Rona's Q1 loss widens to C$22.7M from C$13.5M a year ago as revenue dips 0.5% to C$929.4M, same-store sales fall 0.8%; CFO calls 2013 'transition year,' says Q1 results hurt by weak Canadian housing market

BOUCHERVILLE, Quebec , May 14, 2013 (press release) – RONA Inc. (TSX:RON)(TSX:RON.PR.A), the largest Canadian distributor and retailer of hardware, renovation and gardening products, announced its operating results for the 13-week period ending March 31, 2013, along with a follow-up on its main achievements during the quarter. All figures in this release are in Canadian dollars and presented according to IFRS accounting standards.

First quarter 2013 highlights

  • Revenues of $929.4 million, down $4.6 million (or 0.5%) compared to the first quarter of 2012. Revenues were up $18.2 million in the distribution segment and down $22.8 million in the retail and commercial segment.
  • Adjustments of $17.8 million after tax, or $0.14 per share, reflecting restructuring expenses and the cost of implementing strategic priorities.
  • The disruption in operations related to the repositioning of the Réno-Dépôt and TOTEM banners, the more rapid increase in the cost versus the selling price of lumber and certain building materials, difficult market conditions and the late spring mostly explain the adjusted net loss of $0.19 per share compared to an adjusted net loss of $0.11 per share in the first quarter of 2012.
  • Main achievements with respect to strategic priorities:
    • Annualized reduction in administrative expense of $17 million due to the workforce reduction plan and renegotiation of major sourcing agreements.
    • Continued repositioning of the Réno-Dépôt banner in Quebec and integration of TOTEM in Alberta.
    • Decision to keep the big-box store network outside Quebec. A recovery plan will be announced next quarter.

RONA's revenues were down 0.5% and same-store sales down 0.8% in the first quarter of 2013, compared to the first quarter of 2012. Same-store sales were up 9.5% in the distribution segment and down 3.0% in the retail and commercial segment. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were down $0.8 million in the distribution segment and $10.4 million in the retail and commercial segment, for a total decrease of $11.2 million. The adjusted net loss applicable to participating shares was $22.7 million (loss of $0.19 per share), a decrease of $0.08 per share compared to 2012.

"2013 is clearly a transition year for RONA and further changes will be required to allow us to return to sustained growth in net income. The first quarter results are still under pressure, given the current banner repositioning and the weak Canadian housing market. The challenges are significant, but the focus on our strategic and financial priorities will ensure our success," said Dominique Boies, Executive Vice President and Chief Financial Officer.

After just a few weeks at the helm of the Corporation, Robert Sawyer, President and Chief Executive Officer, believes that RONA has all the ingredients needed to improve its performance. "We have skilled and motivated employees, dynamic dealer-owners and business partners, a brand that is known from coast to coast and a network of stores in a variety of sizes that permits us to reach Canadians in their communities," he said.

"RONA has a very promising future. Despite the pressure on results, our strong balance sheet and significant operational cash flow give us flexibility in this pivotal period. The actions we are taking will make us the top-performing hardware and renovation materials retailer in Canada. By keeping our dealer-owners and customers front and centre in everything we do, we will meet their highest expectations and stand out from our competitors in the market segments where we have chosen to put our focus," said Mr. Sawyer.

Review of progress in each of the three strategic priorities

RONA's strategic priorities were announced at the end of 2012. The goal of these priorities is to enhance the Corporation's ongoing efforts to target value-creation opportunities over the short and long-term.

  1. Leveraging the strengths of our core competencies
    • Distribution to affiliated and franchised dealers and the operation of small and medium stores were quickly identified as strategic activities, as were the big-box stores in Quebec.
    • A major review of big-box stores outside Quebec was also undertaken. After exploring a variety of options, RONA decided to keep this store network and will announce a recovery plan next quarter.
    • The Commercial and Professional Market division is still under review. In the next quarter, RONA will be able to announce the path it will take to maximize the value of this division.
  1. Growing customer segments through a more compelling value proposition
    • This priority has strong mid- and long-term potential, because it will put RONA back on track for profitable sales growth. Over the past several months, RONA has called upon international retail-industry experts to accelerate its analysis.
    • An in-depth review of the pricing strategy and product categories offered in the RONA-store network is in progress.
    • The Réno-Dépôt banner in Quebec has been redefined to better meet the needs of its core customers: professional contractors and skilled DIYers. The new concept puts more emphasis on the very nature of Réno-Dépôt: a warehouse that offers products in large quantities at better prices.
    • Integration of the TOTEM banner in Alberta is continuing. This new proximity store model combines the strong points of both TOTEM and RONA.
  1. Unlocking the profit potential of a simplified business model
    • To date, savings of $17 million (on an annualized basis) have been achieved through workforce reductions and the renegotiation of major agreements. The Corporation had identified $35 - $45 million in potential rationalizations and is confident that it can achieve this objective by the end of 2014.
    • Part of the savings will be reinvested to strengthen our competitive position in certain key operations.

