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RONA announces its third quarter 2012 results

Ongoing implementation of business plan in a challenging market

RONA announces its third quarter 2012 results

Ongoing implementation of business plan in a challenging market


Boucherville, Quebec, November 7, 2012 – RONA inc. (TSX: RON, RON.PR.A), the largest Canadian distributor and retailer of hardware, renovation and gardening products, today reported its financial results for the 13-week and 39-week periods ending September 23, 2012, and provided an update on the progress of its business plan. All figures in this release are in Canadian dollars and presented according to IFRS accounting standards.

To download the PDF versions of the press release, the Management’s Discussions and Analysis and the Financial Statements, you will need Adobe Reader.


After achieving, for four consecutive quarters, results consistent with its three financial priorities, which are to improve efficiency, optimize the capital structure and increase the return on capital, RONA saw its progress interrupted in a quarter marked by a decline in the Canadian hardware-renovation industry as a whole. The drop in sales, coupled with more intense competition, put pressure on gross margins. In this adverse environment, RONA used dynamic promotions to limit to nearly 1% the pull back in the network’s consolidated and same-store sales. While countering the effects of the market slowdown, RONA continued to manage its capital with rigour and discipline. Indeed, the cash flows generated by the Corporation’s operations almost doubled versus the same period in 2011, to $149.4 million.

Quarterly Results Summary
RONA’s third quarter results contain unusual items and non-recurring items which had a one-time impact on the Corporation’s financial performance. As announced at the beginning of the fiscal year, the unusual items are related to implementation of the New Realities, New Solutions plan. The non-recurring costs were, for their part, incurred following the unsolicited, non-binding offer from Lowe’s, severance payments stemming from an administrative-services reorganization in July 2012 and the temporary increase in advertising expense for the Olympic campaign. RONA nonetheless maintained disciplined management of its capital structure during the quarter and protected its solid balance sheet. Before unusual and non-recurring items, RONA recorded net income of $33.1 million, or $0.27 per share. These results are compared to net income of $47.8 million, or $0.36 per share, a year earlier. The unfavourable change of $14.7 million, or $0.09 per share, is due to a significant increase in sales of building materials with a lower margin, and to the deterioration in the renovation and construction market across the country.

In effect, after improving from February to June, market conditions during the quarter reflected renewed consumer caution, or even reluctance, with respect to spending. In response to this attitude, all industry stakeholders, including RONA, intensified their promotional activities, which exerted downward pressure on prices and gross margins. RONA’s prompt response to the re-emergence of this difficult environment limited to 1% the decrease in same-store sales across the RONA network. For the retail and commercial segment alone, same-store sales were down 1.8%, while same-store distribution sales to all RONA dealers grew 3.8%.

When the impact of these unusual and non-recurring factors is taken into account, the quarter’s net income amounted to $5.1 million, or $0.04 per share. A detailed analysis of these factors and their impact is presented below.

“The business plan we are implementing clearly appears well suited to the present demanding market and quick changes in consumer needs,” said Robert Dutton, President and Chief Executive Officer. “The new store formats are generating very promising results in line with the favourable trend observed in recent quarters for smaller stores, in spite of challenging market conditions; the performance of the new stores is already better than that of the big-box stores they replace. In addition, same-store distribution sales to our affiliate dealer-owner network have grown 6.2% since the start of the fiscal year. I’m certain that we are one step ahead of our competitors in this period of great change in our industry. The prospects for a sustainable performance permitted by our plan largely justify the transitory costs we are currently incurring,” Mr. Dutton said.

Dominique Boies, Executive Vice President and Chief Financial Officer, added that “our actions are always dictated by our three financial priorities. This disciplined approach is focused on achieving a greater than 10% return on capital in the medium term. We have made steady progress in this area during the four consecutive quarters ending on June 24, 2012. This upward trend was interrupted in the last quarter, as a sharp deterioration in market conditions 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, namely a higher inventory turnover rate and disciplined investment management, allowed us to mitigate the impact of the decrease on our return on capital and protect our strong balance sheet.

