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 $4.4 million
TORONTO, April 10, 2024 /CNW/ - Roots ("Roots," "Roots Canada" or the "Company") (TSX: ROOT), a premium outdoor-lifestyle brand, announced today financial results for its fourth quarter and fiscal year ended February 3, 2024 ("Q4 2023" and "F2023"). All financial results are reported in Canadian dollars unless otherwise stated. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures. See "Non-IFRS Measures and Industry Metrics" below.
"As we close another year, I want to acknowledge the resilience and hard work of the team at Roots in the face of a challenging economic environment. We continue to take significant steps to enhance our operations, strengthen our relationships with our customers, and make exceptional products. I remain confident in the longer-term growth prospects for the brand as the market normalizes," commented Meghan Roach, President & CEO of Roots.
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SELECT FINANCIAL INFORMATION
(in '000s of CAD$, 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.
|
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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.
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3 Adjusted EBITDA is a non-IFRS Measure. See "Non-IFRS Measures and Industry Metrics" below.
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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.
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5 Basis points ("bps").
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"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:
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CAD $000s
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Q4 2023
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Q4 2022
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F2023
|
|
F2022
|
|
Net income
|
14,621
|
|
12,980
|
|
1,840
|
|
6,693
|
|
Adjust for the impact of:
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|
|
|
|
|
|
|
|
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:
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|
(a)
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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.
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|
(b)
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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.
|
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(c)
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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.
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(d)
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Represents non-cash share-based compensation expense in respect of our Legacy Equity Incentive Plan, Legacy Employee Option Plan, and Omnibus Equity Incentive Plan.
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(e)
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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.
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(f)
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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.
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(g)
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Represents non-recurring legal costs that are outside the scope of normal operations.
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(h)
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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.
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(i)
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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.
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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
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