- Sales were $41.5 million,
compared to $43.1 million in Q1
2022
- Gross margin was 59.0% compared to 60.9% in the same period
in 2022
- Net loss totaled ($8.0)
million compared to ($5.3)
million in Q1 2022
- Adjusted EBITDA amounted to ($5.8) million compared to ($3.2) million in Q1 2022
- Inventory level increased 28.6% year-over-year to
$50.4 million, an improvement over Q4
2022
- Repurchased 461,812 shares for $1.4
million under the normal course issuer bid
TORONTO, June 8, 2023
/CNW/ - Roots ("Roots," "Roots Canada" or the "Company")
(TSX: ROOT), a premium outdoor-lifestyle brand, today announced
financial results for its first quarter ended April 29, 2023 ("Q1 2023"). All financial results
are reported in Canadian dollars unless otherwise stated. Certain
metrics, including those expressed on an adjusted basis, are
non-IFRS measures. See "Non-IFRS Measures and Industry Metrics"
below.
"Our Q1 2023 results aligned with our internal projections and
reflect a challenging economic environment," indicated Meghan Roach, President and Chief Executive
Officer of Roots. "Considering our historical patterns, it is worth
noting that the first quarter traditionally represents less than
15% of our annual sales. Consequently, our results also include
several of the strategic investments made in our business during
the first half of the year that support our revenue-intensive
second half."
"We observed notable strength across most of our apparel
categories in the first quarter, particularly in dresses, skirts,
and activewear. While softness in demand for traditional fleece
bottoms resulted in an overall year-over-year sales decline, our
success in broadening our product range underscores the capacity of
the brand to diversify and attract new customers. In Q1, we
achieved our highest average unit revenue in the Company's history,
while maintaining gross margins above pre-pandemic levels."
SELECTED FINANCIAL
INFORMATION
(in thousands of CAD$,
except per share amounts)
|
First quarter
ended
|
|
April 29,
2023
|
April 30,
2022
|
Change
|
Total
sales
|
41,496
|
43,072
|
(3.7 %)
|
Direct-to-Consumer
("DTC") sales
|
35,406
|
37,377
|
(5.3 %)
|
Partners & Other
("P&O") sales
|
6,090
|
5,695
|
6.9 %
|
Gross
profit
|
24,481
|
26,218
|
(6.6 %)
|
Gross
margin1
|
59.0 %
|
60.9 %
|
-190 bps
|
Selling, General and
Administrative ("SG&A")
expenses
|
33,006
|
31,306
|
5.4 %
|
Subsidies and
abatements2
|
-
|
134
|
(100 %)
|
Net
loss
|
(7,966)
|
(5,261)
|
(51.4 %)
|
Net loss per
share
|
($0.19)
|
($0.13)
|
(46.2 %)
|
Adjusted
EBITDA3
|
(5,848)
|
(3,204)
|
(82.5 %)
|
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.
|
"Despite the short-term sales and profitability headwinds, we
remain confident in the long-term operating fundamentals of the
business," said Leon Wu, Chief
Financial Officer at Roots. "The decline in gross margins were
in-line with our expectations, as we transition to sustainable
materials, a strategic initiative that began in late 2022, and
offered higher discounts on select seasonal inventory amidst the
current competitive landscape. We continue to remain disciplined
around promotions with discount rates remaining significantly below
pre-pandemic levels. We anticipate the gross margin declines to
gradually moderate towards the latter half of the year."
"We have also made good progress towards right-sizing our
inventory, aiming to achieve the right balance by the end of the
second half of the year. By maintaining a robust balance sheet and
ample liquidity, we remain well-equipped to navigate the
unpredictable macro-economic conditions. Looking beyond the
immediate challenges, we will continue to make prudent investments
that generate sustainable growth and deliver long-term value to our
shareholders."
FIRST QUARTER OVERVIEW
Total sales decreased 3.7% to
$41.5 million in Q1 2023 from
$43.1 million in the first quarter of
fiscal 2022 ("Q1 2022"). DTC sales (corporate retail store and
eCommerce sales) reached $35.4
million, down 5.3% year-over-year. The year-over-year
decrease in DTC sales was primarily driven by continued economic
environment headwinds and a heightened promotional environment.
Sales across most of the apparel categories and silhouettes
generated positive year-over-year growth, but were not sufficient
to offset the sales decline in select traditional fleece bottoms
styles.