“Given the highly promotional and competitive environment, the expected pressure on same-store sales and the impact of inflation on operating and administrative costs, new operational initiatives and efficiency measures are being implemented to address these elements and limit the decrease in profitability in coming quarters. Moreover, our New Realities, New Solutions plan will continue to have an increasingly positive impact,” added Mr. Boies.

The following table shows achievements since the Corporation’s three financial priorities were adopted in the third quarter of 2011.

achievements priorities

 

 

 

 

 

 

 

 

 

 

 

Quarterly update on the New Realities, New Solutions plan

Announced in February 2012, the theme of RONA’s 2012-2014 business plan is New Realities, New Solutions. The plan addresses the need to adapt the offering in our industry to new expectations and changes in the behaviour of many consumers. For a number of years RONA has foreseen the emergence in the market of proximity stores that meet the demands of consumers who want a higher level of service. RONA pioneered in this area by reinventing the proximity store in the early 2000s. The success of several generations of this new format confirms RONA’s market analyses. The new plan capitalizes on our ongoing market research, including studies on consumer expectations and behaviours, as well as our continual experimentation with new store formats and new retail sales approaches.

“While continually adjusting to the ever-changing conditions, we must now start adapting our network, strategy and consumer offering to more fundamental changes in the market, those being driven by evolving demographics. New Realities, New Solutions addresses both these dimensions,” Mr. Dutton said.

“The current context does not make it easy to implement our plan; but implement we must to ensure a solid and sustainable financial performance for RONA and our shareholders,” Mr. Dutton added.

“To make sure the closures are appropriately coordinated with the sales volume being redeployed to new proximity and satellite stores in targeted regions and to minimize the financial impact on RONA, we have deliberately postponed the closing of five big-box stores. This postponement decreases the annual recurring benefit to $6 million for 2012 and to $25 million for 2013. We are, however, still in a good position to achieve anticipated annualized benefits of $40 million in 2014,” Mr. Boies said.

New Realities, New Solutions Plan
Update – Fiscal year to date at November 7, 2012

1. Set up new integrated digital platform

  • Launch of the website rona.ca, consumers and businesses.
  • Marked increase in online sales to an average basket of more than $200.
  • Strong growth in traffic on the RONA digital platforms: rona.ca, online flyer, coupons.rona.ca, ronamag, Facebook, YouTube, etc.
  • More than 1.3 million subscribers to the RONA email newsletter.
  • Launch of integrated pre-Olympic and Olympic advertising campaign on multiple platforms.
  • Launch of new RONA mobile app in early August, with close to 50,000 downloads to date.

2. Redeployment of sales volume to proximity and satellite stores in close to 20% of the corporate-store network

  • Closures of four of the ten big-box stores slated for closure in 2012: the stores in Brampton, Mississauga and Whitby, in Ontario, and Calgary North, and phased closure of the big-box store in Edmonton West, Alberta. The process of transferring customers and sales volume to other stores in the network is underway.
  • Transfer of customers and sales volume from our conventional store in Peterborough, Ontario, to that of the existing Millwork store recruited in this area.
  • Thirteen prime sites being negotiated, two sites secured and six leases signed for the redeployment of sales volume from big-box stores to proximity and satellite stores.
  • Opening in October and June of satellite stores in the communities of New Westminster, British Columbia, and Douglasdale, Alberta.
  • Early August opening of first new-concept proximity store in Edmonton West, Alberta. This store is generating an average basket that is 20% higher than that of the big-box store it replaces.
  • Expansion of satellite store in Georgetown, Ontario, from 4,800 square feet to 7,100 square feet, just one year after it opened.
  • Consolidation of a RONA and a TOTEM proximity stores in Medicine Hat, Alberta.
  • Consolidation of TOTEM and RONA contractor yards in Calgary and Edmonton, Alberta.

3. Further development of the commercial and professional segment

  • Optimized recent investments: acquisitions of Don Park, MPH and Décoration 25 (20 outlets in total), addition of five outlets, 175,000-square-foot expansion of the Concord distribution centre in Ontario, and 23,000-square-foot expansion of the Montreal distribution centre, in Quebec.
  • Changed the management and operating structure and implemented an efficiency improvement plan.

