Rona Inc's profit drops, says "progress interrupted"

Wed Nov 7, 2012 3:17pm EST
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By Allison Martell

(Reuters) - Canadian home-improvement retailer and distributor Rona Inc RON.TO reported a drop in quarterly profit on Wednesday after cutting prices to limit sales declines in a tough market.

Rona launched a turnaround plan earlier this year and refused a takeover by U.S.-based competitor Lowe's Cos Inc (LOW.N: Quote). The company said its turnaround plan would proceed.

"Rona saw its progress interrupted in a quarter marked by a decline in the Canadian hardware-renovation industry as a whole," the Boucherville, Quebec-based company said in a release. "The drop in sales, coupled with more intense competition, put pressure on gross margins."

Sales at established stores fell 1 percent, pulled down by retail operations, where same-store sales were 1.8 percent lower. Distribution sales rose on a same-store basis.

"It was quite a bit weaker than I was anticipating," said Canaccord Genuity analyst Derek Dley. "Really, the challenge here was on the margins - it looks like the environment was quite competitive."

Gross profit margin fell to 26.91 percent in the third quarter that ended September 23, from 28.09 percent a year earlier, as Rona cut prices, the cost of some construction materials was higher and sales of lower-margin building materials rose.

Lowe's takeover proposal, which never made it to the formal offer stage, became a hot-button issue during this year's provincial election in Quebec, where Rona has deep roots. Politicians from the incumbent Liberal Party and the election's eventual winner, the Parti Quebecois, both opposed the plan.

Rona was founded in Quebec in 1939 by independent hardware stores keen to ditch their powerful wholesalers. The French-speaking province is still home to about half of its 30,000 employees.   Continued...