Rona To Expand In 2015 As Recovery Plan Takes Hold

In 2014, Rona started to see more positive results from the turnaround efforts of the newly formed recovery plan it employed after Lowe’s unsuccessfully tried to purchase the company in 2012.

During the second quarter of 2014, the company showed encouraging signs in sales as same store sales of corporate stores in the retail segment grew for the first time since 2010 compared to last year.

In the second quarter, the company achieved a significant net cost savings as its recovery plan added $10.5 million to EBITDA in the quarter and $27.9 million year-to-date.

Positive results also appeared in the third quarter of 2014 as same store sales in the retail segment grew by 2.0% despite a slow economy and strong competition. Net debt has fallen to $188.4 million from $347.8 million a year earlier.

“Across the country, our various banners’ merchandising programs are bearing fruit and the improved management of store operations is yielding the expected results,” said Robert Sawyer, President and Chief Executive Officer of RONA.

In the last few years, Rona has undergone changes designed to reposition the company after Lowe’s failed takeover attempt.

The company analyzed its stores and decided to downsize and closed 17 unprofitable stores since 2012. Over the last year, 11 stores were closed in Ontario and Western Canada. The closures resulted in significant cost savings to the company.

In 2004, it bought smaller Totem stores and these stores operated under the Totem name until 2013, when Rona decided to change its strategic business plan to garner more positive financial results.

Rona combined the best of its products with the best of Totem’s products into a new business model called Rona proximity stores. The stores provided neighborhood one-stop shops for do-it-yourselfers in smaller store formats than the typical big-box Rona stores customers had become accustomed to.

Loblaw recently followed the same format after it saw the potential of buying Shoppers Drug Mart. The purchase of Shoppers Drug Mart allows Loblaw to capitalize on the smaller format neighborhood stores where customers can easily pop in and out.

Other retailers have also been following the same trend. It has been speculated that new Wal-Mart Canada CEO Dirk Van den Berghe may be contemplating opening up smaller format Wal-Mart stores in Canada.

Currently, the company has increasingly shifted its focus to smaller store formats in the U.S. operating under the banners of Neighborhood Market, Wal-Mart Express and Wal-Mart To Go.

Rona has decided that it is time to start expanding again in 2015. Sawyer said the company plans to open five new stores, including two stores under the Reno-Depot concept in Alberta and Ontario.

“RONA’s expansion will be disciplined and will take place in environments where we must protect and reinforce our market share or where the investment is justified by a strong growth potential and a good return on invested capital,” said Robert Sawyer.

Reno-Depot will open in a former Rona space in Calgary that closed two years ago. The other Reno-Depot will open in a former Rona location in Aurora, Ontario. Smaller Rona stores are also slated to open in Halifax and British Columbia.

Sawyer said, “Our Reno-Depot is different than our competitors in these environments and hopefully we will attract customers in our stores.”

In another move, the company is also renewing its share buyback program allowing it permission to repurchase 9.2 million shares.

On the Toronto Stock Exchange, Rona’s shares closed down 23 cents at $13.49 on Friday.

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