Roots Reports Fiscal 2018 Fourth Quarter and Year-End Results

Record revenue in fiscal 2018 and Q4 fiscal 2018 Comparable Sales Growth of 3.1%

TORONTO,  April 3, 2019 /CNW/ - Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor lifestyle brand, today announced its financial results for its fourth quarter and fiscal year ended February 2, 2019 ("Q4 2018" and "F2018", respectively). All financial results are reported in Canadian dollars unless otherwise stated. Certain metrics, including those expressed on an adjusted or comparable basis, are non-IFRS measures. See "Non-IFRS Measures and Industry Metrics".

Fourth Quarter Fiscal 2018 Highlights

• Total sales of $130.8 million, up 0.6% as compared to $130.0 million in the fourth quarter of fiscal 2017 ("Q4 2017") or up 3.1% when excluding the additional week in Q4 2017 (fiscal 2017 consisted of 53 weeks while F2018 consisted of 52 weeks)
• Direct-to-Consumer ("DTC") sales of $120.7 million, up 0.7% from $119.8 million in Q4 2017, or up 3.4% when excluding the additional week in Q4 2017
• Comparable Sales Growth of 3.1% on top of Comparable Sales Growth of 15.2% in Q4 2017
• Gross margin expanded to 59.9% from 58.3% in Q4 2017
• DTC Gross Margin increased 190 basis points to 61.8% from 59.9% in Q4 2017
• Selling, general and administrative expenses of $51.8 million, up 12.9% from $45.9 million in Q4 2017
• Adjusted EBITDA of $34.8 million, down 5.2% from $36.7 million in Q4 2017
• Basic Earnings Per Share of $0.43, down 14.0% from $0.50 per share in Q4 2017, and Adjusted Net Income Per Share of $0.53, down 10.2% from $0.59 per share in Q4 2017
• Grew North American corporate store base in F2018, but elected not to renew leases for four corporate retail stores in Canada in the quarter, ending the quarter with 114 stores in Canada and seven in the United States
• Opened two partner-operated stores in Taiwan and four partner-operated stores in China, ending the quarter with 117 stores in Taiwan and 37 in China

Fiscal 2018 Highlights

• Total sales of $329.0 million, up 0.9% as compared to $326.1 million in fiscal 2017 ("F2017"), or up 1.9% when excluding the additional week in F2017
• DTC sales of $283.9 million, down 0.1% from $284.1 million in F2017, or up 1.0% when excluding the additional week in F2017
• Comparable Sales Decline of (1.3%) on top of Comparable Sales Growth of 12.2% in F2017
• Gross margin expanded to 57.3% from 55.8% in F2017
• DTC Gross Margin increased 220 basis points to 61.2% from 59.0% in F2017
• Selling, general and administrative expenses of $166.8 million, up 9.8% from $151.9 million in F2017
• Adjusted EBITDA of $41.9 million, down 20.4% from $52.6 million in F2017
• Basic Earnings Per Share of $0.27, down 35.7% from $0.42 per share in F2017, and Adjusted Net Income Per Share of $0.48, down 30.4% from $0.69 per share in F2017
• Grew North American footprint with a net increase of two corporate retail stores, opening six new corporate retail stores in Canada and four new corporate retail stores in the United States, while electing not to renew leases for eight corporate retail stores in Canada
• Expanded Asian footprint with a net increase of seven partner-operated stores in Taiwan and five in China

"Roots resonates incredibly well with consumers during the holiday season, and that continued to be the case in Q4 2018," said Jim Gabel, President and Chief Executive Officer of Roots. "In the quarter, we saw growth in key perennial product favourites and encouraging consumer response to new product introductions. In addition, we benefitted from store renovations, our ability to support higher levels of shopping activity during peak selling periods, and our success in overcoming challenges caused by the Canada Post strike. As a result, we delivered Comparable Sales Growth of 3.1% for the quarter and 18.3% on a two-year stacked basis."

