ROOTS REPORTS THIRD QUARTER RESULTS

• Sales decreased 8.5% year-over-year to $69.8 million
• Gross margin dropped 430 basis points to 56.5%; excluding temporary premium freight costs and government subsidies, gross margin down 135 basis points
• Net income totaled $2.2 million compared to $10.8 million in the third quarter of fiscal 2021
• Adjusted EBITDA¹ amounted to $7.3 million compared to $19.2 million in the third quarter of fiscal 2021
• Net debt reduced 21% year-over-year to $58.7 million
• Normal Course Issuer Bid renewed until Dec 2023

TORONTO, Dec. 9, 2022 /CNW/ - Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand, announced today financial results for its third quarter ended October 29, 2022 ("Q3 2022"). 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.

"Our third quarter results reflect a shift in the economic environment since we last reported, which we expect to continue in the fourth quarter of fiscal 2022," said Meghan Roach, President and Chief Executive Officer of Roots. "For nearly 50 years, Roots has managed through diverse economic conditions, numerous changes in consumer behavior and, most recently, the global pandemic. We remain focused on our strategic initiatives and believe that our brand strength and strong balance sheet position us well over the medium and long term."

"During the quarter, we also saw more pronounced discounting and an enhanced focus on lifestyle products compared to casual fleece offerings," continued Ms. Roach. "While we had anticipated this shift, as people returned to offices and events, it accelerated during the quarter and has impacted sales due to the relative importance of each category to our business. We are continuing to strategically manage our core inventory to maintain our promotional discipline; however, we expect these factors to continue impacting our sales and margins in the near term."  

SELECT FINANCIAL INFORMATION (in '000s of CAD$, except per share amounts)	Third quarter ended			Year-to-date
	October 29, 2022	October 30, 2021	Change	October 29, 2022	October 30, 2021	Change
Total sales	69,782	76,291	(8.5 %)	160,655	152,540	5.3 %
Direct-to-Consumer ("DTC") sales	56,858	63,434	(10.4 %)	132,697	125,232	6.0 %
Partners & Other ("P&O") sales	12,924	12,857	0.5 %	27,958	27,308	2.4 %
Gross profit	39,428	46,421	(15.1 %)	93,992	90,505	3.9 %
Gross margin^1	56.5 %	60.8 %	-430 bps	58.5 %	59.3 %	-80 bps
Selling, General and Administrative ("SG&A") expenses	33,830	29,436	14.9 %	95,761	77,162	24.1 %
Subsidies and abatements^3	51	3,036	-	456	12,535	-
Net income (loss)	2,209	10,766	-	(6,287)	4,652	-
Net income (loss) per share	0.05	0.25	-	(0.15)	0.11	-
Adjusted EBITDA^2	7,276	19,158	-	3,443	19,518	-

^1Gross margin is a supplementary financial measure that measures our gross profit as a percentage of sales.
^2Adjusted EBITDA is a non-IFRS Measure. See "Non-IFRS Measures and Industry Metrics" below.
^3Subsidies and abatements are reported as a reduction to the related expense, either as a decrease to cost of goods sold or to SG&A expenses.

"Despite headwinds in the third quarter, we maintained a strong financial position, reducing our net debt by 21% and lowering our net working capital position by 10%," said Mona Kennedy, Chief Financial Officer of Roots. "Although we expect short-term pressure on our gross margins from economic and promotional forces, our strategy to reduce discounting on core styles remains unchanged. While comfortable with our inventory levels at the end of the third quarter, we expect a combination of factors, including cost increases primarily related to our shift to organic cotton, our pack-and-hold strategy on core inventory, and lower sales, to raise our year-end inventory balances."    

THIRD QUARTER OVERVIEW
Total sales decreased 8.5% to $69.8 million in Q3 2022 from $76.3 million in the third quarter of fiscal 2021 ("Q3 2021"). DTC sales (corporate retail store and eCommerce sales) were $56.9 million, down 10.4% year-over-year. This decrease was mainly driven by economic headwinds in the latter part of the third quarter, an intensified promotional environment, and an accelerated consumer shift from fleece products towards our lifestyle assortments, which represent a smaller portion of the Company's assortment. In addition, year-over-year sales were negatively impacted by unseasonably warm weather during the back-to-school selling period and heightened spending in the same quarter last year.  

