Roots Reports Third Quarter Fiscal 2024 Results

TORONTO--(BUSINESS WIRE)--Roots (“Roots,” “Roots Canada” or the “Company”) (TSX: ROOT), a premium outdoor-lifestyle brand, announced today financial results for its third quarter ended November 2, 2024 (“Q3 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 Q3 results highlight the enduring appeal of our brand amongst both new and existing customers, fueled by the team’s strong execution across many facets of the business. The success of our refreshed marketing strategy, commitment to high-quality products, and enhanced omnichannel experience clearly resonated, delivering impressive results this quarter,” stated Meghan Roach, President & CEO of Roots.

“Although we are still early in the fourth quarter, our trends remain strong, and we are focused on continuing to drive momentum throughout the remainder of the holiday season,” continued Ms. Roach.

Third Quarter Highlights

• Sales were $66.9 million, a 5.3% increase compared to $63.5 million in Q3 2023
  • DTC sales were $54.2 million, a 3.8% increase compared to $52.2 million in Q3 2023
  • DTC comparable sales growth was 5.8%
  • P&O sales were $12.7 million, a 12.0% increase compared to $11.3 million in Q3 2023
• Gross margin was 60.0%, up 160bps compared to 58.4% Q3 2023
  • DTC gross margin of 64.0%, compared to 62.4% in Q3 2023
• Net income totaled $2.4 million, an improvement from $0.5 million in Q3 2023
  • Net income per share of $0.06, an improvement from $0.01 in Q3 2023
• Adjusted EBITDA amounted to $7.1 million versus $5.5 million in Q3 2023
• Net debt reduced 11.3% year-over-year to $46.9 million
• Inventory was $60.4 million, a 1.6% reduction compared to $61.4 million in Q3 2023

SELECT FINANCIAL INFORMATION (in ‘000s of CAD$, except where noted)	Third quarter ended			Year-to-date
	November 2, 2024	October 28, 2023	Change	November 2, 2024	October 28, 2023	Change
Total sales	66,905	63,534	5.3%	152,113	154,434	(1.5%)
Direct-to-Consumer (“DTC”) sales	54,209	52,203	3.8%	122,031	124,712	(2.1%)
Partners & Other (“P&O”) sales	12,696	11,331	12.0%	30,082	29,722	1.2%
Gross profit	40,155	37,118	8.2%	89,176	89,040	0.2%
Gross margin	60.0%	58.4%	160 bps^2	58.6%	57.7%	90 bps^2
Selling, General and Administrative (“SG&A”) expenses	34,507	33,788	2.1%	98,334	99,132	(0.8%)
Net income (loss)	2,390	519	360.5%	(11,741)	(12,781)	(8.1%)
Net income (loss) per share	$0.06	$0.01	500.0%	($0.29)	($0.31)	(6.5%)
Adjusted EBITDA	7,115	5,522	28.8%	(3,975)	(3,309)	(20.1%)
Free Cash Flow^1	(6,020)	(1,657)	(263.3%)	(29,587)	(23,701)	(24.8%)
Net debt^3	–	–	–	46,921	52,912	(11.3%)
^1Free 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”.
^2Basis points (“bps”).
^3Net debt is a supplementary financial measure that reflects our liquidity, refer to the “Reconciliation of long-term debt to net debt and leverage ratio” table for the calculation. See “Non-IFRS Measures and Industry Metrics”.

“Our improved inventory position, disciplined cost management, and continued product margin expansion complemented our branding initiatives and product merchandising to catalyze year-over-year growth in both sales and profit,” said Leon Wu, Chief Financial Officer. “We are entering our largest quarter with a healthy balance sheet and the right inventory, we look forward to building on the momentum from the third quarter.”

THIRD QUARTER OVERVIEW

Total sales were $66.9 million in Q3 2024, representing an increase of 5.3% from $63.5 million in the third quarter of fiscal 2023 (“Q3 2023”).

DTC sales (corporate retail store and eCommerce sales) were $54.2 million, up 3.8% from $52.2 million in Q3 2023, and DTC comparable sales grew 5.8% in Q3 2024. The DTC sales growth was driven by strong performance of our active and core fleece collections, and an improved inventory position in these areas, which also led to an improvement in store conversion. This was partially offset by the sales from closures of select stores since Q3 2023, as part of our ongoing store fleet optimization initiatives to consolidate less profitable stores and drive comparable sales growth.

P&O sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to $12.7 million in Q3 2024, up 12.0% from $11.3 million in Q3 2023. This was driven by increased sales to our international operating partner, as a result of earlier timing of Q3 2023 sales that benefitted the second quarter of fiscal 2023, in addition to higher royalties from the licensing of the Roots brand to select manufacturing partners.

Gross profit reached $40.2 million in Q3 2024 compared to $37.1 million in Q3 2023, representing a year-over-year increase of 8.2%. Gross margin was 60.0% in Q3 2024 compared to 58.4% in Q3 2023.

DTC gross margin was 64.0% in Q3 2024, up 160 bps from 62.4% in Q3 2023. DTC gross margin increased by 250 bps from product margin expansion, comprised of improved product costing and lower discounting. This was partially offset by the unfavourable foreign exchange impact on U.S. dollar inventory purchases.

