RONA inc.
TSX : RON
TSX : RON.PR.A
TSX : RON.PR.B

RONA inc.

May 10, 2016 08:18 ET

RONA Announces its 2016 First Quarter Results

BOUCHERVILLE, QUEBEC--(Marketwired - May 10, 2016) - RONA inc. (TSX:RON)(TSX:RON.PR.A)(TSX:RON.PR.B) ("RONA" or the "Corporation") announces the results for its operations for the 13-week period ended March 27, 2016. All figures in this press release are in Canadian dollars.

First quarter highlights

  • Increase of 3.1% in retail segment same-store sales.
  • Increase of 28.1% in adjusted EBITDA compared to last year, to $15.6 million, and up 37 basis points in adjusted EBITDA margin.
  • Improvement of 20.0% in adjusted net loss per share, to $0.08, compared to $0.10 in the first quarter of 2015.
  • Solid financial position with a ratio of net debt to adjusted EBITDA of 1.86x.

"The same-store sales in our retail network grew 3.1%. This seventh consecutive quarter of growth reflects the excellent performance of our stores in Ontario and British Columbia, as well as sustained growth in the Réno-Dépôt banner in Quebec. RONA has pursued its strategy of simplifying its business model and improving the products and services it offers. As we did successfully with Réno-Dépôt, we have begun redefining our big-box stores experience to offer our customers a revitalized image and a unique shopping experience through the introduction of new product lines. The new image will soon be unveiled at our Anjou store, in the Montreal area. RONA remains focused on executing its business plan and continuing its disciplined capital management in order to achieve the Corporation's sales growth and profitability objectives," said Robert Sawyer, President and Chief Executive Officer of RONA.

FINANCIAL HIGHLIGHTS First quarters ended
(in millions of dollars, except per share data) March 27, 2016 March 29, 2015
Consolidated revenues 819.2 778.8
Adjusted revenues (1) 805.4 778.8
Adjusted EBITDA (2) 15.6 12.2
Adjusted net loss attributable to participating shares (2) (9.0 ) (11.2 )
Per share - basic and diluted ($) (0.08 ) (0.10 )
Weighted average number of shares outstanding (in thousands) 106,921 110,160
(1) Following the acquisition of the franchised stores and in order to compare 2016 results to 2015 results, revenues were adjusted by subtracting franchised stores sales in the retail segment and adding the related distribution sales.
(2) See non-IFRS performance measures below.

2016 FIRST QUARTER RESULTS

Consolidated revenues were $819.2 million, up 5.2% from $778.8 million in the first quarter of 2015. On an adjusted basis, i.e., with the adjustment of franchised store sales in order to compare them to those of the previous fiscal year, sales grew 3.4% to $805.4 million. The increase reflects a 3.1% increase in same-store sales in the RONA retail network, resulting from a strong performance in Ontario and British Columbia and by the Réno-Dépôt banner in Quebec, which more than offset a decline in same-store sales in the Prairie Provinces.

Adjusted EBITDA rose to $15.6 million, or 1.94% of adjusted revenues, compared to $12.2 million, or 1.57% of revenues in the first quarter of 2015. The increase reflects the positive impact of organic sales growth in the retail segment and the improved adjusted gross margin, which grew 42 basis points over the same period in 2015. Furthermore, adjusted selling, general and administrative expenses expressed as a percentage of adjusted revenues remained relatively stable. In the retail segment, the adjusted EBITDA margin was up 48 basis points; in the distribution segment it was up 21 basis points.

Adjusted net loss attributable to participating shares for the first quarter of 2016 was $9.0 million, or $0.08 per share basic and diluted, compared to $11.2 million, or $0.10 per share basic and diluted, in the first quarter of 2015.

STRONG FINANCIAL POSITION

As at March 27, 2016, RONA's financial position remained healthy, with a net debt of $494.0 million and $348.9 million available on its authorized credit facility of $700.0 million. The ratio of net debt to adjusted EBITDA for the last 12 months was 1.86x as at March 27, 2016, compared to 1.71x as at March 29, 2015. The ratio of net debt to total capital was 0.24x as at March 27, 2016, up from 0.21x as at March 29, 2015.

The increase in the ratios compared to last year reflects use of the credit facility to repurchase common shares in the last 12-month period, and to acquire the franchised stores. The Corporation did not repurchase any common shares in the first quarter of 2016.

DIVIDENDS ON PREFERRED SHARES

At its meeting on May 9, 2016, RONA's Board of Directors declared a quarterly dividend of $0.20775 per share on cumulative and fixed 5-year Rate Reset Series 6 Class A preferred shares, as well as a quarterly dividend of $0.19384 per share on cumulative and variable 5-year Rate Reset Series 7 Class A preferred shares. The dividends will be paid on June 30, 2016 to shareholders of record on June 15, 2016.

