- Sales increased 22.9% year-over-year to $47.8 million
- Gross margin improved 120 basis points ("bps") to
59.3%
- Net loss was ($3.2) million
compared to ($1.2) million in Q2
2021
- Adjusted EBITDA1 was ($0.6) million compared to $2.9 million in Q2 2021
- Excluding pandemic-related government subsidies and rent
abatements, net loss was reduced by $2.5
million and Adjusted EBITDA improved $2.7 million compared to Q2 2021
- Net debt decreased $26.9
million year-over-year to $50.2
million; leverage ratio was 1.1x
TORONTO, Sept. 13,
2022 /CNW/ - Roots ("Roots," "Roots Canada"
or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand,
today announced financial results for its second quarter ended
July 30, 2022. All financial results
are reported in Canadian dollars unless otherwise stated. Certain
metrics, including those expressed on an adjusted basis, are
non-IFRS measures. See "Non-IFRS Measures and Industry Metrics"
below.
"Roots generated strong revenue growth in the second quarter,
driven mainly by higher in-store traffic, which speaks to the
strength of our brand and the loyalty of our customer base. Our
consumers continue to embrace our differentiated and high-quality
product offering. Within the quarter, we took proactive steps
to mitigate the impact of industry-wide supply chain challenges
providing us with a healthy inventory position for the second half
of the year," said Meghan
Roach, President and Chief Executive Officer of Roots.
"As we look ahead to the remainder of the year, we are in a
solid financial position and have a well-balanced product offering
largely comprised of timeless items with minimal fashion risk. With
the launch of our new organic Cooper collection, we remain on track
to achieve our objective of having most of our apparel made with
sustainable materials by the end of the year. As Roots approaches
its 50th anniversary, the Company is well positioned to
execute on its omni-channel growth plan and strategy based on
optimizing our product portfolio and elevating our brand image to
drive overall demand," added Ms. Roach.
SELECT FINANCIAL
INFORMATION
(in '000s of CAD$,
except per share amounts)
|
Second quarter
ended
|
Year-to-date
|
July 30,
2022
|
July 31,
2021
|
Change
|
July 30,
2022
|
July 31,
2021
|
Change
|
Total
sales
|
47,801
|
38,904
|
22.9 %
|
90,873
|
76,249
|
19.2 %
|
Direct-to-Consumer
("DTC") sales
|
38,462
|
30,380
|
26.6 %
|
75,839
|
61,798
|
22.7 %
|
Partners & Other
("P&O") sales
|
9,339
|
8,524
|
9.6 %
|
15,034
|
14,451
|
4.0 %
|
Gross
profit
|
28,346
|
22,610
|
25.4 %
|
54,564
|
44,084
|
23.8 %
|
Gross
margin
|
59.3 %
|
58.1 %
|
+120 bps
|
60.0 %
|
57.8 %
|
+220 bps
|
Selling, General and
Administrative
("SG&A") expenses
|
30,625
|
21,847
|
40.2 %
|
61,931
|
47,726
|
29.8 %
|
Subsidies and
abatements2
|
271
|
6,468
|
(95.8 %)
|
405
|
9,499
|
(95.7 %)
|
Net
loss
|
(3,235)
|
(1,176)
|
-
|
(8,496)
|
(6,114)
|
-
|
Net loss per
share
|
(0.08)
|
(0.03)
|
-
|
(0.20)
|
(0.14)
|
-
|
Adjusted
EBITDA1
|
(629)
|
2,897
|
-
|
(3,833)
|
360
|
-
|
|
|
1
|
Adjusted EBITDA is a
non-IFRS Measure. See "Non-IFRS Measures and Industry Metrics"
below.
|
2
|
Subsidies and
abatements are reported as a reduction to the related expense,
either as a decrease to Cost of Goods sold or to SG&A
expenses.
|
|
|
"We are pleased with our store traffic improvement and the level
of full-price sell through that continues to drive profitability.
As a result, Adjusted EBITDA excluding government subsidies
and occupancy-related cost abatements increased by $2.7 million and $4.9
million, respectively, in the second quarter and first half
of 2022 when compared to a year ago. Entering the revenue-intensive
back half of the year, we believe our inventory position
appropriately reflects the balance between addressing supply-chain
volatility and resilient market demand from our loyal customer
base," said Mona Kennedy, Chief
Financial Officer of Roots.