Financial priorities

Our actions are always dictated by our three financial priorities. This disciplined approach is focused on achieving a medium term return on capital greater than 10%. We have made steady progress in this area during the first two quarters of 2012. This upward trend was interrupted in the last three quarters, as a more competitive environment and a change in our sales mix in favour of lower-margin products affected our operating income. However, the continuation of our capital structure optimization initiatives allowed us to mitigate the impact of the decrease on our return on capital and protect our strong balance sheet. Our disciplined capital management was impacted in the first quarter by an increase in inventories in preparation for the expected increase in seasonal demand.

The following table shows quarterly achievements of the Corporation's three financial priorities since the first quarter of 2012.

(excluding adjustments)
  Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013  
  Same-store sales yes yes no yes -0.8% no
  Increase in gross margin yes yes no no -$12.7M no
  Decrease in comparable SG&A yes yes no no $3.5M no
  Increase in EBITDA yes yes no no -$11.2M no
  Sale of assets yes yes no yes $0.6M yes
  CAPEX/Amortization and depreciation yes yes yes yes 0.6x yes
  Inventory turnover yes yes yes yes 3.54 vs 3.49 yes
  Share repurchase yes yes n/a* n/a* n/a* n/a*
  After-tax EBIT yes yes no no -$8.4M no
  Disciplined capital management (1) yes yes yes yes $19.3M no
  Return on capital (2) yes yes no no 3.8% vs 4.2% no
(1) Capital equals net working capital, plus property, plant and equipment and intangible assets, plus non-current assets held for sale, plus goodwill, plus current projects, plus other financial and non-current assets, plus deferred income tax assets, minus other non-current liabilities and minus deferred tax liabilities.
(2) Average return on capital equals after-tax EBIT, excluding adjustments/average capital.
* The Corporation was prohibited from trading in the third and fourth quarters of 2012. The program was not renewed in 2013.

Summary of financial results for the first quarter of 2013

Consolidated revenues were down $4.6 million year over year. An increase of $18.2 million in distribution revenues was not sufficient to offset continued downward pressure on sales in the retail and commercial segment. Same-store sales were down 0.8% due to a 9.5% increase in comparable sales in the distribution segment, offset by a 3.0% decrease in same-store sales in the retail and commercial segment. Also note that first quarter 2012 had one extra business day related to the Easter holiday, which had an adverse impact of $5.8 million on sales.

According to a report by the Conference Board of Canada, consumer confidence, measured on a comparable basis, is similar to that of 2012, which means that consumers are still being very cautious. In addition, the latest estimates from the Canada Mortgage and Housing Corporation (CMHC) show housing starts are down 6.5%, and the sale of existing houses is 13.1% below that of the first quarter of 2012. These figures are directly related to renovation and building activities.

Certain non-representative adjustments were excluded in the measurement of the Corporation's financial performance in order to better compare operating results from quarter to quarter. Such adjustments to EBITDA amounted to $23.4 million in the first quarter of 2013, that is, $3.9 million in the distribution segment and $19.5 million in the retail and commercial segment. Restructuring costs and other charges amounted to $12.8 million, consisting of $3.6 million for severances, $8.9 million in provisions for onerous contracts and $0.3 million for other costs. Other costs of $10.6 million related to implementing the strategic priorities include transformational plan-related fees, integration of the TOTEM banner cost and costs relating to the liquidation of inventory.

Taking these items into account, RONA's adjusted EBITDA was down $11.2 million. In the distribution segment, the $0.8 million decrease in adjusted EBITDA compared to the same quarter in 2012 stems from the altered mix of distributed products and higher shipping costs. Higher sales helped offset these impacts as well as the difficult market conditions.

