BUSINESS

Rona dismisses persistent 'demoralizing' rumours about a possible sale

05/09/2012 07:03 EDT | Updated 07/09/2012 05:12 EDT
BOUCHERVILLE, Qc - Home renovation retailer Rona Inc. told shareholders Wednesday that it's not for sale and dismissed persistent demoralizing rumours of a possible buyout.

"Rona is not for sale — either in whole or in pieces," board chairman Jean Gaulin said in response to an investor question at its annual meeting.

American retailer Lowe's has long been rumoured as a potential buyer as it looks to expand its presence in Canada to compete with U.S. rival Home Depot.

Rumours have intensified since late February when Rona (TSX:RON) announced the closure of a dozen warehouse stores in Canada, following further disappointing results.

President and CEO Robert Dutton said speculation about a buyout is "demoralizing" for employees, dealers and suppliers.

He insisted that "no one" has so far "formally approached" Rona with a purchase offer.

"If ever we get something concrete, you can be assured that we (the board) will take our fiduciary role with shareholders," added Gaulin who stepped down from the board Wednesday.

He was replaced by Geoff Molson, owner of the Montreal Canadiens and board member of brewer Molson Coors (TSX:TPX.B).

The Molson family had been a shareholder in Home Depot and the defunct hardware chain Beaver Lumber.

When asked why he had agreed to serve on Rona's board, Molson said he was proud to become director of a "large company in Quebec."

A shareholder had proposed that Rona enter into a partnership with a retailer like Canadian Tire (TSX:CTC.A), which could help repel any advances from a U.S. giant.

Dutton didn't respond to the suggestion. Noting that one of Rona's largest shareholders is the Caisse de depot et placement du Quebec, he predicted it would remain a Canadian company "for a long time."

"The best way to stay in Canada, is to publish results that give confidence to our investors," said Dutton.

Dutton said the company closed locations, including two in the Toronto area, but will increase the number of smaller stores to add more "points of contact."

Rona believes that its new strategy will allow it to maintain sales and add $40 million in annual operating profit by the end of 2014.

The company trimmed its losses in the first quarter to $13.3 million as revenues grew on the addition of stores and expansion of its commercial and professional division.

The Quebec-based company said it lost 10 cents per share for the 13 weeks ending March 25. That's down from 13 cents a year earlier when net losses were $17.6 million.

The loss was lowered due to a 38 per cent improvement in pre-tax earnings (EBITDA), and lower depreciation and financing costs.

Total revenues increased by 1.8 per cent to $934.9 million, stemming from higher distribution sales, store openings and the expansion of its commercial and professional market division.

Rona was expected to lose nine cents per share on $917 million revenue, according to analysts polled by Thomson Reuters.

Overall same-store sales decreased 0.8 per cent on weaker results in January but improvements in February and March.

Comparable sales for larger retail outlets that sell lower margin building materials rose 4.2 per cent while proximity stores were up 2.2 per cent.

Dutton said the improvement in building materials sales bodes well for the coming months because it usually signals the start of larger construction and renovation projects.

He added that the trend of improving same-store sales continued in April.

Rona says it is the largest Canadian distributor and retailer of hardware, home renovation and gardening products. It operates a network of close to 800 corporate, franchise and affiliate stores, and a network of 14 hardware and construction materials distribution centres.

With close to 30,000 employees, Rona and its franchise dealers generate $4.8 billion of annual sales.

On the Toronto Stock Exchange, Rona closed at $10.14, down 17 cents in Wednesday trading.