TORONTO (Reuters) - Rona Inc, Canada’s biggest home improvement chain, said on Monday it plans to boost earnings per share by 10 percent to 15 percent over the next two years and bulk up its national presence by adding new stores and bringing some of its other chains under one banner.
The Boucherville, Quebec-based company, which has about 700 stores across the country, said during an investor presentation that it would also continue its aggressive growth strategy by looking for further acquisition opportunities.
The overall aim of Rona’s “New World Program” is to boost its share of the Canadian market to 20 percent from its present 17.5 percent, while increasing its EBITDA margin by 20 basis points to 30 basis points during the period.
It also sees same store sales growth of about 2.5 percent.
This follows a disappointing quarter in which the company’s results hit by weak consumer sentiment and a weak home renovation market.
In November it reported that its quarterly earnings fell to C$49.1 million ($46 million), or 38 Canadian cents a share, from C$52.5 million, or 45 Canadian cents a share, a year earlier.
Revenue fell 4.4 percent to C$1.32 billion as same store sales, a measure of the performance of stores open for at least a year, dropped 5.3 percent.
Rona’s shares were up 0.7 percent at C$16.68 on Monday afternoon on the Toronto Stock Exchange.
Brian Yarbrough, an analyst at Edward Jones in St. Louis, Missouri, said he is skeptical that the consumer mood has changed drastically enough for Rona to reach its goals.
“The consumer continues to be a little bit strapped for cash, and while consumer confidence is improving, the hardest part (for Rona) is going to be the sales and earnings aspect of it,” Yarbrough said.
The company aims to focus on growing in the key Ontario market as well as in Western Canada, through renovating and expanding existing stores, as well as by acquiring other chains.
It plans to open 10 stores a year for the next two years, and will bring its Cashway and Lansing chains, which were bought a number of years ago, under the Rona banner.
The plans will be supported by capital expense funding of an average of C$225 million per year over the period, up from C$170 million in 2009, said Claude Guevin, executive vice-president and chief financial officer.
Guevin noted that Rona has a healthy balance sheet and access to about C$650 million in credit facilities.
“We wanted to make sure we have no financial issues to reaccelerate our development and restart the second phase of our plan,” Guevin said during the presentation.
“We will not change the way we manage our balance sheet. Our free cash flow will be used mainly for the development projects and also to support our different financial ratios.”
The growth focus, especially on Ontario, comes as U.S.-based home improvement chain Lowe’s said late last year that it expects to spend about C$200 million in 2010 and open eight to 10 new stores as it pushes further into the Canadian market.
Lowe‘s, which currently has 15 Canadian stores, aims to keep up a pace of opening about 10 new stores a year for the foreseeable future.
Reporting by Scott Anderson; editing by Peter Galloway