P&O sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) rose 0.5% to $12.9 million in Q3 2022. The increase was mainly due to a favourable foreign exchange impact of $0.5 million on U.S. dollar sales in Q3 2022 versus the same period in 2021, along with growth in sales of custom Roots-branded products sold to business clients and sales through Tmall.com in China. These factors were partially offset by a reduction in the Company's business in Taiwan and lower royalties on licensed product sales.

Gross profit decreased 15.1% to $39.4 million in Q3 2022 from $46.4 million in Q3 2021, driven by moderated sales volumes and a reduction in gross margin. Gross margin declined 430 basis points ("bps") to 56.5% in Q3 2022 from 60.8% in the same period last year. This decline can be attributed to the temporary impact of premium freight costs of 240 bps and a reduction in Canada Emergency Wage Subsidy ("CEWS") program of 55 bps. Excluding these items, gross margin was down 135 bps year-over-year due to increased discounts on targeted inventory and higher costs of products.

SG&A expenses were $33.8 million in Q3 2022, up 14.9% from $29.4 million in Q3 2021. The increase can largely be attributed to a $2.6 million reduction in pandemic-related government subsidies and occupancy-related cost abatements in Q3 2022 compared to the same period in 2021. Excluding these items, SG&A rose 5.7% year-over-year due to higher store costs related to increased operating hours, inflationary pressure on labour and eCommerce shipping costs, as well as investments in talent and marketing.   

Net income totaled $2.2 million, or $0.05 per share, in Q3 2022, versus $10.8 million, or $0.25 per share, in Q3 2021. Excluding the impact of government subsidies and occupancy-related cost abatements, net income decreased $6.4 million year-over-year.

Adjusted EBITDA amounted to $7.3 million in Q3 2022 compared to $19.2 million in Q3 2021. Excluding the impact of government subsidies and occupancy-related cost abatements, Adjusted EBITDA declined $8.9 million year-over-year.

YEAR-TO-DATE RESULTS
For the first nine months of fiscal 2022 ("YTD 2022"), total sales reached $160.7 million, representing an increase of 5.3% over sales in the first nine months of fiscal 2021 ("YTD 2021"). DTC sales rose 6.0% to $132.7 million in YTD 2022 as compared to YTD 2021, while P&O sales improved 2.4% to $28.0 million during this period.

Gross profit stood at $94.0 million, or 58.5% of sales, during YTD 2022, as compared to $90.5 million, or 59.3% of sales, in YTD 2021.

Net loss totaled $6.3 million, or ($0.15) per share, in YTD 2022, as compared to net income of $4.7 million, or $0.11 per share, in YTD 2021. Excluding the impact of government subsidies and occupancy-related cost abatements, the net loss increased $2.1 million year-over-year.

Adjusted EBITDA amounted to $3.4 million in the first nine months of 2022 compared to $19.5 million in the corresponding period in 2021. Excluding government subsidies and occupancy-related cost abatements, Adjusted EBITDA declined $4.0 million year-over-year.

FINANCIAL POSITION
At the end of Q3 2022, Roots had a solid financial position with net debt of $58.7 million, down 21% from the end of Q3 2021. As at October 29, 2022, the Company also had unused borrowing capacity of $56.1 million available under its revolving credit facility. The Company's leverage ratio, defined as total net debt to trailing 12-months Adjusted EBITDA, was 1.7 times at quarter-end.

NORMAL COURSE ISSUER BID RENEWAL
In a separate press release issued today, the Company announced the renewal of its Normal Course Issuer Bid ("NCIB") for its Common Shares through the facilities of the Toronto Stock Exchange (or other alternative Canadian trading systems) to repurchase for cancellation up to 2,119,667 Common Shares, representing approximately 10% of Roots public float, during the 12-month period commencing December 16, 2022 and ending December 15, 2023.

Pursuant to its existing NCIB ending December 15, 2022, the Company has purchased to date 581,743 Common Shares at a volume weighted average price per share of $3.27 out of an authorized total of 2,172,928 Common Shares.

