"RONA has a very promising future. Despite the pressure on results, our strong balance sheet and significant operational cash flow give us flexibility in this pivotal period. The actions we are taking will make us the top-performing hardware and renovation materials retailer in Canada. By keeping our dealer-owners and customers front and centre in everything we do, we will meet their highest expectations and stand out from our competitors in the market segments where we have chosen to put our focus," said Mr. Sawyer.
Review of progress in each of the three strategic priorities
RONA's strategic priorities were announced at the end of 2012. The goal of these priorities is to enhance the Corporation's ongoing efforts to target value-creation opportunities over the short and long-term.
1. Leveraging the strengths of our core competencies -- Distribution to affiliated and franchised dealers and the operation of small and medium stores were quickly identified as strategic activities, as were the big-box stores in Quebec. -- A major review of big-box stores outside Quebec was also undertaken. After exploring a variety of options, RONA decided to keep this store network and will announce a recovery plan next quarter. -- The Commercial and Professional Market division is still under review. In the next quarter, RONA will be able to announce the path it will take to maximize the value of this division.2. Growing customer segments through a more compelling value proposition -- This priority has strong mid- and long-term potential, because it will put RONA back on track for profitable sales growth. Over the past several months, RONA has called upon international retail- industry experts to accelerate its analysis. -- An in-depth review of the pricing strategy and product categories offered in the RONA-store network is in progress. -- The Reno-Depot banner in Quebec has been redefined to better meet the needs of its core customers: professional contractors and skilled DIYers. The new concept puts more emphasis on the very nature of Reno-Depot: a warehouse that offers products in large quantities at better prices. -- Integration of the TOTEM banner in Alberta is continuing. This new proximity store model combines the strong points of both TOTEM and RONA.3. Unlocking the profit potential of a simplified business model -- To date, savings of $17 million (on an annualized basis) have been achieved through workforce reductions and the renegotiation of major agreements. The Corporation had identified $35 - $45 million in potential rationalizations and is confident that it can achieve this objective by the end of 2014. -- Part of the savings will be reinvested to strengthen our competitive position in certain key operations.
Our actions are always dictated by our three financial priorities. This disciplined approach is focused on achieving a medium term return on capital greater than 10%. We have made steady progress in this area during the first two quarters of 2012. This upward trend was interrupted in the last three quarters, as a more competitive environment and a change in our sales mix in favour of lower-margin products affected our operating income. However, the continuation of our capital structure optimization initiatives allowed us to mitigate the impact of the decrease on our return on capital and protect our strong balance sheet. Our disciplined capital management was impacted in the first quarter by an increase in inventories in preparation for the expected increase in seasonal demand.