Roots Reports Q1 2025 Growth, Boosted by DTC Sales and AI Enhancements

Roots Reports Strong First Quarter 2025 Results TORONTO—Roots ("Roots" or the "Company"), a Canadian premium outdoor-lifestyle brand, announced its financial results for the first quarter ended May 3, 2025, which marked the third consecutive quarter of year-over-year growth in sales, gross margin, and adjusted EBITDA. The company's CEO, Meghan Roach, highlighted the brand's growing popularity and strategic execution, which include enhanced marketing, improved product availability, and AI-driven operational improvements. Key Financial Highlights: Total Sales: Reached $40.0 million, a 6.7% increase from $37.5 million in Q1 2024. Direct-to-Consumer (DTC) Sales: Grew by 10.2%, from $31.4 million to $34.6 million. Partners & Other (P&O) Sales: Decreased by 11.3%, from $6.1 million to $5.4 million, due to lower wholesale sales as international operating partners continue to optimize inventory levels. Gross Profit: Improved by 11.2%, reaching $24.6 million compared to $22.1 million in Q1 2024. Gross Margin: Increased by 250 basis points to 61.5% from 59.0% in Q1 2024. Selling, General, and Administrative (SG&A) Expenses: Rose by 4.1% to $33.3 million from $32.0 million in Q1 2024, partly due to higher marketing investments. Net Loss: Improved by 11.1%, decreasing to $7.9 million or $0.20 per share from $8.9 million or $0.22 per share in Q1 2024. Adjusted EBITDA: Enhanced by 10.7%, reducing from a loss of $7.959 million to a loss of $7.106 million. Free Cash Flow: Decreased significantly by 49.2%, from a negative $14.6 million to a negative $21.8 million, primarily due to increased inventory purchases and the timing of occupancy cost payments. Net Debt: Improved by 6.7%, from $31.7 million to $29.6 million, despite higher inventory levels. First Quarter Overview: In Q1 2025, Roots achieved a 6.7% increase in total sales, driven significantly by a 10.2% growth in DTC sales. The company focused on enhancing the customer experience through improved product curation, better in-store and online inventory positions, and effective marketing strategies. This resulted in a 14.1% comparable sales growth across both corporate retail stores and eCommerce platforms. However, P&O sales decreased by 11.3%, mainly because of lower wholesale sales as international partners optimized inventory. Despite this, double-digit growth in segments like China Tmall eCommerce partially offset the decline. Gross profit increased by 11.2%, with a notable 250 basis point improvement in gross margin. This margin boost was attributed to better product costing and reduced discount sales, though it was slightly offset by unfavorable foreign exchange rates and higher freight costs. SG&A expenses increased by 4.1%, reflecting higher marketing investments and adjustments in share-based compensation. Excluding a $0.5 million unfavorable revaluation, expenses rose by only 2.6%, aligning with the company's cost-discipline strategy. The net loss improved by 11.1%, reducing to $7.9 million, and adjusted EBITDA showed a 10.7% improvement, decreasing the loss to $7.1 million. Financial Position: At the end of Q1 2025, Roots reported an inventory level of $40.5 million, up 14.5% from $35.4 million the previous year. This increase was aimed at addressing past shortages and stocking core collections to support the upcoming season. Free cash flow was negatively impacted at $21.8 million, a significant drop from $14.6 million in Q1 2024, due to increased inventory investments and the timing of certain monthly payments. Net debt improved from $31.7 million to $29.6 million, contributing to a leverage ratio of 1.3x for Q1 2025. The company had $40.6 million outstanding under its credit facilities and maintained total liquidity of $65.9 million, ensuring a strong financial position. Strategic Initiatives: Roots remains committed to balancing growth with cost management. The company has implemented several strategic initiatives, including optimizing store fleets and investing in marketing to attract and retain customers. On May 22, 2025, Roots extended its credit agreement maturity date to September 6, 2027, reducing the revolver credit facility from $60 million to $45 million and increasing the maximum annual excess cash flow sweep from $5 million to $7.5 million. This amendment aims to improve financial flexibility and cash management. Normal Course Issuer Bid: Under its NCIB program, Roots repurchased 115,300 shares for $0.3 million in Q1 2025. The program allows the company to buy back up to 1,347,118 shares over 12 months, ending April 10, 2026, reinforcing its commitment to shareholder value. Conference Call and Webcast: Roots will conduct a conference call on June 13, 2025, at 8:00 a.m. ET to discuss the first-quarter results. Interested parties can join by dialing 1-226-828-7575 or 1-833-950-0062, using conference ID: 239625. A live audio webcast will also be available on the Events and Presentations section of the company's investor website, investors.roots.com, with an archived replay accessible for one year. Non-IFRS Measures: This report includes non-IFRS measures such as EBITDA, Adjusted EBITDA, Net Debt, and leverage ratio. These measures provide additional insight into the company's financial performance and condition but should not be considered alternatives to IFRS measures. For more details on these metrics, refer to the "Cautionary Note Regarding Non-IFRS Measures and Industry Metrics" in the company's management discussion and analysis for Q1 2025. Industry Impact and Evaluation: Industry insiders view Roots' first-quarter results positively, noting the company's ability to navigate complex market conditions and achieve consistent growth. The strategic focus on DTC sales and cost discipline has been particularly effective, positioning Roots to capitalize on emerging trends in the retail sector. The company’s continued investment in marketing and technology, along with the extension of its credit agreement, demonstrates a proactive approach to sustaining momentum and improving long-term profitability. Roots' commitment to shareholder value through its NCIB program further underscores its financial strength and confidence in its brand. Roots, established in 1973, has evolved from a small cabin in northern Canada to a global lifestyle brand with over 100 retail stores in Canada and an online presence on roots.com. The company operates in multiple categories, offering high-quality, versatile products designed for life’s everyday adventures, emphasizing comfort and a connection to nature.