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