Rona Inc. plans to unveil a new specialty paint store concept this fall in Quebec that will be expanded across the country as it begins to prepare for growth when the recession finally peters out.
The home improvement retailer, based in Boucherville, Que., said it will open three test locations this fall in Montreal focused on paint and interior decorating products.
The concept would then expand in 2010 to 2011 to Ontario and Western Canada, where such specialty-style paint stores are turned to by about half of consumers.
"I am very enthusiastic because the biggest fan of the concept is my existing dealers in western Ontario," chief executive officer Robert Dutton said in a conference call about second-quarter results.
He doesn't expect the stores will cannibalize existing Rona sales, noting that dealers are interested in improving their market share.
The stores would presumably aim to take on rivals such as Colour Your World or Benjamin Moore, but analyst Brian Yarbrough of Edward Jones said he wouldn't bet on these stores being part of a big growth phase any time soon.
"I think where you'll see most of the growth coming from is continued recruitment of new dealers and potential acquisition on the specialty or professional side," he said.
Mr. Yarbrough added Rona's movement more to smaller regional stores is positive because they are more profitable and face less competition from Home Depot and Lowe's.
New growth plans are part of Rona's second phase of its strategic plan, which includes the acquisition of profitable independent dealers and commercial operations. The first phase involved cutting costs and improving productivity.
Rona said a further drop in housing starts in the second quarter led to a 7-per-cent dip in second-quarter sales and a reduction in profit for the period.
It earned $60.8-million or 51 cents a share for the quarter ended June 30. That's a decrease from profit of $76.6-million or 66 cents a year ago.
Excluding one-time items, Rona says it earned $66.5-million or 55 cents a share.
Sales fell by 7 per cent to $1.37-billion, compared with $1.47-billion a year earlier. Same-store sales, or sales at stores open for at least a year, dropped 6.2 per cent.
The company said key factors included slower housing starts, poor weather in Eastern Canada which reduced air conditioner and patio furniture sales.
While Canada Mortgage Housing Corp. and the Bank of Canada have pointed to an impending turnaround, Mr. Dutton said Rona is more cautious about its expectations.
"The situation is a bit erratic from one month to the next," he said, pointing to an extremely weak July.
"It's been like this since the beginning of the year with no clear sign of a recovery yet but there are indications that we have reached the bottom for our industry."
Mr. Yarbrough said the results were a little weaker than expected, but that Rona was doing a good job increasing margins, lowering debt and inventories.
"I think there doing a pretty decent job in a very tough operating environment, but the problem is when does this economic environment turn and when do they start seeing some better full price selling and I think that's several quarters away," he said.