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2008

Thursday 15 May 2008 (RON : TSX : $13.05)Ice age, Q1/08 earnings in line
Credit Suisse First Boston continues "neutral", 12-month target price is $14.00
Desjardins Securities maintains "hold", 12-month target price is $15.00
RBC Capital Markets maintains "sector perform", 12-month target price is $17.00

Wednesday 14 May 2008 Rona (RON) declined after Canada’s biggest home-improvement retailer said first quarter profit fell more than analysts expected, as consumers cut spending on house renovations.

RONA (RON : TSX : $12.95), Net Change: -0.50, % Change: -3.72%, Volume: 1,096,960
Rain, rain, go away. RONA wants the sun to stay. Canada's largest retailer of hardware and renovation products said on Tuesday that overall sales advanced 3.8% from Q1/07 to $911.5 million because of acquisitions, store openings and the addition to new affiliate dealer-owners. Same-store sales showed a 5.2% decline in the first quarter and an 18% drop in operating profit. The company made $1 million, or one cent per share, compared with $9 million, or eight cents per share, in the year-ago period. President & CEO Robert Dutton explained, "The results [for Q108] reflect a strong drop in consumer confidence in the country's economic growth. Results were also affected by weather conditions that were particularly unfavourable to construction and renovation [activities] in Ontario and Quebec," where RONA gets nearly 70% of their sales. These results were also affected by a decrease in growth of single-family homes in Canada and a temporary slowdown in the demand for building materials in Alberta. But don't worry, Rona does have a new plan for its '08 year. Under their PEP program (Productivity, Efficiency, Profitability), which began this year, they're introducing numerous promising initiatives with the hope of achieving the following results: 130 basis point improvements in gross margin, 10% growth in sales of private brand products and installation services, and $83 million reduction in inventories. In addition to that, their capital spending program will be in the area of $240 million. From this, approximately $180 million will be allocated to store construction, upgrades/renovations, and property acquisitions, $20 million will be spent on expanding the distribution network (allowing rapid growth in the Western part of the country), and finally, $40 million will go to the ongoing improvement of their information systems. Let's just hope it doesn’t rain all year!

Monday 12 May 2008 RONA Inc. (RON : TSX : $13.62)
Q1 preview: winter chill, moderating forecasts
BMO Nesbitt Burns maintains "underperform", 12-month target price is cut to $12.00
RBC Capital Markets maintains "sector perform", 12-month target price is cut to $17.00

Thursday Apr 24, 2008 Rona sees opportunities for growth
The stock's unloved, the sector's out of favour, and the housing market is cooling.

Thursday 10 April 2008
• Earlier this week, RONA's management provided an update on their operations.
  What It Means
  
• We believe that challenging market conditions and a slowdown in consumer spending will prevail in F08, followed by a moderate pickup in F09. We see no short-term catalyst.
• RONA aims to increase its annual EPS by low single digits in F08 and by double digits thereafter. Management provided no top-line guidance but warned that same-store sales are likely to remain under pressure. We are forecasting flat EPS in F08 and growth of 6.3% in F09.
• Management believes that the key to RONA's future success is dependent on its ability to: (1) efficiently execute the Productivity, Efficiency and Profitability (PEP) 2008-2011 strategic plan, (2) deliver a strong service component, (3) adequately recruit strategic independent dealers, (4) develop critical mass in commercial and proprietary sector, and (5) maintain a strong balance sheet to seize consolidation opportunities during the current economic slowdown.

Monday 03 March 2008 RONA (RON : TSX : $14.08) Hosted investor day in Montreal
BMO Nesbitt Burns maintains a "market perform", target price cut to $14.00
RBC Capital Markets maintains a "sector perform", target price is $18.00

Thursday Feb 28, 2008 RONA forecast reflects 'difficult market'
Rona Inc. said yesterday that it expects low single-digit earnings growth in 2008 and 2009, reflecting "difficult market...

