Ms. Meghan Roach reports

ROOTS REPORTS THIRD QUARTER 2023 RESULTS

Roots Corp. has released financial results for its third quarter ended Oct. 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 (international financial reporting standards) measures.

"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 and chief executive officer of Roots.

"We continue to make significant progress towards improving our inventory position, reducing by 15.7 per cent year-over-year compared to an increase of 33 per cent 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 per cent. 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 per cent to $63.5-million in Q3 2023 from $69.8-million in the third quarter of fiscal 2022 (Q3 2022). DTC (direct-to-consumer) sales (corporate retail store and e-commerce sales) reached $52.2-million, down 8.2 per cent year-over-year. The year-over-year decrease in DTC sales was driven by lower off-price sales reflecting the company's continuing 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 per cent year-over-year, reflecting excitement surrounding the brand and strong product performances, including continued growth of over 50 per cent in the Active collection.

P&O (partner and other) 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 with $12.9-million in Q3 2022. The 12.3-per-cent 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 with $39.4-million in Q3 2022, representing a year-over-year decline of 5.9 per cent. Gross margin was 58.4 per cent in Q3 2023, up 190 basis points (bps) compared with 56.5 per cent in Q3 2022, which was primarily driven by higher gross margins in the company's DTC segment. DTC gross margin was 62.4 per cent in Q3 2023, up 170 bps from 60.7 per cent 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 (selling, general and administrative) expenses totalled $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 totalled $500,000, or one cent per share, in Q3 2023, as compared with a net income of $2.2-million, or five cents per share, in Q3 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to $5.5-million in Q3 2023 as compared with $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 per cent compared with the first nine months of fiscal 2022. DTC sales decreased 6 per cent to $124.7-million, while P&O sales increased by 6.3 per cent to $29.7-million. Gross profit stood at $89-million, or 57.7 per cent of sales, down from $94-million, or 58.5 per cent of sales, last year.

Net income (loss) was ($12.8-million), or (31 cents) per share, compared with ($6.3-million), or (15 cents) per share, last year.

Adjusted EBITDA totalled ($3.3-million) for the first nine months of fiscal 2023 compared with $3.4-million in the corresponding period in 2022.

Financial position

Inventory was $61.4-million at the end of Q3 2023, as compared with $72.9-million at the end of Q3 2022, representing a decrease of $11.5-million, or 15.7 per cent. The year-over-year decrease in inventory was driven by $4-million reduction of on-hand inventory and $7.5-million of lower in-transit goods as Roots strategically managed its inventory buys to leverage existing core and pack-and-hold collections.

As at Oct. 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 for a total consideration of $300,000 in Q3 2023. The NCIB allows the company to repurchase for cancellation up to 2,119,667 shares during the 12-month period ending Dec. 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 Dec. 6, 2023, at 8 a.m. ET. All interested parties can join the call by dialling 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 Dec. 13, 2023, at midnight, and can be accessed by dialling 416-764-8677 or 1-888-390-0541 and entering the replay passcode 249830 followed by the pound key.

A live audio webcast of the conference call will be available on the events and presentations section of the company's investor website. 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.

About Roots Corp.

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 e-commerce platform. Roots has more than 100 partner-operated stores in Asia, and it also operates a dedicated Roots-branded storefront on Tmall.com in China. Roots designs, markets and sells a broad selection of products in different departments, including women's, men's, children's and gender-free apparel, leather goods, footwear and accessories. The company's products are built with uncompromising comfort, quality and style that allows you to feel At Home With Nature. Roots offers products designed to meet life's everyday adventures and provide you with the versatility to live your life to the fullest. It also wholesales through business-to-business channels and licenses the brand to a select group of licensees selling products to major retailers. Roots is a Canadian corporation doing business as Roots and Roots Canada.

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