BUSINESS

Rona to focus on customer service as it seeks turnaround from weak results

11/12/2013 02:44 EST | Updated 01/23/2014 06:58 EST
MONTREAL - Rona has vowed a better customer experience at its stores as the big home improvement retailer struggles to turn around results weakened by the poor economy and intensifying competition from U.S.-based rivals.

"The customer experience will be our 2014 priority," president and CEO Robert Sawyer said Tuesday during a conference call to discuss third-quarter results that missed analyst expectations as Rona also reported its 13th consecutive quarter of declining same-store sales.

Among the areas that will be beefed up are basic things like hours of operation and employee training, he told analysts, acknowledging that the chain took its eye off the consumer experience as it dealt with pressing financial challenges.

"It's not rocket science. . . . we're just trying to be pleasing to the customer," Sawyer said

The Quebec-based company earned $30 million or 25 cents per share in the period ended Sept. 29. Net income was up from $5.5 million or five cents a share from a year earlier, but down from $33.5 million or 28 cents per share in 2012 when excluding one-time items.

Revenues for the summer quarter decreased 4.3 per cent to $1.17 billion from $1.22 billion due to store closures and a 2.4 per cent decrease in same-store sales, a key metric involving stores open at least a year.

Rona (TSX:RON) said the decrease in same-store sales was affected by a sharp drop in Canadian single-family housing starts, particularly in Quebec where it earns nearly half its revenues. The company said Ontario and Western Canada performed well aside from 18 Totem stores in Alberta that are being rebranded with the Rona name.

Store closures cut $18.2 million in sales while new openings added $3.5 million.

The retailer has completed eight of 11 planned big box store closures in Ontario and B.C. announced earlier this year. The remaining three locations will be shuttered by year-end.

Rona was expected to earn $39.2 million, or 30 cents per share, in adjusted profits on $1.25 billion of revenues, according to analysts polled by Thomson Reuters.

Sawyer said the results didn't meet Rona's own expectations but the company is delivering on elements under its control.

It has achieved $63 million of its $110 million in planned cost reductions this year. The cost savings are mainly related to job cuts, the renegotiation of major administrative service contracts and store closings. About 30 per cent of the savings are to be reinvested in the company.

A $21-million cut in selling, general and administrative expenses was more than offset in promotions which lower prices and reduced gross margins by $26 million.

"In fact, for me, this is short-term pain for long-term gain," he said, adding he's confident of a turnaround.

Sawyer said the free cash generated in the quarter and $214 million of proceeds from the sale of its commercial and professional market division put the company in "an excellent financial position" to repurchase up to 8.6 million common shares, or 10 per cent of its stock over the next year.

Analysts have suggested that Rona shareholders need to be patient about a recovery for the company.

"Overall a very tough quarter," said Derek Dley of Canaccord Genuity, who highlighted the weak same-store sales numbers.

"I think the market likes the share buyback that the company announced...but I still think the company's facing a lot of headwinds here going forward and we're going to see a few more quarters that look like this," he said in an interview.

Dley said Rona continues to struggle amid tough consumer spending in Canada and increasing competition from U.S. players Home Depot and Lowe's. While Rona's same-store sales are in decline, Home Depot recently said its Canadian store numbers have improved.

On the Toronto Stock Exchange, Rona shares closed at a 52-week high, gaining 44 cents or 3.66 per cent, to $12.45.

Irene Nattel of RBC Capital Markets said the results "underscore the challenging macro environment and the challenge facing Rona as it works to rebuild its foundation."

"2013 best viewed as transitional year as new management team works to realign offering, pricing, cost structure," she wrote in a report.