February 21, 2013 / 3:18 PM / 6 years ago

Canada's Rona outlines turnaround plan as it posts loss

TORONTO (Reuters) - Rona Inc RON.TO, Canada’s top home-improvement retailer and distributor, reported a narrower quarterly loss on Thursday and outlined plans to expand its distribution business and scale back its big-box store strategy outside the province of Quebec.

But shares of the Boucherville, Quebec-based company dropped 3 percent as investors registered their disappointment with the plan, which is designed to counter the threat from U.S. competitors Home Depot (HD.N) and Lowe’s Cos (LOW.N) and return to the company to profit.

Most of the steps outlined by Rona had been signaled, Canaccord Genuity analyst Derek Dley said, although the company did reveal on Thursday that it now plans to cut about 200 administrative jobs, or 15 percent of its office staff.

“In my mind, I don’t think that’s really enough to turn around the underperformance at the company,” Dley said of Rona’s broad plan.

In addition to Rona’s net loss for the fourth quarter, earnings excluding one-time items tumbled and fell short of investor expectations, extending a long series of dismal quarters for the company.

“Rona’s results were quite a bit weaker than we expected,” Dley said. “The home renovation spending market in Canada remains weak, and we continue to think that they’re losing market share to Home Depot and some of the other big-box players.”


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

The company transformed itself from a modest Quebec hardware distributor to a national retailer in the 1990s, making a string of acquisitions in a bid to head off Home Depot Inc as big-box home-improvement retailers arrived in Canada. But since the 2008-09 recession Rona has struggled as sales have languished.

Rona, which rebuffed an unsolicited C$1.8 billion ($1.77 billion) takeover proposal from Lowe’s in August, has come under intense investor pressure due to its weak results. It bowed to the pressure and shuffled its board in January, promising to make drastic moves to improve performance.

“Today is definitively a turning point for the future of Rona. We are, in fact, announcing a major renovation project for the company. This is no maintenance project,” acting Chief Executive Dominique Boies said on a quarterly conference call on Thursday.

Boies said he believes Rona’s new strategy will allow it to get back on a profitable growth track.

Barclays analyst Jim Durran said, however, that Rona faces bigger challenges than those that its plan seeks to address.

“Despite the announcement of a new strategy and the potential savings, the fundamental outlook on the Canadian home improvement sector remains challenged by a slowing housing market and increased competitive pressures,” Durran said in a note to clients. “We do not expect any major developments for Rona to occur prior to the appointment of a new permanent CEO.”

Rona’s long-time chief executive, Robert Dutton, stepped down in November. Rona said on Thursday its search for a new CEO is well underway and a decision should be announced shortly.

Rona said planned job cuts will would result in a restructuring charge of about C$25 million ($24.5 million). It said the cuts, coupled with other moves, will boost earnings before interest, taxes, depreciation and amortization by C$35 million to C$45 million over the next two years.


The net loss in the fourth quarter was C$17.9 million, or 15 Canadian cents a share. That compared with a year-earlier loss of C$153.6 million, or C$1.19, when its results were hit by a very large goodwill impairment charge.

Excluding one-time items, the company said earnings in the period ended December 30 fell to 5 Canadian cents a share, down from 15 Canadian cents a share, a year earlier.

Analysts, on average, had forecast earnings of 12 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Quarterly revenue rose 2.2 percent to C$1.20 billion, mainly due to the booking of an extra week of sales in the quarter and the opening of some new stores.

Rona shares were down 43 Canadian cents, or 3.6 percent, in midday trading on the Toronto Stock Exchange on Thursday.

Reporting by Euan Rocha and Allison Martell; Editing by Nick Zieminski, Grant McCool and Peter Galloway

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