Growth across retail stores and e-Commerce
drives 9% increase in Direct-to-Consumer sales
TORONTO, June 13, 2018 /CNW/ - Roots ("Roots," "Roots
Canada" or the "Company") (TSX: ROOT), the premium lifestyle brand
with a rich heritage and portfolio of apparel, hand crafted leather
goods, footwear, and accessories, today announced its financial
results for the first quarter ended May 5,
2018 ("Q1 2018"). 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"
below.
First Quarter Fiscal 2018 Highlights
- Total sales increased 5.8% to $51.0
million compared to first quarter Fiscal 2017 ("Q1
2017")
-
- Direct to Consumer ("DTC") sales increased 9.0% to $44.2 million compared to Q1 2017
- Comparable Sales Growth of 6.4%
- Gross margin expanded to 57.0% from 53.8% in Q1 2017
-
- DTC Gross Margin increased 271 basis points to 59.1% from 56.4%
in Q1 2017
- Selling, general and administrative expenses increased 12.3% to
$35.3 million compared to Q1
2017
- Adjusted EBITDA was ($3.1)
million compared to ($1.7)
million in Q1 2017
- Basic Loss Per Share was $0.13
per share compared to $0.12 per share
in Q1 2017, and Adjusted Net Loss Per Share was $0.11 compared to $0.09 per share in Q1 2017
- Opened two new corporate retail stores and renovated one store
in North America, ending the
quarter with 120 stores
- Opened two partner-operated stores in Taiwan to end the quarter with 30 stores in
China and 112 stores in
Taiwan, representing a total net
addition of 10 stores compared to Q1 2017
"During the quarter, we continued to deliver on our strategic
growth initiatives, which translated into accelerated Comparable
Sales Growth of 6.4% versus 3.3% in Q1 2017, and a 9% increase in
total Direct-to-Consumer sales," said Jim
Gabel, President and Chief Executive Officer of Roots. "Our
top-line improvements reflect retail store and e-Commerce sales
growth, highlighting the strength of our brand, the consumers'
response to our new products and our success in leveraging our
position as a leading omni-channel retailer. We also benefitted
from the strategic expansion of our retail footprint. We added
stores in Canada and
internationally, while also preparing for the opening of our brand
activation centre and two new retail locations in the Boston market in the coming weeks and our
Washington area stores in August.
Further operating efficiencies, realized through our United Brand
Range initiative, drove significant gross margin improvement, and
our strategic investments in the business better position us for
long-term success. As we look to the remainder of Fiscal 2018, we
are confident in our ability to deliver continued growth and
believe we remain on-track to achieve our Fiscal 2019 financial
targets."
Summary of First Quarter Fiscal 2018 Financial
Results
Sales
Total Q1 2018 sales increased 5.8% to
$51.0 million from $48.2 million in Q1 2017. Sales in the DTC
segment (corporate retail store and e-Commerce sales) increased
9.0% to $44.2 million compared to
$40.5 million in Q1 2017. The
year-over-year improvement in DTC sales was largely driven by
Comparable Sales Growth of 6.4%, the opening of two net new
corporate retail stores, as well as the renovation of two stores
and renovation and expansion of three stores, since Q1 2017. Roots
believes that both DTC sales and Comparable Sales Growth for the
quarter would have been even higher, had the Company not faced a
major ice storm across approximately 80% of its store network
during the Company's semi-annual, four-day Customer Appreciation
Event, the primary marketing and consumer event for the first half
of the year.
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 Q1 2018 were $6.9
million, representing an 11.0% decrease compared to
$7.7 million in Q1 2017, largely
reflecting the timing of certain sales to the Company's operating
partner in Asia, which shifts into
Q2 2018.
Gross Profit
Total gross profit for Q1 2018
increased 12.0% to $29.1 million from
$26.0 million in Q1 2017.
Q1 2018 gross profit in the DTC segment increased 14.3% to
$26.1 million, from $22.8 million in Q1 2017. Q1 2018 DTC Gross
Margin was 59.1%, up 271 basis points from a Q1 2017 DTC Gross
Margin of 56.4%. Year-over-year gross margin improvements primarily
reflect the benefits of the Company's merchandising initiatives,
including the two-year implementation of the United Brand Range,
that are driving lower costs and facilitating more full-priced
selling.
Gross profit in the Partners and Other segment was $3.0 million, a 4.7% decrease from $3.1 million in Q1 2017, largely reflecting the
timing of certain sales to the Company's Asian partner, which Roots
expects to shift into Q2 2018.
Selling, general and administrative expenses
Selling, general and administrative expenses for Q1 2018 were
$35.3 million, up 12.3% compared to
$31.4 million in Q1 2017. The
year-over-year increase was primarily driven by incremental costs
to support higher sales and strategic investments to drive the
growth of the business. Year-over-year, marketing expense increased
$0.7 million, the minimum wage
increase in Ontario and
Alberta accounted for an
additional $0.4 million and public
company costs were an incremental $0.4
million.