DIVIDEND ON COMMON SHARES

At its meeting on May 9, 2016, RONA's Board of Directors declared a quarterly dividend of $0.04 per share on the Corporation's common shares. The dividend will be paid on June 23, 2016, to shareholders of record on June 8, 2016. Note that, as indicated in the plan arrangement with Lowe's, this dividend will not be payable if the transaction with Lowe's closes before June 8, 2016.

EVENTS AFTER THE REPORTING PERIOD

CONVERSION PRIVILEGE OF CUMULATIVE 5 YEAR RATE RESET PREFERRED SHARES

On March 1, 2016, the Corporation confirms that it does not intend to exercise its right to redeem all or any part of its currently outstanding 6,900,000 Cumulative 5-Year Rate Reset Series 6 Class A preferred shares (the "Series 6 Shares") on March 31, 2016. As a result, the holders of the Series 6 Shares have the right, at their option, to convert all or any of their Series 6 Shares into Cumulative Floating Rate Series 7 Class A preferred shares of RONA (the "Series 7 Shares") on March 31, 2016.

With respect to any Series 6 Shares that remain outstanding after March 31, 2016, the dividend rate for the five-year period is 3.324% per annum. With respect to any Series 7 Shares issued on March 31, 2016, the dividend rate for the floating rate period is 3.110% per annum.

The holders of its Cumulative 5-Year Rate Reset Series 6 Class A preferred shares have elected to convert 2,222,137 of the 6,900,000 Series 6 Shares currently outstanding, on a one-for-one basis, into Cumulative Floating Rate Series 7 Class A preferred shares of RONA on March 31, 2016. The Series 6 Shares continue to be listed and the Series 7 Shares have been listed and started trading at market open on March 31, 2016 on the Toronto Stock Exchange under the symbols RON.PR.A and RON.PR.B respectively.

ARRANGEMENT WITH LOWE'S

On March 31, 2016, the holders of record of RONA's common shares have approved the statutory plan of arrangement at the special meeting of shareholders pursuant to the arrangement agreement ("Arrangement") that RONA entered into on February 2, 2016. The Arrangement was approved by 99.92% of the 75,067,870 votes cast by common shareholders, representing 70.22% of the total 106,904,501 common shares outstanding.

On April 11, 2016, the Quebec Superior Court issued a final order approving the previously announced statutory Arrangement under the Business Corporations Act (Quebec) with respect to RONA's common shares pursuant to the Arrangement that RONA entered into on February 2, 2016. The completion of the Arrangement remains subject to regulatory approvals and the satisfaction or waiver of the other customary closing conditions. Until completion of the Arrangement, RONA's common shares will continue to be listed for trading on the Toronto Stock Exchange.

Holders of record of RONA's Cumulative 5-Year Rate Reset Series 6 Class A preferred shares did not approve the Arrangement, which required the approval of 66 2/3% of the votes cast by such shareholders.

As the completion of the Arrangement is not conditional on approval by the preferred shareholders and, given that the requisite approval of the preferred shareholders was not obtained, RONA's Cumulative 5-year Rate Reset Series 6 Class A preferred shares and Cumulative Floating Rate Series 7 Class A preferred shares will be excluded from the Arrangement. Following completion of the Arrangement, the preferred shares will remain outstanding in accordance with their terms and will continue to be listed for trading on the Toronto Stock Exchange.

ADDITIONAL INFORMATION

The Management's Discussion and Analysis (MD&A), financial statements and related notes for the first quarter of 2016 can be found in the "Investor Relations" section of the Corporation's website at www.rona.ca and on the SEDAR website at www.sedar.com. The Corporation's Annual Information Form, along with other information about RONA, can also be found on the RONA and SEDAR websites.

NON-IFRS PERFORMANCE MEASURES

RONA presents certain performance measures which are not prescribed by International Financial Reporting Standards ("IFRS"). Management's view is that these measures are useful in the analysis of the Corporation's operational performance. These measures must not be considered separately or as a substitute for other performance measures calculated in compliance with IFRS, but rather as additional information.

EBITDA, as defined by the Corporation, represents earnings before finance costs, income taxes, depreciation and amortization of non-financial assets. This measure is widely used in our industry and in financial circles to measure the profitability of operations. Same-store sales is a metric used by management and is common throughout our industry. This metric identifies sales growth generated by the existing store network and is adjusted to exclude the effect of store closures, acquisitions and store openings, as well as departures and recruitment of dealers.

