Roots Reports Third Quarter Fiscal 2024 Results

TORONTO--(BUSINESS WIRE)--December 11, 2024-- 

Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand, announced today financial results for its third quarter ended November 2, 2024 ("Q3 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 Q3 results highlight the enduring appeal of our brand amongst both new and existing customers, fueled by the team's strong execution across many facets of the business. The success of our refreshed marketing strategy, commitment to high-quality products, and enhanced omnichannel experience clearly resonated, delivering impressive results this quarter, " stated Meghan Roach, President & CEO of Roots.

"Although we are still early in the fourth quarter, our trends remain strong, and we are focused on continuing to drive momentum throughout the remainder of the holiday season," continued Ms. Roach.

Third Quarter Highlights

   -- 
 Sales were $66.9 million, a 5.3% increase compared to $63.5 million in 
      Q3 2023 
 
          -- 
 DTC sales were $54.2 million, a 3.8% increase compared to $52.2 
             million in Q3 2023 
 
 
          -- 
 DTC comparable sales growth was 5.8% 
 
 
          -- 
 P&O sales were $12.7 million, a 12.0% increase compared to $11.3 
             million in Q3 2023 
 
 
 
 
   -- 
 Gross margin was 60.0%, up 160bps compared to 58.4% Q3 2023 
 
          -- 
 DTC gross margin of 64.0%, compared to 62.4% in Q3 2023 
 
 
 
 
   -- 
 Net income totaled $2.4 million, an improvement from $0.5 million in Q3 
      2023 
 
          -- 
 Net income per share of $0.06, an improvement from $0.01 in Q3 
             2023 
 
 
 
 
   -- 
 Adjusted EBITDA amounted to $7.1 million versus $5.5 million in Q3 
      2023 
 
 
   -- 
 Net debt reduced 11.3% year-over-year to $46.9 million 
 
 
   -- 
 Inventory was $60.4 million, a 1.6% reduction compared to $61.4 million 
      in Q3 2023 
 
 
 SELECT FINANCIAL 
 INFORMATION (in 
 '000s of CAD$, 
 except where 
 noted)                   Third quarter ended              Year-to-date 
--------------------  ---------------------------  ----------------------------- 
                                October                      October 
                      November    28,              November    28, 
                      2, 2024    2023     Change   2, 2024     2023     Change 
--------------------  --------  -------  --------  --------  --------  --------- 
 Total sales           66,905   63,534     5.3%    152,113   154,434    (1.5%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Direct-to-Consumer 
  ("DTC") sales        54,209   52,203     3.8%    122,031   124,712    (2.1%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Partners & Other 
  ("P&O") sales        12,696   11,331    12.0%     30,082    29,722     1.2% 
--------------------  --------  -------  --------  --------  --------  --------- 
 Gross profit          40,155   37,118     8.2%     89,176    89,040     0.2% 
--------------------  --------  -------  --------  --------  --------  --------- 
                                           160 
 Gross margin          60.0%     58.4%    bps(2)    58.6%     57.7%    90 bps(2) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Selling, General 
  and Administrative 
  ("SG&A") expenses    34,507   33,788     2.1%     98,334    99,132    (0.8%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Net income (loss)     2,390      519     360.5%   (11,741)  (12,781)   (8.1%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Net income (loss) 
  per share            $0.06     $0.01    500.0%   ($0.29)   ($0.31)    (6.5%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Adjusted EBITDA       7,115     5,522    28.8%    (3,975)   (3,309)    (20.1%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Free Cash Flow(1)    (6,020)   (1,657)  (263.3%)  (29,587)  (23,701)   (24.8%) 
--------------------  --------  -------  --------  --------  --------  --------- 
 Net debt(3)             --       --        --      46,921    52,912    (11.3%) 
--------------------  --------  -------  --------  --------  --------  --------- 
(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"). 
(3) Net debt is a supplementary financial measure that reflects our liquidity, 
refer to the "Reconciliation of long-term debt to net debt and leverage ratio" 
table for the calculation. See "Non-IFRS Measures and Industry Metrics". 
 

