Release Date: September 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Roots Corp (RROTF, Financial) reduced net debt by 20% compared to the same period last year.
- The company saw growth during the back-to-school period, indicating strong product portfolio and effective branding and marketing initiatives.
- Product margins improved by 230 basis points due to better sourcing strategies and lower discounting.
- The active collection continued to drive double-digit year-over-year growth.
- Roots Corp (RROTF) generated strong double-digit growth in the US and China through digital channels.
Negative Points
- Total sales decreased by 3.4% compared to Q2 2023.
- Direct-to-consumer sales were down 1.8% year-over-year.
- Adjusted EBITDA losses remained stable at $3.1 million, showing no improvement from the previous year.
- The company faced inventory challenges in its Cooper fleece collection, impacting sales in Q1 and the start of Q2.
- Global logistics and transportation challenges, including ocean freight capacity limitations and domestic transportation labor disruptions, are expected to offset some product margin gains.
Q & A Highlights
Q: What actions have you taken to maintain or gain share in terms of product, brand, and marketing for the back-to-school and holiday season? Can you also comment on your back-to-school growth?
A: Meghan Roach, CEO: We saw growth during the back-to-school period, driven by a strong product portfolio, effective branding and marketing initiatives, and enhanced in-store experiences. We have healthy Cooper fleece inventory and strong collections like the Cloud collection. Our brand ambassador programs and events have increased brand visibility, and our AI-driven inventory allocation ensures the right products are in the right places.
Q: What's driving the strength in your active wear segment, which has shown double-digit growth?
A: Meghan Roach, CEO: The strength comes from the softness, comfort, and fit of our products, a fully sustainable active wear line, and our brand's historical association with athletic and comfort wear. Our active wear resonates with consumers for both indoor and outdoor use, leading to repeat purchases.
Q: How are you ensuring you don't run into the same product shortages as last year, given your lean inventory?
A: Leon Wu, CFO: We've split our inventory into core and seasonal categories. We received a large replenishment for our core Cooper fleece collections in late July and have increased purchases for Q3 and Q4. We are closely monitoring global logistics and transportation to ensure timely product arrivals.
Q: How should we think about your gross margin profile in the second half, considering factors like FX and freight costs?
A: Leon Wu, CFO: We are pleased with product margin gains due to improved costing and reduced markdowns. However, FX rates and global transportation costs are expected to partially offset these gains. Despite these challenges, we expect product margin improvements to be more prominent in Q3 and Q4.
Q: How do you feel about your store footprint given the recent store count reduction?
A: Meghan Roach, CEO: We have very few unprofitable stores and are focused on increasing sales per square foot. We are enhancing customer and store experiences and consolidating stores where necessary. Our goal is to drive incremental sales and improve gross margin and EBITDA.
Q: Can you elaborate on the impact of your AI initiatives on inventory management?
A: Meghan Roach, CEO: Our AI-driven allocation system has improved daily inventory replenishment to stores, ensuring the right products are available for customers. This has contributed to better inventory management and operational efficiency.
Q: What are your plans for the Chief Product Officer role following Karuna Scheinfeld's departure?
A: Meghan Roach, CEO: We do not intend to replace the Chief Product Officer role. Instead, we are searching for senior-level design talent with international experience in the outdoor and active sectors to continue our product innovation and growth.
Q: How are your international markets performing, particularly in the US and China?
A: Meghan Roach, CEO: We generated another strong quarter of double-digit growth in the US and China through our digital channels. We continue to see medium-term growth opportunities in both markets.
Q: What are your expectations for the holiday season?
A: Meghan Roach, CEO: We are focused on keeping our brand at the forefront of consumers' minds throughout the holiday season. Our healthy inventory position and ongoing marketing and branding initiatives are setting the stage for a stronger, more impactful presence.
Q: Can you provide more details on your new store concepts and renovations?
A: Meghan Roach, CEO: We are rolling out an improved store concept that blends our heritage with a modern aesthetic. Our Eaton Centre renovation earlier this year is an example, and we have numerous stores undergoing renovations in 2025 under this new concept.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
