in Canadian and US dollars. To mitigate
any foreign exchange risk related to its US dollar denominated debt, the Company enters into forward foreign
exchange contracts to sell US dollars in an amount equal to the principal amount of its US dollar denominated
borrowings.
Cash Flow and Fair Value Interest Risk
SCC has no significant interest-bearing assets. SCC’s income and operating cash flows are substantially
independent of changes in market interest rates.
SCC’s primary interest rate risk arises from long-term debt. SCC manages its exposure to changes in interest rates
by using a combination of fixed and variable rate debt and varying lengths of terms to achieve the desired proportion
of variable and fixed rate debt. An increase (or decrease) in interest rates by 1% would result in a $0.8 million
increase (or decrease) on the annual interest expense of the credit facility. SCC has leases that carry interest at
variable rates.
Credit Risk
Credit risk refers to the risk of losses due to failure of the Company’s customers or other counter-parties to meet
their payment obligations. Credit risk arises from deposits with banks, as well as credit exposures from mattress
vendors for the payment of volume and co-operative advertising rebate amounts and balances owed from third-
party financing companies under the various financing plans the Company offers its customers. In accordance with
SCC’s investment practice, all deposits are held at banks possessing a credit rating of AA- or better. Sales to retail
customers are settled in cash, financed by third-party financing companies or by using major credit cards. The
Company transfers the credit risk for financing plans to third-party financing companies. The third-party financing
company that SCC deals with carries a minimum rating of BBB or better.
There are no significant impaired receivables that have not been provided for in the allowance. There are no
amounts considered past due or impaired.
40
Liquidity Risk
Liquidity risk is the risk SCC will not be able to meet a demand for cash or fund its obligations as they come due. It
also includes the risk of not being able to liquidate assets in a timely manner at a reasonable price. Prudent liquidity
management implies maintaining sufficient cash and the availability of funding through an adequate amount of
committed credit facilities.
Capital Risk
SCC’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to
provide returns for its common shareholders in the form of cash dividends, benefits to other stakeholders and to
maintain an optimal capital structure to minimize the cost of capital.
In order to maintain or adjust the capital structure, SCC may issue new shares, purchase its own shares or sell
assets to reduce long-term debt.
Technology Risk
The Company continues to undertake investments in new IT systems to improve the operating effectiveness of the
organization. This includes the ongoing implementation of a new cloud based eCommerce platform, a new in-store
point of sale system, a new warehouse management system and a new ERP system. Failure to successfully migrate
from legacy systems to the new systems or a significant disruption in the Company’s current IT systems during the
implementation of the new systems could result in a lack of accurate data to enable management to effectively
manage day to day operations of the business or achieve its operational objectives, causing significant disruptions
to the business and potential financial losses.
15 Critical Accounting Estimates
A summary of significant accounting policies is included in Note 3 of SCC’s 2020 audited annual consolidated
financial statements. The Company’s critical accounting estimates are included in Note 4 of SCC’s 2020 audited
annual consolidated financial statements and are described below. Critical accounting estimates require the
Company to make certain judgements and estimates, which may differ from actual results. Accounting estimates
are based on historical experience and other factors that the Company believes to be reasonable under the time
frame and circumstances. Changes in the Company’s accounting estimates can have a material impact on the
financial results of the Company.
Impairment of goodwill and brands
The Company is required to use judgment in determining the appropriate groupings of CGUs, in order to determine
the level at which goodwill and intangible assets are tested for impairment. In addition, judgment is used to
determine whether a triggering event has occurred requiring an impairment test to be completed.
In determining the recoverable amount of a CGU, various estimates are employed. The Company determines the
higher of its fair value less costs of disposal and its value in use, using estimates such as projected future sales,
earnings, capital investments and discount rates. Projected future sales and earnings are consistent with strategic
plans provided to the Company’s Board of Directors. Discount rates are based on an estimate of the Company’s
weighted average cost of capital taking into account external industry information reflecting the risk associated with
the specific cash flows. As at December 31, 2020 and December 31, 2019, impairment reviews were performed by
comparing the carrying value with the recoverable amount of the CGU to which goodwill and brands have been
allocated. The Company has determined there has been no impairment as at both of those dates.
16 Financial Instruments
At December 31, 2020, the financial instruments consisted of cash, trade and other receivables, trade and other
payables, customer deposits, the Company’s senior secured credit facility, contingent consideration liability and
lease liabilities.
41
The carrying values of cash, trade and other receivables, trade and other payables and customer deposits
approximate their fair values due to the relatively short periods to maturity of these financial instruments. The
carrying value of the senior secured credit facility approximates its fair value as the terms and conditions of the
borrowing arrangements are comparable to market terms and conditions as at December 31, 2020 and December
31, 2019. The Company’s financial instruments are exposed to certain financial risks, including currency risk,
interest rate risk, credit risk and liquidity risk, which are discussed above under the section “Risk Factors”.
As at December 31, 2020, the end of the contingent consideration period, the fair value of the contingent
consideration liability is $25.0 million (2019 - $17.5 million).
17 Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that material information relating
to the Company is made known to the Chief Executive Officer and the Chief Financial Officer (the “Certifying
Officers”) by others on a timely basis so that appropriate decisions can be made regarding public disclosure within
the time periods required by applicable securities laws. The Certifying Officers are responsible for establishing and
maintaining the Company’s disclosure controls and procedures.
The Company’s system of disclosure controls and procedures includes, but is not limited to, the Company’s
Disclosure Policy, the Company’s Code of Business Conduct, the effective functioning of the Company’s Disclosure
Committee, procedures in place to systematically identify matters warranting consideration of disclosure by the
Disclosure Committee, verification processes for individual financial and non-financial metrics and information
contained in annual and interim filings, including the consolidated financial statements, MD&As, AIF, Management
Information Circular and other documents and external communications.
Based on an evaluation of the Company’s disclosure control and procedures, the Certifying Officers have concluded
that these controls are appropriately designed and were operating effectively as of December 31, 2020. Although
the Company’s disclosure controls and procedures were operating effectively as of December 31, 2020, there can
be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons
within the Company to disclose material information otherwise required to be set forth in the Company’s regulatory
filings.
18 Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining appropriate internal controls over financial reporting
(“ICFR”). The
Company’s ICFR include, but are not limited to, Entity Level Controls, Information Technology General Controls,
Information
Technology Application and Development Controls, detailed policies and procedures related to financial accounting
and reporting and
controls over systems that process and summarize transactions. The Company’s procedures for financial reporting
also include the
active involvement of qualified financial professionals, senior management, executive management and the Audit
Committee.
ICFR is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and
the preparation of financial statements in accordance with IFRS. In designing ICFR, it should be recognized that
due to inherent limitations, any controls, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives and cannot provide absolute assurance with respect to the
prevention or detection of misstatements. Additionally, management is required to use judgment in evaluating ICFR.
Management is also responsible for establishing and maintaining a system of disclosure controls and procedures
to provide reasonable assurance that all material information relating to the Company and its subsidiary is gathered
and reported to senior management on a timely basis so that appropriate decisions can be made regarding public
disclosure.
42
The Company’s ICFR includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
A “material weakness” in internal controls over financial reporting is a deficiency, or a combination of deficiencies,
in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement
of a company’s annual or interim financial statements will not be prevented or detected in a timely basis by the
company’s internal controls. The Certifying Officers have evaluated the effectiveness of the Company’s ICFR as at
December 31, 2020 using the framework established in ‘Internal Control - Integrated Framework (COSO
Framework)’ published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO),
2013. Based on that evaluation, the Certifying Officers concluded that the ICFR, as defined by National Instrument
52-109 – Certification of Disclosure on Issuers’ Annual and Interim Filings, are appropriately designed and were
operating effectively as at December 31, 2020 and that no material weaknesses were identified through their
evaluation.
19 Current and Future Accounting Standards
A summary of the Company’s significant accounting policies is included in Note 3 of SCC’s 2020 audited annual
consolidated financial statements.
IFRS 3 - Business combinations
On January 1, 2020, the Company adopted the amended IFRS 3 – Business Combinations accounting standard.
The standard was amended to revise the definition of what constitutes a business, asserting that an existing value-
add process along with an input, with the ability to contribute to the creation of an output determines the existence
of a business as opposed to just an integrated set of activities and inputs. There are no significant adjustments to
the amounts recognized in the consolidated financial statements as a result of this standard.
IAS 1 – Presentation of Financial Statements and IAS 8 – Accounting Policies, Changes in Accounting Estimates
and Errors
Effective January 1, 2020, the Company adopted the amendments to IAS 1 – Presentation of Financial Statements
and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors pertaining to the definition of the
word material which now indicates that information omitted, misstated or obscured which could reasonably be
expected to influence the decisions of the primary users of the financial statements, given that the decisions are
made on the basis of the financial statements. There are no significant adjustments to the amounts recognized in
the consolidated financial statements based on this standard.
20 Outstanding Share Data
As of the date hereof, 36,700,764 common shares and no Class A common shares of the Company are issued and
outstanding. As of the date hereof, 1,204,419 stock options to purchase an equivalent number of common shares,
225,118 performance share units, 51,046 restricted share units and 60,183 deferred share units are issued and
outstanding. For further details concerning the rights, privileges and restrictions attached to the common shares
and the Class A common shares, please refer to the section entitled “Description of Share Capital” in the AIF.
21 Non-IFRS Measures
The Company prepares its consolidated financial statements in accordance with IFRS. In order to provide additional
insight into the business, to provide investors with supplemental measures of its operating performance and to
43
highlight trends in its business that may not otherwise be apparent when relying solely on IFRS financial measures,
the Company has also provided in this MD&A certain non-IFRS measures, including “Same Store Sales” or “SSS”,
“Operating Days”, “EBITDA”, “Operating EBITDA”, “Operating EBITDA Margin”, “Adjusted Net Income” and “Basic
and Diluted Adjusted EPS” each as defined below. These measures are provided as additional information to
complement IFRS measures by providing further understanding of the Company’s results of operations from
management’s perspective. Management also uses non-IFRS measures in order to facilitate operating performance
comparisons from period to period, to prepare annual operating budgets and forecasts and to determine
components of management compensation. The Company also believes that securities analysts, investors and
other interested parties frequently use non-IFRS measures in the evaluation of issuers.
