BUSINESS

Rona Closing Stores, Laying Off 125 In Restructuring

06/27/2013 08:54 EDT | Updated 08/27/2013 05:12 EDT
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MONTREAL - Rona plans to close 11 of its money-losing stores in two provinces, as well as cut more administrative jobs and trim its marketing budget in an effort to boost its financial results.

After years of efforts to address eroding profits, newly-installed CEO Robert Sawyer said his restructuring plan creates a simplified business structure and a more agile company, and it should be the last cost-cutting exercise needed to turn the company around.

"It's enough of restructuring," he said in an interview on Thursday.

"Going forward, we're there to do business. We're there to increase our sales and we're there to give satisfaction to customers."

Sawyer said his plan is based on a tough economy that doesn't show much improvement.

The executive, who came from Metro Inc. (TSX:MRU), said he will use his experience in the grocery business to revamp Rona's flyers and offer attractive discounts to lure customers to the stores.

"The flyer is the No. 1 item (that is) a traffic builder, so we're going to try and be better in our program of flyers," he said.

Investors welcomed Rona's latest move, sending the company's shares up nearly eight per cent to $10.47 in Thursday trading on the Toronto Stock Exchange.

Of the store closures, eight are in Ontario and three are in British Columbia.

Six Ontario stores in Mississauga, Windsor, Woodbridge, London, Huntsville, and Collingwood will close in October and two Ontario stores in Toronto and Aurora will close in December. The three B.C. stores — in Duncan, Kamloops and Abbotsford — will shut down in October.

Sawyer said he decided to close the stores, particularly in Ontario, because years of effort to turn them around has failed, in part because there is too much retail square footage available.

Rona will also look to convert a few of its 63 big-box stores outside of Quebec into the discount Reno-Depot brand, which offers a more limited selection of cheaper items.

About 800 jobs will be eliminated by the closures that together generated $130 million of annual sales. About two-thirds of the jobs are part-time.

Rona (TSX:RON) also said 125 more administrative jobs will be cut across Canada on top of the 200 announced last February. About 50 jobs are based at its headquarters in the Montreal-area while the remaining positions are based in Toronto, Calgary, Vancouver and Winnipeg.

The company expects to pay $15 million in severances due to store closures and administrative job cuts.

The Quebec-based home renovations retailer will also dramatically reduce its marketing spending by ending all sponsorships, including at the Olympics, reducing television advertising to focus on cheaper radio spots and focusing more on its weekly flyers.

"What we're really seeing here is another case of Rona shrinking for growth," said Derek Dley of Canaccord Genuity.

"This to me shows that they're just not able to compete on the big-box level with the likes of Home Depot and Lowe's in those key markets anywhere outside of Quebec," Dley said from Vancouver.

Last week, Rona announced plans to sell its commercial and professional market division for about $215 million.

The company is aiming to reduce annual operating expenses by $110 million — $70 million more than was forecast in February — but it will record up-front costs and accounting measures in its second quarter.

Rona said it will record $220 million of adjustments related to the restructuring and sale of the commercial division during the quarter, of which $195 million will be non-cash items.

The company plans to reinvest 30 per cent of the cost savings in the remaining business, mainly to reduce prices and fund some renovations to about 50 stores.

The efforts should improve Rona's margins above six per cent, said chief financial officer Dominique Boies.

The retailer has been struggling for years because of weak consumer spending amid slow economic growth and concerns about unemployment. It rebuffed a takeover bid last summer from U.S. rival Lowe's and faced the departure of its veteran CEO.

Rona also recently dodged a shareholder revolt by replacing much of its board of directors.

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