- Sales reached $63.5 million,
down 9.0% from $69.8 million in Q3
2022
- DTC full-price sales increased 3.0% as compared to Q3
2022
- Gross margin attained 58.4% compared to 56.5% in Q3 2022
- DTC gross margin of 62.4%, compared to 60.7% in Q3
2022
- Net income totaled $0.5
million compared to $2.2
million in Q3 2022
- Adjusted EBITDA amounted to $5.5 million compared to $7.3 million in Q3 2022
- Inventory balance of $61.4
million, was down 15.7% year-over-year
- Net debt reduced 10% year-over-year to $52.9 million
TORONTO, Dec. 6, 2023
/CNW/ - Roots ("Roots," "Roots Canada" or the "Company")
(TSX: ROOT), a premium outdoor-lifestyle brand, announced today
financial results for its third quarter ended October 28, 2023 ("Q3 2023"). All financial
results are reported in Canadian dollars unless otherwise stated.
Certain metrics, including those expressed on an adjusted basis,
are non-IFRS measures. See "Non-IFRS Measures and Industry Metrics"
below.
"Our full-priced sales have shown resilience, underscoring the
appeal of our latest products and the success of our intensified
marketing strategies in the third quarter. However, the prevailing
economic headwinds have altered consumer spending patterns and in
the third quarter, we maintained a promotional discipline which
influenced our off-price sales dynamics," commented Meghan Roach, President & CEO of Roots.
|
SELECT FINANCIAL
INFORMATION
(in '000s of CAD$,
except where noted)
|
Third quarter
ended
|
Year-to-date
|
|
October 28,
2023
|
October 29,
2022
|
Change
|
October 28,
2023
|
October 29,
2022
|
Change
|
|
Total
sales
|
63,534
|
69,782
|
(9.0 %)
|
154,434
|
160,655
|
(3.9 %)
|
|
Direct-to-Consumer
("DTC") sales
|
52,203
|
56,858
|
(8.2 %)
|
124,712
|
132,697
|
(6.0 %)
|
|
Partners & Other
("P&O") sales
|
11,331
|
12,924
|
(12.3 %)
|
29,722
|
27,958
|
+6.3 %
|
|
Gross
profit
|
37,118
|
39,428
|
(5.9 %)
|
89,040
|
93,992
|
(5.3 %)
|
|
Gross
margin1
|
58.4 %
|
56.5 %
|
+190
bps4
|
57.7 %
|
58.5 %
|
+80
bps4
|
|
Selling, General and
Administrative
("SG&A") expenses
|
33,788
|
33,830
|
(0.1 %)
|
99,132
|
95,761
|
+3.5 %
|
|
Subsidies and
abatements2
|
-
|
51
|
-
|
-
|
456
|
-
|
|
Net income
(loss)
|
519
|
2,209
|
(76.5 %)
|
(12,781)
|
(6,287)
|
(103.3 %)
|
|
Net income (loss)
per share
|
$0.01
|
$0.05
|
(80.0 %)
|
$(0.31)
|
$(0.15)
|
(106.7 %)
|
|
Adjusted
EBITDA3
|
5,522
|
7,276
|
(24.1 %)
|
(3,309)
|
3,443
|
(196.1 %)
|
|
1
|
Gross margin is a
supplementary financial measure that measures our gross profit as a
percentage of sales.
|
|
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.
|
|
3
|
Adjusted EBITDA is a
non-IFRS Measure. See "Non-IFRS Measures and Industry Metrics"
below.
|
|
4
|
Basis points
("bps").
|
"We continue to make significant progress towards improving our
inventory position, reducing by 15.7% year-over-year compared to an
increase of 33% to start the year." said Leon Wu, Chief
Financial Officer of Roots. "Combining the full-price sell-through
of goods from our prior pack-and-hold strategy with tightened
ordering, we achieved this inventory decline while simultaneously
reducing our discounting. The lower inventory level gives us
greater flexibility towards responding to consumer demand in the
products they love and helps maintain a strong level of annual free
cash flow."
