Poor Weather Hurts Rona

One of Canada’s struggling retailers faces yet another headwind.

| More on:
The Motley Fool

No one has been a fan of the frigid Canadian temperatures this winter. But Rona Inc. (TSX:RON) investors are feeling especially bitter about the cold after the company reported disappointing earnings numbers today.

The company lost one cent per share in the fourth quarter of 2013, with sales being held back by poor weather. On an adjusted basis, Rona earned four cents per share, well below the general analyst estimate of 10 cents. The company’s shares fell by as much as 8.2% on the news.

Terrible weather is only the latest issue for a company that has had a series of problems. Rona has had a poor macroeconomic environment, especially in Quebec, is its largest market. The company has also had to face fierce competition from American competitors such as Home Depot (NYSE:HD) and Lowes (NYSE:LOW), as well as more established Canadian retailers like Canadian Tire (TSX:CTC.A).

Today’s results represent the 14th straight quarter of declines in same-store sales. The stock, which at one point traded at $25 in 2007, has now fallen below $12 after the most recent earnings disappointment.

If there is any good news for Rona and its investors, it revolves around CEO Robert Sawyer’s turnaround strategy. He has already shut down underperforming stores, scaled down the head office, and closed the professional business unit. Hundreds of employees have been laid off. Mr. Sawyer is credited with turning around Metro Inc (TSX:MRU), and thus may be the perfect candidate to turn around Rona as well.

Mr. Sawyer’s goal has been to achieve $110 million in cost savings. He said that he is pleased with Rona’s progress, and that the $110 million number was achieved in Q4 (on an annualized basis). But judging by Rona’s stock price, his comments fell on deaf ears.

Foolish bottom line

The problem for Rona is that even with all of its restructuring efforts, many fundamental problems will remain. Growth will be difficult to come by, and competition will remain fierce. Rona also will not be an acquisition target after the Quebec government blocked a Lowes takeover attempt back in 2012.

The shares have certainly fallen severely, creating a great opportunity for anyone who believes in Mr. Sawyer and his turnaround plan. But much like Canadian winters, Rona’s troubles will not end as quickly as everyone would like them too.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

Arrowings ascending on a chalkboard

I Think They Can: 3 Stocks That Can Keep Chugging Higher

CN Rail (TSX:CNR) and other transport plays have what it takes to chug even higher from here!

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Better Buy: Dollarama Stock or Alimentation Couche-Tard?

Take a closer look at these two defensive retail stocks to determine which might be a better holding to protect…

Read more »

Growing plant shoots on coins
Dividend Stocks

TFSA Dividend Stocks: How You Can Earn $400 Per Month of Growing Passive Income

Here's how you can buy top Canadian dividend stocks in your TFSA to build a rapidly and consistently growing passive-income…

Read more »

top TSX stocks to buy
Dividend Stocks

GICs vs. Dividend Stocks: Where to Invest for Passive Income in 2024?

Income-seeking investors can consider holding instruments such as GICs and dividend stocks to create a recurring revenue stream.

Read more »

Dollar symbol and Canadian flag on keyboard

If You Don’t Own This Canadian Stalwart Stock, You’re Missing Some Serious Stability

Here's why Royal Bank of Canada (TSX:RY) remains a stalwart long-term investors have done well to make a core holding.

Read more »

Payday ringed on a calendar
Dividend Stocks

Got $10,000 to Invest? How to Turn it Into Monthly Income

Canadians can produce recurring monthly income streams from a $10,000 investment in two high-yield real estate stocks.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

How to Build a Bulletproof Dividend Portfolio Starting With Just $10,000

Want to earn a growing stream of dividend income? Here's how to invest $10,000 for a great combination of income…

Read more »

Wireless technology
Tech Stocks

Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

Here are the best tech stocks to buy, with one offering long-term growth and the other offering strong business as…

Read more »