ROOTS REPORTS SECOND QUARTER FISCAL 2024 RESULTS

TORONTO, Sept. 13, 2024 /CNW/ - Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand, announced today financial results for its second quarter ended August 3, 2024 ("Q2 2024"). 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 or supplementary financial measures. See "Non-IFRS Measures and Industry Metrics".

"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 & CEO, Roots Corporation.

"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 to $49.4 million in Q2 2023
  • DTC sales were $36.4 million compared to $37.1 million in Q2 2023, with nearly flat comparable sales of (0.2%), improving from Q1 2024 comparable sales of (8.2%)
• Gross margin was 56.4%, up 90bps compared to 55.5% Q2 2023
• Net income (loss) totaled ($5.2) million, an improvement from ($5.3) million in Q2 2023
  • Net income (loss) per share of ($0.13), flat to Q2 2023
• Adjusted EBITDA amounted to ($3.1) million versus ($3.0) million in Q2 2023
• Net debt reduced 19.9% year-over-year to $40.8 million
• Inventory was $44.0 million, a 21% reduction compared to $55.9 million in Q2 2023

SELECT FINANCIAL INFORMATION (in '000s of CAD$, except where noted)	Second quarter ended			Year-to-date
	August 3, 2024	July 29, 2023	Change	August 3, 2024	July 29, 2023	Change
Total sales	47,747	49,404	(3.4 %)	85,208	90,900	(6.3 %)
Direct-to-Consumer ("DTC") sales	36,417	37,103	(1.8 %)	67,822	72,509	(6.5 %)
Partners & Other ("P&O") sales	11,330	12,301	(7.9 %)	17,386	18,391	(5.5 %)
Gross profit	26,920	27,441	(1.9 %)	49,021	51,922	(5.6 %)
Gross margin	56.4 %	55.5 %	90 bps^2	57.5 %	57.1 %	40 bps^2
Selling, General and Administrative ("SG&A") expenses	31,845	32,338	(1.5 %)	63,827	65,344	(2.3 %)
Net income (loss)	(5,236)	(5,334)	1.8 %	(14,131)	(13,300)	(6.2 %)
Net income (loss) per share	($0.13)	$(0.13)	–	($0.35)	$(0.32)	(9.4 %)
Adjusted EBITDA	(3,131)	(2,983)	(5.0 %)	(11,090)	(8,831)	(25.6 %)
Free Cash Flow^1	(8,954)	(7,173)	(24.8 %)	(23,567)	(22,044)	(6.9 %)
Net debt	–	–	–	40,774	50,921	(19.9 %)

¹ 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. See "Non-IFRS Measures and Industry Metrics".

² Basis points ("bps").

"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% from $49.4 million in the second quarter of fiscal 2023 ("Q2 2023").

DTC sales (corporate retail store and eCommerce sales) were $36.4 million, down 1.8% from $37.1 million in Q2 2023. DTC comparable sales were nearly flat, at (0.2%), 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 our ongoing store fleet optimization initiatives to consolidate less profitable stores and drive same-store sales growth.

P&O 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 our 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 to $27.4 million in Q2 2023, representing a year-over-year decrease of 1.9%. Gross margin was 56.4% in Q2 2024 compared to 55.5% in Q2 2023.

DTC gross margin was 61.7% in Q2 2024, down 100 bps from 62.7% in Q2 2023. DTC gross margin increased by 230 bps from product margin expansion, comprised of 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 expenses totaled $31.8 million in Q2 2024 compared to $32.3 million in Q2 2023, representing a year-over-year decrease of 1.5%. Decreases in SG&A expenses were driven from ongoing 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 income (loss) totaled ($5.2) million, or ($0.13) per share, in Q2 2024, improving from a net income (loss) of ($5.3) million, or ($0.13) per share, in Q2 2023. 

Adjusted EBITDA amounted to ($3.1) million in Q2 2024 as compared to ($3.0) 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% compared to the first six months of fiscal 2023, which amounted to $90.9 million. DTC sales decreased 6.5% to $67.8 million, while P&O sales decreased by 5.5% to $17.4 million. Gross profit stood at $49.0 million, or 57.5% of sales, down from $51.9 million, or 57.1% of sales, last year.

Net income (loss) was ($14.1) million, or ($0.35) per share, compared to ($13.3) million, or ($0.32) per share, last year.

