May 14, 2013 / 5:39 PM / in 6 years

Rona posts bigger loss, promises better future

(Reuters) - Rona Inc RON.TO reported a bigger-than-expected quarterly loss on Tuesday as it struggled with tough competition and hefty restructuring charges, but Canada’s top home improvement retailer said its turnaround plan would deliver better results.

Rona, which fought off a C$1.8 billion hostile bid from Lowe’s Cos Inc (LOW.N) last summer, is working to rebuild its business during a weak housing market. It said it has made progress on the three-year turnaround plan announced in February, but more work lies ahead.

Its shares fell 4 percent after it announced the results.

Investors were also disappointed by the company’s decision to keep its big-box store network outside Quebec, said Canaccord Genuity analyst Derek Dley. That is a departure from its previous strategy to focus on smaller format stores to improve performance.

“It’s a very challenging time for the industry in general and more specifically for Rona,” Dley said. “This is a company that’s been underperforming its peers for the last few years and we don’t really see anything in the near term that’s going to turn that around.”

A recovery plan for its big-box stores will be announced next quarter, the company said.

Rona also promised to detail plans for a division of specialized stores that sell products to commercial and industrial construction customers. In March, it said it was in serious talks with prospective buyers.

Rona, which has a new chief executive in charge of overhauling the company, said it has cut C$17 million in annualized costs through job cuts and new outsourcing deals. It expects to cut C$35 million to C$45 million by the end of 2014.

As part of its overhaul, an in-depth review of pricing strategy and product categories is also underway.

Robert Sawyer, the former chief operating officer at supermarket chain Metro Inc, took the reins of Boucherville, Quebec-based Rona last month. He said the company’s strong balance sheet and cash flow will see Rona though this pivotal period to a promising future.

“Sawyer is going to be facing some tough days ahead,” said Dley. “It remains a very, very challenging ... home renovation market in general in Canada, but particularly, Rona’s results, when you look at same store sales, have been notably worse than their bigger competitors.”

Sales at Rona’s established retail and commercial stores declined 3 percent in the first quarter, largely offset by a 9.5 percent increase in the company’s distribution division. Combined sales fell 0.8 percent.

Chief Financial Officer Dominique Boies said in a statement that 2013 “is clearly a transition year for Rona, and further changes will be required to allow us to return to sustained growth in net income.”

Boies said weakness in the Canadian housing market and a restructuring had hurt first-quarter results, but said the company’s new strategy will ensure its success.

Adjusted to exclude restructuring and turnaround charges of C$17.8 million, Rona reported a loss of C$22.7 million ($22.46 million), or 19 Canadian cents a share. That compares with an adjusted loss of C$13.5 million, or 11 Canadian cents a share, a year earlier.

Analysts, on average, had expected a loss of 14 Canadian cents a share and revenue of C$932.7 million, according to Thomson Reuters I/B/E/S.

Revenue dipped 0.5 percent to C$929.4 million.

Founded in 1939 by independent hardware stores in Quebec, Rona transformed into a national retailer in the 1990s.

With close to 28,000 employees, Rona operates over 800 corporate, franchise and affiliate retail stores and has a network of 14 hardware and construction material distribution centers.

Rona’s shares declined by 43 Canadian cents to C$10.20 on the Toronto Stock Exchange on Tuesday afternoon.

($1 = 1.00 US dollars)

Reporting by Susan Taylor; Editing by Gerald E. McCormick, John Wallace and Tim Dobbyn

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