Adjusted EBITDA, Net Income & Adjusted Net
Income
Reflecting the Company's sales growth and margin
improvements, offset by increased strategic investments in the
business, Adjusted EBITDA was ($3.1)
million compared to ($1.7)
million in Q1 2017.
Net loss was $5.6 million, or
$0.13 per share, compared to
$5.1 million, or $0.12 per share, in Q1 2017. Adjusted Net Loss
was $4.5 million, or $0.11 per share, compared to $3.6 million, or $0.09 per share, in Q1 2017. As a result of
fewer non-deductible expenses, the Company's effective tax rate was
24.3% for Q1 2018, as compared to 25.5% in Q1 2017. In the quarter,
the Company also recorded an income tax recovery of $1.8 million, up from $1.7
million in Q1 2017.
Outlook
New Integrated Distribution Centre
As
previously announced, Roots plans to integrate its retail store
distribution and third-party e-Commerce fulfillment by moving into
a new, larger, and technologically enhanced Distribution Centre.
The Company expects the new facility to be up and running by
mid-2019. Roots expects to make capital investments related to the
facility of approximately $16.0
million through the end of Fiscal 2019, with the Company
anticipating distribution centre-related cost per unit savings
("CPU") as a result of operating efficiencies and the benefits of
integrating to one inventory. The Company expects these saving to
be 20% or more, based on Fiscal 2020 CPU estimates, and expects to
start recognizing the anticipated efficiencies and benefits, along
with the associated CPU savings, in Fiscal 2020 and beyond.
Fiscal 2019 Targets
With the Company's
continued foundation building work through Fiscal 2018, Roots
expects its growth to align with its stated Fiscal 2019 targets.
Management remains confident the Company is on track to achieve the
following targets for Fiscal 2019:
- Sales of $410.0 million to
$450.0 million
- Adjusted EBITDA of $61.0 million
to $68.0 million
- Adjusted Net Income of $35.0
million to $40.0 million
Conference Call and Webcast Information
Roots will
hold a conference call to discuss the Company's first quarter
Fiscal 2018 financial results on June 13,
2018, 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: 1083538. Please dial-in 15
minutes prior to the call to secure a line. The conference call
will be archived for replay until June 20,
2018, at midnight and can be accessed by dialing
416-849-0833 or 1-855-859-2056 and entering replay passcode
1083538.
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 Interim Condensed Consolidated Financial Statements For the
13-week periods ended May 5, 2018 and
April 29, 2017 and the Company's
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the First Quarter Ended May 5, 2018 on the Company's investor website at
http://investors.roots.com and on SEDAR at www.SEDAR.com
About Roots
Established in 1973, Roots is an
iconic Canadian lifestyle brand with a rich heritage and portfolio
of premium apparel, leather goods, accessories and footwear. Roots
delivers products to customers through its store network, online
platform and international partnerships. As of May 5, 2018, Roots integrated omni-channel
footprint included 117 company retail stores in Canada, three company retail stores in
the United States, 112
partner-operated stores in Taiwan,
30 partner-operated stores in China and a global e-commerce 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, 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 Annual Information Form for the fiscal year ended
February 3, 2018 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, except per share amounts)
|
|
|
(Unaudited – See
Notice to Reader in the Company's Interim Condensed Consolidated
Financial
|
Statements for the
