Rona praying for improved weather

BOUCHERVILLE, Que. — Rona Inc. is praying for warm weather in the coming weeks to salvage a disappointingly weak start to the year as weak consumer spending has prompted the home renovations company to curtail its expansion plans.

BOUCHERVILLE, Que. — Rona Inc. is praying for warm weather in the coming weeks to salvage a disappointingly weak start to the year as weak consumer spending has prompted the home renovations company to curtail its expansion plans.

“When the temperature is warmer our sales are extremely positive,” CEO Robert Dutton said Tuesday following Rona’s annual meeting.

He said it was premature to write off the current quarter based on weak sales in April, since last weekend’s warm conditions provides hope for a turnaround.

“The big gardening weekend will take place on the weekend of the Patriots Day (Victoria Day) and we will be there to respond to the demands of the consumers.”

The Quebec-based retailer lost $16.8 million in the first quarter as it faced an onslaught of retailer misfortunes including “very unfavourable” weather and fragile consumer confidence.

It lost 13 cents per share for the period ended March 27, well below analyst expectations of a loss of three cents per share, according to Thomson Reuters.

Rona’s shares traded as low as $11.95 at the Toronto Stock Exchange, but recovered some lost ground. Late in the session, the shares were down $1.01 or more than seven per cent at $12.25.

The quarterly loss compared to a $3 million profit, or two cents per share, a year ago when the home renovation industry was still under a dark cloud, but not as gloomy.

Quarterly revenue slipped four per cent to $918.2 million, a drop from $956.9 million a year ago, and below analyst predictions of $932 million.

Dutton said the company will scale back some of its expansion plans by opening fewer new stores and spending $25 million less in capital expenditures.

Rona (TSX:RON) continues to face a difficult operating environment caused by waning consumer confidence, decreased housing starts and reduced consumer spending.

“For sure, our first-quarter results were disappointing. The slowdown is a fact not only for Rona, but for the entire market,” he told shareholders at its headquarters on Montreal’s south shore.

Acquisitions helped to offset some of the consumer weakness. Retail and commercial sales decreased by 6.2 per cent, offset by a 1.7 per cent increase in distribution segment revenues.

Same-store sales for locations open at least a year decreased 12.6 per cent, higher than the 10 per cent forecast by analysts.

The fragile consumer confidence, unfavourable weather and lack of tax-credit-driven market stimulation were all factors in the decrease.

In the same period a year earlier, Rona benefited from a still robust housing market across the country and the tail end of the federal home renovation tax credit, a year-long program which expired at the end of January 2010.

Warmer weather may give Rona a short-term jolt, but analysts said it needs a broader recovery in consumer spending to turn around dwindling sales on big ticket renovation projects.

“I think weather will even itself out over the long term but the consumer spending environment and even more so in the home renovations projects it’s going to remain tough for the foreseeable future,” said Brian Yarbrough of Edward Jones.

He said the industry has been plagued by weak sales since 2005. Rona’s earnings have continued to decrease and may end up even worse this year unless it mounts a strong surge in the final three quarters.

“I don’t see anything out there that says this is going to change in the next 12 to 18 months,” he said pointing to a lack of consumer interest in large spending projects.

Dutton insisted the company has taken all the right steps to prepare for the downturn and the eventual recovery that will follow.

“We are in front of the parade with our actions and that’s why we have existed for 70 years because we have always been the leaders,” he told reporters.

It instituted a cost savings program in the summer of 2007 and is the leading industry consolidator by purchasing independent retailers who want to exit the business.

Rona has grown its market share to 19 per cent from 17.5 per cent in 2009 as rivals have endured strong drops in sales, he added.

It faces intense competition from Home-Depot which has 179 large outlets in Canada and the growing threat from Lowe’s. Rona has 78 large format stores among its 400 locations.

Operating losses of $19.6 million compared to an operating profit of $8.2 million a year earlier.

Rona is contending with a dry spell in the domestic housing market. The Canada Mortgage Housing Corp. expects housing starts to decrease by about 6.5 per cent in 2011, before increasing by 3.5 per cent in 2012.

Consumer confidence fell by 6.3 per cent in March.

Rona is the largest Canadian retailer and distributor of hardware, home renovation and gardening products and employs nearly 30,000 employees across Canada.