Roots (ROOT) Q1 2025 earnings summary

Executive summary

• Q1 2024 sales declined 9.7% year-over-year to CAD 37.5 million, with DTC sales down 11.3% due to inventory shortages, fewer markdowns, and store renovations.

• Net loss widened to CAD 8.9 million (CAD 0.22/share) from CAD 8 million (CAD 0.19/share), and adjusted EBITDA loss increased to CAD 8 million from CAD 5.8 million.

• Free cash flow improved by 1.7% year-over-year, and net debt was reduced by 22.7% to CAD 31.7 million.

• Strategic initiatives included omnichannel traffic growth, new partnerships, sustainability campaigns, a brand ambassador program, and AI-driven inventory optimization.

• Growth observed in US and Asia markets, with international expansion supporting results.

Financial highlights

• Total sales: CAD 37.5 million, down from CAD 41.5 million in Q1 2023; DTC sales: CAD 31.4 million, down from CAD 35.4 million; Partners & Other sales flat at CAD 6.1 million.

• DTC gross margin improved by 80 basis points to 62.1%, driven by better product costing and fewer discount sales; total gross margin held steady at 59%.

• SG&A expenses decreased by 3.1% to CAD 32 million, reflecting cost management and lower variable selling costs.

• Inventory at quarter-end was CAD 35.4 million, down nearly 30% year-over-year, mainly due to strong Q4 sell-through of core products.

• Free cash flow outflow improved to CAD 14.6 million from CAD 14.9 million year-over-year.

Outlook and guidance

• Product gross margin tailwinds are expected to continue through 2024 due to sourcing improvements and better product costing.

• Replenishment of core collections, especially Cooper fleece, is anticipated by Q3 to support full price sales growth in the second half, which represents over 70% of annual volume.

• Sales growth is expected through improved inventory productivity, not by returning to historical inventory levels, with continued deleveraging and positive cash flows.

• Focus on growth in active, One, and Cloud categories, and international expansion.

• AI-driven replenishment and disciplined inventory management are expected to enhance operations and customer experience.