Friday 22 February 2008 (RON : TSX : $14.63) Q4 below estimates
Desjardins Securities maintains "hold", 12-month target price is $16.50
RBC Capital Markets maintains "sector perform", 12-month target price is $18.00

Thursday 21 February 2008 RONA (RON : TSX : $15.41), Net Change: -0.94, % Change: -5.75%, Volume: 400,592
We’ve never had to wait in line. RONA announced its Q4 results, in which sales increased, on a comparable basis, by 7.1% to $4.8 billion, while operating income increased by 6.3% to $400 million, and earnings decreased by 2.9% to $1.59 per share. Results were affected at year-end by a major slowdown in the sales of building materials and by a non-recurring after-tax expense of $1.4 million recorded for an in-depth study of the company’s supply chain, which the company said produced recommendations that will result in efficiency improvements beginning in 2008. RONA ended its “7-07 Program” with annualized sales of over $6.2 billon. At the beginning of this program, launched at the end of 2005, RONA achieved sustained growth in retail sales, but market conditions much more difficult than foreseen when the program was launched, slowed advances in all four of the Company's growth strategies. Excluding the drop in average price of forest products and the impact of the 53rd week in 2006, same-store sales decreased by 0.8% over the year. This decline reflects the slowdown in our entire sector over the last two years. The Canadian market is experiencing significant regional disparities, however, which is reflected in our retail network sales. Same-store sales increased in Western Canada, thanks to strong economic growth in the region. On the other hand, in Quebec and Ontario, they decreased following heavy losses in manufacturing jobs in the industrial heartland of Canada over the last two years, which grew even more pronounced in 2007.

2007

Thursday 08 November 2007 RONA Inc. (RON : TSX : $18.30)
Q3 results more or less in line
BMO Capital Markets maintains "market perform", 12-month target price is cut to $21.00
Credit Suisse rates a "neutral", target price is $24.00
Desjardins Securities maintains a "buy", target price cut to $25.00
RBC Capital Markets maintains a "outperform", target price is $24.00

Monday 05 November 2007 RONA (RON) - $20.78 - Q3/07 Preview; Price Target Reduced
Outperform, Average Risk, Price Target: $24.00 (prev. $28.00)
RBC CM is forecasting Q3 EPS of $0.50, up a modest 4.7% from $0.48 in Q3/06, reflecting a deceleration in same-store sales growth and higher depreciation expenses as anecdotal evidence suggests that consumer spending remains cautious. For the quarter, RBC CM anticipates same-store sales decline of -2% (including commodity price deflation), reflecting primarily lower average transaction, which would nonetheless compare favorably to U.S. peers, which have come under significant pressure from the slowdown in the U.S. housing market. RONA continues to invest in in-store labour to enhance service and other initiatives to drive sales at the store level. RONA continues to pursue its growth strategy, the key components of which are: 1) Generating organic growth through ongoing investment in and expansion of its store network; 2) Acting as a market consolidator both through acquisitions of corporate and franchised stores and through the recruitment of new affiliate dealers
(3) Pursuing improved efficiency and productivity across all of its operations. RBC CM is reducing its sales and earnings estimates for F07 and F08 to reflect a moderation in its same-store sales assumption and its margin assumptions.

Event

• RONA is expected to report Q3/07 financial results on November 6, 2007. A conference call is scheduled at 11:00 a.m. ET at 1-866-542- 4146. >b>What It Means
• Our Q3/07 EPS estimate is $0.53 compared with consensus estimate of $0.51 and $0.48 for the same quarter last year.
• We expect Q3/07 margins to inch higher due to more stringent cost controls and a strong western economy slightly offset by a slowdown in economic activity in Ontario and Quebec. We forecast a 30 bp increase in Q3/07 EBITDA margins to 8.8% from 8.5% in Q3/06. This should translate into an EBITDA of $123.1M.
• We expect same store sales will increase by 1% over Q3/07 due to robust growth in Western Canada offset by a general cool down in the North American housing market. We remain upbeat on the Canadian housing market mainly due to soaring residential investment and a well contained Canadian affordability index.
• We reiterate our 1-Sector Outperform rating on RONA shares with a one-year target price of $28.00.