13-week periods ended May 5, 2018 and April 29, 2017)
|
|
|
|
|
|
|
As at May 5,
2018
|
As at February 3,
2018
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$
|
2,891
|
$
|
1,809
|
|
Accounts
receivable
|
5,349
|
6,420
|
|
Inventories
|
39,331
|
35,407
|
|
Prepaid
expenses
|
5,557
|
5,580
|
|
Derivative
assets
|
1,199
|
–
|
|
Total current
assets
|
54,327
|
49,216
|
|
|
|
Non-current
assets:
|
|
|
|
Loan
receivable
|
541
|
541
|
|
Fixed
assets
|
40,330
|
36,981
|
|
Intangible
assets
|
202,234
|
203,408
|
|
Goodwill
|
52,705
|
52,705
|
|
Total non-current
assets
|
295,810
|
293,635
|
|
|
|
Total
assets
|
$
|
350,137
|
$
|
342,851
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Bank
indebtedness
|
$
|
4,837
|
$
|
–
|
|
Accounts payable and
accrued liabilities
|
19,192
|
18,306
|
|
Deferred
revenue
|
4,166
|
4,647
|
|
Income taxes
payable
|
3,309
|
6,589
|
|
Current portion of
long-term debt
|
4,984
|
4,984
|
|
Derivative
obligations
|
–
|
1,233
|
|
Total current
liabilities
|
36,488
|
35,759
|
|
|
|
Non-current
liabilities:
|
|
|
|
Deferred tax
liabilities
|
22,315
|
21,166
|
|
Deferred lease
costs
|
4,698
|
4,815
|
|
Finance lease
obligation
|
802
|
894
|
|
Long-term
debt
|
88,383
|
79,481
|
|
Other non-current
liabilities
|
1,674
|
1,763
|
|
Total non-current
liabilities
|
117,872
|
108,119
|
|
Total
liabilities
|
154,360
|
143,878
|
|
|
|
Shareholders'
equity:
|
|
|
|
Common
shares
|
195,994
|
195,994
|
|
Contributed
surplus
|
2,285
|
1,675
|
|
Accumulated other
comprehensive income (loss)
|
880
|
(904)
|
|
Retained earnings
(deficit)
|
(3,382)
|
2,208
|
Total shareholders'
equity
|
195,777
|
198,973
|
|
|
|
Total liabilities and
shareholders' equity
|
$
|
350,137
|
$
|
342,851
|
ROOTS
CORPORATION
|
Interim Condensed
Consolidated Statement of Net Loss
|
(In thousands of
Canadian dollars, except per share amounts)
|
(Unaudited – See
Notice to Reader in the Company's Interim Condensed Consolidated
Financial
|
Statements for the
13-week periods ended May 5, 2018 and April 29, 2017)
|
|
For the 13-week
periods ended May 5, 2018 and April 29, 2017
|
|
|
|
|
May 5,
2018
|
April 29,
2017
|
|
(13 weeks)
|
(13 weeks)
|
|
|
|
Sales
|
$
|
51,029
|
$
|
48,231
|
|
|
|
Cost of goods
sold
|
21,959
|
22,273
|
|
|
|
Gross
profit
|
29,070
|
25,958
|
|
|
|
Selling, general and
administrative expenses
|
35,304
|
31,430
|
|
|
|
Loss before interest
expense and
|
|
|
|
income taxes
recovery
|
(6,234)
|
(5,472)
|
|
|
|
Interest
expense
|
1,152
|
1,388
|
|
|
|
Loss before income
taxes
|
(7,386)
|
(6,860)
|
|
|
|
Income taxes
recovery
|
(1,796)
|
(1,747)
|
|
|
|
Net loss
|
$
|
(5,590)
|
$
|
(5,113)
|
|
|
|
Basic and diluted
loss per share
|
$
|
(0.13)
|
$
|
(0.12)
|
ROOTS
CORPORATION
|
Interim Condensed
Consolidated Statement of Comprehensive Loss
|
(In thousands of
Canadian dollars, except per share amounts)
|
(Unaudited – See
Notice to Reader in the Company's Interim Condensed Consolidated
Financial
Statements for the 13-week periods ended May 5, 2018 and April 29,
2017)
|
|
For the 13-week
periods ended May 5, 2018 and April 29, 2017
|
|
|
May 5,
2018
|
April 29,
2017
|
|
(13 weeks)
|
(13 weeks)
|
|
|
|
Net
loss
|
$
|
(5,590)
|
$
|
(5,113)
|
|
|
|
Other comprehensive
income, net of taxes:
|
|
|
Items that may be
subsequently
|
|
|
|
|
reclassified to
profit or loss:
|
|
|
|
|
|
Effective portion of
changes in fair
|
2,435
|
1,020
|
|
|
|
|
value of cash flow
hedges
|
|
|
|
|
|
Cost of hedging
excluded from
|
(14)
|
(1)
|
|
|
|
|
cash flow
hedges
|
|
|
|
|
|
Tax impact of cash
flow hedges
|
(645)
|
(272)
|
|
|
|
Total comprehensive
loss
|
$
|
(3,814)
|
$
|
(4,366)
|
ROOTS
CORPORATION
|
|
|
|
|
|
Interim Condensed
Consolidated Statement of Changes in Shareholders'
Equity
|
(In thousands of