4. Ongoing development of the RONA dealer-owner network

  • Recruitment of two important dealers in Ontario: Kemptville Building Center in November and Millwork in May.
  • Expansion projects of more than $40 million to date and another $50 million scheduled for 2013.
  • New dealer support team that combines the best aspects of RONA and TruServ Canada.

5. Anticipated annual recurring benefit of $10 million in 2012, $30 million in 2013 and $40 million in 2014

  • Deliberate postponement of the closure of five big-box stores, to ensure closures are aligned with the opening of new proximity and satellite stores.
  • Postponement decreases annual recurring benefit to $6 million for 2012 and $25 million for 2013.
  • Still well positioned to achieve anticipated annual benefits of more than $40 million in 2014.

6. Planned investment of $70 million in property, plant and equipment, financed from the sale of non-strategic assets

  • Planned investments of less than $20 million in property, plant and equipment for 2012 and $50 million for 2013.
  • Sale of $10.9 million in non-strategic assets since the start of the fiscal year.
  • More than $25 million in assets held for sale in the short-term and more than $75 million identified for the longer term.

7. Planned restructuring costs of $110 million related to redeployment of the sales volume in 20% of the corporate-store network

  • $38.7 million recognized since the plan was put in place in February 2012.
  • Given the postponement in store closures and in the reduction of the square-footage of certain stores, anticipated costs are now $50 million for 2012 and $60 million for 2013.

CONSOLIDATED RESULTS FOR THIRD QUARTER 2012
The results analyzed in this section are for the 13 weeks ended September 23, 2012 and, when compared, are compared to the results for the 13 weeks ended September 25, 2011, unless otherwise indicated.

Revenues
Consolidated revenues for the third quarter 2012 stood at $1,336.6 million, down $10.6 million or 0.8%, year over year. The decrease stems from the 1% decrease in same-store sales, partially offset by the opening of new stores and dealer recruitment.

Same-store sales
As reported in the second quarter of 2012, the purpose of the new method of calculating same-store sales is to better represent the performance of the RONA network as a whole. The calculation now includes same-store distribution sales to RONA affiliate dealer-owners, who account for more than 25% of total sales. Note that same-store sales for the past nine quarters were restated in Management’s Discussion and Analysis. After improving from February to June, market conditions during the quarter reflected renewed consumer caution, or even reluctance, with respect to spending. In response to this attitude, all industry stakeholders, including RONA, intensified their promotional activities, which exerted downward pressure on prices. RONA’s prompt response to the re-emergence of this difficult environment limited to 1% the decrease in same-store sales across the RONA network. For the retail and commercial segment alone, same-store sales were down 1.8%, while same-store distribution sales to all RONA dealers grew 3.8%.

Unusual and non-recurring items
As announced upon release of fiscal 2011 year-end results, unusual items totalling $25.7 million were recognized under the program to redeploy sales volume from the network of big-box stores to proximity and satellite stores. A portion of these items, $2.7 million, was deducted from gross margin. The remaining $23.0 million was recognized in the Corporation’s selling, general and administrative expenses. The total net after-tax amount of these items was $18.8 million, or $0.16 per share. These items required a cash outlay of $3.1 million. Note that these unusual items are presented separately under Restructuring costs, impairment of non-financial assets and other charges in the consolidated income statement. In the third quarter, the Corporation also recorded other non-recurring items, namely costs incurred following the non-binding and unsolicited offer by Lowe’s, severance payments related to an administrative-services reorganization in July 2012 and the one-time increase in advertising expense for the Olympic campaign. These costs, totalling $12.5 million, were recognized in selling, general and administrative expenses. The total net after-tax amount of these items was $9.2 million, or $0.07 per share.

