November 11, 2008 / 1:54 PM / in 9 years

CORRECTED - UPDATE 3-Rona warns it may miss targets after profit drops

(Corrects closing share price)

* Rona EPS C$0.46 vs C$0.51

* Revenue rises 2.2 pct to C$1.38 billion

* Same-store sales fall 2.3 pct

* Says it might not meet EPS target

* Shares close nearly up 5 percent on TSX (Adds company comments)

By Scott Anderson

TORONTO, Nov 11 (Reuters) - Rona Inc RON.TO, Canada’s biggest home-improvement chain, reported a lower third-quarter profit on Tuesday due to a slump in construction and home renovation, and warned that it might not meet its profit targets.

The retailer, with about 680 stores, said that the downturn in the economy and sagging consumer confidence has led to a “high degree of uncertainty in terms of future consumer activity.”

Rona said the expected decline in the economy over the next few quarters could prevent it from meeting its percentage target of earnings per share growth in the low single digits in 2008 and 2009 and gains in the double digits in 2010 and 2011.

“It doesn’t really surprise me and I don’t really think it’s really surprising the street. ... I don’t think most people expected that they would make the numbers anyway,” said Brian Yarbrough, an analyst at Edward Jones, in St. Louis, Missouri.

“The environment is just getting a lot worse than they expected and I don’t really see anything that is going to turn that going into 2009 and it could probably get worse heading into 2009.”

Even so, Rona shares, after falling Tuesday morning, shot up 4.93 percent to close at C$11.70 after a late surge on the Toronto Stock Exchange.

Yarbrough said he was at a loss to explain the stock’s rise, given the uncertain profit outlook.

Still, he called attention to three positives: Rona said it would do a better job with inventory management, work to improve gross profit margins and hold off on acquisitions.

The company said it earned C$53.4 million ($44.8 million), or 46 Canadian cents a share, in the third quarter, down from C$59.4 million, or 51 Canadian cents, in the same quarter last year.

Excluding unusual items of C$6.4 million, or 5 Canadian cents a share, earnings per share were 51 Canadian cents, the same as the year-before quarter.

Revenue was C$1.38 billion, up from C$1.35 billion for the same period in 2007.

Analysts were expecting, on average, a profit of 48 Canadian cents a share before items and revenue of C$1.38 billion, according to Reuters Estimates.

Same-store sales slipped 2.3 percent as consumer confidence waned and the resale of single-unit homes, especially in Alberta, dropped.

“The market conditions are tough. We need to make sure that we can increase profitability and improve different things in the company, just to make sure that at least we can compensate for the tough economic conditions,” Rona’s chief financial officer, Claude Guevin, told Reuters.

Despite the tough climate Guevin said the company was on track to meet its goal of building seven new stores in 2009 including two in the “big box” format.

Guevin also said the company, known for its aggressive acquisition strategy, would be patient and wait for the right time to acquire distressed companies.

“If we are patient, we won’t lose these targets. We will just take advantage of the situation and acquire these companies at better conditions,” he said. “We want to be patient. We want to make sure that we will pay the right price.”

$1=$1.20 Canadian Additional reporting by Frank McGurty

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