Home improvement retailer Rona Inc. is set to launch new expansion plans amid initial signs of a recovery from the ill effects of the recession.
Although sales and profits slipped in the third-quarter, the Quebec-based company is optimistic about the future after experiencing consecutive monthly improvements that continued in October.
“In the last few months, we have felt the first signs of a recovery,” CEO Robert Dutton said Tuesday in a conference call.
Improvement was most pronounced in Ontario and Western Canada, although building lumber and materials sales remained weak as a result of depressed housing starts.
Rona’s profits fell 6.5% during the quarter despite cost-reduction efforts. Net income decreased to $49.1 million or 38 cents per diluted share, from $52.5 million or 45 cents per share a year earlier.
Excluding unusual items, it earned $53.3 million or 41 cents per share, down from $58.9 million or 50 cents per share.
The results were slightly below expectations. Analysts polled by Thomson Reuters had forecast adjusted earnings of 40 cents on $1.35 billion of sales.
Rona’s revenues slipped by about $60 million to $1.32 billion in its most recent quarter. That’s down from $1.38 billion a year earlier.
The 4.4% decrease in sales was largely due to a 5.3% decline in same-store sales at locations open at least a year.
Rona said the decreases primarily resulted from lower housing starts in recent quarters and lagging consumer confidence despite some recent improvement. Poor weather was also a factor in the sale of seasonal products at the beginning of the quarter.
Irene Nattel of RBC Capital Markets said while management is doing a good job of controlling costs, its gross margins declined modestly because of the liquidations of seasonal products and challenges in gaining additional savings.
The federal government announced in January, as part of its stimulus budget, that home improvements costing from $1,000 to $10,000 will be eligible for a 15% income tax deduction, capped at $1,350, until Feb. 1, 2010.
Rona expects to secure up to $100 million in sales resulting from federal and Quebec home renovation tax credits after more than 13,000 Canadians have signed up for a company discount associated with the programs.
Dutton said Tuesday that the company is encouraged enough by the first signs of recovery to begin the second phase of a three-year growth strategy that it began last year.
New initiatives to be launched this month include a new concept for an interior design and paint store.
The specialized stores will appeal to contractors, interior designers and consumers who prefer to shop in smaller boutiques, especially in Ontario and Western Canada.
The stores will first open in Quebec and Rona hopes to add nearly 100 locations within five to 15 years. Some may be located inside existing hardware stores.
