Business Talk
Rona hopes to capitalize on continued growth in Western Canada
By Mike Tester
Nov 7, 2006, 18:23

Home hardware retailer Rona Inc. (TSX:RON) is looking to Western Canada's surging economy to spur further growth for the company and overcome poorer conditions in Central Canada.

"Slower growth is more of a factor in Ontario and Quebec as Western Canada's economy is still very strong," CEO Robert Dutton told a conference call Tuesday after Rona's third-quarter results were announced.

"That is why we will invest substantial money in the West over the next two years to add stores to this growing market."

Dutton also said Rona plans to double capacity at its Calgary distribution centre.

The Quebec-based company said it is still on track to achieve its objective of $7 billion in annual sales by the end of 2007.

Third-quarter profits rose 5.8 per cent to $56.1 million or 49 cents a share from $53 million or 46 cents a share a year earlier.

Analysts had expected a profit of 52 cents a share.

Investors sold off the company's shares on the Toronto Stock Exchange, with the stock off $1.52 to $21.68, a drop of 6.55 per cent for the day.

Nine-month profit climbed 10.8 per cent to $152.5 million or $1.33 a share.

Sales in the three months ended Sept. 30 jumped more than 14 per cent to nearly $1.27 billion from $1.1 billion as the company consolidated acquisitions and grew internally.

Nine-month sales rose 13 per cent to $3.4 billion.

Dutton said the company added $700 million to its annual sales base during the nine months, a figure that represents 35 per cent of the extra amount needed to reach the two-year objective of $7 billion in sales by Dec. 31, 2007.

"We are on schedule," he said.

The goal is based on four approaches: acquisitions, recruitment of new affiliated merchants, the building of new corporate and franchise stores and growth in same-store sales.

"We have advanced on all four fronts," the CEO noted.

Acquisitions completed since the beginning of the year represent more than $300 million in annual sales.

Some of those include Chester Dawe Ltd. of Newfoundland and Labrador; Curtis Lumber Co. of British Columbia; B.C.-based Mountain Building Centres Ltd; and a 51 per cent stake in Materiaux Coupal Inc. of Quebec.

Rona has accelerated expansion plans in anticipation of new American competition.

Lowe's Cos Inc. (NYSE:LOW), the world's second-largest home improvement retailer after Home Depot Inc. (NYSE:HD), has said it plans to open six to 10 stores in Canada next year.

Rona chief financial officer Claude Guevin said the company is well-placed after recently restructuring its debt.

"We have approximately $100 million in cash, in near cash," Guevin said. "Our $400-million credit facility is unused and it can be expanded to $650 million if we need additional money."

"And our operating cash flow remains very high. We have ample capacity to both grow organically and take advantage of the most attractive acquisition opportunities."