Ms. Meghan Roach reports

ROOTS REPORTS FOURTH QUARTER AND FISCAL 2023 RESULTS

Roots Corp. has released financial results for its fourth quarter and fiscal year ended Feb. 3, 2024.

Fourth Quarter Highlights:

• Sales decreased 2.9 per cent year-over-year to $108.2-million
• DTC sales decreased 0.8 per cent to $97.8-million
• Gross margin was 58.6 per cent compared with 56.5 per cent in fourth quarter of 2022
• DTC gross margin increased to 59.9 per cent from 58.7 per cent
• Net income totaled $14.6-million compared with $13-million in the fourth quarter of 2022
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to $23.2-million versus $23.5-million in the fourth quarter of 2022

Fiscal 2023 Highlights:

• Sales decreased 3.5 per cent year-over-year to $262.7-million
• Gross margin was 58.0 per cent compared with 57.7 per cent in 2022
• DTC gross margin increased to 61.1 per cent from 60.8 per cent
• Net income totaled $1.8-million compared with $6.7-million in 2022
• Adjusted EBITDA amounted to $19.9-million compared with $27-million in 2022
• Inventory of $36.2-million compared with $55-million in 2022
• Net debt reduced 31.6 per cent year-over-year to $17-million
• Repurchased 1,438,318 shares for a total consideration of $4.4-million

"As we close another year, I want to acknowledge the resilience and hard work of the team at Roots in the face of a challenging economic environment. We continue to take significant steps to enhance our operations, strengthen our relationships with our customers, and make exceptional products. I remain confident in the longer-term growth prospects for the brand as the market normalizes," commented Meghan Roach, President & CEO of Roots.

"We have reduced our inventory balance by 34 per cent year-over-year while maintaining our gross profit margin," stated Leon Wu, Chief Financial Officer. "This achievement has notably strengthened our cash flow, which led to a 32 per cent reduction in net debt. As we enter fiscal 2024, our robust balance sheet provides us with the flexibility to strategically purchase inventory to address consumer demand while navigating through the short-term macroeconomic headwinds."

FOURTH QUARTER OVERVIEW

Total sales were $108.2-million in Q4 2023, representing a decrease of 2.9 per cent from $111.5-million in the fourth quarter of fiscal 2022 ("Q4 2022"). DTC sales (corporate retail store and eCommerce sales) were $97.8-million, down 0.8 per cent year-over-year. Sales during the extra fiscal week of Q4 2023 were $2.2-million. The positive omni-channel traffic experienced throughout the quarter was offset by declines in conversion. Sales growth in core fleece and active categories were offset by declines in certain seasonal collections, including colder weather outerwear and accessories.

P&O sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to $10.5-million in Q4 2023 as compared with $12.9-million in Q4 2022. The 18.9 per cent decline in P&O sales was primarily driven by Roots decision to not continue a wholesale of Roots-branded products to select retail partners that took place last year.

Gross profit reached $63.4-million in Q4 2023 compared with $63-million in Q4 2022, representing a year-over-year increase of 0.7 per cent. Gross margin was 58.6 per cent in Q4 2023, up 210 bps as compared with 56.5 per cent in Q4 2022. DTC gross margin was 59.9 per cent in Q4 2023, up 120 bps from 58.7 per cent in Q4 2022. Excluding the impact of a lower inventory provision in Q4 2023 from the improved inventory position, DTC gross margin was flat year-over-year. Margin expansion from improved product costing and lower freight costs, including 60 bps from lower air freight, was offset by a higher mix of sales during discount periods and an unfavourable foreign exchange impact on U.S. dollar purchases.

SG&A expenses totaled $41.2-million in Q4 2023, down 3.9 per cent from $42.9-million in Q4 2022. The decrease was primarily driven by gains arising from lease modifications under IFRS 16 Leases ("IFRS 16") and lower variable selling costs. This decrease was partially offset by higher corporate and store personnel costs, including the Ontario minimum wage increase that took effect in October 2023 and impacts from the extra fiscal week in Q4 2023.

Net income totaled $14.6-million, or $0.36 per share, in Q4 2023, as compared with a net income of $13-million, or $0.31 per share, in Q4 2022.

Adjusted EBITDA amounted to $23.2-million in Q4 2023 as compared with $23.5-million in Q4 2022.

YEAR-TO-DATE RESULTS

Total sales decreased 3.5 per cent to $262.7-million in F2023, down from $272.1-million in fiscal 2022 ("F2022"). DTC sales were $222.5-million, down 3.8 per cent year-over-year. Sales during the extra fiscal week in F2023 was $2.2-million.

P&O sales amounted to $40.2-million in F2023 as compared with $40.9-million in F2022.

Gross profit reached $152.5-million in F2023 as compared with $157-million in F2022, representing a year-over-year decline of 2.9 per cent. Gross margin was 58.0 per cent, up 30 bps as compared with 57.7 per cent in F2022. DTC gross margin was 61.1 per cent in F2023, up 30 bps from 60.8 per cent in F2022.

SG&A expenses were $140.3-million in F2022, up 1.2 per cent from $138.6-million in F2022.

Net income was $1.8-million, or $0.05 per share in F2023, compared with $6.7-million, or $0.16 per share, in F2022.

Adjusted EBITDA totaled $19.9-million in F2023 compared with $27-million in the corresponding period in 2022.

FINANCIAL POSITION

Inventory was $36.2-million at the end of F2023, as compared with $55 million at the end of F2022, representing a decrease of $18.8-million, or 34.2 per cent. The year-over-year decrease in inventory was driven by a $12-million reduction of on-hand inventory as we strategically managed our inventory buys and sold through previous pack-and-hold collections, and $6.8-million of lower in-transit goods, partially due to the later timing of shipments from our vendors during the year.

As at February 3, 2024, Roots had net debt of $17-million, improved from $24.8-million a year earlier. The company's leverage ratio, defined as total net debt to trailing 12-months Adjusted EBITDA, was less than 0.9 times at the end of the year. Roots has $46.2-million outstanding under its credit facilities and total liquidity of $88-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 1,438,318 common shares of the company ("Shares") for a total consideration of $4.4-million in F2023. The most recent NCIB program commenced on December 16, 2022 and terminated on December 15, 2023.

CONFERENCE CALL AND WEBCAST INFORMATION

Roots will hold a conference call to review its fourth quarter 2023 results on April 10, 2024, 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: 62798756. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until April 17, 2024, at midnight, and can be accessed by dialing 416-764-8677 or 1-888-390-0541 and entering the replay passcode: 798756 #.

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.

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 NatureTM. 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".

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