Fourth Quarter Highlights:
- Sales decreased 2.9% year-over-year to $108.2 million
- DTC sales decreased 0.8% to $97.8
million
- Gross margin was 58.6% compared to 56.5% in fourth quarter
of 2022
- DTC gross margin increased to 59.9% from 58.7%
- Net income totaled $14.6
million compared to $13.0
million in the fourth quarter of 2022
- Adjusted EBITDA amounted to $23.2
million versus $23.5 million
in the fourth quarter of 2022
Fiscal 2023 Highlights:
- Sales decreased 3.5% year-over-year to $262.7 million
- Gross margin was 58.0% compared to 57.7% in 2022
- DTC gross margin increased to 61.1% from 60.8%
- Net income totaled $1.8
million compared to $6.7
million in 2022
- Adjusted EBITDA amounted to $19.9
million compared to $27.0
million in 2022
- Inventory of $36.2 million
compared to $55.0 million in
2022
- Net debt reduced 31.6% year-over-year to $17.0 million
- Repurchased 1,438,318 shares for a total consideration of
$4.4 million
TORONTO, April 10,
2024 /CNW/ - Roots ("Roots," "Roots Canada" or
the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand,
announced today financial results for its fourth quarter and fiscal
year ended February 3, 2024 ("Q4
2023" and "F2023"). All financial results are reported in Canadian
dollars unless otherwise stated. Certain metrics, including those
expressed on an adjusted basis, are non-IFRS measures. See
"Non-IFRS Measures and Industry Metrics" below.
"As we close another year, I want to acknowledge the resilience
and hard work of the team at Roots in the face of a challenging
economic environment. We continue to take significant steps to
enhance our operations, strengthen our relationships with our
customers, and make exceptional products. I remain confident in the
longer-term growth prospects for the brand as the market
normalizes," commented Meghan Roach,
President & CEO of Roots.
|
SELECT FINANCIAL
INFORMATION
(in '000s of CAD$,
except where noted)
|
Fourth quarter
ended
|
Year-to-date
|
|
February 3,
2024
|
January 28,
2023
|
Change
|
February 3,
2024
|
January 28,
2023
|
Change
|
|
Total
sales
|
108,234
|
111,461
|
(2.9 %)
|
262,668
|
272,116
|
(3.5 %)
|
|
Direct-to-Consumer
("DTC") sales
|
97,755
|
98,533
|
(0.8 %)
|
222,467
|
231,230
|
(3.8 %)
|
|
Partners & Other
("P&O") sales
|
10,479
|
12,928
|
(18.9 %)
|
40,201
|
40,886
|
(1.7 %)
|
|
Gross
profit
|
63,416
|
62,984
|
+0.7 %
|
152,456
|
156,976
|
(2.9 %)
|
|
Gross
margin1
|
58.6 %
|
56.5 %
|
+210
bps5
|
58.0 %
|
57.7 %
|
+30
bps5
|
|
Selling, General and
Administrative ("SG&A") expenses
|
41,199
|
42,864
|
(3.9 %)
|
140,331
|
138,625
|
+1.2 %
|
|
Subsidies and
abatements2
|
-
|
-
|
-
|
-
|
456
|
(100.0 %)
|
|
Net
income
|
14,621
|
12,980
|
+12.6 %
|
1,840
|
6,693
|
(72.5 %)
|
|
Net income per
share
|
0.36
|
0.31
|
+16.1 %
|
0.05
|
0.16
|
(68.8 %)
|
|
Adjusted
EBITDA3
|
23,164
|
23,524
|
(1.5 %)
|
19,855
|
26,967
|
(26.4 %)
|
|
Free Cash
Flow4
|
36,059
|
34,753
|
+3.8 %
|
12,358
|
4,306
|
+187.0 %
|
|
1
Gross margin is a supplementary financial measure that measures our
gross profit as a percentage of sales.
|
|
2
Subsidies 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.
|
|
3
Adjusted EBITDA is a non-IFRS Measure. See "Non-IFRS Measures and
Industry Metrics" below.
|
|
4 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 tenant allowance.
|
|
5
Basis points ("bps").
|
"We have reduced our inventory balance by 34% year-over-year
while maintaining our gross profit margin," stated Leon Wu, Chief Financial Officer. "This
achievement has notably strengthened our cash flow, which led to a
32% reduction in net debt. As we enter fiscal 2024, our robust
balance sheet provides us with the flexibility to strategically
purchase inventory to address consumer demand while navigating
through the short-term macroeconomic headwinds."
FOURTH QUARTER OVERVIEW
Total sales were $108.2 million in
Q4 2023, representing a decrease of 2.9% from $111.5 million in the fourth quarter of fiscal
2022 ("Q4 2022"). DTC sales (corporate retail store and eCommerce
sales) were $97.8 million, down 0.8%
year-over-year. Sales during the extra fiscal week of Q4 2023 were
$2.2 million. The positive
omni-channel traffic experienced throughout the quarter was offset
by declines in conversion. Sales growth in core fleece and active
categories were offset by declines in certain seasonal collections,
including colder weather outerwear and accessories.
