RONA Announces Results for First Quarter 2008

RONA (TSX: RON), the largest Canadian distributor and retailer of hardware, renovation and gardening products announced a 3.8% increase in sales in the first quarter of 2008. Same-store sales declined by 5.2% in the first quarter of 2008, excluding price deflation for building materials of 0.5% and negative 1.3% effect related to changes in statutory holidays. Operating income in the first quarter of 2008 was down by 18.2%, and net earnings stood at $1.0 million, or $0.01 per share, compared to $9.0 million or $0.08 per share in 2007. Economic and weather conditions that were especially unfavourable to construction/renovation activities, particularly in Eastern Canada, largely explain this drop in same-store sales and profits. Results were also affected by a decline in starts of single family homes in Canada and a temporary slowdown in the demand for building materials in Alberta.

Under its PEP program (Productivity, Efficiency, Profitability), Phase 1 of the 2008-2011 strategic plan, RONA nonetheless introduced numerous promising initiatives in first quarter 2008, with the following results:

- 130 basis point improvement in gross margin

- Over 10% growth in sales of private brand products and installation services

- $83 million, or 9%, reduction in inventories on a comparable basis versus first quarter 2007

In addition, RONA stepped up training for employees in order to offer the best service and the best shopping experience in the industry. These training sessions covered sales support on several innovative products and services such as the Project Guide service, RONA by Design, installation services, credit and financing solutions, and the all-new line of RONA ECO products. Encouraging results were seen very quickly in the stores.

"The results for first quarter 2008 reflect the 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 activity in Ontario and Quebec, where we get nearly 70% of our sales," explained RONA President and CEO Robert Dutton. "Because of the significant seasonality of our activities, only 15% of our annual sales and 5% of our earnings are on average generated in the first quarter of the year. So we have very little room to manoeuvre at the beginning of the year to compensate for these difficult market conditions."

"Despite these unfavourable market conditions, we persevered with the extensive optimization plan we call the PEP program - for Productivity, Efficiency and Profitability - which is the first phase of our 2008-2011 strategic plan. The results of these efforts are very encouraging for the coming quarters. This, combined with the various initiatives to boost sales and stimulate customer loyalty, will allow us to mitigate for the current slowdown in our industry," Dutton said.

FINANCIAL HIGHLIGHTS

Consolidated sales

Consolidated sales in first quarter 2008 stood at $911.5 million, $33.0 million or 3.8% more than the $878.5 million posted in 2007. The growth can be mainly attributed to acquisitions, store openings, and the recruitment of new affiliate dealer-owners. Excluding the contributions of our acquisitions - Noble Trade, Dick's Lumber, Centre de Renovation Andre Lessard and Best-MAR - consolidated sales dropped by 3.5%. Sales generated by new stores opened in the last 12 months could not compensate for the drop in same-store sales, which decreased by 5.2% in first quarter 2008, excluding the 0.5% decline in the price of forest products and the negative effect of statutory holidays, estimated at 1.3%. A new statutory holiday ("Family Day") was introduced in Ontario, and the Easter weekend fell in the first quarter this year, rather than the second quarter.

As mentioned, this decrease stems from an ongoing decline in the level of consumer confidence in Canada, weather conditions that were especially unfavourable to construction/renovation activities in the eastern part of the country, and a temporary drop in the demand for building materials in Alberta. RONA's loyalty-building and sales-boosting activities, combined with employee efforts to offer the best service and shopping experience in the industry, have helped increase our average shopping basket, but the factors cited above created downward pressure on the number of transactions in stores. Sales declined in most product categories, indicating a general drop in renovation projects during the first quarter. We should mention, however, that sales of the RONA private brand increased by over 10%. This growth can be explained by the popularity of the RONA by Design projects, which include a number of private brand products. The strong demand for our Project Guide service is also influencing our private brand sales and our sale of installation services.

Gross margin

In the first quarter of 2008, the Company's gross margin improved by 130 basis points, increasing from 28.4% in 2007 to 29.7% in 2008. This growth is the result of an improvement in purchasing conditions with our suppliers, a reduction of store losses (shrinkage), an increase in sales of private label products and better management of product categories.