Canada's Rona profit up as cost-cutting plan takes effect

Reuters

By Solarina Ho

TORONTO, Nov 12 (Reuters) - Struggling Canadian homeimprovement retailer and distributor Rona Inc reporteda bigger quarterly profit on Tuesday as it cut costs, butcompetition and cooling new home construction hurt sales.

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

The company noted ground breaking on new single-family homesshrank significantly in its home province in the three monthsending Sept. 29. Rona earns nearly 50 percent of its revenue inQuebec.

Rona, which also announced a share buy-back on Tuesday thathelped support the stock, has underperformed its peers in atough 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, theretailer said it generated annualized cost savings of C$63million ($60 million), primarily due to job cuts, cheaperadministration services and closing money-losing stores.

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

On Monday, Rona said it was acquiring the 49 percent stakein a family-run business that it did not already own. Financialterms of the purchase of Groupe Coupal, which operates under thebanner Materiaux Coupal and sells lumber and building materialsto contractors, were not disclosed.

SALES SLUMP

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

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

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

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

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

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

Rona said it was using proceeds from its sale to Taliskerand free cash flow worth more than C$150 million to launch ashare buy back of up to 10 percent of its public float.

Rona shares, which have climbed some 25 percent since lateJune, just before the announcement of its recovery plan, were up1.8 percent at C$12.22 on the Toronto Stock Exchange in earlyafternoon trading on Tuesday.

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