Readers are cautioned that these non-IFRS measures are not recognized under IFRS and do not have a
standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similarly titled measures
presented by other publicly traded companies. Accordingly, they should not be considered in isolation nor as a
substitute for analysis of the Company’s financial information reported under IFRS. See below for further details
concerning how the Company calculates these non-IFRS measures and for reconciliations to the most comparable
IFRS measures.
Same Store Sales (SSS)
SSS is a non-IFRS measure used in the retail industry to compare sales derived from established stores over a
certain period compared to the same period in the prior year. The Company has embarked on an omnichannel
approach to engaging with customers. This approach allows customers to shop online for home delivery or purchase
in any store locations. Due to the customer cross-channel behavior, the Company reports a single comparable sales
metrics, inclusive of store and eCommerce channels. SSS calculation excludes sales of excess inventory to third
parties. SSS helps to explain what portion of revenue growth can be attributed to growth in established stores and
eCommerce sales and what portion can be attributed to the opening of new stores. SCC calculates SSS as the
percentage increase or decrease in sales of stores opened for at least 12 complete months relative to the same
period in the prior year.
Due to the initial temporary closure of the Company’s retail stores in Spring 2020, the Company did not report Q2
2020 SSS, and consequently the annual SSS, as it was not representative of the Company’s performance.
EBITDA and Operating EBITDA
EBITDA and Operating EBITDA are used by SCC to assess its operating performance.
EBITDA is defined as net income adjusted for:
•
•
•
•
finance related expenses;
income taxes;
depreciation and amortization; and
interest and other expenses (income) – net.
Operating EBITDA is defined as EBITDA adjusted for:
•
•
ERP implementation expenses; and
share-based compensation.
44
Adjusted Net Income
Adjusted Net Income is used by SCC to assess its operating performance. Adjusted Net Income is defined as Net
income adjusted for:
•
•
•
ERP implementation expenses;
Endy one-time adjustment to contingent consideration; and
share-based compensation.
Adjusted EPS - Basic
Adjusted EPS - Basic is defined as Adjusted Net Income attributable to the common shareholders of the Company
divided by weighted average number of shares issued and outstanding during the period.
Adjusted EPS – Diluted
Adjusted EPS – Diluted is defined as Adjusted Net Income attributable to the common shareholders of the Company
divided by weighted average number of shares issued and outstanding during the period adjusted for the effects of
dilutive stock options, Performance share units, Restricted share units and Deferred share units.
Operating Days
Operating Days are defined as the total calendar days in the period less statutory days on which the stores are
closed.
45
Calculation of Non-IFRS Measures
(C$ thousands unless otherwise stated, except earnings per share)
Reconciliation of net income to EBITDA and Operating
EBITDA:
Net income
Interest income and other expenses (income) - net
Finance related expenses
Income taxes
Depreciation and amortization
EBITDA
Adjustments to EBITDA:
ERP implementation costs(1)
Share-based compensation(2)
Total adjustments
2020
Q4
2019
2020
Annual
2019
$
26,571 $
25
4,830
7,071
14,350
52,847
14,027 $
(102)
5,306
5,658
14,477
39,366
63,307 $
200
25,363
20,700
56,873
166,443
55,460
(788)
21,149
21,643
54,450
151,914
249
752
$
1,001 $
809
1,135
1,944 $
1,674
3,352
5,026 $
809
3,209
4,018
Operating EBITDA
Operating EBITDA margin
$
53,848 $
21.6%
41,310 $ 171,469 $ 155,932
22.2%
22.6%
21.9%
Reconciliation of net income to Adjusted Net Income:
Net income
Adjustments:
ERP Implementation costs(1)
Share-based compensation(2)
Endy accretion expense(3)
Tax impact of all adjustments(4)
Total adjustments
Adjusted Net Income
Weighted average number of shares- Basic
Earnings per share – Basic
Earnings per share – Diluted
Adjusted earnings per share - Basic
Adjusted earnings per share - Diluted(5)
Notes:
$
26,571 $
14,027 $
63,307 $
55,460
249
752
-
(66)
935 $
809
1,135
-
(227) $
1,717 $
1,674
3,352
4,257
(442) $
8,841 $
27,506 $
36,694
15,744 $
36,919
72,148 $
36,675
0.72 $
0.72 $
0.75 $
0.74 $
0.38 $
0.38 $
0.43 $
0.42 $
1.73 $
1.71 $
1.97 $
1.95 $
809
3,209
-
(227)
3,791
59,251
37,076
1.50
1.49
1.60
1.59
$
$
$
$
$
$
(1) The Company incurred charges related to its ERP implementation project that commenced in 2019.
(2) Adjustment for share-based compensation, a non-cash item.
(3) The Company incurred a non-recurring adjustment of $4.3 million in accretion expenses in Q2 2020 due to the
adjustment of the Endy’s contingent consideration liability.
(4) The related tax effects are calculated at statutory rates in Canada.
(5) The weighted average number of diluted shares for Q4 2020 is 37,031; for Q4 2019 is 37,159; 2020 is 36,992 and 2019
is 37,323.
22 Additional Information
Additional information relating to the Company, including the Company’s annual information form, quarterly and
annual reports and supplementary information is available on SEDAR at www.sedar.com. Press releases and other
information are also available in the Investor Relations section of the Company’s website at www.sleepcountryir.ca.
46
Sleep Country Canada
Holdings Inc.
Consolidated Financial Statements
December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
48
Financial
Statements
Sleep Country Canada Holdings Inc. | Annual Report 2020
47
Independent auditor’s report
To the Shareholders of Sleep Country Canada Holdings Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Sleep Country Canada Holdings Inc. and its subsidiaries (together, the Company)
as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
●
●
●
●
●
the consolidated statements of financial position as at December 31, 2020 and 2019;
the consolidated statements of income and comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario, Canada L6J 0C5
T: +1 905 815 6300, F: +1 905 815 6499
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Sleep Country Canada Holdings Inc. | Annual Report 2020
49
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
● Evaluated how management determined the
recoverable amounts of the goodwill and
indefinite life intangible assets for each CGU,
which included the following:
Tested the appropriateness of the method
used and the mathematical accuracy of the
discounted cash flow models.
Tested the reasonableness of the
significant assumptions applied by
management in the discounted cash flow
models by:
o comparing the revenue growth rates to
the budget approved by the Board of
Directors and historical trends, and
considering consistency with available
third party published industry data;
o comparing the terminal growth rates to
historical trends and considering
consistency with available third party
published industry data; and
o comparing discount rates to externally
derived data.
Tested the underlying data used in the
discounted cash flow models.
Tested the disclosures made in the
consolidated financial statements.
Impairment assessment of goodwill and
indefinite life intangible assets
Refer to note 3 – Summary of significant
accounting policies, note 4 – Critical accounting
estimates and judgments and note 9 – Goodwill
and intangible assets to the consolidated financial
statements.
The Company had goodwill of $300.9 million and
indefinite life intangible assets of $101.5 million as
at December 31, 2020. For the purpose of
assessing impairment, assets are grouped at the
lowest levels for which there are separately
identifiable cash flows. Goodwill and indefinite life
intangible assets (brands) are allocated to cash
generating units (CGUs) for the purpose of
impairment testing. Management tests goodwill and
brands for impairment annually on December 31 or
more frequently if events or changes in
circumstances indicate the asset might be
impaired. The impairment tests are performed by
comparing the carrying value of the CGUs with
their recoverable amount, which is the higher of
their fair value less costs of disposal and their value
in use. Management used discounted cash flow
models to determine the CGUs’ value in use.
Significant assumptions used in the discounted
cash flow models included revenue growth rates,
terminal growth rates and discount rates. No
impairment was recognized as a result of the 2020
impairment tests.
We considered this a key audit matter due to (i) the
significance of the goodwill and indefinite life
intangible assets balances; (ii) the significant
judgments made by management in determining
the recoverable amounts of the CGUs, including
the use of significant assumptions; and (iii) the
audit effort and auditor’s judgment involved in
testing those significant assumptions.
Sleep Country Canada Holdings Inc. | Annual Report 2020
50
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
Sleep Country Canada Holdings Inc. | Annual Report 2020
51
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
Sleep Country Canada Holdings Inc. | Annual Report 2020
52
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Adam Boutros.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Oakville, Ontario
March 2, 2021
Sleep Country Canada Holdings Inc. | Annual Report 2020
53
Sleep Country Canada Holdings Inc.
Consolidated Statements of Financial Position
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
Assets
Current assets
Cash
Trade and other receivables (note 5)
Inventories (note 6)
Prepaid expenses and deposits (note 13)
Property and equipment (note 7)
Right-of-use assets (note 8)
Deferred tax assets (note 13)
Intangible assets (note 9)
Goodwill (note 9)
Liabilities
Current liabilities
Trade and other payables (note 10)
Customer deposits
Lease liabilities (note 8)
Other liabilities (note 11)
Other liabilities (note 11)
Deferred tax liabilities (note 13)
Lease liabilities (note 8)
Long-term debt (note 3 and 12)
Shareholders’ Equity
Share capital and other (note 15)
Retained earnings (deficit)
2020
$
38,317
9,668
68,717
6,611
123,313
68,151
258,231
4,338
147,434
300,884
902,351
91,741
26,145
35,671
25,000
178,557
867
18,810
268,302
77,273
543,809
354,210
4,332
358,542
902,351
Contingent liabilities and unrecognized contractual commitments (note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
(Signed) Douglas Bradley - Director
(Signed) David Shaw - Director
2019
$
44,040
20,899
65,361
6,008
136,308
71,486
263,777
3,029
141,568
300,884
917,052
68,156
24,415
33,309
—
125,880
18,406
21,060
271,112
175,084
611,542
350,858
(45,348)
305,510
917,052
54
Sleep Country Canada Holdings Inc.
