February 19, 2009 / 2:27 PM / 9 years ago

UPDATE 3-Rona cuts 2009 capex, citing uncertain outlook

* EPS C$0.22 vs C$0.26

* Revenue rises 3.5 percent

* Will miss growth objective in 2008-11 business plan

* Cuts capital expenditures by 25 percent

* Shares rise 4.2 percent to C$11.51 (Adds company and analyst comments, updates share price)

By Scott Anderson

TORONTO, Feb 19 (Reuters) - Rona Inc RON.TO said on Thursday it plans to cut its 2009 capital expenditures by 25 percent and repeated that it expects to miss some profit goals as consumers scale back on home improvement projects.

Rona, Canada’s biggest hardware store chain, also reported a lower profit on Thursday, though the results met analyst expectations. It noted that the “extent of the current global economic crisis brings a high degree of uncertainty in terms of future consumer activity.”

The retailer, with about 680 stores across the country, said the slumping economy would result in fewer homes being built and fewer home renovations.

As a result, it said it plans to cut 2009 capital spending to about C$150 million ($120 million) from the C$196.1 million it spent in 2008. The 2009 figure includes provisions for three new stores to open, down from Rona’s previous target of seven.

“Given the current financial, economic crisis, we will remain very, very prudent and selective with our development projects, focusing on the projects with the highest return on investment,” Chief Financial Officer Claude Guevin said during a conference call with analysts.

Guevin also repeated an earlier warning that Rona would not achieve its objective of low single-digit growth in earnings per share in the first half of its 2008 to 2011 business plan.

Brian Yarbrough, an analyst at Edward Jones in St. Louis, Missouri, said the company’s plan to scale back spending and store expansion was “a prudent thing to do”, given the tough economic environment.

In fact, Yarbrough said Rona should close some stores and focus on the profitable outlets.

“There is no reason to be building big stores and spending a lot of capex in this type of economic environment,” he said. “With the recent stores that they have opened, they are not getting the kind of returns that they expected, so why continue to open those stores. Fix the ones they have a problem with.”

EARNINGS SLIDE

The retailer said it earned C$25.7 million ($20.6 million), or 22 Canadian cents a share, in its fourth quarter, down from C$30.5 million in 2007, or 26 Canadian cents a share for the same period a year earlier.

Revenue rose 3.5 percent to C$1.12 billion.

Excluding unusual items, the company earned C$26.3 million, or 23 Canadian cents a share, down from C$30.5 million, or 26 Canadian cents a share.

Analysts, on average, had expected earnings per share of 22 Canadian cents and revenue of C$1.09 billion.

“Rona is clearly doing a good job of managing what is within its control,” RBC Dominion Securities analyst Irene Nattel wrote in a note to clients. “But the rapidly eroding economic backdrop, notably rising unemployment, implies that consumer spending will be further constrained in 2009.”

Rona shares, which have dropped 32 percent in the past year, were up 4.2 percent at C$11.51 on the Toronto Stock Exchange on Thursday.

$1=$1.26 Canadian Reporting by Scott Anderson; editing by Rob Wilson

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