TORONTO, Sept. 13,
2024 /CNW/ - Roots ("Roots," "Roots Canada" or
the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand,
announced today financial results for its second quarter ended
August 3, 2024 ("Q2 2024"). All
financial results are reported in Canadian dollars unless otherwise
stated. Certain metrics, including those expressed on an adjusted
or comparable basis, are non-IFRS measures or supplementary
financial measures. See "Non-IFRS Measures and Industry
Metrics".
"Our second-quarter results demonstrate stable comparable sales
and an improvement compared to Q1 2024, alongside growth in product
margins and net income, despite the challenging consumer
environment," commented Meghan
Roach, President & CEO, Roots Corporation.
"We were also pleased to see growth during the "back-to-school"
period, underscoring the strength of our product portfolio and the
effectiveness of our ongoing initiatives in branding, marketing,
and enhancing the in-store experience; however, it is early in the
quarter."
Second Quarter Highlights
- Sales were $47.7 million compared
to $49.4 million in Q2 2023
- DTC sales were $36.4 million
compared to $37.1 million in Q2 2023,
with nearly flat comparable sales of (0.2%), improving from Q1 2024
comparable sales of (8.2%)
- Gross margin was 56.4%, up 90bps compared to 55.5% Q2 2023
- Net income (loss) totaled ($5.2)
million, an improvement from ($5.3)
million in Q2 2023
- Net income (loss) per share of ($0.13), flat to Q2 2023
- Adjusted EBITDA amounted to ($3.1)
million versus ($3.0) million
in Q2 2023
- Net debt reduced 19.9% year-over-year to $40.8 million
- Inventory was $44.0 million, a
21% reduction compared to $55.9
million in Q2 2023
|
SELECT FINANCIAL
INFORMATION
(in '000s of CAD$,
except where noted)
|
Second quarter
ended
|
Year-to-date
|
|
August 3,
2024
|
July 29,
2023
|
Change
|
August 3,
2024
|
July 29,
2023
|
Change
|
|
Total
sales
|
47,747
|
49,404
|
(3.4 %)
|
85,208
|
90,900
|
(6.3 %)
|
|
Direct-to-Consumer
("DTC") sales
|
36,417
|
37,103
|
(1.8 %)
|
67,822
|
72,509
|
(6.5 %)
|
|
Partners & Other
("P&O") sales
|
11,330
|
12,301
|
(7.9 %)
|
17,386
|
18,391
|
(5.5 %)
|
|
Gross
profit
|
26,920
|
27,441
|
(1.9 %)
|
49,021
|
51,922
|
(5.6 %)
|
|
Gross
margin
|
56.4 %
|
55.5 %
|
90
bps2
|
57.5 %
|
57.1 %
|
40
bps2
|
|
Selling, General and
Administrative
("SG&A") expenses
|
31,845
|
32,338
|
(1.5 %)
|
63,827
|
65,344
|
(2.3 %)
|
|
Net income
(loss)
|
(5,236)
|
(5,334)
|
1.8 %
|
(14,131)
|
(13,300)
|
(6.2 %)
|
|
Net income (loss)
per share
|
($0.13)
|
$(0.13)
|
–
|
($0.35)
|
$(0.32)
|
(9.4 %)
|
|
Adjusted
EBITDA
|
(3,131)
|
(2,983)
|
(5.0 %)
|
(11,090)
|
(8,831)
|
(25.6 %)
|
|
Free Cash
Flow1
|
(8,954)
|
(7,173)
|
(24.8 %)
|
(23,567)
|
(22,044)
|
(6.9 %)
|
|
Net
debt
|
–
|
–
|
–
|
40,774
|
50,921
|
(19.9 %)
|
|
1 Free cash
flow is a supplementary financial measure that reflects cash flow
generated from ongoing operations, calculated as our cash from
operating activities less cash used in investing activities and the
payment of principal on lease liabilities net of lease incentives.
See "Non-IFRS Measures and Industry Metrics".
|
|
2 Basis
points ("bps").
|
"We ended the second quarter in a healthy inventory position,
addressing the core inventory shortfall while maintaining lower
year-over-year inventory levels," said Leon
Wu, Chief Financial Officer. "We are pleased with the
improving sales trends, while also growing product margins and
remaining disciplined on costs, resulting in the continued
strengthening of our balance sheet."
SECOND QUARTER OVERVIEW
Total sales were $47.7 million in
Q2 2024, representing a decrease of 3.4% from $49.4 million in the second quarter of fiscal
2023 ("Q2 2023").