Consolidated Statements of Income and Comprehensive Income
For the years ended December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except per share amounts)
Revenues
Cost of sales (note 6 and 14)
Gross profit
General and administrative expenses (note 14)
Income before finance related expenses, interest and
other expenses and income taxes
Finance related expenses (note 12)
Interest and other expenses (income) – net
Income before provision for income taxes
Provision for income taxes (note 13)
Current
Deferred
Net income and comprehensive income for the year
Earnings per share attributed to common shareholders
Basic earnings per share (in dollars) (note 16)
Diluted earnings per share (in dollars) (note 16)
2020
$
757,699
513,203
244,496
134,926
109,570
25,363
200
25,563
84,007
24,259
(3,559)
20,700
63,307
1.73
1.71
The accompanying notes are an integral part of these consolidated financial statements.
2019
$
712,372
489,082
223,290
125,826
97,464
21,149
(788)
20,361
77,103
18,294
3,349
21,643
55,460
1.50
1.49
55
Sleep Country Canada Holdings Inc.
Consolidated Statements of Changes in Shareholders’ Equity
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
Share Capital and other
Balance – January 1, 2019
37,059,430
346,206
$
$
6,982
Number of
Shares
Common
Shares
Contributed
surplus
Retained
Earnings
(Deficit)
$
Total
equity
$
(66,357)
286,831
Net income for the year
Dividends declared and paid
Shares issued on exercise of share-
based compensation option/unit
Share-based compensation (note 19)
—
—
93,584
—
—
—
1,707
—
Share repurchase (note 15)
(510,829)
(10,005)
Excess of purchase price over average
cost
—
5,243
—
—
55,460
55,460
(29,208)
(29,208)
(1,707)
2,432
—
—
—
—
—
2,432
—
(10,005)
(5,243)
—
Balance – December 31, 2019
36,642,185
343,151
7,707
(45,348)
305,510
Balance – January 1, 2020
36,642,185
343,151
7,707
(45,348)
305,510
Net income for the year
Dividends declared and paid
Shares issued on exercise of share-
based compensation option/unit
Share-based compensation (note 19)
—
—
58,579
—
—
—
2,096
—
Balance – December 31, 2020
36,700,764
345,247
—
—
63,307
63,307
(13,627)
(13,627)
(2,096)
3,352
8,963
—
—
—
3,352
4,332
358,542
The accompanying notes are an integral part of these consolidated financial statements.
56
Sleep Country Canada Holdings Inc.
Consolidated Statements of Cash Flows
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net income for the year
Items not affecting cash
Depreciation of property and equipment (note 7)
Depreciation of right-of-use assets (note 8)
Amortization of intangible assets (note 9)
Share-based compensation (note 19)
Finance related expenses (note 12)
Warranty liability
(Gain) loss on disposal of property and equipment
Decommissioning liabilities
Deferred income taxes (note 13)
Changes in non-cash items relating to operating activities
Trade and other receivables
Inventories
Prepaid expenses and deposits
Trade and other payables
Customer deposits
Investing activities
Purchase of property and equipment
Purchase of right-of-use assets
Purchase of intangible assets
Financing activities
Shares repurchased (note 15)
Increase in senior secured credit facility (note 12)
Repayment of senior secured credit facility (note 12)
Financing costs on senior secured credit facility
Dividends paid
Interest paid
Repayment of principal portion of lease liabilities (note 8)
(Decrease) increase in cash during the year
Cash – Beginning of the year
Cash – End of the year
Supplementary information
Additions to property and equipment included in trade and other payables
Additions to intangibles included in trade and other payables
The accompanying notes are an integral part of these consolidated financial statements.
2020
$
2019
$
63,307
15,306
36,576
4,991
3,352
25,363
(23)
(42)
37
(3,559)
55,460
14,252
35,724
4,473
2,432
21,149
(26)
45
28
3,349
145,308
136,886
12,381
(3,356)
(603)
18,240
1,730
28,392
173,700
(10,838)
(58)
(6,761)
(17,657)
—
34,200
(132,000)
(358)
(13,627)
(17,416)
(32,565)
(161,766)
(5,723)
(6,749)
(10,632)
(464)
11,055
1,964
(4,826)
132,060
(17,595)
(35)
(17,819)
(35,449)
(10,005)
26,700
(19,500)
(28)
(29,208)
(18,489)
(32,029)
(82,559)
14,052
44,040
29,988
38,317
44,040
1,091
4,096
831
4,958
57
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
1 Organization
Sleep Country Canada Holdings Inc. (the Company or SCC) was incorporated by articles of incorporation under
the Canada Business Corporations Act on May 27, 2015. The Company is authorized to issue an unlimited
number of common shares and Class A common shares without par value. The common shares are voting and
are entitled to dividends if and when declared by the Board of Directors.
As at December 31, 2020, the Company has two subsidiaries, Sleep Country Canada Inc. (SCCI) and Endy
Canada (Endy). The Company and its subsidiaries operate as an omnichannel specialty sleep retailer under
three retail banners, Sleep Country, Dormez-vous? and Endy. The Company operates through its corporate-
owned network of 281 stores, 17 distribution centers and its eCommerce platforms. The address of its
registered office is 7920 Airport Road, Brampton, Ontario.
2 Basis of presentation
The consolidated financial statements of the Company are prepared in accordance with International Financial
Reporting Standards, as issued by the International Accounting Standards Board (IFRS) and using the
accounting policies described herein.
The consolidated financial statements of the Company include the financial results of SCC and its two
subsidiaries, SCCI and Endy.
The Company’s operations can be affected by seasonal fluctuations due to changes in customer buying habits
throughout the year.
The consolidated financial statements were approved and authorized for issuance by the Board of Directors on
March 2, 2021.
3 Summary of significant accounting policies
The significant accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial statements.
Financial assets and liabilities
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the financial instrument.
58
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Financial assets are derecognized when the contractual rights to receive cash flows from the financial assets
expire and financial liabilities are derecognized when obligations under the contracts expire, are discharged or
are cancelled. Financial assets upon initial recognition are classified into two categories: (1) those to be
measured subsequently at fair value (either through Other Comprehensive Income or through profit or loss);
and (2) those to be measured at amortized cost. The classification depends on the entity’s business model for
managing the financial assets and the contractual terms of the cash flows. The following classifications have
been applied:
•
•
cash and trade and other receivables are classified as financial assets measured at amortized cost;
trade and other payables, customer deposits, and long-term debt have been classified as other financial
liabilities measured at amortized costs.
Long-term debt is recognized initially at fair value, net of recognized transaction costs, and is subsequently
measured at amortized cost, which is the carrying value. Any difference between the carrying value and the
redemption value is recognized in the consolidated statements of income and comprehensive income using the
effective interest rate method. For debt modifications, a gain or loss is calculated as the difference between the
original contractual cash flows and the modified cash flows discounted at the original effective interest rate.
Fees paid on the establishment of senior credit facilities are capitalized and amortized over the period of the
facility to which it relates and are presented net of long-term debt in the consolidated statements of financial
position.
The Company assesses on a forward-looking basis the expected credit losses associated with its financial
assets. The impairment methodology applied depends on whether there has been a significant increase in
credit risk. For trade and other receivables, the Company applies the simplified approach permitted by IFRS 9,
Financial Instruments, which requires expected lifetime losses to be recognized at the time of initial recognition
of the receivables.
Derivative financial instruments
Forward foreign exchange contracts are periodically used to limit foreign currency risks relating to the
Company’s senior secured credit facility (note 12) when denominated in US dollars. These contracts are
treated as derivative instruments, are not designated as hedges for accounting purposes and are marked-to-
market in the period, with changes in fair value recorded in the consolidated statements of income and
comprehensive income.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements
of financial position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
59
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Foreign currency translation
•
•
Functional and presentation currency
Items included in the consolidated financial statements of each of the Company’s entities are measured
using the currency of the primary economic environment in which the entity operates (the functional
currency). The functional currency of the subsidiaries is Canadian dollars. The consolidated financial
statements are presented in Canadian dollars, which is the Company’s functional currency.
Transactions and balances
Transactions denominated in a foreign currency are translated into the functional currency at the rate in
effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rates in effect as at the year-end date and
revenues and expenses are translated at the average rate during the year. Foreign exchange gains and
losses are included in the consolidated statements of income and comprehensive income.
Segment information
As at December 31, 2020, the Company manages its business on the basis of two operating segments, SCC
and Endy, which is consistent with the internal reporting provided to the chief operating decision-maker, the
Chief Executive Officer. The Company has only one reportable segment as the operating segments meet the
aggregation criteria of IFRS 8, Operating Segments. The Company aggregates these reporting segments
because the nature of products, services, methods of distribution and economic characteristics are similar. The
Company operates in Canada, which is its country of domicile.
Inventories
Inventories are stated at the lower of their carrying value determined on a specific item on an actual cost basis
and net realizable value. Net realizable value is the estimated selling price less applicable selling expenses.
Trade discounts and volume rebates earned are deducted in determining the carrying value of inventory.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation, net of any impairment loss.
Depreciation is computed on a straight-line basis at annual rates based on the estimated useful lives of the
related assets as follows:
Computer hardware
Furniture, fixtures and other
Leasehold improvements
36 months
48 to 60 months
lesser of the lease term or 120 months
Included in furniture, fixtures and other are office equipment depreciated over 60 months and certain vehicles
depreciated over 48 months.
60
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
The Company recognizes in the carrying amount of property and equipment the full purchase price of assets
acquired/constructed as well as the costs incurred that are directly incremental as a result of the construction of
a specific asset, when they relate to bringing the asset into working condition.