"The optimization of our inventory levels also contributed
towards the strengthening of our balance sheet, with net debt
decreasing by 10%. These achievements, amid a challenging economic
landscape, underscores the inherent robustness of our brand and
provides us with the ability to continue investing in sustainable,
long-term growth," Mr. Wu added.
THIRD QUARTER OVERVIEW
Total sales decreased 9.0% to
$63.5 million in Q3 2023 from
$69.8 million in the third quarter of
fiscal 2022 ("Q3 2022"). DTC sales (corporate retail store and
eCommerce sales) reached $52.2
million, down 8.2% year-over-year. The year-over-year
decrease in DTC sales was driven by lower off-price sales
reflecting our ongoing promotional discipline and the tightening of
consumer discretionary spending in the current macroeconomic
environment. This was partially offset by strength in full-price
sales, which increased 3% year-over-year, reflecting excitement
surrounding the brand and strong product performances, including
continued growth of over 50% in our Active collection.
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 Q3 2023 compared to $12.9 million
in Q3 2022. The 12.3% decline in sales was attributed to timing
shifts in the sales of custom Roots-branded products and a
reduction in wholesale orders for Roots-branded products to select
retail partners.
Gross profit reached $37.1 million
in Q3 2023 compared to $39.4 million
in Q3 2022, representing a year-over-year decline of 5.9%. Gross
margin was 58.4% in Q3 2023, up 190 bps compared to 56.5% in Q3
2022, which was primarily driven by higher gross margins in our DTC
segment. DTC gross margin was 62.4% in Q3 2023, up 170 bps from
60.7% in Q3 2022 as a result of increased full-price sales and
lower freight costs, including 230 bps from comping last year's use
of air freight. This was partially offset by higher production
costs from the transition to sustainable materials and an
unfavourable foreign exchange impact on U.S. dollar purchases.
SG&A expenses totaled $33.8
million in Q3 2023, flat to Q3 2022. SG&A expense was
driven by lower shipping rates and variable transaction costs,
offset by higher personnel costs and increased investments in
marketing.
Net income totaled $0.5 million,
or $0.01 per share, in Q3 2023, as
compared to a net income of $2.2
million, or $0.05 per share,
in Q3 2022.
Adjusted EBITDA amounted to $5.5
million in Q3 2023 as compared to $7.3 million in Q3 2022.
YEAR-TO-DATE RESULTS
For the first nine months of
fiscal 2023, total sales amounted to $154.4
million, representing a decline in sales of 3.9% compared to
the first nine months of fiscal 2022. DTC sales decreased 6.0% to
$124.7 million, while P&O sales
increased by 6.3% to $29.7 million.
Gross profit stood at $89.0 million,
or 57.7% of sales, down from $94.0
million, or 58.5% of sales, last year.
Net income (loss) was ($12.8)
million, or ($0.31) per share,
compared to ($6.3) million, or
($0.15) per share, last year.
Adjusted EBITDA totaled ($3.3)
million for the first nine months of fiscal 2023 compared to
$3.4 million in the corresponding
period in 2022.
FINANCIAL POSITION
Inventory was $61.4 million at the end of Q3 2023, as compared
to $72.9 million at the end of Q3
2022, representing a decrease of $11.5
million, or 15.7%. The year-over-year decrease in inventory
was driven by $4.0 million reduction
of on-hand inventory and $7.5 million
of lower in-transit goods as we strategically managed our inventory
buys to leverage existing core and pack-and-hold collections.
As at October 28, 2023, Roots had
a solid financial position with net debt of $52.9 million, improved from $58.7 million a year earlier. The Company's
leverage ratio, defined as total net debt to trailing 12-months
Adjusted EBITDA, was 2.6 times at the end of third quarter. Roots
has $58.8 million outstanding under
its credit facilities and total liquidity of $58.1 million, including cash and borrowing
capacity available under its revolving credit facility.
