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Rona posts higher Q3 profit amid 5.5% same store sales drop

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Rona (TSE:RON)(TSE:RON.PR.A), the largest Canadian distributor and retailer of hardware, renovation and gardening products, said Wednesday third quarter net income increased over four percent despite economic uncertainty weighing on consumers, but still offered a weak outlook.

For the three months ending September 25, the company reported a profit of $50.1 million, or 36 cents per share, compared to $48.0 million, or 36 cents per share, a year ago.

Revenues amounted to $1.35 billion, up 2.1 percent from a year ago, as acquisitions and new corporate stores added $127 million. However, this was offset by a 5.1 percent drop in same store sales, due to consumers' cautious approach to discretionary spending, and the decline in residential housing starts. Same store sales are a key measure to gauge a retailer's financial health, as they exclude sales of stores recently opened or closed.

Rona was expected to earn, on average, 34 cents per share in the third quarter on $1.35 billion in revenues, according to Thomson Reuters.

Ontario and the Atlantic provinces were least affected by the drop in sales, while Western Canada, and particularly British Columbia, was most affected, the company said.

During the quarter, sales in the seasonal, gardening and treated wood categories were relatively stable, reflecting the start of projects delayed by poor weather in the first half of the year.

However, categories related to bigger renovation projects, such as forest products, construction materials, plumbing, electrical and floor-coverings had stronger declines during the latest period, Rona said.

The commercial and professional market division saw revenues, including acquisitions, increase more than 35 percent.

"Given the fragile nature of Canadian consumer confidence and their cautious approach to major renovation projects, we expect to see continued downward pressure on same-store sales as a whole over the next few quarters, particularly in major urban centres where growth in supply has exceeded demand, leading to sharper competition," said president and CEO, Robert Dutton.

"In this situation, we will continue to implement sales development and efficiency improvement measures, which have already paid off. These initiatives will improve customer loyalty and gross profits, and will reduce our organic selling and administrative expenses by the end of the year, as we indicated when we released our second-quarter results."

The company said it is still aiming for fourth quarter earnings per share to remain relatively similar to a year ago, despite downward pressure on same store sales, which could decline to a level similar to that of the latest quarter.

Rona also said it does not see the economic context changing much in the next year, and said  that a set of initiatives to mitigate the pressure on sales will be announced with the release of fourth quarter results.

Shares of the company were down 2.2 percent Wednesday, trading at $9.35 as of 11:34am ET.

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TSX:RON
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