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Rona Q3 profit tanks on industry decline, heated competition

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Canadian home improvement retailer Rona (TSE:RON) said Wednesday that third-quarter profit dropped sharply as a result of intense competition, a decline in same-store sales, inflation costs and restructuring efforts.

Shares fell 3.55 per cent as at about 12 p.m. EDT, trading at $9.79.

Montreal-headquartered Rona said net income fell to $5.1 million or four cents per share, from $47.8 million or 36 cents per share a year earlier.

Excluding one-time items, profit was $33.1 million, or 27 cents per share, far lower than the 40 cents per share expected by analysts according to Thomson Reuters.

Revenue fell 0.8 per cent to $1.34 billion, compared with analysts’ estimates of $1.36 billion.

Rona said it saw its “progress interrupted” in a quarter marked by a decline in the Canadian hardware-renovation industry as a whole. 

The drop in sales, coupled with “more intense competition”, put pressure on gross margins, which fell to 26.9 per cent from 28 per cent a year earlier, the company noted.

Rona saw same-store sales across its network decrease one per cent. For the retail and commercial segment, same-store sales were down 1.8 per cent, while same-store distribution sales to all Rona dealers grew 3.8 per cent.

Looking ahead, the company noted that the market is still in a period of "uncertainty and ambivalence”. 

Although conditions were favourable for renovation projects in the spring, the company said it has seen that consumers have returned to a cautious approach since the end of May. Housing starts have also slowed in recent months, particularly in Quebec, where Rona said it generates close to half its sales.

“Given the highly promotional and competitive environment, the expected pressure on same-store sales and the impact of inflation on operating and administrative costs, new operational initiatives and efficiency measures are being implemented to address these elements and limit the decrease in profitability in coming quarters,” said Rona in a release Wednesday.

 

Quick facts: Rona Inc

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TSX:RON
Market: TSX
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