The following table shows RONA’s performance including and excluding unusual and non-recurring items.
quarterly perfo

 

 

 

 

 

 

Gross margin
Gross margin amounted to 26.91%, down 118 basis points from the third quarter of 2011. Adjusted gross margin excluding unusual items was down 127 basis points to 29.33%. This decrease stems mainly from intensified competition, which led to an increase in promotional activities and downward pressure on prices in several product categories, coupled with higher costs for certain construction materials, such as lumber. The decrease also stems from a major increase in sales of building materials that had a lower margin than hardware products.

Selling, general and administrative expenses
Adjusted selling, general and administrative expenses rose by $41.0 million in the third quarter, from $306.9 million in 2011 to $347.8 million in 2012. More than 85% of this increase is due to unusual or non-recurring items. The remainder stems mainly from expenses related to development of the Commercial and Professional Market division network, as observed since the beginning of the year, and store acquisitions and openings.

EBITDA
In the third quarter, EBITDA before unusual and non-recurring items amounted to $79.7 million, versus $105.4 million in the third quarter of 2011, a decrease of $25.7 million, or 24.4%. The change is mainly due to the decrease in adjusted gross profit and increased selling, general and administrative expenses.

The one-time increase of $3.2 million in operating costs in the Commercial and Professional Market division associated with the network expansion, had a negative impact on EBITDA. Although the network expansion is on track to realizing its full potential, a major efficiency improvement plan has been put in place in this division to quickly reduce operating costs to a level more in line with the division’s historical performance.

EBITDA margin before unusual and non-recurring items was down 187 basis points, from 7.83% in third quarter 2011 to 5.96% in 2012. The decrease is primarily due to significant downward pressure on the Corporation’s gross margin given the change in product mix, customers and particularly difficult market conditions.

EBITDA after unusual and non-recurring items amounted to $41.5 million, compared to $105.4 million in 2011. EBITDA margin after unusual and non-recurring items fell from 7.83% in the third quarter of 2011 to 3.11% in 2012.

Interest, amortization, depreciation and impairment
Interest expense on long-term debt and bank loans was down $1.4 million, or 21.8%, for the quarter. The decrease is due to the interest savings generated by the $283 million debenture repurchase at the end of 2011, and to strict management of the balance sheet and spending on property, plant and equipment, partially offset by greater use of credit facilities versus the corresponding quarter of 2011. Amortization, depreciation and impairment of non-financial assets expenses before unusual items were also down for the quarter, from $26.9 million to $25.2 million, a decrease of $1.7 million, or 6.6%, stemming from a significant reduction in capital investments in 2011 and 2012, as well as the asset write-downs at the end of fiscal 2011.

Net income
Although the decrease in EBITDA was partially offset by the decrease in financial expenses and amortization and depreciation expense, net income before unusual and non-recurring items attributable to participating shares after the dividend on preferred shares was down from $47.8 million, or $0.36 per share (diluted) in 2011 to $33.1 million, or $0.27 per share (diluted).

After recognition of unusual and non-recurring items totalling $28.0 million after tax, net income attributable to participating shares after the dividend on preferred shares declined from $47.8 million to $5.1 million. Diluted net earnings per share went from $0.36 to $0.04. Note that the average number of shares outstanding used to calculate net earnings per share decreased from 131.1 million shares in third quarter 2011 to 121.4 million shares in third quarter 2012 following the share repurchases made under the share repurchase in the normal course of business plan put in place by the Corporation in November 2011. To date the average purchase price is $9.47 per share.

CONSOLIDATED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 23, 2012
The results analyzed in this section are for the 39-week period ending September 23, 2012 and, when compared, are compared to the results for the 39-week period ending September 25, 2011, unless otherwise indicated.

Revenues
Consolidated revenues for the first nine months of 2012 rose to $3,688.6 million, up $53.2 million, or 1.5%, over the corresponding quarter in 2011. The increase stems from an 8.4% increase in sales in the Commercial and Professional Market Division, new store openings, the recruiting of new dealer-owners and higher same-store sales in the RONA network, particularly in distribution sales to affiliate dealers.

Same-store sales
Same-store sales for the RONA network as a whole (retail, commercial and distribution) remained at the same level as in 2011. This performance stems from a 6.2% increase in same-store distribution sales to affiliate dealer-owners. Same-store sales in the retail and commercial segment were, for their part, down 1.2%, given the negative impact of the mix of products sold and consumers’ return to a more cautious approach as of late May.