Adjusted EBITDA totaled ($11.1) million as compared to ($8.8) million in the corresponding period in 2023.

FINANCIAL POSITION

Inventory was $44.0 million at the end of Q2 2024, as compared to $55.9 million at the end of Q2 2023, representing a decrease of $11.9 million or 21.3%. 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 towards the end of the quarter.

Free cash flow was ($9.0) million in Q2 2024, as compared to ($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 August 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-months Adjusted EBITDA, was 2.3x 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 September 13, 2024, at 8:00 a.m. ET. All interested parties can join the call by dialing 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 September 20, 2024, at midnight, and can be accessed by dialing 1-289-819-1450 or 1-888-660-6345 and entering the replay passcode: 42913 #.

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 financial measures including "EBITDA", "Adjusted EBITDA", and "Net Debt"; and non-IFRS ratio: "leverage ratio". This press release also makes reference to "gross margin", "DTC gross margin", and "comparable sales", which are commonly used metrics in our industry but that may be calculated differently compared to other companies. Gross margin, DTC gross margin and comparable sales are considered supplementary financial measures under applicable securities laws.

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 Q2 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.

Reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

CAD $000s	Q2 2024		Q2 2023		YTD 2024		YTD 2023
Net income (loss)	(5,236)		(5,334)		(14,131)		(13,300)
Add the impact of:
Interest expense ^(a)	2,177		2,303		4,304		4,572
Income taxes expense (recovery) ^(a)	(1,866)		(1,866)		(4,979)		(4,694)
Depreciation and amortization ^(a)	7,302		7,351		14,543		14,888
EBITDA	2,377		2,454		(263)		1,466
Adjust for the impact of:
SG&A: Rent expense excluded from net income (loss) as a result ofIFRS 16^(a)	(5,892)		(5,861)		(11,481)		(11,560)
SG&A: Purchase accounting adjustments^(b)	(7)		(13)		(13)		(21)
SG&A: Stock option expense^(c)	46		133		137		233
SG&A: Changes in key personnel^(d)	343		304		532		1,049
SG&A: Non-recurring legal fee^(e)	2		–		(2)		2
Adjusted EBITDA^(f)	(3,131)		(2,983)		(11,090)		(8,831)

_______________
Notes:
(a)	The impact of IFRS 16 – Leases ("IFRS 16") in Q2 2024 and Q2 2023 was: (i) a decrease to SG&A expenses of $1,390 and $1,428, 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) a decrease in interest expense of $1,242 and $1,134, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax expense (recovery) impact of $40 and $77, respectively, based on tax attributes on the ROU assets and lease liabilities balances recorded. The impact of IFRS 16 in YTD 2024 and YTD 2023 was: (i) a decrease to SG&A expenses of $2,487 and $2,533, respectively, which comprised the impact of depreciation and lease modifications on the ROU assets, net of the exclusion of rent payments from SG&A expenses, (ii) an increase in interest expense of $2,533 and $2,294, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax expense (recovery) impact of $(12) and $63, respectively, based on tax attributes on the ROU assets and lease liabilities balances recorded.
(b)	As a result of the Company's acquisition of assets from Roots Canada Ltd., Roots U.S.A. Inc., and Roots America L.P., and the outstanding shares of Roots International ULC effective December 1, 2015 (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 Q2 2024 and Q2 2023, Adjusted EBITDA would have been $2,768 and $2,891, respectively. If the impact of IFRS 16 was included for YTD 2024 and YTD 2023, Adjusted EBITDA would have been $404 and $2,750, respectively.

Reconciliation of long-term debt to net debt and leverage ratio:

	As at
CAD $000s	August 3, 2024		July 29, 2023		February 3, 2024
Long-term debt^(1)	$                        43,128		$                        55,500		$                        45,010
Add: bank indebtedness	350		831		–
Less: cash	(2,704)		(5,410)		(28,033)
Net debt	$                        40,774		$                        50,921		$                        16,977
Trailing 12-month Adjusted EBITDA	17,596		21,969		26,967
Leverage ratio	2.3x		2.3x		0.6x

(1)

Total long-term debt of $43,128 at August 3, 2024 is net of $1,064 unamortized long-term debt financing costs. As at July 29, 2023, total long-term debt of $55,500 is net of $1,428 unamortized long-term debt financing costs. As at February 3, 2024, total long-term debt of $45,010 is net of $1,194 unamortized long-term debt financing costs.

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^™. 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

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