DTC sales (corporate retail store and eCommerce sales) were
$36.4 million, down 1.8% from
$37.1 million in Q2 2023. DTC
comparable sales were nearly flat, at (0.2%), driven by
strengthening of sales in certain core fleece collections as the
quarter progressed, as inventory was replenished, partially offset
by declines in primarily off-price focused store locations due to
improved inventory health. In addition, DTC sales were impacted by
the closure of select stores since Q2 2023, as part of our ongoing
store fleet optimization initiatives to consolidate less profitable
stores and drive same-store sales growth.
P&O sales (wholesale Roots branded products, licensing to
select manufacturing partners and the sale of certain custom
products) amounted to $11.3 million
in Q2 2024 and $12.3 million in Q2
2023. This was driven by lower sales to our international operating
partner in Taiwan, as a result of
earlier timing of certain orders that benefited Q2 2023, partially
offset by increased royalties from the licensing of the Roots brand
to select manufacturing partners.
Gross profit reached $26.9 million
in Q2 2024 compared to $27.4 million
in Q2 2023, representing a year-over-year decrease of 1.9%. Gross
margin was 56.4% in Q2 2024 compared to 55.5% in Q2 2023.
DTC gross margin was 61.7% in Q2 2024, down 100 bps from 62.7%
in Q2 2023. DTC gross margin increased by 230 bps from product
margin expansion, comprised of improved product costing and lower
discounting. This was offset by the combined impacts of an
unfavourable foreign exchange impact on U.S. dollar purchases, the
timing of certain import duty recoveries received, and lower
benefits from the reversal of non-cash accounting inventory
provisions accrued.
SG&A expenses totaled $31.8
million in Q2 2024 compared to $32.3
million in Q2 2023, representing a year-over-year decrease
of 1.5%. Decreases in SG&A expenses were driven from ongoing
cost management initiatives, including lower store occupancy costs,
and lower variable selling costs. This was partially offset by
higher store personnel costs as a result of legislative minimum
wage increases in 2023.
Net income (loss) totaled ($5.2)
million, or ($0.13) per share,
in Q2 2024, improving from a net income (loss) of ($5.3) million, or ($0.13) per share, in
Q2 2023.
Adjusted EBITDA amounted to ($3.1)
million in Q2 2024 as compared to ($3.0) million in Q2 2023.
YEAR-TO-DATE RESULTS
For the first six months of fiscal 2024, total sales amounted to
$85.2 million, representing a
decrease of 6.3% compared to the first six months of fiscal 2023,
which amounted to $90.9 million. DTC
sales decreased 6.5% to $67.8
million, while P&O sales decreased by 5.5% to
$17.4 million. Gross profit stood at
$49.0 million, or 57.5% of sales,
down from $51.9 million, or 57.1% of
sales, last year.
Net income (loss) was ($14.1)
million, or ($0.35) per share,
compared to ($13.3) million, or
($0.32) per share, last year.
Adjusted EBITDA totaled ($11.1)
million as compared to ($8.8)
million in the corresponding period in 2023.
FINANCIAL POSITION
Inventory was $44.0 million at the
end of Q2 2024, as compared to $55.9
million at the end of Q2 2023, representing a decrease of
$11.9 million or 21.3%. The
year-over-year decrease reflects the improved inventory health of
the business, resulting from the sell-through of prior markdown and
pack-and-hold collections in 2023, partially offset by the
replenishment of certain core collections towards the end of the
quarter.
Free cash flow was ($9.0) million
in Q2 2024, as compared to ($7.2)
million in Q2 2023, resulting from a return to seasonal
inventory purchase cadences. Inventory purchases were reduced in Q2
2023 as a result of higher than desired inventory levels entering
fiscal 2023.
As at August 3, 2024, Roots had
net debt of $40.8 million, improving
from $50.9 million a year earlier.
The Company's leverage ratio, defined as total net debt to trailing
12-months Adjusted EBITDA, was 2.3x as at Q2 2024. Roots has
$44.5 million outstanding under its
credit facilities and total liquidity of $62.4 million, including net cash and borrowing
capacity available under its revolving credit facility.
CONFERENCE CALL AND WEBCAST INFORMATION
Roots will hold a conference call to review its second quarter
2024 results on September 13, 2024,
at 8:00 a.m. ET. All interested
parties can join the call by dialing 1-437-900-0527 or
1-888-510-2154 and using conference ID: 42913. Please dial in 15
minutes prior to the call to secure a line. The conference call
will be archived for replay until September
20, 2024, at midnight, and can be accessed by dialing
1-289-819-1450 or 1-888-660-6345 and entering the replay passcode:
42913 #.
A live audio webcast of the conference call will be available on
the Events and Presentations section of the Company's investor
website at https://investors.roots.com or by following the link
here. Please connect at least 15 minutes prior to the conference
call to ensure adequate time for any software download that may be
required to join the webcast. An archived replay of the webcast
will be available on the Company's website for one year.
