February 20, 2008 / 3:16 PM / 10 years ago

UPDATE 2-Rona blames difficult conditions as profit drops

(Adds details, background, updates stock price)

OTTAWA, Feb 20 (Reuters) - Fourth-quarter profit at Rona Inc RON.TO fell 20 percent, the Canadian home improvement retailer said on Wednesday, blaming a “difficult business climate”, supply chain study costs, and one less week of sales versus the same period last year.

Yearend demand and sales of building materials suffered a “major slowdown”, the company said, as housing starts and resales declined and the Canadian dollar strengthened.

Rona said net earnings fell to C$30.5 million ($30.2 million), or 26 Canadian cents a share, from C$38.1 million, or 33 Canadian cents a share, in the same period a year earlier.

Operating income fell 12.5 percent to C$75.9 million.

The mean analyst estimate was for a profit of 34 Canadian cents a share before exceptions, according to Reuters Estimates.

Revenue dropped 4.8 percent to C$1.08 billion. Excluding the impact of an additional week of sales in 2006, revenue fell 0.4 percent, Rona said.

Same-store sales fell 2.1 percent in the quarter. In November, the company warned that 2007 same-store sales could be weaker than expected, triggering a sharp selloff of Rona’s shares.

“In light of the increasing downward pressure on sales throughout the retail industry and a decrease in single-family housing starts last year, Rona did not achieve its objective of C$7 billion in annualized retail sales in 2007,” said Chief Executive Robert Dutton in a statement.

“Rona is taking positive action in the face of the widespread economic uncertainty that has been affecting consumer confidence for the last few months.”

The Boucherville, Quebec-based company said it plans various measures to stimulate sales, including improved service, a faster launch of new stores, supply chain improvements, inventory reduction, and the review of underperforming stores for restructuring.

It will announce its 2008-11 strategic plan on Feb. 27 as part of its investors day in Montreal.

Full-year profit was 3 percent lower at C$185.1 million, or C$1.59 per share, from C$190.6 million, or C$1.64 per share.

Revenue rose 5.1 percent to C$4.78 billion on growth from acquisitions and new stores.

Rona competes with Canadian Tire (CTC.TO) and the Canadian units of Home Depot (HD.N) and Lowe’s (LOW.N) Lowe’s opened its first three Canadian stores in the Toronto area in December, its first move outside the United States.

The company’s shares fell nearly 6 percent to end at C$15.41 on the Toronto Stock Exchange on Wednesday. The stock has dropped about 36 percent in the last 12 months.

$1=$1.02 Canadian Reporting by Susan Taylor; Editing by Peter Galloway

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