Thursday 18 October 2007 RONA Inc. (RON : TSX : $21.84)
New Street coverage
BMO Capital Markets initiates coverage with a "market perform", 12-month target price is $24.00

Monday 01 October 2007 RONA Inc. (RON : TSX : $21.78)
Lowe's Canada is locating stores close to Home Depot
Desjardins Securities maintains "buy", 12-month target price is $26.50

Friday 31 August 2007 RONA Inc. (RON : TSX : $20.90)
Cheap valuation compared with its US peers
Canaccord Adams maintains "buy", 12-month target price is $30.00

Thursday 09 August 2007RONA Inc. (RON) – Q2 Results Weak; Although Good on a Relative Basis
Outperform, Average Risk, Price Target $28.00
RONA’s second quarter results were below expectations with Q2 EPS of $0.72 versus forecast and consensus of $0.75. Same store sales increased only 0.3%, however after adjusting for commodity price deflation, this figure rises to 1.4%; beating forecasts. Despite weaker than forecasted results, RONA’s second quarter was solid, and demonstrated a strong improvement since Q1. In addition, RONA continues to deliver better results than its key U.S. counterparts in some of its key metrics, including comp store sales and operating profitability trends. The main differentiators for RONA are threefold as follows: 1) the healthier Canadian housing market (in contrast to the U.S.), 2) strong efforts to enhance in-store sales and profitability and 3) recent acquisitions and dealer recruitment. RBC CM anticipates that that the current gap in RONA’s valuation will narrow as strong performance in upcoming quarters will diffuse investor fears of a Canadian renovation market slow down. RBC CM is maintaining its current $28 price target, which was reduced yesterday to $28 from $29.

Thursday 09 August 2007 MONTREAL: RONA THINKS BIG
Canadian home improvement retailer Rona Inc. says it plans to expand by as many as 50 stores over the new several years, most of them to be in Ontario and Western Canada. Rona has opened four new stores this year and plans to have six more by December. CFO Claude Guévin says the company is "extremely confident about our development plan," while announcing a second-quarter profit of a record $86.2 million, a 7.7 per cent improvement over a year earlier.

Saturday 19 May 2007 RONA(RON)$22.91 – CANADIAN RESALE SECTOR UPDATE. RATING: OUTPERFORM. TARGET: $29.00. RISK RATING: AVERAGE. INDUSTRY RATING: UNDERWEIGHT.
The Canadian Real Estate Association reported on Wednesday that robust resale activity trends continued in April as nationwide activity increased 12% y/y. April's gain, which was supported in part by weakness last year (-4% y/y), was strong across all regions of the country as robust gains in Central Canada (Quebec: +16% y/y; Ontario: +12% y/y) exceeded the strong results reported by Western Canada (+10% y/y). Not surprisingly, this strong activity was accompanied by healthy price gains across the country as prices increased 4% y/y in Ontario, 6% y/y in Quebec, 6% y/y and Eastern Canada and 18% y/y in Western Canada. RONA has indicated that 80% of its sales mix is related to renovation spending (which is primarily driven by housing resales) and 20% is related to building materials (which is driven by starts and resales). Given the strong resale numbers reported YTD, and the strong outlook for the balance of the year, we believe that renovation spending should return to the high end of our estimated 3% to 5% sustainable growth range over the next two to three quarters. We believe that this strong growth should more than offset weakness in the building materials segment, which is expected to be impacted by continued housing start softness. Our target price is based on a 15x P/E multiple on our $1.95 f2008 EPS forecast. Although RONA (12.1x fwd 12 months) currently trades near its historic discount to Home Depot (13.9x) and Lowe’s (14.9x), we expect that this discount should start to compress over the next few quarters on the back of RONA’s return to solid earnings growth and stronger Canadian housing trends.

Sunday 13 May 2007 RONA Inc. (RON) - $22.96 - Q1/07 Results Below Forecast
Outperform, Average Risk, Price target $29.00
Q1/07 results were below expectations as EPS was $0.08 (down 45% from Q1/06) versus forecast of $0.14. However, Q1 is the smallest (in terms of sales) quarter of the year and is particularly vulnerable to fluctuations in sales levels. While revenues of $878.5 million were in line with RBC CM forecast of $879.9 million, and EBITDA of $17.5 million for the distribution segment was also as forecasted, the corporate and franchise segment reported sharply lower than anticipated EBITDA results. According to RONA the disappointing results were due to: 1) increased fixed costs related to network development which had a disproportionate impact on profitability given the smaller revenue base in Q1; 2) an increase in seasonality due to a higher proportion of sales from building materials; 3) unfavourable weather in Quebec and Ontario; 4) a more pronounced economic slowdown in Quebec and Ontario. While RBC CM believes factors 1, 2 and 3 are temporary it believes that reason 4 is recurring and that RONA will likely have to invest more in promotional activity to drive sales levels. RBC CM is maintaining EPS forecasts at $1.67 and $1.90 for 2007 and 2008 as previous forecasts were for EPS of $1.79 and $2.06, respectively. RONA’s shares should remain range bound as the market awaits confirmation through strong quarterly earnings growth that the Company's growth drivers remain intact. RONA trades at 12.1x 2008 estimated EPS of $1.90. Price target of $29.00 represents a 15.2x multiple.

