August 10, 2011 / 1:07 PM / 7 years ago

UPDATE 2-Rona profit, shares tumble as customers stay away

* EPS misses market estimates

* Same-store sales down 9.6 pct

* Shares fall 4.5 percent

TORONTO, Aug 10 (Reuters) - Rona Inc’s RON.TO second-quarter profit dropped 40 percent, sharply below market estimates, as customers cut spending on its home improvement products, sending its shares down 5 percent.

The reluctance of homeowners to invest in big-ticket renovation projects, the lifeblood of Rona’s business, has plagued Canada’s No. 1 do-it-yourself chain.

Consumer confidence has remained low, never really returning though the country’s economic downturn eased over the past year. The company’s more expensive products, seen as discretionary, are seen as a low priority when budgets are tight.

Sales at its established stores fell 9.6 percent, following a 12.6 percent decline in the first quarter.

“The results were ugly — in all capital letters and bold,” Edward Jones analyst Brian Yarbrough said. “People are just not willing to spend.”

“The consumer spending environment is weak, but more so in home improvement.”

Rona, which blamed the weather and the fragile consumer confidence, said sales in stores opened at least a year will come under pressure for the rest of the year. The company competes with Home Depot Inc (HD.N) (HD.N) and Lowe’s Cos Inc (LOW.N).

“The weather is not the issue,” Yarbrough said. Same-store sales have not grown on an annual basis since 2006, he said.

Second-quarter earnings fell to C$39.5 million ($39.9 million), or 28 Canadian cents a share, from C$66.3 million, or 51 Canadian cents a share, a year before. Analysts on average were looking for earnings of 40 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue fell 2 percent to C$1.37 billion, missing the average analyst estimate of C$1.43 billion.

The stock, down 24 percent since the start of the year, fell 4.5 percent to C$10.24 on the Toronto Stock Exchange. It hit a near-three-year low of C$10.03 earlier in the session. ($1=0.99 Canadian) (Reporting by S. John Tilak, editing by Frank McGurty)

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