Roots Q1 2027 Earnings Report

Roots EPS Results

• Actual EPS: -C$0.19
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Roots Revenue Results

• Actual Revenue: $42.57 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Roots Announcement Details

• Quarter: Q1 2027
• Date: 6/12/2026
• Time: Before Market Opens
• Conference Call Date: Friday, June 12, 2026
• Conference Call Time: 8:00AM ET

Roots (TSE:ROOT) Corp provides a portfolio of apparel, leather goods, accessories, and footwear for men, women, and children under the Roots brand. Its merchandise includes genuine leather, such as jackets, bags, and luggage; kids & baby clothing; and leather, linens, towels, and accessories. The company operates through two segments: Direct-To-Consumer, which accounts for majority revenue, and Partners & Other. The DTC segment sells products through the company's corporate retail stores and e-commerce. The Partners & Other segment engage in the wholesale of Roots branded products to the company's international operating partner, and it earns royalties on the retail sales of Roots-branded products. The company has operating stores in Canada, United States, Taiwan, China, and Hong Kong.

Roots Q1 2027 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q1 sales grew 6.5% to CAD 42.6 million, with both direct-to-consumer and partner channels contributing. Comparable DTC sales rose 3.2% and partner/other revenue increased 26.6%.
• Positive Sentiment: The company highlighted strong demand in newer and higher-growth categories, especially Cloud, activewear, midweight outerwear, and spring lifestyle. Management said activewear now exceeds 10% of DTC sales.
• Neutral Sentiment: Gross margin declined to 59.9% from 61.5%, but management said the pressure was temporary. It cited final-sale inventory actions ahead of the distribution center transition and unfavorable FX on U.S.-dollar purchases, with the FX headwind expected to reverse later in fiscal 2026.
• Neutral Sentiment: Adjusted EBITDA loss was CAD 7.4 million, roughly in line with last year, but net loss widened to CAD 10.1 million due to transition and strategic review costs. The company said these included CAD 2.4 million of incremental expenses in the quarter.
• Positive Sentiment: Balance sheet leverage improved, with net debt down 20.7% year over year to CAD 23.4 million and net leverage at about 1.0x trailing EBITDA. Free cash outflow also improved versus last year, and liquidity was reported at CAD 53.7 million.

Presentation

[Operator]

Good morning. My name is Kara, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Roots first quarter earnings conference call for fiscal 2026. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then one on your telephone keypad. If you would like to withdraw your question, please press the pound key. On the call today, we have Meghan Roach, President and Chief Executive Officer, and Leon Wu, Chief Financial Officer.

[Operator]

Before the conference call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements concerning its current and future plans, expectations and intentions, results, level of activities, performance, goals or achievements, or any other future events or developments. This information is based on management's reasonable assumptions and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its first quarter management's discussion and analysis dated June 11, 2026, and/or its annual information form for a summary of the significant assumptions underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on those statements.

[Operator]

Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The first quarter earnings release, the related financial statements, and the management's discussion analysis are available on SEDAR+ as well as on the Roots investor relations website at www.investors.roots.com. A supplementary presentation for the Q1 2026 conference call is also available on the Roots investor relations site. Finally, please note that all figures discussed on this conference call are in CAD, unless otherwise stated. Thank you. You may begin your conference.

[Meghan Roach, President and CEO at Roots]

Thank you, operator. Good morning, everyone, and thank you for joining our Q1 2026 earnings call. On the call today, I will briefly review our financial results for the first quarter, which our CFO, Leon Wu, will cover in more detail, and then discuss our operational highlights. We entered fiscal 2026 with strong momentum. Total Q1 sales reached CAD 42.6 million, up 6.5% year-over-year, driven by growth in both segments. Direct-to-consumer sales increased 3.3%, with comparable sales growth of 3.2%, or 16.6% on a two-year stack basis. Partners and other revenue grew 26.6%, supported by strength across our wholesale, business-to-business, and licensing channels. Gross profit was CAD 25.5 million, representing a gross margin of 59.9% compared to 61.5% in Q1 2025. direct-to-consumer gross margin was strong at 61.3%. The change in gross margin reflects two factors, both of which we expect to be temporary.