Canadian dollars, except per share amounts)
|
(Unaudited – See
Notice to Reader in the Company's Interim Condensed Consolidated
Financial
Statements for the 13-week periods ended May 5, 2018 and April 29,
2017)
|
|
|
|
|
|
|
For the 13-week
periods ended May 5, 2018 and April 29, 2017
|
|
|
|
|
|
|
May 5, 2018 (13
weeks)
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
(deficit)
|
Accumulated
other
comprehensive
income (loss)
|
Total
|
|
|
|
|
|
|
Balance, February 4,
2018
|
$
|
195,994
|
$
|
1,675
|
$
|
2,208
|
$
(904)
|
|
$
|
198,973
|
|
|
|
|
|
|
Net loss
|
–
|
–
|
(5,590)
|
–
|
(5,590)
|
|
|
|
|
|
|
Net gain from
change
|
|
|
|
|
|
|
in fair value
of cash flow hedges,
|
|
|
|
|
|
|
net of income
taxes
|
–
|
–
|
–
|
1,776
|
1,776
|
|
|
|
|
|
|
Transfer of realized
loss on cash flow
|
|
|
|
|
|
|
hedges to
inventories, net of income
|
|
|
|
|
|
|
taxes
|
–
|
–
|
–
|
8
|
8
|
|
|
|
|
|
|
Share-based
compensation
|
–
|
610
|
–
|
–
|
610
|
|
|
|
|
|
|
Balance, May 5,
2018
|
$
|
195,994
|
$
|
2,285
|
$
|
(3,382)
|
$
|
880
|
$
|
195,777
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2017 (13
weeks)
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
(deficit)
|
Accumulated
other
comprehensive
income
|
Total
|
|
|
|
|
|
|
Balance, January 29,
2017
|
$
|
195,994
|
$
|
483
|
$
|
4,707
|
$
|
–
|
$
|
201,184
|
|
|
|
|
|
|
Net loss
|
–
|
–
|
(5,113)
|
–
|
(5,113)
|
|
|
|
|
|
|
Net gain from
change
|
|
|
|
|
|
|
in fair value of cash
flow hedges,
|
|
|
|
|
|
|
net of income
taxes
|
–
|
–
|
–
|
747
|
747
|
|
|
|
|
|
|
Transfer of realized
loss on cash
|
|
|
|
|
|
|
flow hedges to
inventories,
|
|
|
|
|
|
|
net of income
taxes
|
–
|
–
|
–
|
(3)
|
(3)
|
|
|
|
|
|
|
Distributions
declared
|
–
|
–
|
(20,000)
|
–
|
(20,000)
|
|
|
|
|
|
|
Share-based
compensation
|
–
|
102
|
–
|
–
|
102
|
|
|
|
|
|
|
Balance, April 29,
2017
|
$
|
195,994
|
$
|
585
|
$
|
(20,406)
|
$
|
744
|
$
|
176,917
|
ROOTS
CORPORATION
|
Interim Condensed
Consolidated Statement of Cash Flows
|
(In thousands of
Canadian dollars, except per share amounts)
|
(Unaudited – See
Notice to Reader in the Company's Interim Condensed Consolidated
Financial
Statements for the 13-week periods ended May 5, 2018 and April 29,
2017)
|
|
For the 13-week
periods ended May 5, 2018 and April 29, 2017
|
|
|
|
|
May 5,
2018
|
April 29,
2017
|
|
(13 weeks)
|
(13 weeks)
|
|
|
|
Cash provided by
(used in):
|
|
|
|
|
|
Operating
activities:
|
|
|
|
Net loss
|
$
|
(5,590)
|
$
|
(5,113)
|
|
Items not involving
cash:
|
|
|
|
|
Depreciation and
amortization
|
2,752
|
2,615
|
|
|
Share-based
compensation expense
|
610
|
102
|
|
|
Deferred lease costs
(recovery)
|
(588)
|
281
|
|
|
Amortization of lease
intangibles
|
136
|
257
|
|
|
Interest
expense
|
1,152
|
1,388
|
|
|
Income taxes
recovery
|
(1,796)
|
(1,747)
|
|
Interest
paid
|
(1,011)
|
(1,233)
|
|
Taxes paid
|
(982)
|
(129)
|
|
Change in non-cash
operating working capital:
|
|
|
|
|
Accounts
receivable
|
1,071
|
(148)
|
|
|
Inventories
|
(3,924)
|
555
|
|
|
Prepaid
expenses
|
23
|
(11)
|
|
|
Accounts payable and
accrued liabilities
|
886
|
(718)
|
|
|
Deferred
revenue
|
(481)
|
(499)
|
|
(7,742)
|
(4,400)
|
|
|
|
Financing
activities:
|
|
|
|
Issuance of long-term
debt
|
10,000
|
10,000
|
|
Long-term debt
financing costs
|
–
|
(466)
|
|
Repayment of
long-term debt
|
(1,246)
|
(5,775)
|
|
Finance lease
payments
|
(85)
|
–
|
|
8,669
|
3,759
|
|
|
|
Investing
activities:
|
|
|
|
Additions to fixed
assets
|
(5,153)
|
(2,110)
|
|
Tenant allowance
received
|
471
|
284
|
|
(4,682)
|
(1,826)
|
|
|
|
Decrease in
cash
|
(3,755)
|
(2,467)
|
|
|
|
Cash, beginning of
period
|
1,809
|
25,257
|
|
|
|
Cash and bank
indebtedness, end of period
|
$
|
(1,946)
|
$
|
22,790
|
SOURCE Roots Corporation