* Will keep big-box network outside Quebec
* Has cut costs by C$17 mln annually, savings target C$35-45
* Calls 2013 "transition year" to promising future
* Stock drops 4 pct on TSX
By Susan Taylor
May 14 Rona Inc reported a
bigger-than-expected quarterly loss on Tuesday as it struggled
with tough competition and hefty restructuring charges, but
Canada's top home improvement retailer said its turnaround plan
would deliver better results.
Rona, which fought off a C$1.8 billion hostile bid from
Lowe's Cos Inc last summer, is working to rebuild its
business during a weak housing market. It said it has made
progress on the three-year turnaround plan announced in
February, but more work lies ahead.
Its shares fell 4 percent after it announced the results.
Investors were also disappointed by the company's decision
to keep its big-box store network outside Quebec, said Canaccord
Genuity analyst Derek Dley. That is a departure from its
previous strategy to focus on smaller format stores to improve
"It's a very challenging time for the industry in general
and more specifically for Rona," Dley said. "This is a company
that's been underperforming its peers for the last few years and
we don't really see anything in the near term that's going to
turn that around."
A recovery plan for its big-box stores will be announced
next quarter, the company said.
Rona also promised to detail plans for a division of
specialized stores that sell products to commercial and
industrial construction customers. In March, it said it was in
serious talks with prospective buyers.
Rona, which has a new chief executive in charge of
overhauling the company, said it has cut C$17 million in
annualized costs through job cuts and new outsourcing deals. It
expects to cut C$35 million to C$45 million by the end of 2014.
As part of its overhaul, an in-depth review of pricing
strategy and product categories is also underway.
Robert Sawyer, the former chief operating officer at
supermarket chain Metro Inc, took the reins of Boucherville,
Quebec-based Rona last month. He said the company's strong
balance sheet and cash flow will see Rona though this pivotal
period to a promising future.
"Sawyer is going to be facing some tough days ahead," said
Dley. "It remains a very, very challenging ... home renovation
market in general in Canada, but particularly, Rona's results,
when you look at same store sales, have been notably worse than
their bigger competitors."
Sales at Rona's established retail and commercial stores
declined 3 percent in the first quarter, largely offset by a 9.5
percent increase in the company's distribution division.
Combined sales fell 0.8 percent.
Chief Financial Officer Dominique Boies said in a statement
that 2013 "is clearly a transition year for Rona, and further
changes will be required to allow us to return to sustained
growth in net income."
Boies said weakness in the Canadian housing market and a
restructuring had hurt first-quarter results, but said the
company's new strategy will ensure its success.
Adjusted to exclude restructuring and turnaround charges of
C$17.8 million, Rona reported a loss of C$22.7 million ($22.46
million), or 19 Canadian cents a share. That compares with an
adjusted loss of C$13.5 million, or 11 Canadian cents a share, a
Analysts, on average, had expected a loss of 14 Canadian
cents a share and revenue of C$932.7 million, according to
Thomson Reuters I/B/E/S.
Revenue dipped 0.5 percent to C$929.4 million.
Founded in 1939 by independent hardware stores in Quebec,
Rona transformed into a national retailer in the 1990s.
With close to 28,000 employees, Rona operates over 800
corporate, franchise and affiliate retail stores and has a
network of 14 hardware and construction material distribution
Rona's shares declined by 43 Canadian cents to C$10.20 on
the Toronto Stock Exchange on Tuesday afternoon.