Estimates of useful lives, residual values and methods of depreciation are reviewed annually. Any changes are
accounted for prospectively as a change in accounting estimate.
Goodwill and intangible assets
Intangible assets are acquired assets that lack physical substance and that meet the specified criteria for
separate recognition from goodwill.
•
•
•
Computer software
Computer software is recorded at cost less accumulated amortization, net of any impairment loss.
Amortization is computed on a straight-line basis based on the estimated useful life of 36 to 90 months.
Non-compete contracts
Non-compete contracts are amortized over an estimated life of four to ten years.
Brands
Sleep Country and Dormez-vous? brands are recorded at cost and are not subject to amortization, as they
have an indefinite life. The Company has determined the brands have an indefinite life because the
Company has the ability and intention to renew the brand names indefinitely and an analysis of product life
cycle studies and market and competitive trends provides evidence that the brands will generate net cash
inflows for the group for an indefinite period. They are tested for impairment annually, as at the
consolidated statements of financial position dates, or more frequently if events or circumstances indicate
they may be impaired.
The Endy brand was recorded at its fair value at the time of acquisition and is subject to amortization over
an estimated life of 20 years.
•
Goodwill
Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the
sum of the amounts allocated to the assets acquired, less liabilities assumed. Goodwill is not amortized
and management tests goodwill for impairment annually or more frequently if events or changes in
circumstances indicate the asset might be impaired.
Impairment of non-financial assets
•
Impairment of goodwill and indefinite life intangible assets
Management tests goodwill and brands related to Sleep Country, Dormez-Vous?, and Endy for impairment
annually on December 31st or more frequently if events or changes in circumstances indicate the asset
61
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
might be impaired. The asset will be written down if the carrying amount of the asset exceeds the higher of
its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash
flows expected to be derived from the asset.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows. Goodwill is allocated to cash generating units (CGUs) or groups of
CGUs for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs
that are expected to benefit from the synergies of the business combination from which the goodwill arose.
The impairment tests are performed by comparing the carrying value of the assets (or asset groups) of
these CGUs with their recoverable amount, which is the higher of their fair value less costs of disposal and
their value in use (which is the present value of the expected future cash flows of the relevant asset or
CGU), as determined by management.
•
Impairment of definite life intangible assets, right-of-use assets and property and equipment
Assets that are subject to amortization are periodically reviewed for indicators of impairment. Whenever
events or changes in circumstances indicate the carrying amount may not be recoverable, the asset or
CGU is tested for impairment. To the extent the asset or CGU’s carrying amount exceeds its recoverable
amount, an impairment loss is recognized in the consolidated statements of income and comprehensive
income. The recoverable amount of an asset or a CGU is the higher of its fair value less costs of disposal
and its value in use. Value in use is the present value of the future cash flows expected to be derived from
an asset or CGU. The fair value is the price that could be received for an asset or CGU in an orderly
transaction between market participants at the measurement date, less costs of disposal. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows.
•
Impairment reversals
If, in a subsequent period, the amount of recognized impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, a reversal of the previously
recognized impairment, except for goodwill, is recognized in the consolidated statements of income and
comprehensive income.
Trade and other payables
Trade and other payables are obligations to pay for goods or services that have been acquired or rendered in
the ordinary course of business from suppliers and associates. Trade and other payables are classified as
current liabilities if payment is due or expected within one year or less. Otherwise, they are presented as non-
current liabilities. Trade and other payables are recognized initially at fair value and subsequently are measured
at amortized cost.
Customer deposits
Customer deposits represent amounts paid by customers in advance of delivery of product (e.g., mattresses).
These deposits can be for all or a portion of the total purchase price of the product. The amounts received
representing the customer deposit are unencumbered and can be used for general operating purposes. Once
the product is delivered to the customer, therefore fulfilling the performance obligation, the liability is relieved
and is recorded in revenue. Over time, some portion of the customer deposits is not redeemed (breakage). The
62
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
expected breakage amount based on historical actuals are recognized as revenue in proportion to the
redemption pattern exercised by the customers.
Decommissioning provisions
These decommissioning provisions represent the cost of the Company’s obligation to rehabilitate its leased
premises and are estimated based on the present value of expected future rehabilitation costs and recognized
in the period in which the obligation is incurred. The present value of these costs is added to the cost of the
associated asset and is amortized over its useful life, while the corresponding liability will accrete to its future
value over the same period.
Share-based compensation
The Company has a share-based compensation plan (the plan). The plan consists of stock options (the stock
option plan), a performance share unit (PSU) plan and a restricted share unit (RSU) plan for certain associates
and key management personnel. The Company has a deferred share unit (DSU) plan for its Directors.
The stock option, PSU and RSU plans are equity or cash settled share based arrangements, the DSU plan is
an equity settled arrangement and payments are measured at the fair value of the equity instrument granted.
The fair value of stock options at grant date is calculated using the Black-Scholes valuation model. The market
value of the Company’s common shares at the date of the grant is used to determine the fair value of the equity
based share units issued.
Subsequent to the 2020 amendment, stock options vest in equal installments over three years, PSUs vest after
three years based on EPS and revenue targets and RSUs will cliff vest after three years. In general prior to the
amendment in 2020, stock options cliff vest after four years, PSUs cliff vest after three years based on an
Operating EBITDA target and all DSUs vest in equal instalments on the last day of each month of the fiscal
year immediately following the grant date. The initial fair value of equity settled share-based arrangements is
recognized as a compensation expense over the related service period provided to the Company, with a
corresponding increase in contributed surplus in share capital. The compensation expense is recognized over
the applicable vesting period by increasing contributed surplus based on the number of awards expected to
vest. This number is reviewed at least annually, with any change in estimate recognized immediately in
compensation expense.
Revenue recognition
Revenue is recognized based on the five-step model outlined in IFRS 15, Revenue from contracts with
customers. Revenue is derived from the sale of goods and services and is recognized at a point in time when
the performance obligation is fulfilled. The performance obligation is deemed fulfilled when the control of the
products has transferred to the customer and there is no unfulfilled obligation that could affect the customer’s
acceptance of the products. Provisions for returns relating to the Company’s various customer satisfaction
programs are accrued based on historical experience. Revenue from sale of third party warranties is
recognized based on the net amount of consideration the Company retains after paying the third party the
consideration received in exchange for the services to be provided by the third party.
63
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Income taxes
Income taxes comprise of current and deferred income taxes. Income taxes are recognized in the consolidated
statements of income and comprehensive income, except to the extent that they relate to items recognized
directly in other comprehensive income or directly in equity, in which case the income tax is recognized directly
in other comprehensive income or equity, respectively.
Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of
previous years.
Income taxes provided for by the Company and its subsidiaries are accounted for using the liability method.
Deferred income taxes arise due to the temporary differences in the financial reporting and tax bases of assets
and liabilities. Changes in these temporary differences are reflected in the provision for deferred income taxes
using substantively enacted income tax rates and regulations. Deferred income taxes are recognized for all
temporary differences except where they arise on goodwill that is not tax deductible, on the initial recognition of
an asset or liability that is not a business combination and at the time of the transaction affects neither
accounting nor taxable income, and in respect of differences associated with investments in subsidiaries where
the group is able to control the timing of their reversal and it is probable that the temporary differences will not
reverse in the foreseeable future. Deferred income tax assets are recognized to the extent that the
recoverability of deferred income tax assets is considered more likely than not.
Leases
Leases are accounted for by recognizing a right-of-use asset and a lease liability except for low-value assets
and short-term leases (less than 12 months) which are recognized in the consolidated statements of income
and comprehensive income on a straight-line method.
Lease liabilities are recorded on the present value of the non-cancellable lease payments over the lease term
and discounted at the Company’s incremental borrowing rate. Lease payments include fixed payments and
variable payments.
The right-of-use assets are measured at cost, which comprises the lease liability, lease payments made prior to
delivery, initial direct costs and restoration obligations less lease incentives. The right-of-use assets are
subsequently measured at amortized cost. The assets are depreciated over the term of the lease using the
straight-line method.
64
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Extension and termination options exist for a number of leases, particularly for properties. The Company
assesses all facts and circumstances available in determining the probability of exercising available extension
and termination options. The Company includes the extension option in calculating the lease term when it
determines that it is reasonably certain that the Company will exercise the available extension option. The
Company reassesses whether an extension option is included in the lease term when there is a change in
events and circumstances which affect that decision, and re-measures the lease liability upon change in the
assessment.
Change in accounting policy
•
IFRS 3 - Business combinations
On January 1, 2020, the Company adopted the amended IFRS 3 – Business Combinations accounting
standard.
The standard was amended to revise the definition of what constitutes a business, asserting that an
existing value-add process along with an input, with the ability to contribute to the creation of an output
determines the existence of a business as opposed to just an integrated set of activities and inputs. There
are no significant adjustments to the amounts recognized in the consolidated financial statements.
•
IAS 1 – Presentation of Financial Statements and IAS 8 – Accounting Policies, Changes in Accounting
Estimates and Errors
Effective January 1, 2020, the Company adopted the amendments to IAS 1 – Presentation of Financial
Statements and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors pertaining to
the definition of the word material which now indicates that information omitted, misstated or obscured
which could reasonably be expected to influence the decisions of the primary users of the financial
statements, given that the decisions are made on the basis of the financial statements. There are no
significant adjustments to the amounts recognized in the consolidated financial statements.
4 Critical accounting estimates and judgments
The preparation of consolidated financial statements requires management to make estimates and
assumptions using judgments that affect the application of accounting policies and the reported amounts of
assets and liabilities, income and expenses during the reporting period. Estimates and other judgments are
continually evaluated and are based on management’s experience and other factors, including expectations
about future events that are believed to be reasonable under the circumstances. Actual results may differ from
those estimates.
The following discusses the most significant accounting judgments and estimates the Company has made in
the preparation of the consolidated financial statements.