Unusual and non-recurring items
Unusual items totalling $38.7 million were recognized during the first three quarters under the program to redeploy sales volume from the big-box store network to proximity and satellite stores, as anticipated when fiscal 2011 year-end results were released. A portion of these items, amounting to $8.2 million, was deducted from gross profit. Another portion, $25.5 million, was recognized in the Corporation’s selling, general and administrative expenses, and the remaining $5 million was recognized in amortization, depreciation and impairment of non-financial assets expenses. The net total after-tax amount of these items was $28.3 million, or $0.23 per share. These items entailed a cash outflow of $3.8 million. Note that these unusual items are presented separately under Restructuring costs, impairment of non-financial assets and other charges in the consolidated income statement. In the first nine months of the fiscal year, the Corporation also recorded non-recurring items due to costs resulting from the unsolicited, non-binding proposal from Lowe’s, severance payments related to an administrative-services reorganization in July 2012 and the temporary increase in advertising expense for the Olympic advertising campaign. These costs of $12.5 million were recognized under selling, general and administrative expenses. The total net after-tax amount of these items was $9.2 million, or $0.07 per share.

Gross margin
Gross margin amounted to 27.23%, down 96 basis points from 2011; adjusted gross margin excluding unusual items was down 85 basis points to 29.65%. As mentioned in the third-quarter analysis, the decrease stems mainly from intensified competition, which led to an increase in promotional activities and downward pressure on prices in several categories, especially building supplies. The decrease is also due to a major increase in sales of building materials that had a lower margin than hardware products. Gross margin was also affected by the higher cost of some products, such as lumber. These items were partially offset by various efficiency improvement initiatives.

Selling, general and administrative expenses
Adjusted selling, general and administrative expenses rose by $40.9 million in the first nine months of fiscal 2012, from $905.5 million in 2011 to $946.4 million in 2012. The increase was recorded in the third quarter of 2012, since in the first two quarters of the fiscal year the Corporation reduced its comparable selling, general and administrative expenses. The increase is due to unusual or non-recurring items, expenses related to development of the Commercial and Professional Market division network, and store acquisitions and openings. On a comparable basis, selling general and administrative expenses were down $13.4 million since the start of the fiscal year.

EBITDA
For the nine months ended September 23, 2012, EBITDA before unusual and non-recurring items amounted to $185.4 million, compared to $203.4 million in 2011, a decrease of $18.0 million, or 8.9%. This decrease stems mainly from the lower adjusted gross margin, along with:

  • higher selling, general and administrative expenses in the third quarter of fiscal 2012;
  • additional operating costs in the Commercial and Professional Market division since the start of the fiscal year, which stems from network expansion in the process of achieving its full potential.

An efficiency improvement plan has been put in place in this division to reduce operating costs to a level more in line with the division’s historical performance.

EBITDA margin before unusual and non-recurring items was down 56 basis points, from 5.59% in 2011 to 5.03% in 2012. The decrease is primarily due to the significant downward pressure on the Corporation’s gross margin given the change in product mix, customers and particularly difficult market conditions.

EBITDA after unusual and non-recurring items amounted to $139.2 million, compared to $203.4 million in 2011. EBITDA margin after unusual and non-recurring items went from 5.59% in 2011 to 3.77% in 2012.

Interest, amortization, depreciation and impairment
Interest expense on long-term debt and bank loans was down $4.8 million, or 24.7%, since the start of the year. The decrease is due to the interest savings generated by the $283 million debenture repurchase at the end of 2011, and to strict management of the balance sheet and spending on property, plant and equipment, partially offset by greater use of credit facilities than in 2011. Amortization, depreciation and impairment of non-financial assets expenses before unusual items were also down, from $79.3 million in 2011 to $72.7 million in 2012. As mentioned above, an amount of $5 million representing an impairment charge for non-financial assets was recognized in depreciation, amortization and impairment of non-financial assets in the second quarter. Including this amount, amortization, depreciation and impairment expense in 2012 amounted to $77.7 million.