Mr. Gabel continued: "Looking ahead, we remain confident that we are on track to achieve our fiscal 2019 targets. To build on our fiscal 2018 record revenue, we will execute our strategy with an amplified brand voice and the introduction of more seasonally transitional products, while also benefitting from the strategic investments we have made in the business. With our longstanding and strong market position as a premium outdoor lifestyle brand, as well as our capabilities as a seamless omni-channel retailer, we continue to be extremely excited about the long-term growth opportunities in front of us."

Summary of Fiscal 2018 Fourth Quarter and Year-End Financial Results

Sales
Total Q4 2018 sales increased 0.6% to $130.8 million from $130.0 million in Q4 2017, or increased 3.1% when excluding the additional 53^rd week in Q4 2017 (representing $3.1 million in sales). Total F2018 sales increased 0.9% to $329.0 million from $326.1 million in F2017, or increased 1.9% when excluding the additional week in F2017.

Q4 2018 sales in the DTC segment (corporate retail store and eCommerce sales) increased 0.7% to $120.7 million from $119.8 million in Q4 2017, or increased 3.4% when excluding the additional week in Q4 2017. F2018 DTC sales of $283.9 million were down 0.1% from $284.1 million in F2017, or up 1.0% when excluding the additional week in F2017.

Comparable Sales Growth for Q4 2018 was 3.1%, largely reflecting strong performance of major product franchises, successful new product introductions, and benefits from store renovations (the renovation of four stores, as well as the relocation and expansion of six stores since Q4 2017). For F2018, Roots recorded a Comparable Sales Decline of (1.3%) predominantly as a result of a softer third quarter of Fiscal 2018.

The Company's Q4 2018 and F2018 DTC sales also reflected the opening of two net new corporate retail stores since Q4 2017.

Sales in the Partners and Other segment (wholesale Roots-branded products, royalties on partner retail sales, licensing to select manufacturing partners and the sale of certain custom Roots-branded products) for Q4 2018 were $10.1 million, down 0.7% from $10.2 million in Q4 2017, primarily as a result of the early Q3 2018 delivery of certain orders to the Company's operating partner in Asia that were initially planned for Q4 2018 (as discussed in the Company's Q3 fiscal 2018 disclosure). The Company also realized a $0.4 million foreign exchange benefit, related to Partners and Other sales, in Q4 2018 relative to Q4 2017.

F2018 sales in the Partners and Other segment were $45.2 million, representing a 7.7% increase from $41.9 million in F2017 primarily as a result of sales growth in Asia including the net addition of seven new partner-operated stores in Taiwan and five in China. The Company also realized a $0.7 million foreign exchange benefit, related to Partners and Other sales, in F2018 relative to F2017.

Gross Profit
Total gross profit for Q4 2018 increased 3.4% to $78.3 million from $75.8 million in Q4 2017. Total gross profit for F2018 increased 3.6% to $188.5 million from $182.0 million in F2017.

Q4 2018 gross profit in the DTC segment increased 4.0% to $74.6 million from $71.7 million in Q4 2017. Q4 2018 DTC Gross Margin was 61.8%, up 190 basis points from a Q4 2017 DTC Gross Margin of 59.9%. Year-over-year gross margin improvements reflect improved product costing and favourable foreign exchange rates on goods purchased in U.S. dollars, the benefits of which were partially offset by higher markdowns in the quarter to sell through higher levels of seasonal inventory. F2018 gross profit in the DTC segment increased 3.7% to $173.8 million from $167.6 million in F2017, and F2018 DTC Gross Margin was 61.2%, up 220 basis points from a F2017 DTC Gross Margin of 59.0%.

Q4 2018 gross profit in the Partners and Other segment decreased 7.2% to $3.8 million from $4.1 million in Q4 2017, primarily as a result of the Q3 2018 delivery of certain orders to the Company's operating partner in Asia that were initially planned for Q4 2018. Reflecting year-over-year sales growth, F2018 gross profit in the Partners and Other segment increased 1.7% to $14.7 million from $14.4 million in F2017.