Impairment of goodwill and brands
65
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Management is required to use judgment in determining the appropriate groupings of CGUs, in order to
determine the level at which goodwill and intangible assets are tested for impairment. In addition, judgment is
used to determine whether a triggering event has occurred requiring an impairment test to be completed.
In determining the recoverable amount of a CGU, various estimates are employed. The Company determines
the higher of its fair value less costs of disposal and its value in use, using estimates such as projected future
sales, earnings, capital investments and discount rates. Projected future sales and earnings are consistent with
strategic plans provided to the Company’s Board of Directors. Discount rates are based on an estimate of the
Company’s weighted average cost of capital taking into account external industry information reflecting the risk
associated with the specific cash flows. As at December 31, 2020 and December 31, 2019, impairment reviews
were performed by comparing the carrying value with the recoverable amount of the CGU to which goodwill
and brands have been allocated. Management has determined there had been no impairment as at both of
those dates (note 9).
66
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
5 Trade and other receivables
Trade and other receivables
Income tax receivable
Provision for doubtful debts
2020
$
9,718
86
(136)
9,668
2019
$
15,770
5,264
(135)
20,899
The Company’s trade and other receivables consist of balances due from vendors related to volume and co-
operative advertising rebates and balances due from the third party financing companies. The carrying amounts
of the Company’s trade and other receivables approximate their fair values.
The maximum exposure to credit risk at the reporting date is the carrying value of the trade and other
receivables.
6 Inventories
Merchandise
Provision for obsolescence
Included in cost of sales
Write-downs of inventory due to net
realizable value lower than cost
Write-offs due to damage or shrinkage
2020
$
73,266
(4,549)
68,717
1,323
3,084
2019
$
68,285
(2,924)
65,361
489
1,023
There were no reversals of previously taken write-downs in 2020 (2019 – $nil). All inventory is recorded in cost
of sales once sold.
67
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
7 Property and equipment
Year ended December 31, 2019
At January 1, 2019
Additions
Depreciation
Disposal
At December 31, 2019
At December 31, 2019
Cost
Accumulated depreciation
Computer
hardware
Furniture,
fixtures
and other
Leasehold
improvements
$
$
$
Total
$
2,350
1,493
(1,417 )
—
6,344
1,640
(2,054)
(20)
53,705
20,300
(10,781)
(74)
62,399
23,433
(14,252)
(94)
2,426
5,910
63,150
71,486
6,167
(3,741 )
12,973
(7,063)
98,891
(35,741)
118,031
(46,545)
Net book value
2,426
5,910
63,150
71,486
Year ended December 31, 2020
At January 1, 2020
Additions
Depreciation
2,426
869
(1,476 )
5,910
1,162
(2,174)
63,150
9,940
(11,656)
71,486
11,971
(15,306)
At December 31, 2020
1,819
4,898
61,434
68,151
At December 31, 2020
Cost
Accumulated depreciation
6,387
(4,568 )
12,629
(7,731)
104,389
(42,955)
123,405
(55,254)
Net book value
1,819
4,898
61,434
68,151
During the year ended December 31, 2020, the Company disposed of assets with an original cost value of
$6,601 (2019 – $9,569) and accumulated depreciation of $6,601 (2019 – $9,476).
68
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
8 Right-of-use assets and lease liabilities
Right-of-use assets
Properties
$
Trucks
$
Total
$
Year ended December 31, 2019
At January 1, 2019
Additions during the year with a
corresponding increase to the lease liability
Cash additions due to initial direct cost
incurred during the year
Tenant inducements received
Depreciation
252,613
3,403
256,016
44,434
46
44,480
35
(1,030)
(34,804)
—
—
(920)
35
(1,030)
(35,724)
At December 31, 2019
261,248
2,529
263,777
Year ended December 31, 2020
At January 1, 2020
Additions during the year with a
corresponding increase to the lease liability
Cash additions due to initial direct cost
incurred during the year
Additions of restorative obligations
Tenant inducements received
Depreciation – right-of-use assets
261,248
2,529
263,777
31,356
761
32,117
58
5
(1,150)
(35,724)
—
—
—
(852)
58
5
(1,150)
(36,576)
At December 31, 2020
255,793
2,438
258,231
69
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Lease liabilities – Current and long-term
Year ended December 31, 2019
At January 1, 2019
Additions during the year with a corresponding
increase to right-of-use assets
Repayment of principal portion of lease
liabilities in cash
At December 31, 2019
Year ended December 31, 2020
At January 1, 2020
Additions during the year with a corresponding
increase to right-of-use assets
Repayment of principal portion of lease
liabilities in cash
At December 31, 2020
Leases in the consolidated statements of income and comprehensive
income
Cost of sales
Depreciation – right-of-use assets
General and administrative expenses
Depreciation – right-of-use assets
Interest and other expenses
Interest expense on lease liabilities (paid in cash)
Total
$
291,970
44,480
(32,029)
304,421
304,421
32,117
(32,565)
303,973
2020
$
2019
$
32,452
31,976
4,124
3,748
11,438
11,562
70
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
9 Goodwill and intangible assets
Year ended December 31, 2019
At January 1, 2019
Additions
Amortization
Intangible assets
Brands –
indefinite
life
$
Brands –
definite
life
$
Non –
compete
contracts
$
Computer
software
$
Total
$
Goodwill
$
101,540
—
—
21,883
—
(1,097)
411
—
(204)
4,388
17,819
(3,172)
128,222
17,819
(4,473)
300,884
—
—
At December 31, 2019
101,540
20,786
207
19,035
141,568
300,884
At December 31, 2019
Cost
Accumulated amortization
101,540
—
21,961
(1,175)
2,949
(2,742)
26,053
(7,018)
152,503
(10,935)
300,884
—
Net book value
101,540
20,786
207
19,035
141,568
300,884
Year ended December 31, 2020
At January 1, 2020
Additions
Amortization
101,540
—
—
20,786
—
(1,098)
207
—
(134)
19,035
10,857
(3,759)
141,568
10,857
(4,991)
300,884
—
—
At December 31, 2020
101,540
19,688
73
26,133
147,434
300,884
At December 31, 2020
Cost
Accumulated amortization
101,540
—
21,961
(2,273)
2,949
(2,876)
34,708
(8,575)
161,158
(13,724)
300,884
—
Net book value
101,540
19,688
73
26,133
147,434
300,884
During the year ended December 31, 2020, the Company disposed of assets with an original cost value of
$2,201 (2019 – $905) and accumulated depreciation of $2,201 (2019 – $905).
Goodwill of $300,884 (2019 – $300,884) has been allocated to the two CGU’s Sleep Country and Endy.
The Sleep Country and Dormez-vous? brands of $101,540 (2019 – $101,540) have been allocated to the Sleep
Country operating segment.
Management has determined, using appropriate valuation methodologies, that there was no impairment of its
goodwill or brands as at December 31, 2020 or December 31, 2019.
71
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
In assessing goodwill for impairment as at December 31, 2020, the Company compared the aggregate
recoverable amount of the assets included in the CGUs to their respective carrying amounts as follows:
Sleep Country
Endy
2020
$
2019
$
242,146
58,738
242,146
58,738
300,884
300,884
The Company performed goodwill impairment tests for the CGUs using the recoverable amounts based on the
value in use (discounted cash flows) approach. Recoverable amounts were determined for the CGUs using the
2021 budget approved by the Board of Directors that made maximum use of observable markets for inputs and
outputs. For periods beyond the budget period, cash flows were extrapolated using growth rates of 3% (2019 –
5.1% - 23.5%) and a terminal growth rate of 3% (2019 - 2.5%). A discount rate of 9% (2019 – 8.2%) was used
in the model. As at December 31, 2020, any reasonable changes to the model assumptions would not result in
an impairment.
10 Trade and other payables
Trade payables
Income taxes payable
Accrued expenses
11 Other liabilities
2020
$
51,415
7,018
33,308
2019
$
44,303
53
23,800
91,741
68,156
On December 6, 2018, the Company acquired substantially all of the operating assets of Overwater Limited
(Overwater), an online mattress retailer operating under the brand name Endy. As part of the purchase
agreement, if the acquired business achieved pre-determined targets during the measurement period ending
on December 31, 2020, Overwater is entitled to receive a contingent consideration payment, up to a maximum
of $25,000 to be paid in Q1 2021.
At the acquisition date, the Company recorded a contingent consideration liability based on its expected
outcome at the end of the earn-out period. The expected outcome (undiscounted) is determined based on an
earnings formula and the likelihood of achieving specified earnings levels over the measurement period. The
contingent consideration liability is valued based on an expected payout of the maximum $25,000.
72
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Current
Contingent consideration
Long-term
Decommissioning provisions
Contingent consideration
Other
12 Long-term debt
Senior secured credit facility
2020
$
25,000
2019
$
—
819
—
48
797
17,538
71
867
18,406
On January 1st, 2019, SCC held a senior secured credit facility of $210,000, which was scheduled to mature on
November 29, 2023.
On May 4, 2020, the Company secured additional liquidity to manage the impact of COVID-19 on the
Company’s operations. The senior secured credit agreement was amended to include an incremental $50,000
accordion. Pursuant to this amendment, the facility was increased from $210,000 to $260,000, the maturity
date was not extended as this time. Under the terms of the senior secured credit facility, certain financial and
non-financial covenants must be complied with. The Company is in compliance with all covenants as at
December 31, 2020.
The senior secured credit facility is secured by all of the present and after acquired personal property of SCC,
SCCI and Endy. As at December 31, 2020, the balance outstanding on the senior secured credit facility was
$78,000 (2019 – $175,800). The long-term debt liability balance in the consolidated statements of financial
position is net of transaction costs of $727 (2019 – $716).