[Meghan Roach, President and CEO at Roots]

First, prior to transitioning to our new third-party logistics partner, we have been proactively reducing aged inventory by shifting additional products to final sale, which will limit the volume carried into the new facility. Second, as we sold inventory purchased at a higher U.S. dollar exchange rate last year, this impacted gross margin. This headwind will reverse over the balance of fiscal 2026. The Adjusted EBITDA loss in the first quarter was CAD 7.4 million, compared to a loss of CAD 7.1 million last year. The most material difference versus prior year relates to a non-cash expense from the mark-to-market revaluation of our DSUs, which increased as our share price appreciated during the quarter. Net debt of CAD 23.4 million represented a 20.7% reduction year-over-year. During the quarter, our trailing 12-month active customer base also grew in the high single digits year-over-year.

[Meghan Roach, President and CEO at Roots]

Overall, Q1 reflects a solid start to fiscal 2026 and demonstrates the continued resilience of the Roots brand. I will now turn to the operational initiatives that drove our first quarter performance. Our merchandising performance in the first quarter reflects the continued strength of our core franchises and the success of our investment in newer, higher-growth categories. Our Cloud collection delivered another standout quarter, with demand outpacing our planned supply in parts of the collection. Our activewear category continued to grow as a meaningful component of our product mix and now exceeds 10% of direct-to-consumer sales. Midweight outerwear and our counter seasonal spring lifestyle collection both performed ahead of our expectations. These results validate our strategy to extend the Roots brand into year-round complementary categories.

[Meghan Roach, President and CEO at Roots]

Our newer collaborations and partnerships also continue to gain traction with the successful launch of the Roots Toronto Blue Jays 50th Anniversary Collection and the second drop of our official WNBA collection in March. In April, we also launched a limited edition spring/summer collaboration with Loopy, a popular Korean character pairing Buddy the Beaver, the iconic Roots mascot. The launch coincides with International Beaver Day and reflects our strategy to extend the Roots brand to new audiences internationally. Our marketing approach in the first quarter continued to evolve towards a more disciplined, data-driven model with a clear focus on return on advertising spend and incremental contribution. Our paid search and paid social channels both delivered strong growth, and our investment in conversion-focused campaigns generated meaningful incremental revenue.

[Meghan Roach, President and CEO at Roots]

In the quarter, we also completed an external assessment of our customer base that confirmed the underlying strength of our customer economics. Our base is sticky, our retention is consistent across cohorts, and our omni-channel customers continue to generate a higher lifetime value than those who shop any one channel exclusively. These findings will help guide our marketing investment in the remainder of the year. Creator marketing remains an efficient tool in our marketing mix. In looking ahead, we continue to evolve our roster, ensuring we show up authentically across the channels and communities that matter most to our customers. In March, we announced the continuation of our partnership with Toby Fournier, a Canadian standout for Duke University's women's basketball team, for a second year as the Roots Ambassador. The partnership reflects our deepening commitment to women in sports and our growing activewear category.

[Meghan Roach, President and CEO at Roots]

In April, we extended our partnership with the Nature Conservancy of Canada into a third year and launched a limited edition made in Canada T-shirt series crafted from circular materials. This program reflects the continued investment we are making in sustainable design and in supporting the natural landscapes that have always been central to Roots' brand. As we look to the summer, we are focused on maximizing engagement with our customers and new consumers, particularly given the major sporting events happening in key cities. From cross-country activations to product customizations, we are focused on connecting with our communities at a point when Canadian pride and togetherness are trending higher. Turning to our direct-to-consumer performance. Comparable store sales improved year-over-year, reflecting the continued benefit of our investments in selling training, visual merchandising, and store operations.