The term "organic" is a metric used by management to illustrate the change in items on the consolidated statement of income that can be attributed to the existing store network, in both the distribution and retail segments. This metric excludes the impact of closed stores, acquisitions and new stores.

Management also uses the following non-IFRS performance measures: adjusted revenues, adjusted EBITDA; adjusted EBITDA margin, adjusted gross margin; adjusted selling, general and administrative expenses; adjusted depreciation and amortization of non-financial assets, adjusted finance costs, adjusted net income (loss) attributable to participating shares, adjusted basic and diluted net income (loss) per share attributable to owners of RONA inc., adjusted net operating income after tax, adjusted return on capital and debt net of cash. These measures reflect the inclusion or exclusion of certain amounts that are viewed as not representative of the Corporation's sustainable financial performance. For more details on these measures, please see the MD&A for the first quarter of fiscal 2016.

FORWARD-LOOKING STATEMENTS

This press release includes forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts included in this press release, including, without limitation, statements regarding the prospects of the industry and future prospects, beliefs, plans, expectations, anticipations, estimates, intentions, forecasts, goals, priorities, competitive strengths, expansion and growth opportunities, planned operations or future actions, financial performance, financial condition or results, planned operations or actions, economic and business outlook, business strategies and objectives and measures to implement these strategies and objectives, dividend policies and references to the future success of the Corporation, may constitute forward-looking statements within the meaning of the Canadian securities legislation and regulations. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "foresee," "believe" or "continue" or the negatives of these terms or variations of them or similar terminology. Although the Corporation believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made have on the Corporation's business. For example, they do not include the effect of dispositions, acquisitions, other business transactions, asset write-downs or other charges announced or occurring after forward-looking statements are made.

Forward-looking statements are provided for the purpose of assisting investors and others in understanding certain key elements of the Corporation's objectives, strategic priorities, management's current expectations and plans, and in obtaining a better understanding of the Corporation's business and anticipated operating environment as at and for, the periods ended on certain dates and the reader is cautioned that such statements may not be appropriate for other purposes. Investors and others are cautioned that undue reliance should not be placed on any forward-looking statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could affect forward-looking statements include, but are not limited to, risks and uncertainties relating to market and competition; economic situation; business strategies; acquisition; recruitment; integration; development; affiliate dealer-owners; human resources and labour relations; safety of employees and customers; information technology; business continuity; merchandising; supply chain and distribution; installation by a third party; payments; availability of financing; credit risk; liquidity risk; exchange risk and foreign currency sensitivity; interest rate risk; legal and regulatory requirements; legal proceedings; ethics and business conduct; and other risks detailed from time to time in reports filed by RONA with securities regulators in Canada, many of which are beyond the Corporation's control and the effects of which can be difficult to predict. Key assumptions applied in making forward-looking statements include, but are not limited to, expected growth, results of operations, historical and current trends, corporate and strategic plans, performance and business prospects and opportunities which the Corporation believes are reasonable as of the current date. The Corporation cautions the reader that the economic downturn experienced over the past few years makes forward-looking information and the underlying assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the Corporation's expectations.

Risks and uncertainties inherent in the nature of the Arrangement (as defined herein) include the failure of the Corporation and Lowe's to obtain the necessary shareholder, regulatory and court approvals, including those noted above, or to otherwise satisfy the conditions to the completion of the Arrangement, in a timely manner, or at all. Failure to obtain such approvals, or the failure of the parties to otherwise satisfy the conditions to or complete the Arrangement, may result in the Arrangement not being completed on the proposed terms, or at all. In addition, if the Arrangement is not completed, and the Corporation continues as an independent entity, there are risks that the announcement of the Arrangement and the dedication of substantial resources of the Corporation to the completion of the Arrangement could have an impact on the Corporation's current business relationships (including with future and prospective employees, customers, dealer-owners, distributors, suppliers and partners), operating results and businesses generally, and could have a material adverse effect on the current and future operations, financial condition and prospects of the Corporation. Furthermore, the failure of the Corporation to comply with the terms of the arrangement agreement may, in certain circumstances, result in the Corporation being required to pay a fee to Lowe's, the result of which could have a material adverse effect on the Corporation's financial position and results of operations and its ability to fund growth prospects and current operations.

Readers are cautioned that the foregoing list of factors is not exhaustive. For more information on the risks and uncertainties that could cause the Corporation's actual results to differ materially from current expectations, and about material factors or assumptions applied in making forward-looking statements, please also refer to the Corporation's public filings available at www.sedar.com. In particular, further details and descriptions of these and other factors are disclosed in the MD&A under the "Risks and uncertainties" section and in the "Risk factors" section of the Corporation's current Annual Information Form.

