May 13, 2008 / 4:50 PM / in 10 years

UPDATE 2-Rona squeezed by economic slowdown, winter weather

(Adds details from conference call)

By Scott Anderson

TORONTO, May 13 (Reuters) - Rona Inc RON.TO reported an almost 90 percent drop in first-quarter profit on Tuesday, as a softer economy and lingering winter weather in Eastern Canada hammered the home renovation retailer’s results.

The company, which counts on Quebec and Ontario for almost 70 percent of sales, also warned it would have a hard time meeting its goal of low single-digit growth in earnings per share over the next few years, given the weak first-quarter and “the greater than anticipated slowdown in the Canadian economy.”

“It is going to be a real challenge because of the weakness of the market and the poor confidence of the consumer on the economy,” Robert Dutton, Rona’s president and chief executive, said on a conference call with analysts.

Hurt by a weakening housing market, strengthening Canadian dollar and rising consumer caution, Rona had forecast in February low single-digit earnings growth in 2008 and 2009. Double-digit growth is seen in 2010 and 2011.

In the most recent quarter through March 30, Rona earned C$1 million, or 1 Canadian cent a share, down from C$9 million, or 8 Canadian cents a share, a year earlier.

Analysts had expected a profit of 4 Canadian cents a share before exceptions, according to Reuters Estimates.

Sales for the quarter were C$911.5 million, up from C$878.5 million, though same-store sales fell 5.2 percent.

Just after midday, Rona shares were down 48 Canadian cents, or 3.6 percent, at a year low of C$12.97 on the Toronto Stock Exchange.

“The results for first quarter 2008 reflect the strong drop in consumer confidence in the country’s economic growth,” Dutton said.

“Results were also affected by weather conditions that were particularly unfavorable to construction and renovation activity in Ontario and Quebec.”

The company — which vies with rivals such as Home Depot (HD.N), Canadian Tire (CTC.TO) and Lowe’s (LOW.N) — is trying a host of measures to boost sales, including improved service, a faster launch of new stores and a review of poorly performing locations for restructuring.

Lowe’s launch in Canada last year, the company’s first expansion outside the United States, has heightened competition in the sector.

Although Rona decided last month to close two big box stores — one each in Toronto and Richmond, British Columbia — and shift the sales volumes to neighboring stores, management assured analysts that “for the moment it has finished.”

In fact, it noted that its 2008 capital spending program will be about C$240 million, with approximately C$180 million allocated for store construction, upgrades and renovations, and property acquisitions. ($1=$1.00 Canadian) (Reporting by Scott Anderson; editing by Rob Wilson)

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