Rona to cut 200 administrative jobs, shrink presence outside Quebec

MONTREAL – Home improvement retailer Rona Inc. plans to cut 200 full-time jobs across Canada and shrink its presence outside of Quebec as it seeks to rebuild a network that continues to underperform in the face of weak consumer demand.

The downsizing, which represents 15 per cent of its administrative positions, is part of the company’s plan to focus on its core businesses and reduce other holdings.

“Our goal is to remain a full Canadian operation and even to accelerate this growth,” acting CEO Dominique Boies said in an interview Thursday after unveiling details of Rona’s strategic plan and fourth-quarter results.

“By freeing up capital, we will be able to reinvest in that business and gain additional scale.”

The Quebec-based company lost $17.9 million, or 15 cents per share, for the period ended Dec. 30, compared to a loss of $153.6 million or $1.19 per share a year earlier. Revenues increased 2.2 per cent to $1.2 billion largely on an extra week of business in the quarter.

Adjusting for one-time items, Rona earned $6.6 million or five cents per share, down from $19.7 million or 15 cents per share a year ago.

Rona was expected to earn 14 cents per share in adjusted profits on $1.13 billion in revenues in the fourth quarter, according to a consensus estimate compiled by Thomson Reuters.

For the full year, it earned $8 million on $4.9 billion of sales. That compared to a loss of $86.4 million on $4.8 billion of sales in 2011. Adjusted profits decreased nearly 20 per cent to $70 million or 57 cents per share, from $86.9 million or 66 cents in 2011.

Boies appeared to repudiate the past actions of long-time CEO Robert Dutton, who led the company through years of growth through acquisitions that failed to deliver profits or return on capital.

He said the company’s past restructuring efforts were “Band-Aid solutions” that didn’t address the merchandising and pricing strategy that drive consumer demand.

“We’ve lost our edge in some cases with some of our dealers,” said Boies.

Dealers account for 30 per cent of Rona’s sales.

Boies said the company’s restructuring will take about two years to complete, generate up to $45 million in additional pre-tax operating earnings and cost $25 million in costs.

However, consumers will begin to notice change this spring as prices fall on some key products and Rona begins to alter its offering, including private-label products.

The changes will see a reduction in poor selling products. For example, although it carries more than 40 circular saws, the top four sellers account for nearly 75 per cent of all sales.

Rona (TSX:RON) also said it’s taking a hard look at either selling or reducing the size of its 30 big box retail stores outside Quebec that generate about $750 million of annual sales but together are losing money.

It is also considering disposing part of its commercial and professional division that has $450 million of annual sales, but says it has no interest in selling its Quebec operations.

“It’s a core asset. It’s an asset we want to keep and we want to reinvest in… it’s not even a question,” said Boies.

The company is currently Canada’s largest home improvement retailer, with more locations across the country than Home Depot or Lowe’s.

Investors have been unhappy with Rona’s financial performance, especially since it turned down a takeover offer from U.S.-based rival Lowe’s last year.

Derek Dley of Canacccord Genuity said Rona’s results reflect the continuing weakness in the home renovation spending market and that he doesn’t see too much new in its strategic changes.

“I think they are taking the correct action in looking to right-size their network across the board, but I still think they face a number of head winds heading into 2013… so I’m not convinced at this point this new reiteration of their strategic plan is really going to turn around things in the near term,” he said.

Although Lowe’s has said it wants to expand its presence in Canada, Dley said he’s not sure the U.S. company will want to buy Rona’s underperforming stores.

The U.S. company declined to say Thursday if it is interested in Rona’s operations.

Meanwhile, Rona said same-store sales, a key measure of retail performance, increased by 2.9 per cent in the quarter, but by only 0.2 per cent excluding the extra week of business. The retail and commercial segment’s same-store sales were up 2.4 per cent, but down 0.7 per cent excluding the week.

Sales of lumber and building materials were strong, but offset by cost inflation and more intense competition.

Rona’s shares closed at $11.60 after falling 46 cents or 3.81 per cent Thursday on the Toronto Stock Exchange.