Net income
The decrease in EBITDA before unusual and non-recurring items was almost entirely offset by a decrease in financial and amortization and depreciation expense, such that net income before unusual and non-recurring items attributable to participating shares, net of the dividend on preferred shares, went from $67.2 million in 2011 to $63.4 million in 2012. Diluted net earnings per share before unusual and non-recurring items rose, from $0.51 in 2011 to $0.52 in 2012, due to the Corporation’s share repurchases.

After recognition of unusual items and non-recurring items totalling $37.5 million after tax, net income attributable to participating shares, net of the dividend on preferred shares, declined from $67.2 million to $26.0 million. Net earnings per share (diluted) declined from $0.51 to $0.21. Note that the average number of shares outstanding used to calculate net earnings per share decreased from 131.1 million shares in third quarter 2011 to 122.9 million shares in 2012 following the share repurchases made under the share repurchase in the normal course of business plan put in place by the Corporation in November 2011.

CASH FLOWS AND FINANCIAL POSITION FOR THE THIRD QUARTER 2012
For the third quarter of 2012, cash flows from operating activities before net change in working capital, interest received and income taxes paid stood at $58.4 million compared to $97.0 million in 2011. The net change in working capital was $92.1 million in 2012, compared to negative change of $16.8 million in 2011. This significant variation is due to changes in the product mix as well as better management of inventories and customer accounts. After the net change in working capital, interest received and income taxes paid, operating activities thus generated $149.4 million in 2012, compared to $77.3 million for the same period in 2011.

The Corporation continued to exercise disciplined financial management and strictly controlled its investments in property, plant and equipment. For third quarter 2012, RONA invested $19.3 million in property, plant and equipment and intangible assets, which was $6.5 million, or 25.1%, less than in 2011. Amounts were invested in continuous improvement of the Corporation’s information systems to increase operational efficiency, and in maintenance work. Note that the level of investment in property, plant and equipment and intangible assets -- excluding investments related to the New Realities, New Solutions plan, which will be financed through the sale of surplus assets – is lower than amortization and depreciation expense before unusual items of $25.2 million in third quarter 2012.

In fiscal 2011 and to date, RONA has taken a number of steps to optimize its capital structure. Also, in November 2011, the Corporation set up a program to repurchase, in the normal course of its activities between November 11, 2011 and November 10, 2012, up to 11,016,854 common shares, representing 10% of its 110,168,541 public float or 8.4% of its 130,520,489 common shares issued and outstanding on October 31, 2011. Shareholders may obtain, free of charge, copies of the repurchase documents filed with the Toronto Stock Exchange by writing to RONA’s secretary. In the third quarter of 2012, RONA was unable to repurchase its shares since the Corporation was prohibited from trading due to the acquisition proposal received from U.S.-based Lowe’s. Since the repurchase program was instituted in November 2011, the Corporation has bought back 10.4 million shares at an average price of $9.47 per share for a total of $98.5 million at November 7, 2012. These shares were cancelled.

Despite a slight increase in leveraging, RONA’s balance sheet remains strong. As at September 23, 2012, the Corporation’s total debt was $395.4 million compared to $455.9 million in 2011. The Corporation’s net debt amounted to $345.0 million, compared to $259.6 million at September 25, 2011. The ratio of total net debt to capital was 15.4%, compared to 10.8% in 2011. The ratio of total debt to EBITDA (past 12 months) remained stable at 1.7.

DIVIDENDS ON PREFERRED SHARES
At its meeting on November 6, 2012, RONA’s Board of Directors declared a quarterly dividend of $0.3300 per share on cumulative 5-year rate reset Class A preferred shares, series 6. The dividend will be paid on December 31, 2012 to holders of record on December 17, 2012.