Wednesday 09 May 2007 RONA(RON)$22.96 – REITERATE OUTPERFORM AS POSITIVE OUTLOOK REMAINS INTACT. RATING: OUTPERFORM. TARGET: $29.00 (WAS $30.00). RISK RATING: AVERAGE. INDUSTRY RATING: UNDERWEIGHT.
Q1 EPS of $0.08 was below expectations of $0.14 due to weaker than expected sales growth (+10% vs. +13%fcst). Better than expected CSS (-0.1% vs. our -2% forecast), and increased gross margin were insufficient to offset significantly lower sales growth (+10% vs. +13% forecast) and higher SG&A (estimated to be up at least ~19%) in this low volume quarter. Lower sales growth was primarily attributed to increased exposure to acquired Specialty retail format sales (which are more dependent on building material sales), which were constrained by poor weather and lower housing starts. As a result, Corporate EBITDA margin declined 104bps, while Distribution margin increased 44bps, bringing consolidated margins in 68bps below last year. We upgraded RONA leading into their Q4 release but cautioned that there was at least two more quarters of housing trend risk to industry sales growth. Canadian resale housing has shown surprising strength in 2007 with Q1 volume up 5.4% y/y versus a 9.8% gain last year. Weaker prior year comparisons starting in Q2 2006 and reasonably balanced market conditions across the country suggest at least stability and possibly renewed growth. We continue to expect these trends to support improved renovation spending trends in H2 f2007 assuming the typical 6 to 12 month lag. We have reduced our f2007 EPS forecast to $1.72 from $1.80 and our f2008 estimate to $1.95 from $2.00 to reflect the Q1 shortfall and lower margin expectations. Our target price is lowered to $29.00 (was $30.00) based on a 15x P/E multiple applied to our $1.95 f2008 EPS forecast.

Thursday 03 May 2007 RONA(RON)$23.98 – BOTTOM LINE RESULTS MAY MASK IMPROVING LONG ERM OUTLOOK. RATING: OUTPERFORM. TARGET: $30.00. RISK RATING: AVERAGE. INDUSTRY RATING: UNDERWEIGHT.
RONA reports Q1-f07 results on Tuesday, May 8. We are forecasting Q1 EPS of $0.14 vs. $0.14 last year; in-line with consensus. We are forecasting 13% revenue growth to $899mln as the contribution of recent acquisitions, new store development and strong affiliate recruitment offset weak CSS growth (forecast -2%). We are forecasting EBITDA growth of 12% y/y to $49mln, with consolidated EBITDA margin expected to decrease 5bp to 5.4%.The modest improvement in EBITDA margin in a low volume quarter is expected to be driven by a 25bp improvement in Distribution EBITDA margin as Corporate EBITDA margin is expected to decline 15bp. The Canadian resale housing has shown surprising strength in 2007 with Q1 resale activity increasing 5.4% y/y on top of last year’s 9.8% y/y gain. We believe that this resale activity strength is well positioned to continue through the year as Canadian resale activity was generally weak in the last nine months of 2006 and the market remains well balanced across the country. We expect the healthy housing outlook to support a rebound in renovation spending growth based on the typical 6 to 9 month lag between resales and renovation spending. Our target price of $30.00 is based on a 15x P/E multiple on our $2.00 f2008 EPS forecast. Although RONA (12.7x fwd 12 months) currently trades near its historic discount to Home Depot (13.7x) and Lowe’s (14.5x), we expect that this discount should start to compress over the next few quarters on the back of RONA’s return to solid earnings growth and stronger Canadian housing trends.

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