P&O sales (wholesale Roots branded products, licensing to
select manufacturing partners and the sale of certain custom
products) amounted to $10.5 million
in Q4 2023 as compared to $12.9
million in Q4 2022. The 18.9% decline in P&O sales was
primarily driven by Roots decision to not continue a wholesale of
Roots-branded products to select retail partners that took place
last year.
Gross profit reached $63.4 million
in Q4 2023 compared to $63.0 million
in Q4 2022, representing a year-over-year increase of 0.7%. Gross
margin was 58.6% in Q4 2023, up 210 bps as compared to 56.5% in Q4
2022. DTC gross margin was 59.9% in Q4 2023, up 120 bps from 58.7%
in Q4 2022. Excluding the impact of a lower inventory provision in
Q4 2023 from the improved inventory position, DTC gross margin was
flat year-over-year. Margin expansion from improved product costing
and lower freight costs, including 60 bps from lower air freight,
was offset by a higher mix of sales during discount periods and an
unfavourable foreign exchange impact on U.S. dollar purchases.
SG&A expenses totaled $41.2
million in Q4 2023, down 3.9% from $42.9 million in Q4 2022. The decrease was
primarily driven by gains arising from lease modifications under
IFRS 16 Leases ("IFRS 16") and lower variable selling costs.
This decrease was partially offset by higher corporate and store
personnel costs, including the Ontario minimum wage increase that took effect
in October 2023 and impacts from the
extra fiscal week in Q4 2023.
Net income totaled $14.6 million,
or $0.36 per share, in Q4 2023, as
compared to a net income of $13.0
million, or $0.31 per share,
in Q4 2022.
Adjusted EBITDA amounted to $23.2
million in Q4 2023 as compared to $23.5 million in Q4 2022.
YEAR-TO-DATE RESULTS
Total sales decreased 3.5% to $262.7
million in F2023, down from $272.1
million in fiscal 2022 ("F2022"). DTC sales were
$222.5 million, down 3.8%
year-over-year. Sales during the extra fiscal week in F2023 was
$2.2 million.
P&O sales amounted to $40.2
million in F2023 as compared to $40.9
million in F2022.
Gross profit reached $152.5
million in F2023 as compared to $157.0 million in F2022, representing a
year-over-year decline of 2.9%. Gross margin was 58.0%, up 30 bps
as compared to 57.7% in F2022. DTC gross margin was 61.1% in F2023,
up 30 bps from 60.8% in F2022.
SG&A expenses were $140.3
million in F2022, up 1.2% from $138.6
million in F2022.
Net income was $1.8 million, or
$0.05 per share in F2023, compared to
$6.7 million, or $0.16 per share, in F2022.
Adjusted EBITDA totaled $19.9
million in F2023 compared to $27.0
million in the corresponding period in 2022.
FINANCIAL POSITION
Inventory was $36.2 million at the
end of F2023, as compared to $55.0
million at the end of F2022, representing a decrease of
$18.8 million, or 34.2%. The
year-over-year decrease in inventory was driven by a $12 million reduction of on-hand inventory as we
strategically managed our inventory buys and sold through previous
pack-and-hold collections, and $6.8
million of lower in-transit goods, partially due to the
later timing of shipments from our vendors during the year.
As at February 3, 2024, Roots had
net debt of $17.0 million, improved
from $24.8 million a year earlier.
The Company's leverage ratio, defined as total net debt to trailing
12-months Adjusted EBITDA, was less than 0.9 times at the end of
the year. Roots has $46.2 million
outstanding under its credit facilities and total liquidity of
$88.0 million, including cash and
borrowing capacity available under its revolving credit
facility.
NORMAL COURSE ISSUER BID
Under its Normal Course Issuer Bid ("NCIB") program, Roots
repurchased 1,438,318 common shares of the Company ("Shares") for a
total consideration of $4.4 million
in F2023. The most recent NCIB program commenced on December 16, 2022 and terminated on December 15, 2023.
CONFERENCE CALL AND WEBCAST
INFORMATION
Roots will hold a conference call to review its fourth quarter
2023 results on April 10, 2024, 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: 62798756. Please dial in 15 minutes prior to
the call to secure a line. The conference call will be archived for
replay until April 17, 2024, at
midnight, and can be accessed by dialing 416-764-8677 or
1-888-390-0541 and entering the replay passcode: 798756 #.
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.
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 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, and Adjusted Net Income 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 F2023, which is incorporated by
reference herein and is available on SEDAR+
at www.sedarplus.ca or the Company's Investor Relations
website at https://investors.roots.com.
