For Rona Inc., the rest of Canada may not be so bad after all.
The retailer's new president has chosen to keep its big-box stores outside Quebec despite stiff competition that has translated into worse-than-expected losses. Five weeks into his new job, Robert Sawyer has trashed the idea to sell the hardware retailer's 30 big-box stores outside of Rona's home province, including the 18 underperforming Ontario stores.
"Instead, we will implement a recovery plan to ensure positive performance," Mr. Sawyer said at Rona's annual meeting in the warehouse adjoining the company's Boucherville headquarters.
Rona's top executives changed their minds after they toured the problematic stores. "They have great sales. And we know big boxes in Quebec. We just need to tweak the model," Mr. Sawyer said.
Details of the recovery plan, which is yet to be finalized, will not be known before the next quarter. "Stay tuned," Mr. Sawyer said.
But Rona's new CEO alluded to the possibility of transforming some Rona big-box stores into something closer to a Réno-Dépôt, which is currently being remodelled. Those Quebec big-box stores, which were acquired in 2003, are less ornate than their Rona counterparts. They boast low prices on fewer products that are abundantly stocked in a no-frills decor.
Chief financial officer Dominique Boies, who acted as president until Mr. Sawyer was recruited from grocer Metro Inc., also hinted that the big-box stores in Ontario could be leveraged in a hub-and-spoke model, with the addition of smaller stores in a certain radius. This is surprising given the overabundance of square footage in the hardware sector.
"The American retailers are good in the one-size-fits-all.… We have the expertise to right-size our stores," noted executive chairman Robert Chevrier.
Despite Rona's public musings about selling its big-box stores, no company came forward to buy them as a whole – including Lowe's Companies Inc., the American retailer that made a $1.8-billion unsolicited takeover proposal for the Quebec-based company, Mr. Chevrier revealed.
The offer made a year ago came on the heels of a string of acquisitions under the presidency of Robert Dutton, who was ousted last fall. Rona was left in a mess, with profit margins falling for six years straight. But with yesterday's first quarter results, the disappointment continued – and the stock fell by almost 5 per cent to $10.12 on the Toronto Stock Exchange.
Rona reported a net loss of $40.6-million (33 cents per share) on sales of $929-million in its first quarter, down 0.5 per cent from last year. The adjusted net loss was 19 cents per share compared to 11 cents a year ago, while analysts expected an adjusted loss of 14 cents per share on average.
Same-store sales were down 0.8 per cent on the quarter – up by 9.5 per cent in distribution, but down 3 per cent in commercial and retail. Rona said the increase in price of certain building materials such as lumber, the competition, the cooling in the housing market and the late spring impacted results, just as the rebranding of the Totem and Réno-Dépôt banners led to extra costs.
Rona's restructuring measures were insufficient and too recent to make up the difference. The company has completed the 200 administrative layoffs it announced in February. As well, Mr. Sawyer doesn't exclude other personnel cuts in this "difficult environment."
Rona is also reviewing all of its contracts with major suppliers such as insurance companies, travel agencies, cleaning services and telecom services to cut the waste, such as the 30 per cent of cellphones that were unused in its stores. So far, the restructuring measures have generated annualized savings of $17-million, but there is still a long way to go before Rona reaches its target of $35-million to $45-million in savings.
There was still no news on the sale of the commercial and professional division, known as Noble, even if Mr. Chevrier has long hinted that the roughly $500-million-a-year business is on the block. An "optimal option" should be found in the "coming weeks," the company stated in its release.
However, Rona is not entertaining the possibility of cashing in on its real estate as its competitor Canadian Tire Corp. plans with an investment trust that would be publicly traded. Rona considered this in the past but as the retailer and distributor only owns about 30 per cent of its real estate, it determined that it wasn't the best option, Mr. Boies said.