Rona renovates operations as stores shut, sales slump

Retailer loses $53.7M from restructuring, reversing profit in same period last year

BOUCHERVILLE, QUE.— Rona plans to revamp its private label offering as it continues to demolish the failed strategies of the past that continue to hurt the home renovation retailer’s profitability. The Quebec-based company recently began a review of the house brands it imports from China as part of its efforts to initially cut about $100 million in surplus inventories, of which $47 million has been achieved this fiscal year. Rona lost $38.7 million from continuing operations in the three months ended June 30, reversing a profit in the same period last year as it recognized restructuring costs and impairment charges related to its recovery plan. Canada’s largest home improvement retailer said sales fell to $1.25 billion from $1.3 billion — missing analyst estimates. Rona said about $35.1 million of the revenue decline was due to store closures while the remaining $24.5 million drop was due to a decline in same-store sales. Sales were also affected by a difficult market, poor weather, reduced construction of single-unit homes in Canada and a construction strike in Quebec.

Rona has about 12 lines of private label products which account for 28 to 30 per cent of its offering in the categories in which it offers a house brand.

Chief financial officer Dominique Boies said a private label is successful if it generates incremental margins.

“So if they’re there, they should bring more profitability to Rona and our dealers. And if not, we’re out of there,” he told analysts.

The home renovation chain said the quarter’s loss included $53.7 million in restructuring costs, impairment of non-financial assets and other charges, as well as an adjustment of $9.1 million for other costs related to its recovery plan.

The net loss amounted to $1.19 per share, which was deeper than analysts expected, while Rona’s adjusted earnings and revenue also missed expectations by a wide margin.

Rona’s adjusted net income attributable to participating shares amounted to $33.6 million, compared to $45.1 million a year earlier. That equalled to 28 cents per share, down from 37 cents a year before and five cents below the estimate.

Analysts had estimated 33 cents per share of adjusted earnings and a net loss of $1.30 per share, including one-time items.

Sawyer acknowledged the disappointing results but said it is building a new Rona by changing the culture to make it a leaner organization.