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An Example of Fine Economic Balance

18 August 2013

We all know that keeping our economy in good shape is a delicate balancing act. The need for consumers to keep spending and putting money into the economy, while not racking up huge household debt is one of them – and one that we’ve talked about many times. But what about when things like home renovations get in the way, and homeowners stop putting so much money into their homes? That’s just what’s happened over the past few quarters, and it’s put some companies such as Rona in hot water.

On Wednesday it was revealed that Rona, the Canadian home improvement chain that goes up against American mega-giants such as Home Depot, felt a drop of 3.7 per cent on the stock market. The drop was felt due to things such as the Quebec construction strike, leaving many items still on the shelve that would normally be used during home construction. And the fact that Rona is a Quebec-based company probably means that this was one of the biggest factors in the drop of their stock. However, there was also the fact that home renovation financing just wasn’t as available to homeowners once the new mortgage rules went into place last year.

All of this has not only caused Rona’s stock to drop, but has also forced them to shut 11 stores, cut 320 jobs, and has also caused them to cut costs in other areas.

Robert Sawyer, the chief executive since April, said to investors during a conference call that this has been “a year of transition” and that they’ve been working in a time when “market conditions are difficult” but that the company is now “done with bad news.” However, not everyone is as optimistic as Mr. Sawyer.

Analyst Derek Dley of Canaccord Genuity says, “Although Rona appears to be making headway in reducing a portion of its operating costs, top-line challenges will outweigh expense reductions, and we are not yet ready to become more positive on the name.”

Do you think Rona will be able to make a comeback? Or do you think that Rona should have taken Lowe’s offer for purchase last year?

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