Roots Reports First Quarter Fiscal 2018 Results

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.

Roots Corporation (CNW Group/Roots Corporation)

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

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