P&O sales (wholesale Roots branded products, licensing to
select manufacturing partners and the sale of certain custom
products) amounted to $6.1 million in
Q1 2023 compared to $5.7 million in
Q1 2022. The 6.9% increase in sales was mainly due to higher sales
from the Company's international operating partner in Taiwan, increased royalties for the licensing
of the Roots brand to select manufacturing partners, and a
favourable foreign exchange impact on U.S. dollar sales.
Gross profit reached $24.5 million
in Q1 2023 compared to $26.2 million
in Q1 2022, representing a year-over-year decline of 6.6%. Gross
margin was 59.0% in Q1 2023 compared to 60.9% in Q1 2022. The
reduction in gross margin of 190 basis points ("bps") is
primarily due to higher product costs from the transition to
sustainable materials, as well as heightened promotional activity,
partially offset by lower freight premiums of 100 bps. Gross margin
was also affected by the unfavourable foreign exchange impact on
U.S. dollar purchases, offset by the release of a non-cash
inventory provision.
SG&A expenses totaled $33.0
million in Q1 2023 compared to $31.3
million in Q1 2022. The 5.4% increase in SG&A expenses
was mainly driven by higher store labour costs associated with
longer operating hours, contractual increases in store rent costs,
and higher corporate compensation expense.
Net loss totaled ($8.0) million,
or ($0.19) per share, in Q1 2023, as
compared to a net loss of ($5.3)
million, or ($0.13) per share,
in Q1 2022.
Adjusted EBITDA amounted to ($5.8)
million in Q1 2023 as compared to ($3.2) million in Q1 2022.
FINANCIAL POSITION
Inventory was $50.4 million at the end of Q1 2023, as compared
to $39.2 million at the end of Q1
2022, representing an increase of $11.2
million, or 28.6%. The year-over-year increase in inventory
was primarily driven by $4.7 million
of higher core inventory to be released for sale in the second half
of 2023, under the Company's pack-and-hold strategy, $2.9 million of higher product costs associated
with the transition to sustainable materials, and an increase of
$3.6 million from higher on-hand
units, which was partially due to the earlier timing of inventory
receipts.
As at April 29, 2023, Roots had a
solid financial position with net debt of $41.0 million, up slightly from $39.4 million a year earlier. The Company's
leverage ratio, defined as total net debt to trailing 12-months
Adjusted EBITDA, was 1.7 times at the end of first quarter. Roots
also had a total amount outstanding under its credit facilities of
$56.5 million and had total liquidity
of $74.0 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 461,812 shares for a
total consideration of $1.4 million
in Q1 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. As of Q1
2023, 695,872 shares have been purchased under the current NCIB
program.
CONFERENCE CALL AND WEBCAST INFORMATION
Roots will
hold a conference call to review its first quarter 2023 results on
June 8, 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: 03827679. Please dial in 15 minutes prior to the call to secure
a line. The conference call will be archived for replay until
June 15, 2023, at midnight, and can
be accessed by dialing 416-764-8677 or 1-888-390-0541 and entering
the replay passcode: 827679#.
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 Q1 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 loss to EBITDA
and Adjusted EBITDA for the periods presented:
CAD
$000s
|
Q1
2023
|
|
Q1
2022
|
Net
loss
|
(7,966)
|
|
(5,261)
|
Adjust for the
impact of:
|
|
|
|
Interest expense
(a)
|
2,269
|
|
1,985
|
Income taxes expense
(a)
|
(2,828)
|
|
(1,812)
|
Depreciation and
amortization (a)
|
7,537
|
|
7,185
|
EBITDA
|
(988)
|
|
2,097
|
Adjust for the
impact of:
|
|
|
|
SG&A: Rent expense
excluded from net income due to IFRS 16 (a)
|
(5,699)
|
|
(5,515)
|
SG&A: Purchase
accounting adjustments (b)
|
(8)
|
|
19
|
SG&A: Stock option
expense (c)
|
100
|
|
200
|
SG&A: Changes in
key personnel (d)
|
745
|
|
(5)
|
SG&A:
Non-recurring legal fees (e)
|
2
|
|
-
|
Adjusted EBITDA
(f)
|
(5,848)
|
|
(3,204)
|
|
_____________________
|
Notes:
|
(a)
|
The impact of IFRS 16
in Q1 2023 and Q1 2022 was: (i) a decrease to SG&A expenses of
$1,105 and $1,168, 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 $1,160 and $1,229 , respectively, arising
from interest expense recorded on the lease liabilities in the
period, and (iii) a deferred tax impact of $(15) and $(16),
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 Leases, 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 in Q1 2023 and Q1 2022. If the
impact of IFRS 16 was included for Q1 2023 and Q1 2022, Adjusted
EBITDA would have been $(141) and $2,292, 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