"Our improved inventory position, disciplined cost management, and continued product margin expansion complemented our branding initiatives and product merchandising to catalyze year-over-year growth in both sales and profit," said Leon Wu, Chief Financial Officer. "We are entering our largest quarter with a healthy balance sheet and the right inventory, we look forward to building on the momentum from the third quarter."

THIRD QUARTER OVERVIEW

Total sales were $66.9 million in Q3 2024, representing an increase of 5.3% from $63.5 million in the third quarter of fiscal 2023 ("Q3 2023").

DTC sales (corporate retail store and eCommerce sales) were $54.2 million, up 3.8% from $52.2 million in Q3 2023, and DTC comparable sales grew 5.8% in Q3 2024. The DTC sales growth was driven by strong performance of our active and core fleece collections, and an improved inventory position in these areas, which also led to an improvement in store conversion. This was partially offset by the sales from closures of select stores since Q3 2023, as part of our ongoing store fleet optimization initiatives to consolidate less profitable stores and drive comparable sales growth.

P&O sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to $12.7 million in Q3 2024, up 12.0% from $11.3 million in Q3 2023. This was driven by increased sales to our international operating partner, as a result of earlier timing of Q3 2023 sales that benefitted the second quarter of fiscal 2023, in addition to higher royalties from the licensing of the Roots brand to select manufacturing partners.

Gross profit reached $40.2 million in Q3 2024 compared to $37.1 million in Q3 2023, representing a year-over-year increase of 8.2%. Gross margin was 60.0% in Q3 2024 compared to 58.4% in Q3 2023.

DTC gross margin was 64.0% in Q3 2024, up 160 bps from 62.4% in Q3 2023. DTC gross margin increased by 250 bps from product margin expansion, comprised of improved product costing and lower discounting. This was partially offset by the unfavourable foreign exchange impact on U.S. dollar inventory purchases.

SG&A expenses totaled $34.5 million in Q3 2024 compared to $33.8 million in Q3 2023, representing a year-over-year increase of 2.1%. The increase in SG&A expenses was driven by higher personnel costs, largely as a result of legislative minimum wage increases, and higher variable selling costs from increased sales.

Net income totaled $2.4 million, or $0.06 per share, in Q3 2024, improving from a net income of $0.5 million, or $0.01 per share, in Q3 2023.

Adjusted EBITDA amounted to $7.1 million in Q3 2024 as compared to $5.5 million in Q3 2023.

YEAR-TO-DATE RESULTS

For the first nine months of fiscal 2024 ("YTD 2024"), total sales amounted to $152.1 million, representing a decrease of 1.5% compared to the first nine months of fiscal 2023 ("YTD 2023"), which amounted to $154.4 million. DTC sales decreased 2.1% to $122.0 million, while P&O sales increased by 1.2% to $30.1 million. Gross profit stood at $89.2 million, or 58.6% of sales, up from $89.0 million, or 57.7% of sales, last year.

Net income (loss) was ($11.7) million, or ($0.29) per share, compared to ($12.8) million, or ($0.31) per share, last year.

Adjusted EBITDA totaled ($4.0) million as compared to ($3.3) million in the corresponding period in 2023.

FINANCIAL POSITION

Inventory was $60.4 million as at November 2, 2024, as compared to $61.4 million as at October 28, 2023, representing a decrease of $1.0 million or 1.6%. The year-over-year decrease in inventory was driven by a reduction in pack-and-hold and off-price inventory, largely offset by increases in current and upcoming season styles, reflecting an improvement to the inventory composition.

Free cash flow was ($6.0) million in Q3 2024, as compared to ($1.7) million in Q3 2023. The increased cash outflows were primarily driven by a return to seasonal inventory purchase cadence, and later timing of revenue from our Partner's & Other segment. Inventory purchases were reduced in Q3 2023 as a result of higher pack and hold inventory levels carried forward from the prior fiscal year.

As at November 2, 2024, Roots had net debt of $46.9 million, improving from $52.9 million a year earlier. The Company's leverage ratio, defined as total net debt to trailing 12-months Adjusted EBITDA, was 2.4x as at November 2, 2024. Roots has $53.2 million outstanding under its credit facilities and total liquidity of $55.3 million, including net cash and borrowing capacity available under its revolving credit facility.

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