Rona profit up as cost-cutting plan takes effect

The Rona store at Commissioners Road and Highbury Ave. in London, Ontario is closing. Photo shot on...

The Rona store at Commissioners Road and Highbury Ave. in London, Ontario is closing. Photo shot on Thursday, June 27, 2013. (DEREK RUTTAN/QMI AGency)

Solarina Ho, Reuters

, Last Updated: 4:30 PM ET

TORONTO - Struggling Canadian home improvement retailer and distributor Rona Inc reported a bigger quarterly profit on Tuesday as it cut costs, but competition and cooling new home construction hurt sales.

The Boucherville, Quebec-based company, facing a raft of challenges as it works through an aggressive restructuring plan, said its results were helped by on-target cost savings, but revenue declined on store closures and a sales slump at established stores.

The company noted ground breaking on new single-family homes shrank significantly in its home province in the three months ending Sept. 29. Rona earns nearly 50% of its revenue in Quebec.

Rona, which also announced a share buy-back on Tuesday that helped support the stock, has underperformed its peers in a tough market dominated by big U.S. retailers like Home Depot Inc and Lowe's Co Ltd.

As part of a recovery plan announced in late June, the retailer said it generated annualized cost savings of C$63 million ($60 million), primarily due to job cuts, cheaper administration services and closing money-losing stores.

Last month, it also completed the sale of its plumbing, heating, ventilation and air conditioning division to Talisker Plumbing Corp for C$214 million.

On Monday, Rona said it was acquiring the 49% stake in a family-run business that it did not already own. Financial terms of the purchase of Groupe Coupal, which operates under the banner Materiaux Coupal and sells lumber and building materials to contractors, were not disclosed.

SALES SLUMP

Rona said it net income rose to C$30 million, or 25 Canadian cents per share, from C$5.5 million, or 5 Canadian cents per share earned during the same period last year.

Revenue slid 4.3% to C$1.17 billion, primarily due to $18.2 million in lost sales from store closures and a 2.4% decline in sales at established stores.

The slide was partially offset by new store openings, which contributed C$3.5 million in revenue for the quarter.

Adjusted net earnings were 25 Canadian cents per share versus 28 Canadian cents per share in 2012.

On average, analysts expected earnings of per share of 30 Canadian cents and sales of C$1.25 billion, according to Thomson Reuters I/B/E/S.

The company also trimmed selling, general and administrative (SG&A) expenses by C$21 million in the third quarter and cut inventory by C$114.4 million.

Rona said it was using proceeds from its sale to Talisker and free cash flow worth more than C$150 million to launch a share buy back of up to 10% of its public float.

Rona shares, which have climbed some 25% since late June, just before the announcement of its recovery plan, were up 1.8% at C$12.22 on the Toronto Stock Exchange in early afternoon trading on Tuesday.


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