SG&A expenses totaled $34.5 million in Q3 2024 compared to $33.8 million in Q3 2023, representing a year-over-year increase of 2.1%. The increase in SG&A expenses was driven by higher personnel costs, largely as a result of legislative minimum wage increases, and higher variable selling costs from increased sales.

Net income totaled $2.4 million, or $0.06 per share, in Q3 2024, improving from a net income of $0.5 million, or $0.01 per share, in Q3 2023.

Adjusted EBITDA amounted to $7.1 million in Q3 2024 as compared to $5.5 million in Q3 2023.

YEAR-TO-DATE RESULTS

For the first nine months of fiscal 2024 (“YTD 2024”), total sales amounted to $152.1 million, representing a decrease of 1.5% compared to the first nine months of fiscal 2023 (“YTD 2023”), which amounted to $154.4 million. DTC sales decreased 2.1% to $122.0 million, while P&O sales increased by 1.2% to $30.1 million. Gross profit stood at $89.2 million, or 58.6% of sales, up from $89.0 million, or 57.7% of sales, last year.

Net income (loss) was ($11.7) million, or ($0.29) per share, compared to ($12.8) million, or ($0.31) per share, last year.

Adjusted EBITDA totaled ($4.0) million as compared to ($3.3) million in the corresponding period in 2023.

FINANCIAL POSITION

Inventory was $60.4 million as at November 2, 2024, as compared to $61.4 million as at October 28, 2023, representing a decrease of $1.0 million or 1.6%. The year-over-year decrease in inventory was driven by a reduction in pack-and-hold and off-price inventory, largely offset by increases in current and upcoming season styles, reflecting an improvement to the inventory composition.

Free cash flow was ($6.0) million in Q3 2024, as compared to ($1.7) million in Q3 2023. The increased cash outflows were primarily driven by a return to seasonal inventory purchase cadence, and later timing of revenue from our Partner’s & Other segment. Inventory purchases were reduced in Q3 2023 as a result of higher pack and hold inventory levels carried forward from the prior fiscal year.

As at November 2, 2024, Roots had net debt of $46.9 million, improving from $52.9 million a year earlier. The Company’s leverage ratio, defined as total net debt to trailing 12-months Adjusted EBITDA, was 2.4x as at November 2, 2024. Roots has $53.2 million outstanding under its credit facilities and total liquidity of $55.3 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 third quarter 2024 results on December 11, 2024 at 8:00 a.m. ET. All interested parties can join the call by dialing 1-226-828-7575 or 1-833-950-0062 and using conference ID: 402160. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until December 18, 2024, at midnight, and can be accessed by dialing 1-226-828-7578 or 1-833-950-0062 and entering the replay passcode: 185736.

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 Q3 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	Q3 2024	Q3 2023	YTD 2024	YTD 2023
Net income (loss)	2,390	519	(11,741)	(12,781)
Add the impact of:
Interest expense ^(a)	2,389	2,552	6,693	7,124
Income taxes expense (recovery) ^(a)	869	259	(4,110)	(4,435)
Depreciation and amortization ^(a)	7,316	7,358	21,859	22,246
EBITDA	12,964	10,688	12,701	12,154
Adjust for the impact of:
SG&A: Rent expense excluded from net income (loss) as a result of IFRS 16 ^(a)	(5,957)	(5,792)	(17,438)	(17,352)
SG&A: Purchase accounting adjustments ^(b)	(25)	(12)	(38)	(33)
SG&A: Stock option expense ^(c)	–	99	137	332
SG&A: Changes in key personnel ^(d)	129	404	661	1,453
SG&A: Non-recurring legal fee ^(e)	4	87	2	87
SG&A: Other non-recurring items ^(f)	–	48	–	50
Adjusted EBITDA^(g)	7,115	5,522	(3,975)	(3,309)

_______________ Notes:
(a)	The impact of IFRS 16 in Q3 2024 and Q3 2023 was: (i) an decrease to SG&A expenses of $1,427 and $1,352, 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) an increase of $1,261 and $1,214 in interest expense, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax expense (recovery) impact of $44 and $36, 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) an decrease to SG&A expenses of $3,914 and $3,885, 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 $3,794 and $3,508, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax expense (recovery) impact of $32 and $99, 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 explore alternative financing options with lower interest costs.
(g)	Adjusted EBITDA excludes the impact of IFRS 16. If the impact of IFRS 16 was included for Q3 2024 and Q3 2023, Adjusted EBITDA would have been $13,097 and $11,326, respectively. If the impact of IFRS 16 was included for YTD 2024 and YTD 2023, Adjusted EBITDA would have been $13,501 and $14,076, respectively.

Reconciliation of long-term debt to net debt and leverage ratio:

	As at
CAD $000s	November 2, 2024			October 28, 2023			February 3, 2024
Long-term debt^(1)	$	52,249		$	57,498		$	45,010
Less: cash		(5,328	)		(4,586	)		(28,033	)
Net debt	$	46,921		$	52,912		$	16,977
Trailing 12-month Adjusted EBITDA		19,189			20,215			26,967
Leverage ratio		2.4x			2.6x			0.6x

_______________ Notes:
(1)	Total long-term debt of $52,249 at November 2, 2024 is net of $937 unamortized long-term debt financing costs. As at October 28, 2023, total long-term debt of $57,498 is net of $1,318 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.