Selling, general and administrative expenses
Selling, general and administrative expenses for Q4 2018 were $51.8 million, up 12.9% from $45.9 million in Q4 2017, and selling, general and administrative expenses for F2018 were $166.8 million, up 9.8% from $151.9 million in F2017. The year-over-year increase was primarily driven by incremental costs to support a larger retail store footprint, costs resulting from higher omni-channel sales, including an additional $0.6 million in Q4 2018 shipping costs as a result of the Canada Post strike, as well as strategic investments in the business. Year-over-year marketing expenses increased $0.9 million, and $3.1 million for Q4 2018 and F2018as compared to the same periods in the prior fiscal year. The impact of the legislated minimum wage increase across the Company's retail stores in Ontario and Alberta accounted for an additional $0.5 million and $1.9 million for Q4 2018 and F2018, respectively. Public company costs were an incremental $0.4 million for Q4 2018 and $1.8 million for F2018.

Adjusted EBITDA, Net Income & Adjusted Net Income
Adjusted EBITDA for Q4 2018 was $34.8 million, down 5.2% from $36.7 million in Q4 2017. Adjusted EBITDA for F2018 was $41.9 million, down 20.4% from $52.6 million in F2017.

Q4 2018 net income was $18.3 million, or $0.43 basic Earnings Per Share, compared to $20.9 million, or $0.50 basic Earnings Per Share, in Q4 2017. Q4 2018 Adjusted Net Income was $22.3 million, or $0.53 per share, compared to $24.6 million, or $0.59 per share, in Q4 2017. In the quarter, the Company recorded an income tax expense of $6.9 million, compared to $7.8 million in Q4 2017, with an effective tax rate of 27.3%, consistent with Q4 2017.

F2018 net income was $11.4 million, or $0.27 basic earnings per share, compared to $17.5 million, or $0.42 basic earnings per share, in F2017. F2018 adjusted net income was $20.2 million, or $0.48 per share, compared to $29.1 million, or $0.69 per share, in F2017. For the year, the Company recorded an income tax expense of $5.1 million, compared to $6.9 million in F2017, with an effective tax rate of 31.0%, up from 28.3% in F2017.

Outlook
During fiscal 2019 ("F2019"), the Company will continue to execute on its growth strategy, placing a greater focus on implementing larger scale, digitally-driven brand-building campaigns and introducing new innovative and transitional seasonal products into its line. Roots will continue to work to:

1. leverage the operational investments made to drive efficiencies within the business;
2. pursue continued growth in Canada;
3. expand the brand's presence in the U.S.;
4. expand in international markets; and
5. deepen the Company's offering in leather and footwear.

Roots expects to deliver growth in F2019 and remains confident the Company is on track to achieve its F2019 targets of:

• Sales between $358 million and $375 million,
• Adjusted EBITDA between $46 million and $50 million, and
• Adjusted net income between $20 million and $24 million.

The key assumptions underlying the Company's F2019 financial targets are:

Renovations and expansions	5-7
Canadian store openings	1-2
U.S. store openings	1-2
International expansion	Continue to: add stores in Taiwan and China explore entry into new markets grow international eCommerce
eCommerce as a percentage of DTC sales	17-19%

 

Adoption of IFRS 16
Starting in the first quarter of Fiscal 2019, Roots will report lease obligations according to IFRS 16 with leases reflected on the Company's balance sheet and rent expense being replaced with interest and depreciation in the Company's income statement. For F2019, Roots will provide adjusted results to accurately compare F2018 and F2019 performance.

Based on information as at April 2, 2019, as a result of the initial application of IFRS 16 as at February 3, 2019, the Company anticipates recognizing approximately $108.0 million to $128.0 million of right-of-use assets and $125.0 million to $145.0 million of lease liabilities on its consolidated statement of financial position.

Conference Call and Webcast Information
Roots will hold a conference call to discuss the Company's F2018 fourth quarter and year-end financial results on April 3, 2019 at 8:00 a.m. ET. All interested parties can join the call by dialing 647-427-7450 or
1-888-231-8191 and using conference ID: 4449409. Please dial-in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until April 10, 2019 at midnight and can be accessed by dialing 416-849-0833 or 1-855-859-2056 and entering replay passcode 4449409.

A live audio webcast of the conference call will be available on the Events and Presentations section of the Company's investor website at http://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.

See Roots Annual Consolidated Financial Statements and the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations for the Fourth Quarter and Year Ended February 2, 2019 on the Company's investor website at https://investors.roots.com and on SEDAR at www.SEDAR.com.