SECOND QUARTER OVERVIEW
Total sales increased 22.9% to $47.8
million in Q2 2022 from $38.9
million in Q2 2021. DTC sales (corporate retail store and
eCommerce sales) were $38.5 million,
up 26.6% year-over-year. This increase was mainly driven by growth
in store sales, reflecting a positive traffic recovery from the
absence of COVID-19 related closures and restrictions in Q2 2022 as
compared to Q2 2021. Last year, corporate stores were closed for
34% of the quarter, while also operating under certain capacity
limitations when open, whereas stores were fully open in Q2 2022
without any restrictions.
P&O sales (wholesale Roots branded products, royalties on
partner retail sales, licensing to select manufacturing partners
and the sale of certain custom products) rose to $9.3 million
in Q2 2022, compared to $8.5 million
in the same period of 2021. The increase was due to higher sales
from the Company's business in Taiwan, increased royalties on licensed
products, sales through Tmall.com in China, and a favourable foreign exchange
impact.
Gross profit grew 25.4% to $28.3
million in Q2 2022, compared to $22.6
million in Q2 2021. Gross margin improved to 59.3% in Q2
2022, from 58.1% in Q2 2021. This increase reflects
higher merchandise margins resulting from lower markdowns and
less promotional activity, as well as a favourable year-over-year
impact from foreign exchange. These factors were partially offset
by a 250 bps decrease from the reduction in government subsidies
recognized in gross profit, and a 40 bps decrease from higher
transportation costs for the air freight of certain products.
SG&A expenses were $30.6
million in Q2 2022, up from $21.8
million in Q2 2021. The 40.2% increase was primarily driven
by a $5.3 million reduction in
pandemic-related government subsidies and occupancy-related cost
abatements from landlords in 2022 compared to 2021. Excluding these
one-time impacts, SG&A rose 12.9% due to higher store payroll
costs related to stores being fully open during Q2 2022 and
investments in talent and marketing.
Net loss totaled ($3.2) million,
or ($0.08) per share, in Q2 2022,
versus a net loss of ($1.2) million,
or ($0.03) per share, in Q2 2021.
Excluding the impact of government subsidies and occupancy-related
cost abatements that positively affected last year's results, net
loss improved by $2.5 million
year-over-year.
Adjusted EBITDA amounted to ($0.6)
million in Q2 2022 compared to $2.9
million in Q2 2021. Excluding the impact of government
subsidies and occupancy-related cost abatements, Adjusted
EBITDA increased by $2.7 million
year-over-year.
YEAR-TO-DATE RESULTS
For the first six months of fiscal 2022, total sales amounted to
$90.9 million, representing an
increase of 19.2% over sales of $76.2
million in the first six months of fiscal 2021. DTC sales
rose 22.7% to $75.8 million, while
P&O sales increased by 4.0% to $15.0
million. Gross profit stood at $54.6
million, or 60.0% of sales, up from $44.1 million, or 57.8% of sales, last year.
Net loss was ($8.5) million, or
($0.20) per share, compared to
($6.1) million, or ($0.14) per share, last year. Excluding the
impact of government subsidies and occupancy-related cost
abatements that positively affected last year's results, net loss
improved by $4.3 million
year-over-year
Adjusted EBITDA totaled ($3.8)
million in the first half of 2022 compared to $0.4 million in the corresponding period in 2021.
Excluding government subsidies and occupancy-related cost
abatements, Adjusted EBITDA improved by $4.9
million year-over-year.
FINANCIAL POSITION
At the end of Q2 2022, Roots had a solid financial position,
with net debt of $50.2 million, down
significantly from $77.1 million at
the end of Q2 2021. As at July 30,
2022, the Company also had unused borrowing capacity of
$59.6 million available under its
revolving credit facility. The Company's leverage ratio, defined as
total net debt to trailing 12-months Adjusted EBITDA, was 1.1 times
at quarter-end.
ROOTS CARES
For nearly 50 years, Roots has been committed to giving back to
and partnering with communities in need. With the Company's
values of community, integrity, freedom, and being genuine in mind,
Roots is committed to embracing individuality through respect,
acceptance, representation, and empowerment. The Company's
philanthropic endeavours, now branded as "Roots Cares", are focused
on amplifying the values shared with customers. Since February 2020, Roots has donated approximately
$3.1 million of cash and in-kind
donations to various organizations within the communities in
which Roots operates.
CONFERENCE CALL AND WEBCAST
INFORMATION
Roots will hold a conference call to review its second quarter
2022 results on September 13, 2022,
at 8:00 a.m. ET. All interested
parties can join the call by dialing 416-764-8659 or 1-888-664-6392
and using conference ID: 99617615. Please dial in 15 minutes prior
to the call to secure a line. The conference call will be archived
for replay until September 20, 2022,
at midnight, and can be accessed by dialing 416-764-8677 or
1-888-390-0541 and entering the replay passcode: 317615#.
