MONTREAL – Home improvement retailer Rona Inc. (TSX:RON) expects consumers to remain cautious over the next several months but that major renovation projects should start to pick up once the economy improves.
“Once that uncertainty dissipates, renovation activity could rapidly pick up since consumers have already delayed major projects for several years,” CEO Robert Dutton told analysts Wednesday after Rona reported third-quarter net income attributable to common shareholders of $50.1 million.
Dutton said the most recent quarter was marked by economic uncertainty and stock market volatility, which will continue to keep consumers cautious about spending.
As a result, Rona said it had a 5.1 per cent drop in same-store sales, a benchmark for the retail industry that measures performance of locations open for at least a year. The drop was also due to a decline in residential housing starts, Rona said.
Ontario and the Atlantic provinces were least affected by the drop in sales, while Western Canada, particularly British Columbia, was most affected, Rona said.
“Given the fragile nature of Canadian consumer confidence and their cautious approach to major renovation projects, we expect to see continued downward pressure on same-store sales as a whole over the next few quarters,” Dutton said.
Get weekly money news
But he said Rona would continue to control costs in the face of weak consumer confidence.
For its fourth quarter, Dutton said sales figures since the start of the quarter indicate that market conditions will remain difficult with the low level of consumer confidence still delaying major projects.
Dutton said he expects the Quebec-based company’s fourth-quarter results to be similar to its third quarter and added that Rona plans to provide guidance for fiscal 2012 in February.
Chief financial officer Dominque Boies told the analysts that Rona is planning a share buyback in the coming year and currently isn’t looking at any acquisitions.
In its financial results, Rona reported net income was up from $48 million in the same quarter last year.
Revenues were $1.3 billion, up $27.9 million.
Quebec-based Rona said earnings per share diluted were 36 cents, the same as in the third quarter of 2010.
Rona was expected to earn, on average, 34 cents per share in the third quarter on $1.35 billion in revenues, according to analysts polled by Thomson Reuters.
RBC Capital Markets analyst Irene Nattel said earnings per share beat her estimate of 31 cents as well as the consensus.
“Although top line was weak, Rona did what it does best – control costs – to deliver flat EPS,” Nattel said in a research note.
The Canadian home renovations retailer continues to face a difficult operating environment caused by waning consumer confidence, decreased housing starts and reduced consumer spending.
Dutton has previously said Western Canadian sales were the biggest problem for the retailer even though sales in its key Quebec segment have been slower than last year, while Ontario is doing “well” despite increased competition from U.S. rivals Lowe’s and Home Depot.
The company has scaled back some of its expansion plans while attempting to withstand the dark clouds facing the home renovation industry by expanding its commercial segment through a string of acquisitions.
Rona is the largest Canadian-owned retailer and distributor of hardware, home renovation and gardening products. Its 700 stores employ nearly 30,000 employees across the country.
Shares in Rona were down 16 cents at $9.40 in midday trading Wednesday on the Toronto Stock Exchange.
Comments
Want to discuss? Please read our Commenting Policy first.