Roots Reports Fiscal 2020 First Quarter Results

Sales decline due to COVID-19-related temporary store closures partially offset by
cost-reduction measures, tempering impact on Adjusted EBITDA

TORONTO, June 12, 2020 /CNW/ - Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand, today announced its financial results for its first quarter ended May 2, 2020 ("Q1 2020"). 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".

Roots Q1 2020 financial results were significantly impacted by the COVID-19 pandemic, most notably the temporary closure of the Company's North American store fleet for six of the 13-weeks in the quarter. In addition, in Q1 2020 the Company liquidated its U.S. subsidiary through a Chapter 7 bankruptcy filing, which resulted in the closure of seven of the Company's U.S. stores.

First Quarter Fiscal 2020 Highlights

• Total sales of $29.9 million, compared to $54.4 million in the first quarter of fiscal 2019 ("Q1 2019")
• Direct-to-Consumer ("DTC") sales of $24.6 million, compared to $46.6 million in Q1 2019
• Gross margin of 54.9%, compared to 52.5% in Q1 2019
• DTC Gross Margin of 58.0%, up 330 basis points from 54.7% in Q1 2019
• Selling, general and administrative expenses of $27.8 million, down from $38.2 million in Q1 2019
• Adjusted EBITDA of ($7.5) million, compared to ($6.2) million in Q1 2019
• Loss per Share of ($0.18), compared to ($0.23) per Share in Q1 2019, and Adjusted Net Loss per Share of ($0.22), compared to ($0.17) per Share in Q1 2019
• Ended the quarter with 114 corporate-retail stores in Canada and two in the United States
• Ended the quarter with 115 partner-operated stores in Taiwan, 37 in China and two in Hong Kong

"Given the unprecedented business environment created by COVID-19 and the temporary closure of our North American store fleet, we experienced a meaningful decline in our first quarter sales," said Meghan Roach, Chief Executive Officer, Roots. "However, we are continuing to take the necessary steps to mitigate the impacts of the pandemic on the Company, including increasing our focus on generating revenue from other areas of our business. For the six weeks our stores were closed in the quarter, normalizing for the impact of a one-time promotional event in April 2019, online sales were up more than 200% year-over-year. We also continue to manage costs and liquidity. These actions and improved margins helped to partially offset the impact of our sales decline on our adjusted EBITDA."

Ms. Roach continued: "We have started to gradually reopen our stores with strict health and safety protocols in place for the protection of our staff and customers. While it is impossible to predict how long this crisis will last and how significant the impact will be on our business, we believe we have a brand and products that will continue to resonate with consumers. As we look beyond COVID-19, we are focusing on strengthening and building on these fundamentals, as well as our strong omni-channel capabilities, to establish a robust platform on which to drive long-term growth."

Summary of First Quarter Fiscal 2020 Financial Results
In Q1 2020, Roots faced unprecedented challenges created by the COVID-19 outbreak in China, which began with supply chain disruptions and a slowdown in the Company's partner operations in Asia. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic, and then, on March 17, 2020, Roots announced the temporarily closure of its North American retail locations and leather factory. These closures were made with the health and safety of Roots customers and employees in mind. The Company also made the difficult decision to temporarily lay off its store and leather factory employees at the time of the closures.

During the period of store closures, the Company continued to operate its global eCommerce business and distribution centre, with strict cleaning protocols and social distancing measures in place. Roots also began operating its wholesale, B2B and licensing business, as well as its head office functions under a "work-from-home" model. In addition, the Company launched a special initiative at its Canadian leather factory, repurposing the facility in accordance with appropriate health and safety guidelines to produce non-medical face masks.

In line with local government and global health organization guidance, the Company's partner in Asia also temporarily closed select stores in China and reduced hours across the remainder of its store fleet in China, Hong Kong and Taiwan. While all stores reopened in China during the quarter, retail traffic trends remain below pre-pandemic levels in all three regions.

In response to the top-line impacts of COVID-19, Roots has worked to substantially reduce operating costs and capital expenditures as well as actively manage liquidity. In the quarter, the Company:

• realized personnel costs savings related to temporary layoffs associated with the store closures;
• benefited from wage subsidies provided by the Canadian government;
• temporarily reduced Board of Director compensation, as well as senior leadership team and head office salaries;
• froze salary increases and fiscal 2019 bonus payments; and
• reduced forward inventory purchases, minimized discretionary expenditures and effectively halted capital spend.

Roots is continuing to manage costs and liquidity by working with its landlords, partners, suppliers and logistics providers to identify further areas of cost reduction. 

Sales
While Roots has historically reported Comparable Sales Growth as an additional metric to demonstrate the performance of its DTC business, as a result of the temporary closure of its North American stores during the quarter due to COVID-19, the Company does not believe that Comparable Sales Growth is a representative metric of Q1 2020 performance.

