May 12, 2010 / 12:49 PM / 7 years ago

UPDATE 3-Rona profit surprises thanks to Canada tax rebate

* EPS C$0.02 vs consensus nil

* Revenue rises 12.5 pct to C$951.4 million

* Shares up 1 percent at C$17.05 (Adds analyst comments and share price)

TORONTO, May 12 (Reuters) - Rona Inc RON.TO, Canada’s biggest home-improvement chain, reported higher-than-expected quarterly results on Wednesday, saying it benefited from a special tax rebate to spur on home renovations.

Shares of the retailer, with about 700 stores, gained 1 percent as it reported first-quarter revenue growth of 12.5 percent, while sales in stores opened at least a year topped 10 percent.

Still the Boucherville, Quebec-based company said it was too soon to revise its outlook for the remainder of the year. It said it was cautious because of a slowing real estate market, new sales tax systems in Ontario and British Columbia, and the end of the renovation tax credit.

“I would assume that April and May sales are good but not near as good as the first quarter, so that is why they are being prudent,” said Brian Yarbrough, a retail analyst at Edward Jones in St. Louis.

“They definitely are being cautious and I wonder if comps (same store sales) haven’t slowed down some. There is a lot of talk about Canada being in a housing bubble.”

Earnings came in at C$3 million ($2.95 million), or 2 Canadian cents a share, in the first quarter, compared with a loss of C$2.5 million, or 2 Canadian cents, in the same quarter last year.

Revenue rose 12.5 pct to C$951.4 million

That compared with the average analyst estimate that the company would break even before one-time items on sales of C$924 million, according to Thomson Reuters I/B/E/S Estimates.

Same-store sales, a measure of the performance of stores opened for at least a year, rose 10.8 percent due to a robust housing market, improved consumer confidence and the government’s renovation tax credit program.

The Home Renovation Tax Credit, which ended in February, gave Canadians a tax rebate of up to C$1,350 to renovate their houses or vacation homes.

The stimulus program was introduced by Prime Minister Stephen Harper’s Conservative government in its 2009 federal budget as a way to jump-start the struggling economy.

The company said in January it aims to boost earnings per share by 10 percent to 15 percent over the next two years. It also wants to bulk up its national presence by adding new stores and bringing some of its other chains under one banner. It sees same-store sales rising by at least 2.5 percent.

Rona aims 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.

Rona’s shares were up 1 percent at C$17.05.

$1=$1.02 Canadian Reporting by Scott Anderson; Editing by Frank McGurty

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