[Meghan Roach, President and CEO at Roots]

We also completed renovations at several of our key locations during the quarter, including Sherway Gardens in Toronto. As we continue to expand our retail footprint, we've opened our first mono-brand Roots store in the Vancouver International Airport in partnership with Volta. As a brand associated with Canada, travel, and comfort, we see meaningful growth opportunities in travel retail locations across the country. In e-commerce, online traffic and revenue both grew year-over-year. Our paid media generated meaningful incremental revenue, we expect to continue building on that progress throughout the balance of the year. During the quarter, we also made meaningful progress on the operational initiatives outlined in our previous calls. Our distribution center transition to Metro Supply Chain remains one of our top priorities and is on track for completion this summer.

[Meghan Roach, President and CEO at Roots]

We also continue to integrate artificial intelligence into our workflow where relevant as we advance our technology roadmap. Thus far, we've experienced benefits across several areas of the business, including inventory management, analytics, omni-channel experience, and customer service. We continue to look for ways to drive efficiency and growth by leveraging these powerful tools that have been enabling us to operate the business with greater agility. As we move into the second quarter, our priorities remain consistent. Our management team remains focused on operations and long-term growth. We continue to invest in our highest growth product franchises and category extensions. We are completing the transition of our distribution operations. We are reallocating more of our customer acquisition investment towards our highest return digital channels. We are taking a disciplined, evidence-based approach to brand and marketing investment to support both near-term performance and long-term brand equity.

[Meghan Roach, President and CEO at Roots]

We are mindful of the broader macroeconomic and trade environment, we will continue to monitor these dynamics closely while operating the business with discipline and focus. Before I turn the call over to Leon, I would like to thank our employees for their continued dedication and our customers for their continued loyalty to the brand. Roots is a brand with deep heritage, a commitment to quality, and a genuine connection to community and nature that continues to set us apart. With that, I will turn the call over to our CFO, Leon Wu, for a deeper review of our financial results.

[Leon Wu, CFO at Roots]

Thank you, Meghan, good morning, everyone. Our first quarter results reflect the continued sales momentum and balance sheet deleveraging we have built over the past several quarters, while we also balance day-to-day operations with the progression of two of the important initiatives, our distribution center transition with Metro Supply Chain and the ongoing strategic review process. These initiatives resulted in CAD 2.4 million of incremental costs incurred in the quarter, which had a more pronounced impact on our P&L, given the seasonally smaller nature of our first quarter. I will now share some more details on the key elements of our results. Sales in Q1 2026 were CAD 42.6 million, increasing 6.5% as compared to CAD 40 million in Q1 2025. Our DTC segment sales were CAD 35.8 million in the quarter, growing 3.3% relative to CAD 34.6 million last year.

[Leon Wu, CFO at Roots]

Our comparable same-store sales grew 3.2% in the quarter, delivering a two-year stacked comparable sales growth of 16.6%. The DTC sales growth was driven by positive traffic across both channels, supported by a thoughtfully curated product assortment, which resulted in double-digit growth in certain franchises like cloud and activewear. Our partner and other sales were CAD 6.8 million in Q1 2026, up 26.6% compared to CAD 5.4 million last year. The growth in this segment was driven by significant growth across our domestic wholesale, custom products, and licensing channels, reflecting both the continued expansion of our customer base in these channels and stronger volumes with existing customers. Total gross profit was CAD 25.5 million in Q1 2026, up 3.8% as compared to CAD 24.6 million last year. Total gross margin was 59.9% as compared to 61.5% in Q1 2025. Q1 2026 DTC gross margin was 61.3%, as compared to 62.9% last year.

