Roots says earnings down as business performed 'below our expectations'

Apparel retailer Roots Corp. downgraded its sales expectations for the current financial year as it grapples with a shortened holiday shopping period and other challenges.

“We’re uncertain how the consumer is going to respond to that shortened period,” said CEO Jim Gabel in a conference call with analysts Friday morning after the company released its third-quarter financial results.

This year, shoppers face a crunched gift-getting time frame with only a little over three weeks between Black Friday and Christmas Day. Last year, when American Thanksgiving fell a week earlier on Nov. 22, shoppers had more than four weeks to buy presents.

Roots noted its same-store sales, a key retail metric, is positive .

But Roots declined to provide a new sales guidance figure. The company previously anticipated sales for the year to total between $358 million and $375 million.

Also weighing on sales is the company’s ability to get the right products in the right place at the right time, said Gabel.

The company moved to a new distribution centre recently where it continues to face inefficiencies, he said, including delays in product flow to stores. Those delays are also driving up costs.

The expected slower sales were announced as the company reported its third-quarter earnings dipped from last year and came in below its target range.

Roots reported net income of $1.97 million, or five cents per share in the quarter ending Nov. 2, down from $2.8 million or seven cents per share for the same quarter last year. Analysts had expected earnings of $4.3 million, or eight cents per share, according to financial markets data firm Refinitiv.

The company’s third-quarter sales totalled $86.4 million compared to $87 million in the same quarter the previous year.

Corporate-owned stores and e-commerce sales grew 4.6 per cent from $70.7 million in the third quarter of 2018 to $73.9 million in the most recent quarter.

In the U.S., where the company had seven corporate-owned stores by the end of the quarter, Roots says its new stores are performing well below expectations.

The company is encouraged by its American e-commerce business, and its two legacy stores remain very profitable, said Gabel.

However, the company’s new stores have yet to build a community following, like the brand enjoys in Canada, he said.

Growth in sales at corporate-owned stores was offset by a $3.8 million or 23.5 per cent fall in partner and other sales, which totalled $12.4 million down from $16.3 million. That drop came from some deliveries to a partner in Asia made a quarter earlier than initially planned, as well as macro-economic and geopolitical headwinds in Asian markets.

That shortfall is expected to persist in the fourth quarter, said Gabel.

“The macroeconomic headwinds that we face in those markets, I think, are well-known,” said Gabel, citing an upcoming election in Taiwan and ongoing unrest in Hong Kong.

The company ended the quarter with 114 partner-operated stores in Taiwan, 35 in China and one in Hong Kong.

Same-store sales grew three per cent in the quarter.

The company also announced the immediate resignation of the company’s chief merchant, Nancy Lepler, for personal reasons. Roots will launch an immediate search for a replacement, the company said.

This report by The Canadian Press was first published Dec. 6, 2019.

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Companies in this story: (TSX:ROOT)

Aleksandra Sagan, The Canadian Press