Adjusted EBITDA in the retail and commercial segment decreased $10.4 million compared to the first quarter of 2012. The decrease stems from stiffer competition, which exerted downward price pressure in several product categories, as well as a more rapid increase in the cost, versus the selling price, of products such as lumber and building materials. The decrease stems also from sales of lower margin items such as building materials, to the detriment of higher-margin items such as hardware products. Note also that sales volume was down as a result of consumer caution and difficult market conditions.

The total net after-tax amount of the adjustments mentioned earlier was $17.8 million for the first quarter of 2013 or $0.14 per share. The adjusted net loss applicable to participating shares rose from $13.5 million (loss of $0.11 per share) in the first quarter of 2012 to $22.7 million (loss of $0.19 per share) in the first quarter of 2013. This is a decrease of $9.3 million, or $0.08 per share, primarily due to the decrease in adjusted gross margin. Note that the average number of shares outstanding used to calculate the adjusted net loss per share attributable to owners of RONA Inc. fell from 126.7 million shares in the first quarter of 2012 to 121.6 million shares in the first quarter 2013. The decrease stems from share repurchases in the normal course of business.

Additional information

The Management's Discussion and Analysis (MD&A), financial statements and notes for the first of quarter 2013 can be found in the "Investor Relations" section of the Corporation's website at and on the SEDAR website at The Corporation's Annual Information form, along with other information about RONA, can also be found on the RONA and SEDAR websites.

Conference call with the financial community

On Tuesday, May 14, 2013, at 3:00 p.m. (EST), RONA will hold a conference call for the financial community. To join the conference, please call 416-340-2216 or 1-866-226-1792. To listen to the call online, please go to

Non-GAAP Performance Measures

RONA uses non-GAAP measures that are not standardized under International Financial Reporting Standards (IFRS). Management believes that these measures are useful in analyzing the Corporation's operational performance. These performance measures must not be considered separately or as a substitute for other performance measures calculated according to IFRS, but rather as additional information.

EBITDA is defined by the Corporation as net earnings before financial expense, income taxes and the amortization, depreciation and impairment of non-financial assets. This measure is widely used in our industry and in financial circles to measure the profitability of operations. Management also uses same-store sales as a measure, also common in our industry. Same-store sales identify sales growth generated by the network of existing stores and is reduced by the impact of closed stores. It also excluded acquisitions and new stores.

Management also uses the following non-GAAP performance measures: adjusted EBITDA; adjusted gross margin; adjusted selling, general and administrative expenses; adjusted amortization, depreciation and impairment of non-financial assets; adjusted net income attributable to participating shares and adjusted diluted net income per share attributable to owners of RONA Inc. These measures reflect the inclusion or exclusion of certain amounts considered non-representative of the Corporation's recurring financial performance. For details about these measures, please see Management's Discussion and Analysis for the first quarter of 2013.

Forward-looking statements

This Press Release includes "forward-looking statements" that involve risks and uncertainties. All statements other than statements of historical facts included in this Press Release, including statements regarding the prospects of the industry and prospects, plans, financial position and business strategy of the Corporation may constitute forward-looking statements within the meaning of the Canadian securities legislation and regulations. Investors and others are cautioned that undue reliance should not be placed on any forward-looking statements.

For more information on the risks, uncertainties and assumptions that would cause the Corporation's actual results to differ from current expectations, please also refer to the Corporation's public filings available at and In particular, further details and descriptions of these and other factors are disclosed in the MD&A under the "Risks and uncertainties" section and in the "Risk factors" section of the Corporation's current Annual Information Form.

The forward-looking statements in this Press Release reflect the Corporation's expectations as at May 14, 2013, and are subject to change after this date. The Corporation expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by the applicable securities laws.

About RONA

RONA is the largest Canadian distributor and retailer of hardware, home renovation and gardening products. The Corporation operates a network of over 800 corporate, franchise and affiliate retail stores of various sizes and formats under different banners, and a network of 14 hardware and construction materials distribution centres. RONA is also a leader in the specialized plumbing and HVAC market, primarily serving commercial and professional customers with a network of close to 60 sales outlets and four distribution centres across the country. With close to 28,000 employees, the RONA store network generates consolidated revenues of $4.9 billion. For more information, visit

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