MONTREAL – Rona will try to rebuild its profitability by closing 11 stores in two provinces and cutting more administrative jobs, the Quebec-based home improvement retailer announced Thursday.
Eight of the stores are in Ontario and three are in British Columbia. Four of the Ontario locations were previously targeted for closure.
The three B.C. stores — in Duncan, Kamloops and Abbotsford — will close in October. Six Ontario stores in Mississauga, Windsor, Woodbridge, London, Huntsville, and Collingwood will also close in October and two Ontario stores in Toronto and Aurora will close in December.
Rona (TSX:RON) said it told employees last week that 125 more jobs will be eliminated in four administration centres across Canada — in addition to 200 administrative positions that were announced in February.
“With the measures announced today, Rona will become more agile and efficient, with a simplified business structure and an even stronger balance sheet,” said Robert Sawyer, Rona’s president and CEO.
“By focusing on our strategic operations, we will unlock the full potential of our network and reinvest a significant share of the savings in initiatives that will allow us to offer even more to our customers and to our affiliated and franchised dealers.”
Last week, Rona announced plans to sell its commercial and professional market division for about $215 million.
The company is aiming to reduce annual operating expenses by $110 million — $70 million more than in its prior plan — but it will record up-front costs and accounting measures in its second quarter.
Rona said it will record $220 million of adjustments related to the restructuring during the quarter, of which $195 million will be non-cash items.
The company plans to reinvest 30 per cent of the cost savings in the remaining business.
The retailer has been struggling for years because of weak consumer spending amid slow economic growth and concerns about unemployment. It rebuffed a takeover bid last summer from U.S. rival Lowe’s and faced the departure of its veteran CEO. Rona also dodged a shareholder revolt by replacing much of its board of directors.
In Quebec, the company is repositioning its Reno-Depot banner as a warehouse by reducing the number of products, but offering bigger quantities at better prices.
The updated strategic plan is an acceleration of the cost-cutting ideas announced last February, says industry analysts.
“What we’re really seeing here is another case of Rona shrinking for growth,” said Derek Dley of Canaccord Genuity.
He said the latest moves represent a reversal of its prior direction by closing stores and selling the professional and commercial division which it identified as a core growth area only two years ago.
“This to me shows that they’re just not able to compete on the big-box level with the likes of Home Depot and Lowe’s in those key markets anywhere outside of Quebec,” Dley said from Vancouver.
The fact that Rona is closing rather than selling these locations suggests that they are underperforming and likely couldn’t attract buyers, he said, adding he doubts Lowe’s will try to fill the void.
Irene Nattel of RBC Capital Markets said renovation of Rona’s business model against the backdrop of a very challenging macro-economic environment will not be easy “and is best suited to patient investors.”
On the Toronto Stock Exchange, Rona’s shares gained nine cents at $9.80 in Thursday morning trading.