ROOTS CARES
For nearly 50 years, Roots has been committed to giving back to and partnering with communities in need. With the Company's values of community, integrity, freedom, and being genuine in mind, Roots is committed to embracing individuality through respect, acceptance, representation, and empowerment. The Company's philanthropic endeavours, now branded as "Roots Cares", are focused on amplifying the values shared with customers. Since February 2020, Roots has donated approximately $3.1 million of cash and in-kind donations to various organizations within the communities in which Roots operates.

CONFERENCE CALL AND WEBCAST INFORMATION
Roots will hold a conference call to review its third quarter 2022 results on December 9, 2022, 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: 79507805. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until December 16, 2022, at midnight, and can be accessed by dialing 416-764-8677 or 1-888-390-0541 and entering the replay passcode: 507805#.

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 third quarter ended October 29, 2022, on the Company's investor website at https://investors.roots.com and on SEDAR at www.SEDAR.com.

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 (loss) 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. 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 Q3 2022, which is incorporated by reference herein and is available on SEDAR at www.SEDAR.com or the Company's Investor Relations website at https://investors.roots.com.

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

CAD $000s	Q3 2022	Q3 2021	YTD 2022	YTD 2021
Net income (loss)	2,209	10,766	(6,287)	4,652
Adjust for the impact of:
Interest expense (a)	2,375	2,250	6,436	6,787
Income taxes expense (recovery) (a)	1,014	3,969	(1,918)	1,904
Depreciation and amortization (a)	7,310	7,446	21,688	22,603
EBITDA	12,908	24,431	19,919	35,946
Adjust for the impact of:
SG&A: Rent expense excluded from net income (loss) as a result ofIFRS 16 (a)	(5,729)	(5,780)	(17,405)	(17,736)
SG&A: Purchase accounting adjustments (b)	(12)	26	(5)	66
SG&A: Stock option expense (c)	97	265	409	633
SG&A: Changes in key personnel (d)	–	56	(5)	237
SG&A: One-time legal fees (e)	12	–	530	–
SG&A: Other non-recurring items (f)	–	160	–	372
Adjusted EBITDA	7,276	19,158	3,443	19,518

Notes:
(a)	The impact of IFRS 16 – Leases accounting standard ("IFRS 16") in Q3 2022 and Q3 2021 was: (i) a decrease to SG&A expenses of $1,309 and $1,176, respectively, which comprised the impact of depreciation on the right-of-use ("ROU") assets, net of the exclusion of rent payments from SG&A expenses, (ii) an increase in interest expense of $1,186 and $1,314, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax impact of $33 and $36, respectively, based on tax attributes on the ROU assets and lease liabilities balances recorded. The impact of IFRS 16 in YTD 2022 and YTD 2021 was: (i) a decrease to SG&A expenses of $4,262 and $3,881, respectively, which comprised the impact of depreciation on the ROU assets, net of the exclusion of rent payments from SG&A expenses, (ii) an increase in interest expense of $3,582 and $4,108, respectively, arising from interest expense recorded on the lease liabilities in the period, and (iii) a deferred tax impact of $180 and $60, respectively, based on tax attributes on the ROU assets and lease liabilities balances recorded.
(b)	As a result of Searchlight Capital Partners assuming control of Roots in 2015 (the "Acquisition"), we recognized an intangible asset for lease arrangements in the amount of $6,310, which when excluding the impacts of IFRS 16, is amortized, as a non-cash expense, 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 Incentive Plan.
(d)	Represents infrequent expenses incurred in respect of the Company's efforts to recruit for vacancies in key management positions and severance costs associated with such employee separations. In YTD 2022, expense recovery results from a reduced recruiting charge in comparison to what had been previously accrued during the fourth quarter of fiscal 2021.
(e)	In Q3 2022 and YTD 2022, this represents non-recurring legal costs incurred that are outside the scope of normal operations.
(f)	In Q3 2021 and YTD 2021, this represents one-time closure costs incurred while optimizing the footprint of one of our corporate retail stores as well as start-up costs associated with the relaunch of the Roots eCommerce website in China in the second quarter of fiscal 2021.

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, www.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

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