ACQUISITION PROPOSAL FROM U.S.-BASED LOWE’S
On July 8, 2012, the Corporation received an unsolicited, non-binding proposal from U.S.-based Lowe’s regarding the acquisition of all of RONA’s issued and outstanding shares at a price of $14.50 per share. On July 26, 2012, RONA informed Lowe’s that the RONA Board of Directors had unanimously determined that this proposal was not in the best interests of RONA and its stakeholders. The July 31, 2012 press release details these events and states that RONA’s strategic focus is to execute its business plan with a view to capturing the significant opportunities it sees for the business.

OUTLOOK

  • In the coming quarters, we will pursue implementation of our New Realities, New Solutions plan and continue our highly disciplined management in line with our three financial priorities: to improve efficiency, optimize the capital structure and increase the return on capital. Particular effort will be devoted to improving the efficiency of our Commercial and Professional Market Division and to adapting the TOTEM banner stores in Alberta to the new RONA proximity store model. As mentioned above, the Corporation deliberately postponed the closing of five big-box stores to ensure the closures are aligned with the opening of new proximity and satellite stores. This postponement decreases the annual recurring benefit from $10 million to $6 million for 2012 and from $30 million to $25 million for 2013. The Corporation is still in a good position to achieve anticipated annualized benefits of more than $40 million in 2014.
  • The market is still in a period of uncertainty and ambivalence. Although conditions were favourable for renovation projects in the spring, we have seen that consumers have returned to a cautious approach since the end of May. Housing starts have also slowed in recent months, particularly in Quebec, where RONA generates close to half its sales.
  • Given the highly promotional and competitive environment, the expected pressure on same-store sales and the impact of inflation on operating and administrative costs, new operational initiatives and efficiency measures are being implemented to address these elements and limit the decrease in profitability in coming quarters. Moreover, our New Realities, New Solutions plan will continue to have an increasingly positive impact.

ADDITIONAL INFORMATION
The Management’s Discussion and Analysis (MD&A), financial statements and notes for third quarter 2012 can be found in the "Investor Relations" section of the Corporation's website at www.rona.ca and on the SEDAR website at www.sedar.com. The Corporation's Annual Information form, along with other information about RONA, can also be found on the RONA and SEDAR websites.

TELEPHONE CONFERENCE WITH THE FINANCIAL COMMUNITY
On Wednesday, November 7, 2012, at 11:00 a.m. (EST), RONA will hold a telephone conference 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 http://webcasts.pqm.net/client/rona/event/492/en/.

NON-GAAP PERFORMANCE MEASURES
In this Press Release as in our internal management, RONA uses the concept of “earnings before interest, taxes, depreciation, amortization and non-controlling interests” (EBITDA). RONA also uses the concept of “adjusted gross margin,” which corresponds to revenues less the cost of goods sold, plus adjustments for network support.

While EBITDA does not have a definition that is standardized by IFRS, it is widely used in our industry and in financial circles to measure the profitability of operations, excluding tax considerations and the cost and use of capital. Adjusted gross margin is used by RONA’s management to analyze the profitability of our network, after adjustments for network support. Given that these measures are not standardized, EBITDA and adjusted gross margin cannot be compared from one company to the next. Still, we establish them in the same way for each of the segments identified, and, unless expressly mentioned, our method does not change over time. EBITDA and adjusted gross margin must not be considered separately or as a substitute for other performance measures calculated according to IFRS, but rather as additional information.

The following tables show the reconciliation of these two measures to IFRS:

Reconciliation of non-GAAP measures - Quarterly
Reconciliation of non-GAAP measures - Year to date

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 www.sedar.com and www.rona.ca. 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 November 7, 2012, 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 close to 800 corporate, franchise and affiliate stores of various sizes and formats under several banners, and a network of 14 hardware and construction materials distribution centres which are flexible and perfectly adapted to the diverse needs of its clientele. 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.

In total, RONA supplies nearly 1,500 sales outlets, of which more than 830 are under one of its banners, as well as close to 600 clients, independent dealers, in its distribution network. With close to 30,000 employees working under its family of banners in every region of Canada, the RONA store network generates consolidated sales of $4.8 billion and over $6 billion taking into account the total impact of the retail sales of franchise dealers, affiliates and other independent dealers who buy their supplies at RONA. For more information, please visit rona.ca.


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