The senior secured credit facility allows for the debt to be held in Canadian or US dollars. During the year, the
Company held the majority of the debt in US dollars for 313 days as the debt held in US dollars had a lower
interest rate. To mitigate the foreign exchange risk, the Company entered into forward foreign exchange
contracts to sell US dollars in the equal amount of the debt with an overall impact of $nil recorded in general
and administrative expenses in the consolidated statements of income and comprehensive income. As at
December 31, 2020, the debt is held in Canadian dollars and no forward foreign exchange contracts were
outstanding. Interest on the senior secured credit facility is based on the prime or bankers’ acceptance rates
plus applicable margins based on the achievement of certain targets, as defined by the amended and restated
senior secured credit agreement. As at December 31, 2020, the applicable margin for bankers’ acceptances
was 295 basis points and the applicable margin for prime rate loans was 195 basis points.
Finance related expenses included in the consolidated statements of income and comprehensive income
include the following:
73
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Interest on lease obligations
Change in fair value on contingent consideration
Revolver commitment fees
Interest expense on senior secured credit facility
13 Income tax
Significant components of the income tax provision are as follows:
Current income tax expense
Deferred income tax expense relating to;
Temporary differences
Deferred income tax rate changes
2020
$
11,438
7,463
536
5,926
25,363
2019
$
11,562
2,414
134
7,039
21,149
Components of income tax provision
2020
$
2019
$
24,259
18,294
(3,460)
(99)
(3,559)
3,723
(374)
3,349
Provision for income taxes
20,700
21,643
74
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Reconciliation to effective tax rate
The overall income tax provision differs from the amount that would be obtained by applying the combined
statutory income tax rate to income due to the following:
Income of continuing operations before income taxes
Weighted average Canadian income tax rate
Income tax expense based on statutory income tax rate
Difference between rates applicable to Company and rates
applicable to subsidiaries
Effect of non-deductible expenses and other items
Deferred tax rate changes
2020
$
2019
$
84,007
26.50%
77,104
26.50%
22,262
(75)
(1,388)
(99)
20,700
20,433
186
1,398
(374)
21,643
Effective income tax rate
24.64%
28.07%
Deferred income tax liability
Significant components of the net deferred income tax liability are as follows:
Excess of carrying value of intangible assets over tax values
Benefit of share issuance costs and financing fees deductible in
future years
Loss carry-forwards
Other temporary differences
2020
$
2019
$
(25,634)
(27,279)
(36)
2,645
8,553
340
2,669
6,239
(14,472)
(18,031)
SCC has recognized a deferred tax asset of $4,338 (2019 – $3,029), which is dependent on future taxable
income. The Company expects that it will be able to utilize the deferred tax asset in the future.
As at December 31, 2020, the Company has unused capital losses of $19,739 (2019 – $19,702) with no expiry
date.
75
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Capital losses may only be used to offset capital gains. No deferred income tax benefit has been set up for
these losses as the Company does not expect to realize capital gains in the foreseeable future.
On February 1, 2018, the Canada Revenue Agency (CRA) issued a notice of proposed adjustments for the
2014 taxation year, which also results in consequential income adjustments for the 2015 and 2016 taxation
years. The proposed adjustments relate to restructuring transactions in the Company’s pre-initial public offering
(IPO) structure and certain related transactions.
Notices of Reassessment were issued by the CRA related to certain of these issues in June 2018 with an
exposure of $3,480, which includes tax and interest. In order to contest the matter, the Company has filed
Notices of Objection with the Chief of Appeals, CRA on September 5, 2018. The Company has received an
acknowledgement of the receipt of the Notices of Objection by the CRA and is currently awaiting a response to
these Notices.
The Company was required to pay a minimum of 50% of the amount issued in the Notices of Reassessment
within 30 days of the date of these Notices. Accordingly, payments of $2,988 have been made and are included
in prepaid expenses and deposits.
The Company expects to receive a Notice of Reassessment under Part III Tax, pursuant to subsection 184(2)
of the Income Tax Act (Canada) on the basis that it paid an excess capital dividend on July 15, 2015. The
maximum exposure, including tax, penalty and interest, in this matter is approximately $5,818. In the event the
Notice of Reassessment under Part III Tax is received, the Company, with the concurrence of Birch Hill Equity
Partners Management Inc. (Birch Hill) and its co-investors, has the ability to file an election under subsection
184(3) to treat the excess amount as a taxable dividend, which is expected to resolve this exposure.
Pursuant to the indemnification provisions of the pre-IPO share purchase agreement dated July 10, 2015, the
Company expects to be indemnified for all of the above matters by Birch Hill and its co-investors, which include
some current members of the Company’s Board of Directors and the Company’s management. The Company
believes it will be able to sustain its tax positions, and consequently no reserve has been made.
14 Expenses by nature
Inventory and directly related costs recognized as
an expense, including write-downs, write-offs and reversals
Salaries, wages and benefits (note 22)
Occupancy costs – stores
Depreciation and amortization
Other
Cost of sales
2020
$
2019
$
346,457
90,966
24,992
44,074
6,714
321,179
97,407
23,514
42,682
4,300
513,203
489,082
The depreciation included in cost of sales relates to depreciation on store and delivery property and equipment.
In 2020 the salaries, wages and benefits are net of the Canada Emergency Wage Subsidy (CEWS) of $13,423.
76
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Media and advertising expenses
Salaries, wages and benefits (note 22)
Credit card and finance charges
Occupancy costs – distribution centres and other
Professional fees
Telecommunication and information technology
Mattress recycling costs and donations
Depreciation and amortization
Other
General and administrative
2020
$
51,761
29,344
17,596
6,179
4,436
6,891
3,416
12,799
2,504
2019
$
52,736
24,778
18,604
4,255
2,250
5,301
2,292
11,768
3,842
134,926
125,826
The depreciation included in general and administrative expenses relates to distribution centres, offices and other
property and equipment and intangibles. In 2020 the salaries, wages and benefits are net of the CEWS of $1,536.
77
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
15 Share capital and other
Authorized share capital
Unlimited common shares
Unlimited Class A common shares
Issued and outstanding, no par value
36,700,764 common shares (2019 – 36,642,185)
Reorganization adjustment and other
Contributed surplus
Common shares and Class A common shares
2020
$
2019
$
621,407
(276,159)
8,962
619,310
(276,159)
7,707
354,210
350,858
The holders of common shares are entitled to receive notice of any meetings of shareholders, to attend and to
cast one vote per common share at all such meetings. Holders of common shares do not have cumulative
voting rights with respect to the election of directors and, accordingly, holders of a majority of the common
shares entitled to vote in any election of directors may elect all directors standing for election. Holders of
common shares are entitled to receive on a pro rata basis such dividends, if any, as and when declared by the
Board of Directors at its discretion from funds legally available therefore and on liquidation, dissolution or
winding up of the Company are entitled to receive on a pro rata basis the net assets of the Company after
payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions
attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the
common shares with respect to dividends or liquidation. The common shares do not carry any pre-emptive,
subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.
Holders of Class A common shares will be entitled to the same rights and privileges as holders of common
shares described above and will rank equally with the holders of common shares on liquidation, dissolution, or
winding up of the Company. The Class A common shares will not carry any pre-emptive or subscription rights,
nor will they contain any sinking or purchase fund provisions. Class A common shares are redeemable at the
option of the Company on written notice to the holders of the Class A common shares, with the redemption
price being equal to the price per common share in the IPO. As at December 31, 2020, there were no
outstanding Class A common shares (2019 – nil).
On March 4, 2020, the Company received approval from the Toronto Stock Exchange (the "TSX") to
commence a Normal Course Issuer Bid ("NCIB") and purchase through the facilities of the TSX of up to
1,368,363 of the Company’s common shares, representing approximately 4.8% of the public float as of
February 29, 2020. Purchases were permitted to commence through the TSX on March 9, 2020 and will
conclude on the earlier of the date on which purchases under the bid have been completed and March 8, 2021.
In accordance with the rules and by-laws of the TSX, the Company has been permitted to purchase up to a
daily maximum of 28,010 Shares (representing 25% of the average daily trading volume of the Shares on the
78
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
TSX for the six months prior to commencement of the NCIB), except where such purchases are made in
accordance with the "block purchase" exception under the applicable TSX rules and policies.
During 2020, the Company did not purchase common shares for cancellation (2019 - 510,829). The 2019
common shares purchases for cancellation were made at an average price of $19.59, for a total consideration
of $10,005.
16 Earnings per share (EPS)
Basic EPS amounts are calculated by dividing the net earnings attributable to common shareholders of the
Company by the weighted average number of shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the net earnings attributable to common shareholders of the
Company by the weighted average number of shares outstanding during the year adjusted for the effects of
potentially dilutive stock options. PSUs, RSUs and DSUs are dilutive in nature.
The table below summarizes the dilution impact of stock options:
Dilutive
Anti-dilutive
2020
$
378,831
825,588
1,204,419
2019
$
407,625
568,455
976,080
79
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
The following table sets forth the calculation of basic and diluted EPS:
Attributable to common shareholders
Net
earnings
$
63,307
63,307
Weighted
average
number
of shares
(in thousands
of shares)
36,675
36,992
Attributable to common shareholders
Net
earnings
$
55,460
55,460
Weighted
average
number
of shares
(in thousands
of shares)
37,076
37,323
2020
EPS
$
1.73
1.71
2019
EPS
$
1.50
1.49
Basic
Diluted
Basic
Diluted
17 Contingent liabilities and unrecognized contractual commitments
Executive employment agreements allow for total additional payments of approximately $6,345 if a liquidity
event occurs, $4,230 if all are terminated without cause, $nil if all are terminated with cause and $2,961 if all
are terminated as a result of death.
All directors and/or officers of the Company, and each of its various subsidiary entities, are indemnified by the
Company for various items including, but not limited to, all costs to settle lawsuits or actions due to their
association with the Company, subject to certain restrictions. The Company has purchased directors’ and
officers’ liability insurance with maximum coverage of $10,000 to mitigate the cost of any potential future
lawsuits or actions to the directors and officers. The term of the indemnification is not explicitly defined, but is
limited to events for the period during which the indemnified party served as a director or officer of the
Company. The maximum amount of any potential future payment required to be made by the Company cannot
be reasonably estimated but could have a material adverse effect on the Company.
