Rona goes smaller in push for bigger profit

Thu Feb 23, 2012 2:11pm EST
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TORONTO (Reuters) - Canada's Rona Inc RON.TO said on Thursday it is shifting focus from big-box home-improvement stores and will close or reduce the size of 23 of its biggest outlets in a push to stay competitive in a more crowded market.

The new business plan came as Rona, which operates 800 stores across Canada, reported little change in its quarterly earnings once a goodwill impairment charge and restructuring costs were excluded. Sales in established stores declined, extending a string of quarters in which same-store sales have dropped.

RBC Capital Markets analyst Irene Nattel said that downsizing stores is a step in the right direction for the Boucherville, Quebec-based chain.

"(Rona's) business plan for 2012 indicates that management is well prepared for another challenging year from a consumer demand perspective," she wrote in a note to clients.

In the next two years Rona will cut the size of 13 of its big box stores by 30 to 50 percent, renting out the extra space. It will close 10 other stores, replacing them with 25 smaller locations. The company will also relaunch its website.

"Our research indicates that proximity continues to be the most important factor considered by consumers when selecting a store," Chief Executive Robert Dutton said on a conference call. "We want our customers to be from one click to 10 minutes away from a Rona store."

Rona said stores in the new model will average 35,000 square feet. It has no short-term plans to build new big box stores.

Excluding items, earnings for the quarter ended December 25 dropped to C$19.7 million ($19.7 million), or 15 Canadian cents a share, from C$20 million, or 15 Canadian cents, a year earlier. A goodwill impairment charge and restructuring costs pushed the company to a C$151 million net loss.

Revenue rose to C$1.17 billion from C$1.14 billion. Analysts, on average, had expected earnings of 16 Canadian cents on revenue of C$1.13 billion.   Continued...