Rona to close stores, cut staff, sponsorships
Last pieces of turnaround plan
MONTREAL • Hardware retailer Rona Inc. is closing money-losing stores, laying off more staff and ending its sports sponsorship agreements as it aborts a multi-year expansion effort that drained profits and tanked its share price.
The moves represent the final major pieces of a turnaround plan hatched by a new management team under the direction of executive chairman Robert Chevrier. Whether it will be enough to reverse six straight years of earnings declines remains to be seen.
The home improvement retailer faces a battery of headwinds outside its control, including declining housing starts and still-shaky consumer spending.
Boucherville, Que.-based Rona said it will shut down eight unprofitable stores in Ontario and three in British Columbia after shopping the outlets around as a package but failing to find a buyer.
It will also trim 125 more administrative jobs and cut marketing expenses, including terminating its existing sponsorship deals with the Canadian Football League, Canadian Olympic committee and several National Hockey League teams.
“You can afford that when you’re rich but right now I think we need to focus on spending and investing wisely,” Rona chief financial officer Dominique Boies said in an interview, adding the sports sponsorships were signed at a time Rona was building its brand nationally.
Rona shares rose almost 8% to close at $10.47 in Toronto trading Thursday, their biggest single-day gain since Nov. 9, 2012. U.S. rival Lowe’s Cos. made a non-binding offer for Rona last year worth $14.50 per share that was rejected by Rona’s board.
The new recovery measures will generate an estimated $70-million in annualized cost savings, Rona said. When added to the $40-million in savings detailed in February, the company believes it can save $110-million a year in all.
Roughly 30% of the dollars saved will be pumped back into the business in the form of lower merchandise pricing and other store-level initiatives to improve sales. The company will take non-recurring charges worth $220-million in the second quarter to do the restructuring.
“I am convinced we have everything in place to achieve this [cost savings] target,” chief executive Robert Sawyer told analysts on a conference call Thursday.
“Despite the fact that I can’t predict what will be the economic context in the near future, I can tell you that we are imposing a very strict discipline to the elements under our control.”
Mr. Sawyer, a grocery industry specialist, joined Rona April 8. During his four years as chief operating officer at supermarket chain Metro Inc., the company saw its share price soar 66% after buying A&P Canada and consolidating its various operating banners under the Metro name.
Rona needs a similar lift. The company’s margins on earnings before interest, taxes, depreciation and amortization have eroded over the years from a peak of 8.5% to less than 6% now as it struggles with too many stores carrying too much merchandise, some of it sitting unsold for weeks.
Rona is now trying to simplify its business model by cutting stores that don’t make money and stocking fewer items. But the real lift on the EBITDA margin will come when the same-store sales numbers of the remaining locations start generating momentum, Mr. Boies said. The company still has about 50 stores in its network of 800 locations not generating adequate returns, he said.
Rona will likely test RénoDépôt, its discount big-box store model currently only in Quebec, outside the province this year, management said. This month it announced it would sell its commercial and professional market business for $215-million.
“[Investors] are all waiting to see how it’s going to flow down to the bottom line,” Mr. Boies said. “But I think from the feedback that I have, it’s seen as positive news and steps in the right direction.”