In the normal course of business, the Company has entered into agreements that include indemnities in favour
of third parties, such as purchase and sale agreements, confidentiality agreements, engagement letters with
80
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
advisers and consultants, leasing contracts, licence agreements, information technology agreements, and
various product and service agreements. These indemnification arrangements may require the Company to
compensate counterparties for losses incurred by the counterparties as a result of breaches in representations,
covenants and warranties provided by the Company or as a result of litigation or other third party claims or
statutory sanctions that may be suffered by the counterparties as a consequence of the relevant transaction. In
some instances, the terms of these indemnities are not explicitly defined. The Company, whenever possible,
tries to limit this potential liability within the particular agreement or contract; however, due to the
unpredictability of future events, the maximum amount of any potential reimbursement required to be made by
the Company or its subsidiary entities cannot be reasonably estimated, but could have a material adverse
effect on the Company.
18 Related party transactions and balances
Key management personnel are those individuals who have the authority and responsibility for planning,
directing and controlling the activities of the Company, including members of the Company’s Board of Directors.
The Company considers key management to be the Board of Directors and its executive team.
As at December 31, 2020 and December 31, 2019, there were no balances due from or payable to a related
party.
SCC incurred the following compensation expenses in relation to key management personnel:
Salaries and short-term associate benefits
Share-based compensation
Directors’ fees
2020
$
4,357
2,586
542
7,485
2019
$
2,868
2,542
578
5,988
81
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
19 Share-based compensation
On March 16, 2020, the stock option plan and the PSU plan were amended and an RSU plan was added (the
amendment). The amendment to the plans and the new grants made under these amended plans were
approved by the shareholders at the Company’s Annual General Meeting held on May 21, 2020. The plan
amendments now allow for the stock option, PSU and RSU plans to be equity or cash settled at the discretion
of the Board of Directors. The Company is continuing to account for these plans as equity settled and has no
intention to cash settle. The DSU plan is equity settled. The expense associated with these instruments is
recorded as share-based compensation expense through the consolidated statements of income and
comprehensive income with a corresponding entry made to contributed surplus in share capital and other on
the consolidated statements of financial position.
1,204,419 stock options (2019 – 976,080) (a)
225,118 PSUs (2019 – 178,864) (b)
51,046 RSUs (2019 – nil) (c)
60,183 DSUs (2019 – 34,430) (d)
2020
$
1,244
1,536
216
356
3,352
2019
$
1,068
1,028
—
336
2,432
Prior to the amendment, the maximum number of common shares that may be issued under the security-based
compensation arrangements, including the stock option plan, the PSU plan and the DSU plan, may not exceed
10% of the total number of common shares issued and outstanding. The maximum number of common shares
that may be issued under the PSU plan is 4% and under the DSU plan is 1% of the total number of common
shares issued and outstanding.
Subsequent to the amendment, the maximum number of common shares that may be issued, under all
security-based compensation arrangements implemented by the Company including the stock option plan, the
PSU plan, the RSU plan and the DSU plan, may not exceed 6.5% of the total number of common shares
issued and outstanding. The maximum number of common shares that may be issued within any one-year
period under all security-based compensation arrangements implemented by the Company may not exceed
1.5% of the then issued and outstanding number of common shares. The maximum number of common shares
that may be issued under the PSU plan, the RSU plan and the DSU plan is 2.6% of the total number of
common shares issued and outstanding.
82
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
a) Stock options
The Company has a stock option plan under which options to purchase common shares may be granted to
officers and associates of the Company.
For stock options granted prior to the amendment, they have an exercise price of not less than the
weighted average trading price of the common shares where they are listed for the five trading days prior to
the date of the grant. Options granted vest on the fourth anniversary of the grant date.
For stock options granted subsequent to the amendment, they have an exercise price of not less than the
weighted average trading price of the common shares where they are listed for the five trading days prior to
the date of the grant. Options granted vest in equal proportion on the first anniversary, the second
anniversary and the third anniversary of the grant date.
All issued options expire after ten years from the date granted. The Company’s stock option transactions
during the period were as follows:
Balance – January 1, 2019
Granted – March 8, 2019
Forfeited – May 8, 2019
Granted – May 28, 2019
Forfeited – June 12, 2019
Forfeited – August 6, 2019
Granted – September 10, 2019
Granted – November 4, 2019
Balance – December 31, 2019
Balance – January 1, 2020
Forfeited – January 30, 2020
Granted – March 16, 2020
Forfeited – July 5, 2020
Forfeited – October 3, 2020
Number
of options
845,826
250,585
(111,232)
5,220
(26,605)
(9,107)
17,471
3,922
976,080
976,080
(21,941)
268,638
(12,280)
(6,078)
Balance – December 31, 2020
1,204,419
Weighted
average
exercise price
per option
$
25.73
21.23
25.25
19.45
24.82
17.00
20.80
19.40
24.59
24.59
25.72
15.94
29.10
19.31
22.62
The vested number of options outstanding as at December 31, 2020 is 384,301 (December 31, 2019 –
110,193).
83
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
The Black-Scholes model was used to estimate the fair value of stock options. In determining the fair value
of these associate stock options, the following assumptions were used:
Risk-free interest rate
Expected volatility
Estimated dividend yield
Expected life of the options (in years)
Forfeiture rate
Date of Grant
March 16, 2020
1.30%
30.20%
3.90%
6.5
3.66%
Year of Grant
2019
1.19% - 1.98%
29.33% - 30.8%
3.67% - 4.04%
7
0.37% - 3.66%
The risk-free interest rate is based on a Government of Canada five to ten-year benchmark bond yield at
the date of grant.
b) PSU plan
The Company has established a PSU plan for associates and officers of the Company. A PSU represents
the right to receive a common share settled by the issuance of treasury shares or purchased on the open
market or the cash equivalent of the market value of a share at the vesting date at the discretion of the
Board of Directors. The Company has no intent to cash settle. PSUs vest 100% at the end of the third year
after the grant date.
For PSUs issued prior to the amendment, the number of units which will vest is determined based on the
achievement of certain earnings before interest, taxes, depreciation, and amortization (EBITDA) targets
established by the Board of Directors. The number of units that vest is determined by multiplying the
number of units granted to the participant by the adjustment factor, which ranges from 0.5 to 1.5,
depending on the achievement of such targets.
For PSUs issued subsequent to the amendment, the number of units which will vest is determined based
on the weighted sum of the achievement of the average EPS and revenue targets for the Company over
the applicable performance period. Achievement will be based 75% on achievement of the EPS target and
25% on achievement of the revenue target as established by the Board of Directors. The number of units
that vest is determined by multiplying the number of units granted to the participant by the adjustment
factor, which ranges from 0 to 2.0, depending on the achievement of such targets.
Therefore, the number of units that will vest and are paid out may be higher or lower than the number of
units originally granted to a participant.
84
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
The Company’s PSU plan transactions during the period were as follows:
Balance – January 1, 2019
Exercised – March 7, 2019
Granted – March 7, 2019
Granted – March 8, 2019
Forfeited – May 8, 2019
Granted – May 28, 2019
Forfeited – June 12, 2019
Granted – September 10, 2019
Granted – November 4, 2019
Balance – December 31, 2019
Balance – January 1, 2020
Forfeited – January 30, 2020
Granted – February 28, 2020
Exercised – March 11, 2020
Granted – March 16, 2020
Forfeited – July 5, 2020
Forfeited – July 5, 2020
Balance – December 31, 2020
Number of
units
(vested and
unvested)
Grant date
fair value
per unit
$
167,152
(87,640)
29,214
87,329
(20,707)
1,858
(5,857)
6,118
1,397
178,864
178,864
(4,208)
9,764
(58,579)
102,085
(1,092)
(1,716)
225,118
29.21
19.31
19.31
21.23
28.88
19.45
26.64
20.80
19.40
28.21
28.21
28.93
32.39
32.39
15.94
36.60
21.23
21.74
The vested number of units outstanding as December 31, 2020 is nil (December 31, 2019 – nil).
c) RSU plan
The Company has established a RSU plan for associates and officers of the Company. A RSU represents
the right to receive a common share settled by the issuance of treasury shares or purchased on the open
market or the cash equivalent of the market value of a share at the vesting date at the discretion of the
Board of Directors. The Company has no intent to cash settle. RSUs vest 100% at the end of the third year
after the grant date, as long as the associate or officer continues to be employed with the Company at the
time of vesting. The number of units which will vest and are paid out is equal to the number of units
originally granted to a participant.
85
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
The Company’s RSU plan transactions during the period were as follows:
Balance – January 1, 2020
Granted – March 16, 2020
Balance – December 31, 2020
Number of
units
(vested and
unvested)
Grant date
fair value
per unit
$
—
51,046
51,046
—
15.94
15.94
The vested number of units outstanding as December 31, 2020 is nil.
d) DSU plan
The Company has established a DSU plan for Directors of the Company. A DSU represents the right to
receive a common share settled by the issuance of treasury shares or purchased on the open market.
DSUs granted vest in equal instalments on the last day of each month of the fiscal year immediately
following the grant date, and relate to the applicable portion of the Directors’ annual retainer.
Number of
units
(vested and
unvested)
Grant date
fair value
per unit
$
Balance – January 1, 2019
Granted – May 16, 2019
Exercised – May 31, 2019
Exercised – July 6, 2019
Granted – August 8, 2019
Balance – December 31, 2019
Balance – January 1, 2020
Granted – May 13, 2020
Balance – December 31, 2020
22,901
15,684
(1,028)
(4,916)
1,789
34,430
34,430
25,753
60,183
The vested number of units outstanding as at December 31, 2020 is 51,601 (December 31, 2019 –
28,160).