NORMAL COURSE ISSUER BID
Under its Normal Course
Issuer Bid ("NCIB") program, Roots repurchased 102,700 common
shares of the Company ("Shares") for a total consideration of
$0.3 million in Q3 2023. The NCIB
allows the Company to repurchase for cancellation up to 2,119,667
Shares during the 12-month period ending December 15, 2023. At the end of Q3 2023, 1.7
million Shares had been purchased under the current NCIB
program.
CONFERENCE CALL AND WEBCAST INFORMATION
Roots will
hold a conference call to review its third quarter 2023 results on
December 6, 2023, 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: 95249830. Please dial in 15 minutes prior to the call to secure
a line. The conference call will be archived for replay until
December 13, 2023, at midnight, and
can be accessed by dialing 416-764-8677 or 1-888-390-0541 and
entering the replay passcode: 249830 #.
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 (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, and Adjusted Net Income 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 Q3 2023, 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 income (loss)
to EBITDA and Adjusted EBITDA for the periods presented:
|
CAD
$000s
|
Q3
2023
|
|
Q3
2022
|
|
YTD
2023
|
|
YTD
2022
|
|
Net income
(loss)
|
519
|
|
2,209
|
|
(12,781)
|
|
(6,287)
|
|
Add the impact
of:
|
|
|
|
|
|
|
|
|
Interest expense
(a)
|
2,552
|
|
2,375
|
|
7,124
|
|
6,436
|
|
Income taxes expense
(recovery) (a)
|
259
|
|
1,014
|
|
(4,435)
|
|
(1,918)
|
|
Depreciation and
amortization (a)
|
7,358
|
|
7,310
|
|
22,246
|
|
21,688
|
|
EBITDA
|
10,688
|
|
12,908
|
|
12,154
|
|
19,919
|
|
Adjust for the
impact of:
|
|
|
|
|
|
|
|
|
SG&A: Rent expense
excluded from net income (loss) as a
result ofIFRS 16 (a)
|
(5,792)
|
|
(5,729)
|
|
(17,352)
|
|
(17,405)
|
|
SG&A: Purchase
accounting adjustments (b)
|
(12)
|
|
(12)
|
|
(33)
|
|
(5)
|
|
SG&A: Stock option
expense (c)
|
99
|
|
97
|
|
332
|
|
409
|
|
SG&A: Changes in
key personnel (d)
|
404
|
|
–
|
|
1,453
|
|
(5)
|
|
SG&A:
Non-recurring legal fees (e)
|
87
|
|
12
|
|
87
|
|
530
|
|
SG&A: Other
non-recurring items (f)
|
48
|
|
–
|
|
50
|
|
–
|
|
Adjusted
EBITDA(g)
|
5,522
|
|
7,276
|
|
(3,309)
|
|
3,443
|
|
______________
|
|
Notes:
|
|
|
(a)
|
The impact of IFRS 16
in Q3 2023 and Q3 2022 was: (i) a decrease to SG&A expenses of
$1,352 and $1,309, 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 $1,214 and $1,186, respectively, arising
from interest expense recorded on the lease liabilities in the
period, and (iii) a deferred tax impact of $36 and $33,
respectively, based on tax attributes on the ROU assets and lease
liabilities balances recorded. The impact of IFRS 16 in YTD 2023
and YTD 2022 was: (i) a decrease to SG&A expenses of $3,885 and
$4,262, 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 $3,508 and
$3,582, respectively, arising from interest expense recorded on the
lease liabilities in the period, and (iii) a deferred tax impact of
$99 and $180, respectively, based on tax attributes on the ROU
assets and lease liabilities balances recorded.
|
|
(b)
|
As a result of 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)
|
In Q3 2023 and YTD
2023, represents one-time costs that do not reflect the underlying
profitability of the business, including consulting fees related to
inventory valuations used to pursue reduced financing
costs.
|
|
(g)
|
Adjusted EBITDA
excludes the impact of IFRS 16. If the impact of IFRS 16 was
included for Q3 2023 and Q3 2022, Adjusted EBITDA would have been
$11,326 and $13,017, respectively. If the impact of IFRS 16 was
included for YTD 2023 and YTD 2022, Adjusted EBITDA would have been
$14,076 and $20,853, respectively.
|
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