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.
See Roots Consolidated Financial Statements and the Company's
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the second quarter ended July 30, 2022, on the Company's investor website
at https://investors.roots.com and on SEDAR at
www.SEDAR.com.
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 (loss) 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 measures including EBITDA,
Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted Net
Income (Loss) per Share. 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 2022, which is
incorporated by reference herein and is available on SEDAR
at www.SEDAR.com or the Company's Investor Relations
website at https://investors.roots.com.
The table below provides a reconciliation of net loss to EBITDA
and Adjusted EBITDA for the periods presented:
CAD
$000s
|
Q2
2022
|
|
Q2
2021
|
|
YTD
2022
|
|
YTD
2021
|
Net
loss......................................
|
(3,235)
|
|
(1,176)
|
|
(8,496)
|
|
(6,114)
|
Add the impact
of:
|
|
|
|
|
|
|
|
Interest expense
(a)............................
|
2,076
|
|
2,259
|
|
4,061
|
|
4,537
|
Income taxes recovery
(a).......................
|
(1,120)
|
|
(320)
|
|
(2,932)
|
|
(2,065)
|
Depreciation and
amortization (a).................
|
7,193
|
|
7,639
|
|
14,378
|
|
15,157
|
EBITDA.......................................
|
4,914
|
|
8,402
|
|
7,011
|
|
11,515
|
Adjust for the
impact of:
|
|
|
|
|
|
|
|
SG&A: Rent expense
excluded from net loss as a result of
IFRS 16 (a) ...............................
|
(6,161)
|
|
(6,066)
|
|
(11,676)
|
|
(11,956)
|
SG&A: Purchase
accounting adjustments (b)......
|
(12)
|
|
13
|
|
7
|
|
40
|
SG&A: Stock option
expense (c)................
|
112
|
|
295
|
|
312
|
|
368
|
SG&A: Changes in
key personnel (d)............
|
–
|
|
41
|
|
(5)
|
|
181
|
SG&A: One-time
legal fees (e)..................
|
518
|
|
–
|
|
518
|
|
–
|
SG&A: Other
non-recurring items (f).............
|
–
|
|
212
|
|
–
|
|
212
|
Adjusted
EBITDA(h).............................
|
(629)
|
|
2,897
|
|
(3,833)
|
|
360
|
Notes:
|
(a)
|
The impact of IFRS 16 –
Leases accounting standard ("IFRS 16") in Q2 2022 and Q2
2021 was: (i) a decrease to SG&A expenses of $1,785 and $1,492,
respectively, which comprised the impact of depreciation on the
right-of-use ("ROU") assets, net of the exclusion of rent payments
from SG&A expenses, (ii) an increase in interest expense of
$1,167 and $1,364, respectively, arising from interest expense
recorded on the lease liabilities in the period, and (iii) a
deferred tax impact of $163 and $33, respectively, based on tax
attributes on the ROU assets and lease liabilities balances
recorded. The impact of IFRS 16 in YTD 2022 and YTD 2021 was: (i) a
decrease to SG&A expenses of $2,953 and $2,705, respectively,
which comprised the impact of depreciation on the ROU assets, net
of the exclusion of rent payments from SG&A expenses, (ii) an
increase in interest expense of $2,396 and $2,794, respectively,
arising from interest expense recorded on the lease liabilities in
the period, and (iii) a deferred tax impact of $147 and $(24),
respectively, based on tax attributes on the ROU assets and lease
liabilities balances recorded.
|
(b)
|
As a result of
Searchlight Capital Partners assuming control of Roots in 2015 (the
"Acquisition"), we recognized an intangible asset for lease
arrangements in the amount of $6,310, which when excluding the
impacts of IFRS 16, is amortized, as a non-cash expense, 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 Incentive
Plan.
|
(d)
|
Represents infrequent
expenses incurred in respect of the Company's efforts to recruit
for vacancies in key management positions and severance costs
associated with such employee separations. In YTD 2022, expense
recovery is from a reduced recruiting charge in comparison to what
had been previously accrued during the fourth quarter of
F2021.
|
(e)
|
In Q2 2022 and YTD
2022, this represents non-recurring legal costs incurred that are
outside the scope of normal operations.
|
(f)
|
In Q2 2021 and YTD
2021, this represents one-time closure costs incurred while
optimizing the footprint of one of our corporate retail stores as
well as start-up costs associated with the relaunch of the Roots
eCommerce website in China in Q2 2021.
|
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,
www.roots.com, that serves over 55 international markets. 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