About Roots
Established in 1973, Roots is a premium outdoor lifestyle brand. We unite the best of cabin and city through unmistakable style built with uncompromising comfort and quality. We offer a broad range of products that embody a comfortable cabin-meets-city style including: women's and men's apparel, leather goods, footwear, accessories, and kids, toddler and baby apparel. Starting from a little cabin in Algonquin Park, Canada, Roots has grown to become a global brand. As of February 2, 2019, we had 114 corporate retail stores in Canada, seven corporate retail stores in the United States, 117 partner-operated stores in Taiwan, 37 partner-operated stores in China and a global eCommerce platform. Roots Corporation is a Canadian corporation doing business as "Roots" and "Roots Canada".

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 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 (Loss), and Adjusted Net Income (Loss) per Share. This press release also refers to Comparable Sales Growth (Decline), a commonly used metric in our industry but that may be calculated differently compared to other companies. 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. Definitions and reconciliations of non-IFRS measures to the relevant reported measures can be found in our MD&A under "Cautionary Note Regarding Non-IFRS Measures and Industry Metrics", which is available on SEDAR at www.sedar.com or the Company's Investor Relations website at https://investors.roots.com.

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 are 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.

ROOTS CORPORATION
Consolidated Statement of Financial Position
(In thousands of Canadian dollars)

As at February 2, 2019 and February 3, 2018                                                                                                 

			February 2, 2019		February 3, 2018
Assets
Current assets:
	Cash	$	1,991	$	1,809
	Accounts receivable		6,627		6,420
	Inventories		49,533		35,407
	Prepaid expenses		6,443		5,580
	Derivative assets		366		–
	Total current assets		64,960		49,216
Non-current assets:
	Loan receivable		562		541
	Fixed assets		64,163		36,981
	Intangible assets		198,724		203,408
	Goodwill		52,705		52,705
	Total non-current assets		316,154		293,635
Total assets		$	381,114	$	342,851
Liabilities and Shareholders' Equity
Current liabilities:
	Bank indebtedness	$	12,409	$	–
	Accounts payable and accrued liabilities		22,291		18,306
	Deferred revenue		5,498		4,647
	Income taxes payable		6,445		6,589
	Current portion of long-term debt		4,984		4,984
	Derivative obligations		–		1,233
	Total current liabilities		51,627		35,759
Non-current liabilities:
	Deferred tax liabilities		22,761		21,166
	Deferred lease costs		10,063		4,815
	Finance lease obligation		504		894
	Long-term debt		80,031		79,481
	Other non-current liabilities		1,424		1,763
	Total non-current liabilities		114,783		108,119
Total liabilities			166,410		143,878
Shareholders' equity:
	Share capital		196,853		195,994
	Contributed surplus		3,975		1,675
	Accumulated other comprehensive income (loss)		268		(904)
	Retained earnings		13,608		2,208
Total shareholders' equity			214,704		198,973
Total liabilities and shareholders' equity		$	381,114	$	342,851

 

On behalf of the Board of Directors:

"Erol Uzumeri"                                      Director

"Richard P. Mavrinac"                           Director

ROOTS CORPORATION
Consolidated Statement of Net Income
(In thousands of Canadian dollars, except per share amounts)

For the 52 week period ended February 2, 2019 and for the 53 week period ended February 3, 2018

		February 2, 2019		February 3, 2018
Sales	$	329,028	$	326,057
Cost of goods sold		140,538		144,059
Gross profit		188,490		181,998
Selling, general and administrative expenses		166,790		151,867
Income before interest expense and income taxes expense		21,700		30,131
Interest expense		5,171		5,728
Income before income taxes		16,529		24,403
Income taxes expense		5,129		6,902
Net income	$	11,400	$	17,501
Basic earnings per share	$	0.27	$	0.42
Diluted earnings per share	$	0.27	$	0.41

 

ROOTS CORPORATION
Consolidated Statement of Comprehensive Income (Loss)
(In thousands of Canadian dollars)

For the 52 week period ended February 2, 2019 and for the 53 week period ended February 3, 2018