33.72
19.13
31.55
33.91
20.82
26.44
26.44
13.59
20.94
86
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
20 Financial instruments and risk management
The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk
and cash flow and fair value interest risks), credit risk and liquidity risk. The Company’s overall risk
management program and business practices seek to minimize any potential adverse effects on the
Company’s consolidated financial performance.
Risk management is carried out by the senior management team and is overseen by the Board of Directors.
Market risk
Market risk is the loss that may arise from changes in factors such as interest rates, foreign exchange and the
impact these factors may have on other counterparties.
•
Foreign exchange risk
The Company operates in Canada. The exposure related to foreign exchange is limited to US dollar
payments to suppliers, which is not significant.
•
Cash flow and fair value interest risk
The Company has no significant interest bearing assets. The Company’s income and operating cash flows
are substantially independent of changes in market interest rates.
The Company’s primary interest rate risk arises from long-term debt. The Company manages its exposure
to changes in interest rates by using a combination of fixed and variable rate debt and utilizing interest rate
swaps as necessary to achieve the desired proportion of variable and fixed rate debt. An increase or
decrease in interest rates by 1% would result in an increase or a decrease of $780 (2019 – $1,758) on
interest expense on the credit facilities.
Credit risk
Credit risk refers to the risk of losses due to failure of the Company’s customers or other counterparties to meet
their payment obligations. Credit risk arises from deposits with banks, as well as credit exposures from
mattress vendors for the payment of volume and co-operative advertising rebate amounts and balances owed
from third party financing companies under the various financing plans the Company offers its customers. In
accordance with SCC’s investment practice, all deposits are held at banks possessing a credit rating of AA- or
better. Sales to retail customers are settled in cash, financed by third party financing companies or by using
major credit cards. The Company transfers the credit risk for financing plans to third party financing companies.
The third party financing companies that SCC deals with carry a minimum rating of BBB or better.
Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that
there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a
repayment plan with the group, and a failure to make contractual payments for a period of greater than 120
days past due.
87
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Impairment losses on trade and other receivables and contract assets are presented as net impairment losses
within operating profit. Subsequent recoveries of amounts previously written off are credited against the same
line item.
Liquidity risk
Liquidity risk is the risk the Company will not be able to meet a demand for cash or to fund its obligations as
they come due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a
reasonable price. Prudent liquidity management implies maintaining sufficient cash and the availability of
funding through an adequate amount of committed credit facilities.
The table below analyzes the Company’s financial liabilities into relevant maturity groupings based on the
remaining period from the consolidated statements of financial position dates to the contractual maturity date.
The amounts discussed in the table are contractual undiscounted cash flows.
At December 31, 2020
Trade and other payables
Lease liabilities
Long-term debt
At December 31, 2019
Trade and other payables
Lease liabilities
Long-term debt
Within
1 year
$
91,741
46,123
3,221
Between 1
and 5 years
$
—
124,673
84,151
Over
5 years
$
—
47,557
—
141,085
208,824
47,557
68,156
45,220
7,155
—
133,190
196,618
—
63,333
—
120,531
329,808
63,333
88
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Fair value of financial instruments
The different levels used to determine fair values have been defined as follows:
•
•
•
Level 1 – inputs use quoted prices (unadjusted) in active markets for identical financial assets or financial
liabilities that the Company has the ability to access.
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the financial asset or
financial liability, either directly or indirectly. Level 2 inputs include quoted prices for similar financial assets
and financial liabilities in active markets, and inputs other than quoted prices that are observable for the
financial liabilities.
Level 3 – inputs are unobservable inputs for the financial asset or financial liability and include situations
where there is little, if any, market activity for the financial asset or financial liabilities.
The following describes the fair value determinations of financial instruments:
•
•
The carrying values of cash, trade and other receivables, trade and other payables and customer deposits
approximate their fair values due to the relatively short periods to maturity of these financial instruments.
The carrying value of the senior secured credit facility approximates its fair value as the terms and
conditions of the borrowing arrangements are comparable to market terms and conditions as at December
31, 2020 and December 31, 2019.
Fair values of contingent consideration liability
As at December 31, 2020, the ending of the contingent consideration period, the fair value of the liability
$25,000 (2019 - $17,538) was recorded on the consolidated statements of financial position.
Capital risk management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern in
order to provide returns for its common shareholders in the form of cash dividends, benefits to other
stakeholders and to maintain an optimal capital structure to minimize the cost of capital.
In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce
long-term debt.
21 Comparative figures
Certain comparative figures have been reclassified to conform to the current year’s presentation.
22 Impact of COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of coronavirus, specifically identified
as “COVID-19”, as a global pandemic.
89
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
This has resulted in governments worldwide, including the Canadian government, enacting emergency
measures to combat the spread of the virus. These measures include the implementation of travel restrictions,
self-imposed quarantine periods and physical distancing.
On March 21, 2020, the Company announced its decision to temporarily close all of its 276 store retail locations
for the safety of its associates and customers. Starting March 23, 2020, subsequent to the voluntary closure
announced by the Company, the provincial governments started announcing the mandatory closure of all non-
essential workplaces, which included all of the Company’s retail locations. Under the guidelines, the Company
was permitted to continue its delivery services. The Company continued to generate revenue through its
eCommerce websites for Sleep Country, Dormez-vous? and Endy and dedicated Sleep Expert phone line
and/or the live chat support available on the Company’s eCommerce platforms. On May 11, 2020, as provinces
began to re-open non-essential services, SCC began to re-open its store network based on the restrictions
imposed by provincial and municipal governments. All of its store network had re-opened by June 24, 2020.
Beginning November 12, 2020 based on government restrictions in varying municipalities and provinces the
Company began closing stores due to the second wave of COVID-19. By December 25, 2020 182 stores, or
65% SCC’s store network, in Manitoba, Ontario, and Quebec were closed. The 114 stores in Ontario remained
open for curbside pick-up during this time. On January 9, 2021 the 61 Quebec stores opened for curbside pick-
up.
The CEWS was passed on April 11, 2020. Due to the significant decline in revenue resulting from the closure of
retail stores, SCCI has qualified for and received CEWS that provides a 75% wage subsidy to eligible
employers, on eligible remuneration for up to 28 weeks, subject to limits per associate. The Company qualified
for the CEWS federal government program in the amount of $14,959 for the period March 15, 2020 to July 4th,
2020, which was recorded net of salaries, wages, and benefits expenses.
To preserve a strong liquidity position, the Company renegotiated short-term rent deferral of certain stores and
distribution centres lease payments with certain landlords.
On May 4, 2020, the Board of Directors temporarily suspended the declaration of the Company’s dividend. On
November 9, 2020 the Board of Directors reinstated the Company’s dividend.
The duration and impact of the COVID-19 outbreak is uncertain at this time. The impact of the outbreak on the
financial results of the Company will depend on future developments, including the duration and spread of the
outbreak and its impact on the overall economy and related advisories and restrictions. It is not possible to
reliably estimate the length and severity of these developments and conclusively quantify the impact on the
financial results and condition of the Company in future periods.
23 Subsequent Events
The Company’s dividend policy is at the discretion of the Board of Directors. On February 9, 2021, the Company
declared a dividend of $0.195 per common share that will be payable on February 26, 2021 to holders of the
common shares of record as at the close of business on February 18, 2021.
90
Sleep Country Canada Holdings Inc.
Notes to Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019
(in thousands of Canadian dollars, except earnings per share)
Subsequent to year end, the Company submitted a Notice of Intention to the TSX to pursue a NCIB. Pursuant to
the NCIB, the Company proposes to purchase through the facilities of the TSX, from time to time over the next
12 months, if considered advisable, up to a maximum of 928,933 common shares of the Company, being
approximately 3.0% of its public float as of February 28, 2021. Purchases may commence through the TSX on
March 9, 2021 and will conclude on the earlier of the date on which purchases under the bid have been
completed and March 8, 2022. The Company may purchase up to a daily maximum of 30,661 shares
(representing 25% of the average daily trading volume of the Shares on the TSX for the six months prior to
commencement of the NCIB), except where such purchases are made in accordance with the "block purchase"
exception under applicable TSX rules and policies.
91
Notes
Sleep Country Canada Holdings Inc. | Annual Report 2020
92
Notes
Sleep Country Canada Holdings Inc. | Annual Report 2020
93
Notes
Sleep Country Canada Holdings Inc. | Annual Report 2020
94
Shareholder information
Exchange Listing
The Toronto Stock Exchange
Common Shares
Ticker Symbol: ZZZ
Auditor
PricewaterhouseCoopers LLP
PWC Tower
18 York Street, Suite 2600
Toronto, ON M5J 0B2
Banker
TD Securities
TD West Tower, 30th Floor
100 Wellington Street West
Toronto, ON M5K 1A2
Registrar and Transfer Agent
Computershare
100 University, 8th Floor
Toronto, ON M5J 2Y1
computershare.com
Shareholder Contact
Craig De Pratto
Chief Financial Officer
Sleep Country Canada
craig.depratto@sleepcountry.ca
Annual Meeting of Shareholders
Date: May 11, 2021
Time: 10:00am (EST)
Virtual Meeting
Participants can attend the meeting virtually by
logging in through the following link
https://web.lumiagm.com/266273011
Board of Directors
Christine Magee
Chair
Douglas Bradley
John Cassaday
Mandeep Chawla
David Friesema
Zabeen Hirji
Andrew Moor
Stacey Mowbray
David Shaw
Officers
David Friesema
Chief Executive Officer
Craig De Pratto
Chief Financial Officer
Stewart Schaefer
Chief Business Development Officer & President,
Dormez-vous?
Dave Howcroft
Chief Sales Officer
Capital Stock
As at December 31, 2020, there were 36,700,764
common shares outstanding.
Sleep Country Canada Holdings Inc. | Annual Report 2020
95
Sleep well. Stay well.TM
Sleep Country Canada Holdings Inc.
7920 Airport Road
Brampton, ON, L6T 4N8
T: 289-748-0206
sleepcountry.ca | dormezvous.com | endy.com