[Leon Wu, CFO at Roots]

The change in the DTC gross margin was driven by a temporary initiative to offer select products at final sale price points. The intentional strategy minimizes the prior season inventory that would need to be transferred and adjusted into our third-party distribution center during the move in the second quarter, and to reduce the potential processing of sales returns during this transition. Additionally, the DTC gross margin was also impacted by year-over-year foreign exchange impacts on U.S. dollar purchases, partially offset by continued momentum and improvements to our product costing. SG&A expenses were CAD 37.3 million in Q1 2026 as compared to CAD 33.3 million last year, an increase of 12%. As previously noted, the progression of our DC transition and strategic review initiatives had a more notable impact on SG&A expenses during an otherwise smaller quarter.

[Leon Wu, CFO at Roots]

Within SG&A expenses, there was CAD 1.8 million of incremental costs related to the distribution center transition, CAD 1.7 million of which was comprised of accelerated non-cash depreciation on existing assets, and CAD 0.6 million of incremental consulting and legal costs related to the strategic review. Excluding these non-recurring costs, SG&A expenses would have increased by 4.9%, primarily reflecting higher variable selling costs from our sales growth, along with higher store-related occupancy costs and personnel-related salaries, non-cash stock option expenses and severance costs, along with an incremental CAD 0.2 million of expenses recorded through the revaluation of cash settled DSUs that are linked to the increase in our share price. Our Q1 2026 net loss was CAD 10.1 million as compared to a net loss of CAD 7.9 million last year, and our net loss per share was CAD 0.26 as compared to CAD 0.20 last year.

[Leon Wu, CFO at Roots]

Since the first quarter historically represents approximately 14% of our full year sales, the impacts of the non-recurring project costs had a more pronounced impact on our net earnings in this quarter. Excluding the impacts of the distribution center transition and strategic review initiatives, along with other non-recurring or unusual costs outside the normal course of operations, our Q1 2026 adjusted net loss was CAD 7.6 million as compared to CAD 7.4 million last year. This represents an adjusted loss of CAD 0.19 per share as compared to an adjusted loss of CAD 0.18 per share last year. Our Q1 2026 Adjusted EBITDA was a loss of CAD 7.4 million, as compared to a loss of CAD 7.1 million in Q1 2025.

[Leon Wu, CFO at Roots]

Turning to our balance sheet and cash flow metrics. Our Q1 ending inventory was CAD 45 million, increasing 11.1% as compared to CAD 40.5 million last year. Of the increase, CAD half a million was attributed to the unfavorable foreign change impacts on our purchases. The remaining CAD 4 million increase was primarily driven by higher in-transit inventory to support upcoming selling seasons and higher inventory in our partners and other segments to support the incredible momentum we are seeing in the custom product wholesale business. Our Q1 free cash outflow was CAD 19.1 million, improving from an outflow of CAD 21.8 million last year.

[Leon Wu, CFO at Roots]

The year-over-year improvement in free cash flow was driven by sales growth and ongoing management of working capital. Due to the seasonality of the business, we typically see cash outflows as we build up our working capital ahead of our peak season before generating larger cash inflows through the higher volume fall and holiday seasons. Our prior NCIB program terminated on April 10, 2026. Under that program, we did not repurchase any shares during Q1 2026, and over the full life of the program, we repurchased just under 1.3 million common shares for a total consideration of approximately CAD 4 million. Net debt was CAD 23.4 million at the end of Q1 2026, down 20.7% as compared to CAD 29.6 million at the same time last year. Our net leverage ratio, measured as net debt over trailing 12-month Adjusted EBITDA, was healthy at one times.

[Leon Wu, CFO at Roots]

At the end of Q1 2026, we had CAD 32.6 million outstanding under our credit facilities and total liquidity of CAD 53.7 million, including net cash and available borrowings under our revolving credit facility. Operator, you may now open the line for questions.

[Operator]

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Morrison with TD Cowen. Your line is open. Please go ahead.

[Brian Morrison, Analyst at TD Cowen]

Hey, good morning.

[Meghan Roach, President and CEO at Roots]

Good morning.

[Leon Wu, CFO at Roots]

Morning, Brian.