Total Q1 2020 sales were $29.9 million, down 44.9% from total sales of $54.4 million in Q1 2019. Q1 2020, DTC sales (corporate retail store and eCommerce sales) were $24.6 million, down from $46.6 million in Q1 2019, reflecting the temporary closure of the Company's North American store fleet, partially offset by stronger eCommerce performance. Partners and Other sales (wholesale Roots-branded products, royalties on partner retail sales, licensing to select manufacturing partners and the sale of certain custom Roots-branded products) for Q1 2020 were $5.3 million, down from $7.7 million in Q1 2019, primarily as a result of COVID-19-related declines in the Company's partner-operated Asia business.

Gross Profit
Total gross profit for Q1 2020 was $16.4 million, down from $28.5 million in Q1 2019, predominantly reflecting the negative overall sales impact of COVID-19. Q1 2020 DTC gross profit was $14.3 million, down from $25.5 million in Q1 2019. Q1 2020 DTC Gross Margin was 58.0%, up 330 basis points from 54.7% in Q1 2019, predominantly as a result of lower markdowns and a shift in mix toward higher margin product. These benefits were partially offset by the reclassification of certain costs (into cost of goods sold from selling, general and administrative expenses) with the Company's transition to in-house fulfillment of all eCommerce orders, as well as foreign exchange headwinds. Partners and Other gross profit decreased to $2.2 million in Q1 2020, from $3.0 million in Q1 2019.

Selling, general and administrative expenses ("SG&A")
Selling, general and administrative expenses for Q1 2020 were $27.8 million, including $1.5 million in one-time U.S. store closure related costs, down from $38.2 million in Q1 2019. The year-over-year decrease predominantly reflects benefits from steps the Company took to reduce costs across all areas of the business as a result of COVID-19, including $1.3 million in government wage subsidies, and a decrease in store wages as a result of layoffs related to the Company's temporary store closures.

Adjusted EBITDA, Net income (loss) & Adjusted Net Income (Loss)
Reflecting factors discussed above, Adjusted EBITDA (which excludes the impact of IFRS 16 and one-time U.S. store closure and related costs) for Q1 2020 was ($7.5) million, compared to ($6.2) million in Q1 2019. 

Q1 2020 net loss was ($7.8) million, or ($0.18) loss per Share, which includes  $4.8 million in one-time accounting gains primarily due to the derecognition of IFRS 16 lease assets and liabilities associated with the Company's liquidation of its U.S. subsidiary and resulting store closures. This is compared to a net loss of ($9.8) million, or ($0.23) per share in Q1 2019. Adjusted Net Loss (which excludes the impact of IFRS 16 and a one-time U.S. store closure related net gain) was ($9.1) million, or ($0.22) per share, compared to ($7.2) million, or ($0.17) per share, in Q1 2019.

Conference Call and Webcast Information
Roots will hold a conference call to discuss the Company's fiscal 2020 first quarter results on June 12,  2020 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: 1559724. Please dial-in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until June 19, 2020 at midnight and can be accessed by dialing 416-849-0833 or 1-855-859-2056 and entering replay passcode: 1559724.

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.

See Roots Consolidated Financial Statements and the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations for the First Quarter ended May 2, 2020 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 designed for life's everyday adventures, 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 May 2, 2020, we operated 114 corporate-retail stores in Canada, two corporate-retail stores in the United States, 115 partner-operated stores in Taiwan, 37 partner-operated stores in China, two partner-operated stores in Hong Kong and a global eCommerce platform, roots.com. 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 DTC Gross Margin, EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) 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. 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
Interim Condensed Consolidated Statement of Financial Position
(In thousands of Canadian dollars)
(Unaudited)

		May 2,		February 1,
		2020		2020
Assets
Current assets:
	Cash	$	6,057	$	949
	Accounts receivable	6,321		7,158
	Inventories	40,304		40,152
	Prepaid expenses	2,325		5,418
	Derivative assets	3,285		–
	Total current assets	58,292		53,677
Non-current assets:
	Loan receivable	585		585
	Lease receivable	1,432		1,511
	Fixed assets	53,685		55,694
	Right-of-use assets	95,331		128,322
	Intangible assets	192,503		193,079
	Goodwill	7,906		7,906
	Total non-current assets	351,442		387,097
Total assets		$	409,734	$	440,774
Liabilities and Shareholders' Equity
Current liabilities:
	Bank indebtedness	$	1,076	$	7,226
	Accounts payable and accrued liabilities	24,234		20,252
	Deferred revenue	5,387		6,011
	Income taxes payable	1,518		2,008
	Current portion of lease liabilities	22,467		26,569
	Current portion of long-term debt	4,984		4,984
	Derivative obligations	–		158
	Total current liabilities	59,666		67,208
Non-current liabilities:
	Deferred tax liabilities	16,207		13,942
	Long-term portion of lease liabilities	91,392		124,590
	Long-term debt	97,304		84,528
	Total non-current liabilities	204,903		223,060
	Total liabilities	264,569		290,268
Shareholders' equity:
	Share capital	196,903		196,903
	Contributed surplus	3,559		3,407
	Accumulated other comprehensive income (loss)	2,176		(116)
	Retained earnings (deficit)	(57,473)		(49,688)
Total shareholders' equity		145,165		150,506
Total liabilities and shareholders' equity		$	409,734	$	440,774