NON-IFRS MEASURES AND INDUSTRY METRICS
This press release makes reference to certain non-IFRS measures
including certain metrics specific to the industry in which we
operate. These measures are not recognized measures under
International Financial Reporting Standards as issued by the
International Accounting Standards Board ("IFRS"), do not have a
standardized meaning prescribed by IFRS and, therefore, may not be
comparable to similar measures presented by other companies.
Rather, these measures are provided as additional information to
complement those IFRS measures by providing further understanding
of our results of operations from management's perspective.
Accordingly, these measures are not intended to represent, and
should not be considered as alternatives to net income or other
performance measures derived in accordance with IFRS as measures of
operating performance or operating cash flows or as a measure of
liquidity. In addition to our results determined in accordance with
IFRS, we use non-IFRS financial measures including "EBITDA",
"Adjusted EBITDA", and "Net Debt"; and non-IFRS ratio: "leverage
ratio". This press release also makes reference to "gross margin",
"DTC gross margin", and "comparable sales", which are commonly used
metrics in our industry but that may be calculated differently
compared to other companies. Gross margin, DTC gross margin and
comparable sales are considered supplementary financial measures
under applicable securities laws.
We believe these non-IFRS measures and industry metrics provide
useful information to both management and investors in measuring
our financial performance and condition and highlight trends in our
core business that may not otherwise be apparent when relying
solely on IFRS measures. For further information regarding these
non-IFRS measures, please refer to "Cautionary Note-Regarding
Non-IFRS Measures and Industry Metrics" in our management's
discussion and analysis for Q2 2024, which is incorporated by
reference herein and is available on SEDAR+
at www.sedarplus.ca or the Company's Investor Relations
website at https://investors.roots.com.
Reconciliation of net income (loss) to EBITDA and Adjusted
EBITDA:
|
CAD
$000s
|
Q2
2024
|
|
Q2
2023
|
|
YTD
2024
|
|
YTD
2023
|
|
Net income
(loss)
|
(5,236)
|
|
(5,334)
|
|
(14,131)
|
|
(13,300)
|
|
Add the impact
of:
|
|
|
|
|
|
|
|
|
Interest expense
(a)
|
2,177
|
|
2,303
|
|
4,304
|
|
4,572
|
|
Income taxes expense
(recovery) (a)
|
(1,866)
|
|
(1,866)
|
|
(4,979)
|
|
(4,694)
|
|
Depreciation and
amortization (a)
|
7,302
|
|
7,351
|
|
14,543
|
|
14,888
|
|
EBITDA
|
2,377
|
|
2,454
|
|
(263)
|
|
1,466
|
|
Adjust for the
impact of:
|
|
|
|
|
|
|
|
|
SG&A: Rent expense
excluded from net income (loss) as a
result ofIFRS 16(a)
|
(5,892)
|
|
(5,861)
|
|
(11,481)
|
|
(11,560)
|
|
SG&A: Purchase
accounting adjustments(b)
|
(7)
|
|
(13)
|
|
(13)
|
|
(21)
|
|
SG&A: Stock option
expense(c)
|
46
|
|
133
|
|
137
|
|
233
|
|
SG&A: Changes in
key personnel(d)
|
343
|
|
304
|
|
532
|
|
1,049
|
|
SG&A:
Non-recurring legal fee(e)
|
2
|
|
–
|
|
(2)
|
|
2
|
|
Adjusted
EBITDA(f)
|
(3,131)
|
|
(2,983)
|
|
(11,090)
|
|
(8,831)
|
|
_______________
|
|
Notes:
|
|
(a)
|
The impact of IFRS 16 –
Leases ("IFRS 16") in Q2 2024 and Q2 2023 was: (i) a
decrease to SG&A expenses of $1,390 and $1,428, respectively,
which comprised the impact of depreciation and lease modifications
on the right-of-use ("ROU") assets, net of the exclusion of
rent payments from SG&A expenses, (ii) a decrease in interest
expense of $1,242 and $1,134, respectively, arising from interest
expense recorded on the lease liabilities in the period, and (iii)
a deferred tax expense (recovery) impact of $40 and $77,
respectively, based on tax attributes on the ROU assets and lease
liabilities balances recorded. The impact of IFRS 16 in YTD 2024
and YTD 2023 was: (i) a decrease to SG&A expenses of $2,487 and
$2,533, respectively, which comprised the impact of depreciation
and lease modifications on the ROU assets, net of the exclusion of
rent payments from SG&A expenses, (ii) an increase in interest
expense of $2,533 and $2,294, respectively, arising from interest
expense recorded on the lease liabilities in the period, and (iii)
a deferred tax expense (recovery) impact of $(12) and $63,
respectively, based on tax attributes on the ROU assets and lease
liabilities balances recorded.
