ROOTS REPORTS FIRST QUARTER FISCAL 2024 RESULTS

• Sales were $37.5 million compared to $41.5 million in Q1 2023
  • DTC sales were $31.4 million compared to $35.4 million in Q1 2023, driven by lower off-price sales year-over-year, due to the improved inventory position
• Gross margin was 59.0%, flat to Q1 2023
  • DTC gross margin increased to 62.1% from 61.3%, driven by improved product costing and lower discounting
• Net income (loss) totaled ($8.9) million compared to ($8.0) million in Q1 2023
• Adjusted EBITDA amounted to ($8.0) million versus ($5.8) million in Q1 2023
• Free cash flow was ($14.6) million, improving from ($14.9) million in Q1 2023
• Net debt reduced 22.7% year-over-year to $31.7 million
• Inventory was $35.4 million, a 30% reduction compared to $50.4 million in Q1 2023

TORONTO, June 10, 2024 /CNW/ - Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand, announced today 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-IFRS measures. See "Non-IFRS Measures and Industry Metrics" below.

"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 & CEO of Roots Corporation.

"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."

SELECT FINANCIAL INFORMATION (in '000s of CAD$, except where noted)	First quarter ended
	May 4, 2024	April 29, 2023	Change
Total sales	37,461	41,496	(9.7 %)
Direct-to-Consumer ("DTC") sales	31,405	35,406	(11.3 %)
Partners & Other ("P&O") sales	6,056	6,090	(0.6 %)
Gross profit	22,101	24,481	(9.7 %)
Gross margin^1	59.0 %	59.0 %	-
Selling, General and Administrative ("SG&A") expenses	31,982	33,006	(3.1 %)
Net income (loss)	(8,895)	(7,966)	(11.7 %)
Net income (loss) per share	($0.22)	($0.19)	(15.8 %)
Adjusted EBITDA^2	(7,959)	(5,848)	(36.1 %)
Free Cash Flow^3	(14,613)	(14,871)	+1.7 %

^1	Gross margin is a supplementary financial measure that measures our gross profit as a percentage of sales.
^2	Adjusted EBITDA is a non-IFRS Measure. See "Non-IFRS Measures and Industry Metrics" below.
^3	Free cash flow is a supplementary financial measure that reflects cash flow generated from ongoing operations, calculated as our cash from operating activities less cash used in investing activities and the payment of principal on lease liabilities net of lease incentives.

"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% from $41.5 million in the first quarter of fiscal 2023 ("Q1 2023"). DTC sales (corporate retail store and eCommerce sales) were $31.4 million, down 11.3% 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, $0.6 million 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 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 our international operating partner in Taiwan.

Gross profit reached $22.1 million in Q1 2024 compared to $24.5 million in Q1 2023, representing a year-over-year decrease of 9.7%. Gross margin was 59.0% in both Q1 2024 and Q1 2023. DTC gross margin was 62.1% in Q1 2024, up 80 basis points ("bps") from 61.3% 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 unfavorable 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 expenses totaled $32.0 million in Q1 2024 compared to $33.0 million in Q1 2023, representing a year-over-year decrease of 3.1%. Decreases in SG&A expenses were driven from ongoing 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) totaled ($8.9) million, or ($0.22) per share, in Q1 2024, as compared to a net income (loss) of ($8.0) million, or ($0.19) per share, in Q1 2023. 

Adjusted EBITDA amounted to ($8.0) million in Q1 2024 as compared to ($5.8) million in Q1 2023.

FINANCIAL POSITION

Inventory was $35.4 million at the end of Q1 2024, as compared to $50.4 million at the end of Q1 2023, representing a decrease of $15.0 million or 29.8%. 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 to ($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 $41.0 million a year earlier. The Company's leverage ratio, defined as total net debt to trailing 12-months Adjusted EBITDA, was less than 1.80x 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 8:00 a.m. ET. All interested parties can join the call by dialing 416-764-8659 or 1-888-664-6392 and using conference ID: 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 dialing 416-764-8677 or 1-888-390-0541 and entering the replay passcode: 349073 #.

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 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 2024, which is incorporated by reference herein and is available on SEDAR+ at www.sedarplus.ca or the Company's Investor Relations website at https://investors.roots.com.

The table below provides a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods presented:

CAD $000s	Q1 2024	Q1 2023
Net income (loss).................................................	(8,895)	(7,966)
Add the impact of:
Interest expense (a)................................................	2,127	2,269
Income taxes expense (recovery) (a).................................	(3,113)	(2,828)
Depreciation and amortization (a)....................................	7,241	7,537
EBITDA..........................................................	(2,640)	(988)
Adjust for the impact of:
SG&A: Rent expense excluded from net income (loss) as a result of IFRS 16 (a)	(5,589)	(5,699)
SG&A: Purchase accounting adjustments (b).........................	(6)	(8)
SG&A: Stock option expense (c)...................................	91	100
SG&A: Changes in key personnel (d)...............................	189	745
SG&A: Non-recurring legal fees (e) ................................	(4)	2
Adjusted EBITDA^(f)................................................	(7,959)	(5,848)

________________
Notes:
(a)	The impact of IFRS 16 in Q1 2024 and Q1 2023 was: (i) a decrease to selling, general, and admin ("SG&A") expenses of $1,097 and $1,104, respectively, which comprised the impact of depreciation, and lease modifications on the right-of-use ("ROU") assets, net of the exclusion of rent payments from SG&A expenses, (ii) an decrease in interest expense of $1,291 and $1,160, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax impact of $(52) and $(15), 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, 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. If the impact of IFRS 16 was included for Q1 2024 and Q1 2023, Adjusted EBITDA would have been $(2,364) and $(141), 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^TM. 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

Roots Investor Relations, [email protected], 1-844-762-2343