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Home improvement company Rona posts Q2 profit of $42 million on lower revenues

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MONTREAL - Rona Inc. reported $42 million of net income from continuing operations in the second quarter, turning around a year-earlier loss as the major home renovation retailer worked to control costs in a challenging environment.

The profit amounts to 35 cents per share for Rona and compares with a net loss of $38.7 million from continuing operations, or 32 cents per share, in the same quarter last year.

Last year's second quarter included a $106-million loss from discontinued operations, which took Rona's total net loss for the three month period to $141.04-million. Discontinued operations didn't have an impact on this year's second quarter.

The Montreal-area company launched a program last year to improve its operating efficiency and deliver $110 million in total cost savings and has closed a number of big-box stores in provinces such as Ontario and British Columbia.

The company has also been lowering prices, cutting the number of available products and introducing new categories of products to attract more customers to the stores.

"The progress achieved to date, under our business plan, shows that we have rolled out the right initiatives to improve efficiency and turnaround underperforming business units," chief executive Robert Sawyer said in a news release on Tuesday.

Rona said the net cost savings achieved by its plan added $10.5 million to earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter and $27.9 million year-to-date.

"These savings directly contributed to a 25 per cent increase in adjusted net income in the second quarter and 80 per cent increase year-to-date," Sawyer said.

Consolidated revenues from continuing operations were lower at $1.193 billion, down 4.4 per cent from $1.249 billion in the same quarter last year as Rona was impacted by what it called a challenging environment in the first half of the quarter. The company said the decrease primarily reflects the closure of underperforming stores, a late spring in Quebec and Ontario which had a negative impact on sales of building materials and seasonal goods, coupled with a decline in housing starts in Quebec.

Rona (TSX:RON) saw improvement at stores open for at least a year. Same-store sales fell by only 0.7 per cent in the quarter compared with a decline of 3.4 per cent a year earlier.

Rona's adjusted net income from continuing operations for this year's second quarter was also $42 million, or 35 cents per share — two cents above analysts' estimates.

RBC Dominion Securities analyst Irene Nattel noted that cost cutting helped drive the "modest beat" on Rona's adjusted results.

"Q2 results underscore that Rona management is doing a good job with controllable costs, but the challenging environment continues to moderate progress on rebuilding top-line momentum," Nattel wrote in a research note.

Rona operates a network of more than 500 corporate, franchise and affiliate stores under several different banners. It serves 276 Rona independent dealers and 200 TruServ Canada dealers from eight distribution centres and generates $4.2 billion of annual sales.

In 2012, Rona it rebuffed a $1.76 billion takeover overture from U.S. home renovation giant Lowe's. Lowe's abandoned its bid amid opposition from Rona's board and Quebec politicians, which objected to a foreign takeover of such a large Quebec-based retailer and employer.

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