The forward-looking statements in this Press Release reflect the Corporation's expectations as at May 9, 2016, and are subject to change after this date. The Corporation expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by the applicable securities laws.

ABOUT RONA

RONA inc. is a major Canadian retailer and distributor of hardware, building materials and home renovation products. The Corporation operates a network of close to 500 corporate and independent affiliate dealer stores in a number of complementary formats. With its nine distribution centres, RONA serves its network of stores and several independent dealers operating under other banners, including Ace, for which RONA owns the licensing rights and is the exclusive distributor in Canada. With more than 17,000 employees in corporate stores and more than 5,000 employees in the stores of its independent affiliate dealers, the Corporation generates annual consolidated sales of $4.2 billion. For more information, visit www.rona.ca.

ADDITIONAL INFORMATION

RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA

Quarters ended
(in thousands of Canadian dollars) March 27, 2016 March 29, 2015
Net loss (14,368 ) (9,707 )
Finance costs 5,255 4,096
Depreciation and amortization of non-financial assets 23,591 21,247
Income tax recovery (5,276 ) (3,515 )
EBITDA 9,202 12,121
Restructuring costs and other charges 4,271 74
Acquisition of franchisees 2,144 -
Adjusted EBITDA 15,617 12,195

RECONCILIATION OF ADJUSTMENTS - FIRST QUARTER OF 2016

(in thousands of Canadian dollars, unless otherwise indicated) Quarter ended
March 27, 2016
Restructuring
costs and other
charges and
finance costs
Acquisition of
franchised
stores
Total
adjustments
Adjusted
quarter
ended March 27,
2016
Revenues 819,216 - 13,854 13,854 805,362
Gross Margin 243,011 - 22,609 22,609 220,402
Selling, general and administrative expenses 233,809 4,271 24,753 29,024 204,785
EBITDA 9,202 (4,271 ) (2,144 ) (6,415 ) 15,617
Depreciation and amortization of non-financial assets 23,591 - 2,011 2,011 21,580
Finance costs 5,255 437 1,406 1,843 3,412
Loss before income taxes (19,644 ) (4,708 ) (5,561 ) (10,269 ) (9,375 )
Income tax recovery (5,276 ) (1,264 ) (1,494 ) (2,758 ) (2,518 )
Non-controlling interests (184 ) - - - (184 )
Net loss attributable to owners of RONA inc. (14,184 ) (3,444 ) (4,067 ) (7,511 ) (6,673 )
Dividends on preferred shares 2,318 - - - 2,318
Net loss attributable to participating shares (16,502 ) (3,444 ) (4,067 ) (7,511 ) (8,991 )
Basic and diluted net loss per share (in dollars) (0.15 ) (0.03 ) (0.04 ) (0.07 ) (0.08 )
Weighted average number of shares outstanding (in thousands) 106,921 106,921 106,921 106,921 106,921

RECONCILIATION OF ADJUSTMENTS - FIRST QUARTER OF 2015

(in thousands of Canadian dollars, unless otherwise indicated) Quarter ended
March 29, 2015
Restructuring
costs and other
charges and
finance costs
Acquisition of
franchised stores
Total
adjustments
Adjusted
quarter
ended March 29,
2015
Revenues 778,770 - - - 778,770
Gross Margin 209,856 - - - 209,856
Selling, general and administrative expenses 197,735 74 - 74 197,661
EBITDA 12,121 (74 ) - (74 ) 12,195
Depreciation and amortization of non-financial assets 21,247 - - - 21,247
Finance costs 4,096 640 - 640 3,456
Loss before income taxes (13,222 ) (714 ) - (714 ) (12,508 )
Income tax recovery (3,515 ) (190 ) - (190 ) (3,325 )
Non-controlling interests (319 ) - - - (319 )
Net loss attributable to owners of RONA inc. (9,388 ) (524 ) - (524 ) (8,864 )
Dividends on preferred shares 2,317 - - - 2,317
Net loss attributable to participating shares (11,705 ) (524 ) - (524 ) (11,181 )
Basic and diluted net loss per share (in dollars) (0.11 ) (0.01 ) - (0.01 ) (0.10 )
Weighted average number of shares outstanding (in thousands) 110,160 110,160 - 110,160 110,160

Contact Information

  • Media
    Valerie Gonzalo
    Media Relations
    514 626-6976
    media@rona.ca

    Financial Community
    Stephane Milot
    Vice President-Development, Real Estate
    and Investor Relations
    514 599-5951
    stephane.milot@rona.ca