On behalf of the Board of Directors:
"Erol Uzumeri"	Director
"Richard P. Mavrinac"	Director & Audit Committee Chair

ROOTS CORPORATION
Interim Condensed Consolidated Statement of Net Loss
(In thousands of Canadian dollars, except per share amounts)
(Unaudited)

For the 13 week periods ended May 2, 2020 and May 4, 2019

	May 2, 2020		May 4, 2019
	(13 weeks)		(13 weeks)
Sales	$	29,949	$	54,352
Cost of goods sold	13,516		25,841
Gross profit	16,433		28,511
Selling, general and administrative expenses	27,806		38,164
Gain from deconsolidation of RTS USA Corp.	4,774		–
Loss before interest expense and
income taxes recovery	(6,599)		(9,653)
Interest expense	3,747		3,559
Loss before income taxes	(10,346)		(13,212)
Income taxes recovery	(2,561)		(3,444)
Net loss	$	(7,785)	$	(9,768)
Basic loss per share	$	(0.18)	$	(0.23)
Diluted loss per share	$	(0.18)	$	(0.23)

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

For the 13 week periods ended May 2, 2020 and May 4, 2019

	May 2, 2020		May 4, 2019
	(13 weeks)		(13 weeks)
Net loss	$	(7,785)	$	(9,768)
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	3,732		1,362
Reclassification adjustment of unrealized
gain on cash flow hedges reclassified to selling,
general and administrative expenses	(233)		–
Cost of hedging excluded from
cash flow hedges	(36)		86
Tax impact of cash flow hedges	(985)		(386)
Total other comprehensive income	2,478		1,062
Total comprehensive loss	$	(5,307)	$	(8,706)

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

For the 13 week periods ended May 2, 2020 and May 4, 2019

May 2, 2020 (13 weeks)	Share capital		Contributed surplus		Retained earnings (deficit)		Accumulated other comprehensive income (loss)		Total
Balance, February 1, 2020	$	196,903	$	3,407	$	(49,688)	$	(116)	$	150,506
Net loss	–		–		(7,785)		–		(7,785)
Net gain from change in fair
value of cash flow hedges,
net of income taxes	–		–		–		2,478		2,478
Transfer of realized loss on cash
flow hedges to inventories, net
of income taxes	–		–		–		(186)		(186)
Share-based compensation	–		152		–		–		152
Balance, May 2, 2020	$	196,903	$	3,559	$	(57,473)	$	2,176	$	145,165
May 4, 2019 (13 weeks)	Share capital		Contributed surplus		Retained earnings (deficit)		Accumulated other comprehensive income (loss)		Total
Balance, February 2, 2019	$	196,853	$	3,975	$	13,608	$	268	$	214,704
Adjustment on adoption of IFRS 16	–		–		(1,267)		–		(1,267)
Balance, February 3, 2019	$	196,853	$	3,975	$	12,341	$	268	$	213,437
Net loss	–		–		(9,768)		–		(9,768)
Net gain from change in fair
value of cash flow hedges,
net of income taxes	–		–		–		1,062		1,062
Transfer of realized gain on cash
flow hedges to inventories, net
of income taxes	–		–		–		(282)		(282)
Share-based compensation	–		274		–		–		274
Balance, May 4, 2019	$	196,853	$	4,249	$	2,573	$	1,048	$	204,723

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

For the 13 week periods ended May 2, 2020 and May 4, 2019

		May 2, 2020		May 4, 2019
		(13 weeks)		(13 weeks)
Cash provided by (used in):
Operating activities:
	Net loss	$	(7,785)	$	(9,768)
	Items not involving cash:
	Depreciation and amortization	8,859		9,019
	Share-based compensation expense	152		274
	Gain from deconsolidation of RTS USA Corp.	(4,774)		–
	Unrealized gains on forward contracts	(318)		–
	Interest expense	3,747		3,559
	Income taxes recovery	(2,561)		(3,444)
	Interest paid	(1,378)		(1,227)
	Payment of interest on lease liabilities	(2,201)		(2,177)
	Taxes refunded (paid)	3,503		(1,268)
	Change in non-cash operating working capital:
	Accounts receivable	837		1,243
	Inventories	(2,443)		4,142
	Prepaid expenses	3,093		(172)
	Accounts payable and accrued liabilities	4,549		(3,444)
	Deferred revenue	(624)		(838)
		2,656		(4,101)
Financing activities:
	Issuance of long-term debt	14,000		20,000
	Long-term debt financing costs	(146)		(163)
	Repayment of long-term debt	(1,246)		(1,246)
	Payment of principal on lease liabilities, net of tenant allowance	(2,452)		(4,523)
		10,156		14,068
Investing activities:
	Additions to fixed assets	(1,013)		(8,185)
	Deconsolidation of RTS USA Corp.	(541)		–
		(1,554)		(8,185)
Increase in cash		11,258		1,782
Bank indebtedness, beginning of period		(6,277)		(10,418)
Cash and bank indebtedness, end of period		$	4,981	$	(8,636)

SOURCE Roots Corporation

Investor Relations: Kristen Davies, [email protected], 416-781-3574 Ext. 4116

Related Links

http://www.roots.com