|
|
(b)
|
As a result of the
Company's acquisition of assets from Roots Canada Ltd., Roots
U.S.A. Inc., and Roots America L.P., and the outstanding shares of
Roots International ULC effective December 1, 2015 (the
"Acquisition"), the Company recognized an intangible asset for
lease arrangements in the amount of $6,310, which when excluding
the impacts of IFRS 16, is amortized over the life of the leases
and included in SG&A expenses.
|
|
(c)
|
Represents non-cash
share-based compensation expense in respect of our Legacy Equity
Incentive Plan, Legacy Employee Option Plan, and Omnibus Equity
Incentive Plan.
|
|
(d)
|
Represents expenses
incurred in respect of the Company's efforts to recruit for
vacancies in key management positions and severance costs
associated with employee separations relating to such
positions.
|
|
(e)
|
Represents
non-recurring legal costs that are outside the scope of normal
operations.
|
|
(f)
|
Adjusted EBITDA
excludes the impact of IFRS 16. If the impact of IFRS 16 was
included for Q2 2024 and Q2 2023, Adjusted EBITDA would have been
$2,768 and $2,891, respectively. If the impact of IFRS 16 was
included for YTD 2024 and YTD 2023, Adjusted EBITDA would have been
$404 and $2,750, respectively.
|
Reconciliation of long-term debt to net debt and leverage
ratio:
|
As at
|
|
CAD
$000s
|
August 3,
2024
|
|
July 29,
2023
|
|
February 3,
2024
|
|
Long-term
debt(1)
|
$
43,128
|
|
$
55,500
|
|
$
45,010
|
|
Add: bank
indebtedness
|
350
|
|
831
|
|
–
|
|
Less: cash
|
(2,704)
|
|
(5,410)
|
|
(28,033)
|
|
Net
debt
|
$
40,774
|
|
$
50,921
|
|
$
16,977
|
|
Trailing 12-month
Adjusted EBITDA
|
17,596
|
|
21,969
|
|
26,967
|
|
Leverage
ratio
|
2.3x
|
|
2.3x
|
|
0.6x
|
|
(1)
|
Total long-term debt of
$43,128 at August 3, 2024 is net of $1,064 unamortized long-term
debt financing costs. As at July 29, 2023, total long-term debt of
$55,500 is net of $1,428 unamortized long-term debt financing
costs. As at February 3, 2024, total long-term debt of $45,010 is
net of $1,194 unamortized long-term debt financing
costs.
|
ABOUT ROOTS
Established in 1973, Roots is a global lifestyle brand. Starting
from a small cabin in northern Canada, Roots has become a global brand with
over 100 corporate retail stores in Canada, two stores in the United States, and an eCommerce platform,
roots.com. We have more than 100 partner-operated stores in
Asia, and we also operate a
dedicated Roots-branded storefront on Tmall.com in China. We design, market, and sell a broad
selection of products in different departments, including women's,
men's, children's, and gender-free apparel, leather goods,
footwear, and accessories. Our products are built with
uncompromising comfort, quality, and style that allows you to feel
At Home With Nature™. We offer products designed to meet
life's everyday adventures and provide you with the versatility to
live your life to the fullest. We also wholesale through
business-to-business channels and license the brand to a select
group of licensees selling products to major retailers. Roots
Corporation is a Canadian corporation doing business as "Roots" and
"Roots Canada".
FORWARD-LOOKING INFORMATION
Certain information in this press release contains
forward-looking information. This information is based on
management's reasonable assumptions and beliefs in light of the
information currently available to us and is made as of the date of
this press release. Actual results and the timing of events may
differ materially from those anticipated in the forward-looking
information as a result of various factors. Information regarding
our expectations of future results, performance, achievements,
prospects or opportunities or the markets in which we operate is
forward-looking information. Statements containing forward-looking
information are not facts but instead represent management's
expectations, estimates and projections regarding future events or
circumstances. Many factors could cause our actual results, level
of activity, performance or achievements or future events or
developments to differ materially from those expressed or implied
by the forward-looking statements.
See "Forward-Looking Information" and "Risk Factors" in the
Company's current Annual Information Form for a discussion of the
uncertainties, risks and assumptions associated with these
statements. Readers are urged to consider the uncertainties, risks
and assumptions carefully in evaluating the forward-looking
information and are cautioned not to place undue reliance on such
information. We have no intention and undertake no obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by applicable securities law.
SOURCE Roots Corporation