4 Min Read
By Solarina Ho
TORONTO, Aug 14 (Reuters) - Rona Inc, Canada's largest home-improvement retailer and distributor, reported a wider-than-expected second-quarter loss on Wednesday, weighed down by restructuring costs and tough market conditions.
Results sent Rona shares down as much as 4.5 percent. Shares were off 2.6 percent at C$10.97 in early afternoon trading.
The Boucherville, Quebec-based company, under pressure from U.S. rivals Home Depot Inc and Lowe's Cos Inc, reshuffled its board, named a new chief executive and launched a business recovery plan earlier this year.
Rona, which is closing a number of unprofitable stores, said quarterly sales fell, due in part to the store closures but also because of bad weather, a strike in the construction industry in Quebec, and a decline in new home construction.
"What we're seeing with Rona here is continued challenge on the top line that's really getting reflected in the company's overall bottom line results," said Derek Dley, a retail analyst at Cannacord Genuity, noting that sales declined for the 12th consecutive quarter after adjusting for extra weeks.
"Over the balance of the year and the beginning of next year, I still think what we're going to see is a very challenging and soft home renovation and spending market."
Canadian housing data last week showed new home construction fell slightly in July from June, while building permits issued for the residential sector fell 12.9 percent in June.
The 74-year-old retailer said results were also impacted by asset sales, investments in promotions, inventory liquidation and restructuring-related costs.
It said its recovery plan and annualized cost-savings target of C$110 million were on track. Its annualized savings rose to C$30 million from C$17 million in the first quarter. The company plans to reinvest a portion of the savings.
"This is a totally new Rona we are building," Chief Executive Robert Sawyer said on a conference call. "We need to change the culture, to make it a leaner, more efficient, and more agile organization."
Rona transformed from a modest Quebec hardware distributor to a national chain in the 1990s in an effort to head off Home Depot's arrival into Canada. But the retailer has struggled since the 2008-2009 recession.
It bowed to investor pressure at the start of the year over its weak results and after rebuffing an unsolicited C$1.8 billion takeover proposal from Lowe's a year ago.
As part of its recovery plan, it also sold off its plumbing, heating, ventilation and air conditioning business for C$215 million in June and cut 325 positions.
The company recorded charges of $62.8 million for restructuring, writing down the value of non-financial assets and other steps in its recovery plan.
Net loss was C$141 million, or C$1.19 a share, compared with a profit of C$38.1 million, or 28 Canadian cents a share, a year earlier. Revenue fell 4.6 percent to C$1.25 billion, while comparable store sales dropped 1 percent. Store closures reduced revenue by C$35.1 million.
Analysts' average forecast was a loss of C$1.03 per share on revenue of C$1.39 billion, according to Thomson Reuters I/B/E/S.
Rona said its loss from continuing operations was C$38.7 million, or 32 Canadian cents a shares, compared with earnings of C$35.6 million, or 29 Canadian cents a share, a year earlier.