Poor Weather Hurts Rona

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

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

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

Workers use a microscope to do medical research in a modern laboratory.

Is Now the Time to Buy Health Care Stocks?

Health care stocks are on the up, but does that mean you should go ahead and buy anything? In short:…

Read more »

Volatile market, stock volatility

2 Volatile Stocks to Hold for a Decade

The market is full of opportunities for investors. But does that opportunity include some volatile stocks to hold?

Read more »

Arrowings ascending on a chalkboard

1 Under-the-Radar U.S. Stock to Buy in August

Canadians on the hunt for an undervalued and under-the-radar U.S. stock should consider Match Group Inc.

Read more »

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »