Cost-cutting lifts profit at Canada's Rona but sales dip

Tue Aug 12, 2014 12:11pm EDT
 
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TORONTO Aug 12 (Reuters) - Canadian home improvement retailer and distributor Rona Inc reported a stronger-than-expected quarterly profit on Tuesday as lower costs helped offset a drop in sales due to tough competition in the home renovation market.

Rona said the results demonstrate the success of its turnaround plan and its need to stay focused on efficiency. The Boucherville, Quebec-based company reduced annual costs by C$110 million ($100.5 million) in 2013 by cutting jobs, closing stores and selling assets.

Still, arduous competition and a slowdown in some markets, notably in the province of Quebec, squeezed sales in the 13-week period ended July 29. Sales at established stores declined 0.7 percent from a year earlier and overall revenue fell 4 percent.

"In our view, the home renovation spending market remains highly competitive, which coupled with a cautious consumer spending market, is likely to challenge Rona's top line over the coming quarters," Canaccord Genuity analyst Derek Dley said in a research note.

Rona's closely watched adjusted earnings from continuing operations rose to C$42 million, or 35 Canadian cents a share, in the second quarter, from C$33.6 million, or 28 Canadian cents a share, in the year-before quarter.

Analysts, on average, had expected earnings per share of 33 Canadian cents, according to Thomson Reuters I/B/E/S.

Net profit of C$42 million reversed last year's loss of C$38.7 million.

Revenue fell to C$1.19 billion from C$1.25 billion.

A weak market and harsh winter hurt first-quarter results, the company said in May, blaming a 4 percent drop in same-store sales on lower housing starts, cold and snowy weather, along with the closure of poorly performing stores and the renovation of other stores.

($1=$1.09 Canadian) (Reporting by Susan Taylor; Editing by Peter Galloway)