Ms. Meghan Roach reports

ROOTS REPORTS SECOND QUARTER FISCAL 2024 RESULTS

Roots Corp. has released its financial results for its second quarter ended Aug. 3, 2024.

"Our second quarter results demonstrate stable comparable sales and an improvement compared to Q1 2024, alongside growth in product margins and net income, despite the challenging consumer environment," commented Meghan Roach, president and chief executive officer of Roots.

"We were also pleased to see growth during the back-to-school period, underscoring the strength of our product portfolio and the effectiveness of our ongoing initiatives in branding, marketing and enhancing the in-store experience; however, it is early in the quarter."

Second quarter highlights:

• Sales were $47.7-million, compared with $49.4-million in Q2 2023:
  • DTC (direct-to-consumer) sales were $36.4-million compared with $37.1-million in Q2 2023, with nearly flat comparable sales of negative 0.2 per cent, improving from Q1 2024 comparable sales of negative 8.2 per cent.
• Gross margin was 56.4 per cent, up 90 basis points compared with 55.5 per cent in Q2 2023.
• Net loss totalled $5.2-million, an improvement from a loss of $5.3-million in Q2 2023:
  • Net loss per share of 13 cents, flat to Q2 2023.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to negative $3.1-million versus negative $3-million in Q2 2023.
• Net debt reduced 19.9 per cent year over year to $40.8-million.
• Inventory was $44-million, a 21-per-cent reduction compared with $55.9-million in Q2 2023.

"We ended the second quarter in a healthy inventory position, addressing the core inventory shortfall while maintaining lower year-over-year inventory levels," said Leon Wu, chief financial officer. "We are pleased with the improving sales trends while also growing product margins and remaining disciplined on costs, resulting in the continued strengthening of our balance sheet."

Second quarter overview

Total sales were $47.7-million in Q2 2024, representing a decrease of 3.4 per cent from $49.4-million in the second quarter of fiscal 2023 (Q2 2023).

DTC sales (corporate retail store and e-commerce sales) were $36.4-million, down 1.8 per cent from $37.1-million in Q2 2023. DTC comparable sales were nearly flat, at negative 0.2 per cent, driven by strengthening of sales in certain core fleece collections as the quarter progressed, as inventory was replenished, partially offset by declines in primarily off-price-focused store locations due to improved inventory health. In addition, DTC sales were impacted by the closure of select stores since Q2 2023 as part of the company's continuing store fleet optimization initiatives to consolidate less profitable stores and drive same-store sales growth.

P&O (partners and others) sales (wholesale Roots-branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to $11.3-million in Q2 2024 and $12.3-million in Q2 2023. This was driven by lower sales to the company's international operating partner in Taiwan, as a result of earlier timing of certain orders that benefited Q2 2023, partially offset by increased royalties from the licensing of the Roots brand to select manufacturing partners.

Gross profit reached $26.9-million in Q2 2024, compared with $27.4-million in Q2 2023, representing a year-over-year decrease of 1.9 per cent. Gross margin was 56.4 per cent in Q2 2024, compared with 55.5 per cent in Q2 2023.

DTC gross margin was 61.7 per cent in Q2 2024, down 100 basis points from 62.7 per cent in Q2 2023. DTC gross margin increased by 230 basis points from product margin expansion, comprising improved product costing and lower discounting. This was offset by the combined impacts of an unfavourable foreign exchange impact on U.S.-dollar purchases, the timing of certain import duty recoveries received and lower benefits from the reversal of non-cash accounting inventory provisions accrued.

SG&A (selling, general and administrative) expenses totalled $31.8-million in Q2 2024 compared with $32.3-million in Q2 2023, representing a year-over-year decrease of 1.5 per cent. Decreases in SG&A expenses were driven from continuing cost management initiatives, including lower store occupancy costs and lower variable selling costs. This was partially offset by higher store personnel costs as a result of legislative minimum wage increases in 2023.

Net loss totalled $5.2-million, or a loss of 13 cents per share, in Q2 2024, improving from a net loss of $5.3-million, or a loss of 13 cents per share, in Q2 2023.

Adjusted EBITDA amounted to negative $3.1-million in Q2 2024 as compared with negative $3-million in Q2 2023.

Year-to-date results

For the first six months of fiscal 2024, total sales amounted to $85.2 million, representing a decrease of 6.3 per cent compared with the first six months of fiscal 2023, which amounted to $90.9-million. DTC sales decreased 6.5 per cent to $67.8-million while P&O sales decreased by 5.5 per cent to $17.4-million. Gross profit stood at $49-million, or 57.5 per cent of sales, down from $51.9-million, or 57.1 per cent of sales, last year.

Net loss was $14.1-million, or a loss of 35 cents per share, compared with a loss of $13.3-million, or a loss of 32 cents per share, last year.

Adjusted EBITDA totalled negative $11.1-million as compared with negative $8.8-million in the corresponding period in 2023.

Financial position

Inventory was $44-million at the end of Q2 2024, as compared with $55.9-million at the end of Q2 2023, representing a decrease of $11.9-million, or 21.3 per cent. The year-over-year decrease reflects the improved inventory health of the business, resulting from the sell-through of prior markdown and pack-and-hold collections in 2023, partially offset by the replenishment of certain core collections toward the end of the quarter.

Free cash flow was negative $9-million in Q2 2024, as compared with negative $7.2-million in Q2 2023, resulting from a return to seasonal inventory purchase cadences. Inventory purchases were reduced in Q2 2023 as a result of higher-than-desired inventory levels entering fiscal 2023.

As at Aug. 3, 2024, Roots had net debt of $40.8-million, improving from $50.9-million a year earlier. The company's leverage ratio, defined as total net debt to trailing 12-month adjusted EBITDA, was 2.3 times as at Q2 2024. Roots has $44.5-million outstanding under its credit facilities and total liquidity of $62.4-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 second quarter 2024 results on Sept. 13, 2024, at 8 a.m. ET. All interested parties can join the call by dialling 1-437-900-0527 or 1-888-510-2154 and using conference ID 42913. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Sept. 20, 2024, at midnight, and can be accessed by dialling 1-289-819-1450 or 1-888-660-6345 and entering the replay passcode 42913 followed by the number sign.

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.com). Roots has more than 100 partner-operated stores in Asia, and the company also operate 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. Roots 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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