Earnings release
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ROOTS REPORTS THIRD QUARTER FISCAL 2024 RESULTS TORONTO, December 11, 2024 – 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 produc ts, 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 o DTC sales were $54.2 million, a 3.8% increase compared to $52.2 million in Q3 2023 o DTC comparable sales growth was 5.8% o 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 o 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 o 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 $61.4 million in Q3 2023
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SELECT FINANCIAL INFORMATION (in ‘000s of CAD$, 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 bps2 58.6% 57.7% 90 bps2 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 Flow1 (6,020) (1,657) (263.3%) (29,587) (23,701) (24.8%) Net debt3 – – – 46,921 52,912 (11.3%) 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”). 3 Net 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 Q 3 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 Q 3 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.
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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 Q 3 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 ($6.0) million in Q 3 2024, as compared to ($ 1.7) million in Q 3 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 Q 3 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. T he 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 202 4 results on December 11, 2024 a t 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.
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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 Internatio nal 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 relyi ng 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 refe rence 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
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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 sev erance 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 woul d 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 TM. 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 rele ase. 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
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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 mate rially 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. CONTACT INFORMATION Roots Investor Relations Investors@roots.com For media or partnership inquiries, please contact: Nicole Legate Director of PR nlegate@roots.com