		February 2, 2019		February 3, 2018
Net income	$	11,400	$	17,501
Other comprehensive income (loss), net of taxes:
Items that may be subsequently reclassified to profit or loss:
Effective portion of changes in fair value of cash flow hedges		3,538		(2,320)
Cost of hedging excluded from cash flow hedges		218		52
Tax impact of cash flow hedges		(1,001)		604
Total other comprehensive income (loss)		2,755		(1,664)
Total comprehensive income		$   14,155	$	15,837

 

ROOTS CORPORATION
Consolidated Statement of Changes in Shareholders' Equity
(In thousands of Canadian dollars)

For the 52 week period ended February 2, 2019 and for the 53 week period ended February 3, 2018

February 2, 2019		Share capital		Contributed surplus		Retained earnings		Accumulated other comprehensive income		Total
Balance, February 4, 2018	$	195,994	$	1,675	$	2,208	$	(904)	$	198,973
Net income	$	–	$	–	$	11,400	$	–	$	11,400
Net gain from change in fair
value of cash flow hedges,
net of income taxes		–		–		–		2,755		2,755
Transfer of realized loss on cash
flow hedges to inventories, net of income taxes		–		–		–		(1,583)		(1,583)
Share-based compensation		–		2,507		–		–		2,507
Issuance of shares		859		(207)		–		–		652
Balance, February 2, 2019	$	196,853	$	3,975	$	13,608	$	268	$	214,704

                                                                                                                   

February 3, 2018		Share capital		Contributed surplus		Retained earnings		Accumulated other comprehensive loss		Total
Balance, January 29, 2017	$	195,994	$	483	$	4,707	$	–	$	201,184
Net income	$	–	$	–	$	17,501	$	–	$	17,501
Net loss from change in fair
value of cash flow hedges,
net of income taxes		–		–		–		(1,664)		(1,664)
Transfer of realized loss on cash
flow hedges to inventories, net of income taxes		–		–		–		760		760
Distributions declared		–		–		(20,000)		–		(20,000)
Share-based compensation		–		1,192		–		–		1,192
Balance, February 3, 2018	$	195,994	$	1,675	$	2,208	$	(904)	$	198,973

 

ROOTS CORPORATION
Consolidated Statement of Cash Flows
(In thousands of Canadian dollars)

For the 52 week period ended February 2, 2019 and for the 53 week period ended February 3, 2018

				February 2, 2019		February 3,  2018
Cash provided by (used in):
Operating activities:
	Net income		$	11,400	$	17,501
	Items not involving cash:
		Depreciation and amortization		12,935		10,886
		Share-based compensation expense		2,507		1,192
		Impairment of fixed assets		1,375		1,281
		Deferred lease costs (recovery)		(617)		847
		Amortization of lease intangibles		548		907
		Interest expense		5,171		5,728
		Income taxes expense		5,129		6,902
		Interest paid		(4,620)		(5,105)
		Taxes paid		(4,104)		(5,602)
	Change in non-cash operating working capital:
		Accounts receivable		(207)		(1,474)
		Inventories		(14,126)		(2,725)
		Prepaid expenses		(863)		(4,007)
		Accounts payable and accrued liabilities		3,985		2,514
	Deferred revenue			851		807
				19,364		29,652
Financing activities:
	Issuance of long-term debt			5,000		–
	Long-term debt financing costs			(66)		(999)
	Repayment of long-term debt			(4,984)		(19,654)
	Finance lease payments			(361)		(203)
	Distributions paid			–		(20,000)
	Proceeds from issuance of shares			652		–
				241		(40,856)
Investing activities:
	Additions to fixed assets			(37,695)		(14,058)
	Tenant allowance received			5,863		1,814
				(31,832)		(12,244)
Increase (decrease) in cash				(12,227)		(23,448)
Cash, beginning of period				1,809		25,257
Cash and bank indebtedness, end of period			$	(10,418)	$	1,809

 

SOURCE Roots Corporation

Investor Relations, Kristen Davies, [email protected], 416-781-3574 Ext. 4116; Public Relations, Elyse Goody, [email protected], 416-781-3574 Ext. 4332

Related Links

http://www.roots.com