The table below provides a reconciliation of net income to
EBITDA and Adjusted EBITDA for the periods presented:
|
CAD
$000s
|
Q4
2023
|
|
Q4
2022
|
|
F2023
|
|
F2022
|
|
Net
income
|
14,621
|
|
12,980
|
|
1,840
|
|
6,693
|
|
Adjust for the
impact of:
|
|
|
|
|
|
|
|
|
Interest expense
(a)
|
2,346
|
|
2,320
|
|
9,470
|
|
8,756
|
|
Income taxes expense
(a)
|
5,250
|
|
4,820
|
|
815
|
|
2,902
|
|
Depreciation and
amortization (a)
|
7,460
|
|
7,636
|
|
29,706
|
|
29,324
|
|
EBITDA
|
29,677
|
|
27,756
|
|
41,831
|
|
47,675
|
|
Adjust for the
impact of:
|
|
|
|
|
|
|
|
|
COGS: Inventory
provision (b)
|
–
|
|
977
|
|
–
|
|
977
|
|
SG&A: Rent expense
excluded from net income due toIFRS 16 (a)
|
(7,901)
|
|
(5,789)
|
|
(25,253)
|
|
(23,194)
|
|
SG&A:IFRS 16:
Impairment ofROU assets (a)
|
61
|
|
79
|
|
61
|
|
79
|
|
SG&A: Purchase
accounting adjustments (c)
|
(14)
|
|
(13)
|
|
(47)
|
|
(18)
|
|
SG&A: Stock option
expense (d)
|
122
|
|
(29)
|
|
454
|
|
380
|
|
SG&A: Fixed asset
impairment (e)
|
–
|
|
356
|
|
–
|
|
356
|
|
SG&A: Changes in
key personnel (f)
|
1,133
|
|
130
|
|
2,586
|
|
125
|
|
SG&A:
Non-recurring legal fees (g)
|
41
|
|
57
|
|
128
|
|
587
|
|
SG&A: Other
non-recurring items (h)
|
45
|
|
–
|
|
95
|
|
–
|
|
Adjusted EBITDA
(i)
|
23,164
|
|
23,524
|
|
19,855
|
|
26,967
|
|
_____________
Notes:
|
|
(a)
|
The impact of IFRS 16
in Q4 2023 and Q4 2022 was: (i) a decrease to selling, general, and
admin ("SG&A") expenses of $3,392 and $1,163,
respectively, which comprised the impact of depreciation, lease
modifications and impairment 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 $1,346 and
$1,189, respectively, arising from interest expense recorded on the
lease liabilities in the period, and (iii) a deferred tax impact of
$543 and $(7), respectively, based on tax attributes on the ROU
assets and lease liabilities balances recorded. The impact of IFRS
16 in F2023 and F2022 was: (i) a decrease to SG&A expenses of
$7,277 and $5,425, respectively, which comprised the impact of
depreciation, lease modifications and impairment on the ROU
assets, net of the exclusion of rent payments from SG&A
expenses, (ii) an increase in interest expense of $4,854 and
$4,771, respectively, arising from interest expense recorded on the
lease liabilities in the period, and (iii) a deferred tax impact of
$642 and $173, respectively, based on tax attributes on the ROU
assets and lease liabilities balances recorded.
|
|
(b)
|
Represents the portion
of non-cash inventory provision on items that no longer align with
the Company's strategic product direction. In Q4 2023 and F2023,
there was no provision. In Q4 2023 and F2023, the inventory
provision captured items that were part of normal operations and
was not included in the reconciliation of Adjusted
EBITDA.
|
|
(c)
|
As a result of the
Company's acquisition of assets from Roots Canada Ltd., Roots
U.S.A. Inc., and Roots America L.P., and the outstanding shares of
Roots International ULC effective December 1, 2015 (the
"Acquisition"), the Company recognized an intangible asset for
lease arrangements in the amount of $6,310, which when excluding
the impacts of IFRS 16, is amortized over the life of the leases
and included in SG&A expenses.
|
|
(d)
|
Represents non-cash
share-based compensation expense in respect of our Legacy Equity
Incentive Plan, Legacy Employee Option Plan, and Omnibus Equity
Incentive Plan.
|
|
(e)
|
Represents a non-cash
impairment charge (net of reversals) taken against certain fixed
assets for stores where the recoverable amount is deemed to be
below the carrying value.
|
|
(f)
|
Represents expenses
incurred in respect of the Company's efforts to recruit for
vacancies in key management positions and severance costs
associated with reorganizations of key functional areas, such as at
our leather factory, marketing, and product teams.
|
|
(g)
|
Represents
non-recurring legal costs that are outside the scope of normal
operations.
|
|
(h)
|
Represents one-time
costs incurred that do not reflect the underlying profitability of
the business, including consulting fees related to inventory and
brand valuations used to explore alternative financing options with
lower interest costs.
|
|
(i)
|
Adjusted EBITDA
excludes the impact of IFRS 16. If the impact of IFRS 16, net of
impairments on the ROU assets, was included for Q4 2023 and F2023,
Adjusted EBITDA would have been $31,018 and $45,094, respectively.
If the impact of IFRS 16, net of impairments on the ROU assets, was
included for Q4 2022 and F2022, Adjusted EBITDA would have been
$29,247 and $50,100, respectively.
|
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,
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 NatureTM. 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
