Rona doesn't expect to end long stretch of declining sales until 2015

BOUCHERVILLE, Que. – Rona’s cost-cutting efforts are starting to improve profits but a lengthy stretch of declining sales is unlikely to be broken until next year, the home renovation retailer’s CEO said Tuesday.

After years of declining same-store sales, Robert Sawyer said it would be “very ambitious” to achieve growth this year despite retrofitting its Reno-Depot stores in Quebec and Totem locations in British Columbia.

“Sooner will be better but I think 2015 (is more likely),” he told reporters after the chain’s annual meeting.

The hardware and building materials retailer been lowering prices, cutting the number of available products and introducing new categories of products to attract more customers to the stores and sell them more.

The former Metro grocery executive said all the changes introduced over the past year haven’t been enough to lift sales as customers have been affected by cold winter weather and the economic overhang which reduced housing starts.

Rona’s last positive year for same-store sales was 2006.

“So we’ve been working over the past two years to turn around the situation and really rework the old foundation of the company,” added chief financial officer Dominique Boies. “So it doesn’t happen overnight and when you do it and you don’t have an environment which is conducive to that business it makes it tougher.”

The chain, which derives half its sales in Quebec, hopes that new provincial home renovation tax credits will help sales, much like past federal and provincial programs did in 2010.

The company plans to launch an advertising campaign after clarifying components of the new Liberal government’s program that will join one launched by the PQ.

Rona slowed the flow of red ink last quarter, but still lost $16.6 million as revenues slipped 8.2 per cent to $764.3 million from $832.9 million, including an overall four per cent drop in same-stores sales, which exceeded analyst forecasts.

The loss amounted to 14 cents per share in the quarter ended March 30, compared with a loss of $36.1 million or 30 cents per share a year ago.

On an adjusted basis, Rona said it lost $14.4 million or 12 cents per share for the quarter from continuing operations compared with a loss of $18.3 million or 15 cents per share a year ago.

The earnings results matched the average analyst estimate but sales were below forecasts, according to analysts polled by Thomson Reuters.

Rona (TSX:RON) launched a program last June to improve operating efficiency and deliver $110 million in total costs savings, some of which would be invested to improve its network.

“At this time point in time we’re satisfied with the results but if we need to go into another wave (of cuts), we’ll do that,” Sawyer said, adding “there’s always a place to improve.”

Sawyer said sales trends for 11 recently renovated Reno-Depot big box stores in Quebec have been encouraging, prompting the company to accelerate upgrades on all 16 outlets by the end of the second quarter.

The company also plans to upgrade some of its large-format stores in the rest of Canada beginning in 2015. However, it hasn’t yet determined how many stores will get retrofits, identified their locations or determined whether the stores will be renamed Reno-Depot or something else.

Sawyer denied that the Reno chain is losing ground to rivals Home Depot or Lowe’s, saying only 65 of its 530 stores compete directly with the U.S. chains. It also specializes in the contractor business which it rivals don’t touch, and doesn’t sell appliances like they do.

Derek Dley of Canaccord Genuity said Rona suffered another “soft quarter” with same-store sales falling for a 15th consecutive quarter.

“Rona’s operating environment remains highly challenging given what we view as a cautious renovation spending market, along with heightened competition,” he wrote in a report.

Analyst Irene Nattel of RBC Capital Markets said Rona has set the foundation for improved results by reducing controllable costs and cutting stores.

“Macro headwinds remain, and we think it will be challenging for Rona to get wind in its sails until housing market/consumer spending improve,” she noted.

On the Toronto Stock Exchange, Rona’s shares gained 12 cents at $11.04 in Tuesday afternoon trading.

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