[Brian Morrison, Analyst at TD Cowen]

Hey. Maybe Leon or Meghan, really, just on the gross margin impact from merchandise clearance, does this reflect a different costing structure associated with the 3PL than an owned facility? If so, will this impact your merchandising holdover strategy or working capital approach post the transition?

[Leon Wu, CFO at Roots]

Yeah, Brian, I could help address that. The gross margin structure change has not occurred yet. That will occur when we fully transition to the DC, starting really at the end of Q2 and early Q3. This is more of the discipline as it relates to as we transition the goods from the existing DC to the new DC, we will incur extra costs. We're being diligent on looking at where we can really reduce those costs and where we have seasonal inventory that we could sell through. Really, it's more of a temporary initiative as we work to minimize the transition cost. Going forward, we continue to take a very disciplined approach on manage our inventory and making sure that that balance remains healthy. I wouldn't say it changes drastically from the new DC to the existing DC from an overall long-term inventory management perspective.

[Brian Morrison, Analyst at TD Cowen]

I got it. I guess, the growing impact of inflation here, whether it be freight, sourcing, product input, how are you impacted by this? What's your ability to or your approach to mitigate?

[Leon Wu, CFO at Roots]

Yeah, it's a good question. So far in Q1, we haven't really seen any material impact from a fuel surcharge or a freight perspective, nor really from a supply chain raw materials perspective. Longer-term, I would say the impact really depends on the duration of the war, right? We do have longer partnerships with several of our partners, whether it's logistics or supply chain, where we have capped fuel costs and ongoing discussions. Really at this point, we have not seen a notable impact yet.

[Brian Morrison, Analyst at TD Cowen]

Okay. I guess, Meghan, you're obviously seeing very good reception to your product offering, especially your lifestyle and activewear. It looks good in the store certainly, I'm curious just in general, the consumer behavior that you're seeing. Is it still ongoing bifurcation, continued resiliency? Maybe just update what you're seeing as this inflation starts to creep in.

[Meghan Roach, President and CEO at Roots]

Yeah, I think it continues to be a dynamic environment. Right now, we're operating in some of our smallest quarters, I think the impact on the consumer is really going to depend, again, on the duration of the war. In the interim, we're focused on some of the positive events in Canada, such as World Cup, and really focusing on some of the strong newness we've had within our product section and really focusing consumers in on that. As I mentioned in the overarching call, when you look at what we focused on in the first quarter, really expanding that lifestyle collection, focusing on investing behind some of the strong things around activewear, outerwear, and also our Cloud collection sweats. Those all perform well for us, and we're continuing to see our newness resonate with consumers.

[Meghan Roach, President and CEO at Roots]

From the overall inflation environment, we really are looking over to longer term and really closely monitoring what happens with this war in the next couple of months as we lead up to our peak quarters of Q3 and Q4.

[Brian Morrison, Analyst at TD Cowen]

Okay. I guess my last question, I apologize, I joined late. I assume you're going to say no comment, process remains ongoing, what is the public comment on the strategic process?

[Meghan Roach, President and CEO at Roots]

As we said in previous releases, we do not intend to disclose any developments with respect to the strategic process. Really this is unless and until the board has approved a specific transaction, or we otherwise have a determination from the board that disclosure is required or appropriate by law. At this point, there is no further update.

[Brian Morrison, Analyst at TD Cowen]

Perfect. Thank you very much.

[Meghan Roach, President and CEO at Roots]

Thank you.

[Operator]

There are no further questions at this time. I would now like to pass it back to Meghan Roach, CEO, for closing remarks.

[Meghan Roach, President and CEO at Roots]

Thank you, everyone, for joining the call today. We look forward to updating you in the coming quarters, and I would like to say good luck to our Canadian team. Operator, you may now conclude the call.

[Operator]

This concludes today's call. Thank you for attending. You may now disconnect.

Participants

Executives

• Leon Wu, CFO
• Meghan Roach, President and CEO

Analysts

• Brian Morrison, Analyst at TD Cowen