Ms. Meghan Roach reporrts

ROOTS REPORTS FIRST QUARTER FISCAL 2024 RESULTS

Roots Corp. has released financial results for its first quarter ended May 4, 2024 (Q1 2024). All financial results are reported in Canadian dollars unless otherwise stated. Certain metrics, including those expressed on an adjusted basis, are non-international financial reporting standards measures.

"We made significant progress on our strategic initiatives this quarter, marked by robust direct-to-consumer margin growth, reduced debt, and enhanced liquidity and free cash flow on a year-over-year basis. We also recently launched our brand ambassador program and debuted our AI-driven replenishment system, which will positively enhance our operations, customer experience and engagement," stated Meghan Roach, president and chief executive officer of Roots.

"Our disciplined approach to inventory management resulted in fewer markdown sales, which created short-term downward pressure on revenue in the first quarter. However, we continued to see positive momentum in many product lines, including solid growth in our adult activewear collection."

"We maintained a disciplined approach in managing our operating costs, working capital and cash flow in the current operating environment," said Leon Wu, chief financial officer. "This will allow us to make the necessary inventory and operating investments to drive growth in our traditionally larger second half of the year."

First quarter overview

Total sales were $37.5-million in Q1 2024, representing a decrease of 9.7 per cent from $41.5-million in the first quarter of fiscal 2023 (Q1 2023). DTC sales (corporate retail store and e-commerce sales) were $31.4-million, down 11.3 per cent year-over-year. The decline in DTC sales was driven by lower markdown sales, as a result of improved inventory position year-over-year. Growth in full-price seasonal collection sales was offset by missed sales opportunities in certain core fleece collections, due to lack of inventory as a result of stronger-than-anticipated demand in the prior quarter, $600,000 of sales decline from temporary renovation closures of two larger corporate retail stores, and the tightening of consumer discretionary spending in the current macroeconomic environment.

P&O (partners and other) sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to $6.1-million in Q1 2024 and Q1 2023. The decline in P&O sales due to lower royalties from the licensing of the Roots brand to select manufacturing partners was largely offset by growth in wholesale sales to the company's international operating partner in Taiwan.

Gross profit reached $22.1-million in Q1 2024 compared with $24.5-million in Q1 2023, representing a year-over-year decrease of 9.7 per cent. Gross margin was 59 per cent in both Q1 2024 and Q1 2023. DTC gross margin was 62.1 per cent in Q1 2024, up 80 basis points (bps) from 61.3 per cent in Q1 2023. The increase in DTC gross margin was driven by over 250 bps of product margin expansion from improved costing and lower discount sales. This was partially offset by the unfavourable foreign exchange impact on U.S.-dollar purchases, and a lower release of non-cash inventory provisions that were accrued at the prior year-end.

SG&A (selling, general and administrative) expenses totalled $32-million in Q1 2024 compared with $33-million in Q1 2023, representing a year-over-year decrease of 3.1 per cent. Decreases in SG&A expenses were driven from continuing cost management initiatives and lower variable selling costs, partially offset by higher store personnel costs as a result of legislative minimum wage increases in 2023.

Net income (loss) totalled ($8.9-million), or (22 cents) per share, in Q1 2024, as compared with a net income (loss) of ($8-million), or (19 cents) per share, in Q1 2023.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to ($8-million) in Q1 2024 as compared with ($5.8-million) in Q1 2023.

Financial position

Inventory was $35.4-million at the end of Q1 2024, as compared with $50.4-million at the end of Q1 2023, representing a decrease of $15-million or 29.8 per cent. The year-over-year decrease in inventory was driven by the sell-through of prior markdown and pack-and-hold collections in 2023, and shortfalls in certain core collections that will be replenished by the start of the second half of 2024.

Free cash flow was ($14.6-million) in Q1 2024, as compared with ($14.9-million) in Q1 2023. The reduction in free cash outflows was driven by tighter working capital management. As at May 4, 2024, Roots had net debt of $31.7-million, improved from $41-million a year earlier. The company's leverage ratio, defined as total net debt to trailing 12-month adjusted EBITDA, was less than 1.80 times as at Q1 2024. Roots has $45.2-million outstanding under its credit facilities and total liquidity of $72.4-million, including cash and borrowing capacity available under its revolving credit facility.

Conference call and webcast information

Roots will hold a conference call to review its first quarter 2024 results on June 10, 2024, 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: 86349073. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until June 17, 2024, at midnight, and can be accessed by dialling 416-764-8677 or 1-888-390-0541 and entering the replay passcode: 349073 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. It 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. Its 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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