A Roots store in downtown Montreal, on May 19, 2020.Christinne Muschi/Christinne Muschi/The Globe and
Roots Corp. is seeing profit margins improve as the retailer continues to cut down on promotions, more consistently selling its apparel and accessories at full price.
As supply chain snags have continued to plague the industry during its most crucial selling season of the year, some retailers have scaled back on preholiday discounts. For Roots, the move is a longer-term strategy to readjust shoppers’ expectations around the brand’s pricing. In the 13 weeks ended Oct. 30, Roots had four promotional days, compared to 49 in the same period last year and 81 two years ago. Sales of regular-priced merchandise have increased.
“While our strategy to maximize full-price sales has created some short-term pressures on revenue, it has created the intended improvements in profitability, and positioned us very well for the future,” chief executive officer Meghan Roach said during a conference call on Tuesday to discuss the company’s results.
As is typically the case during the holiday period, Roots will be offering more promotions in the fourth quarter compared to the third, but the longer-term strategy is continuing, Ms. Roach said.
The Toronto-based retailer reported its gross profit margin increased to 65.2 per cent in the third quarter, up from 58.9 per cent in the same period two years ago.
Roots reported third-quarter net income of $10.8-million or 25 cents per share, compared to $10.3-million or 25 cents per share in the same period last year. The results are an improvement compared to two years ago, when sales had been slipping and third-quarter net income was roughly $2-million.
However, profits were affected by higher freight costs, as Roots is among retailers shipping more items by air to address global supply chain disruptions.
Those snags have resulted in Roots leaving some sales on the table, Ms. Roach said on Tuesday. For example, a “shacket” or shirt-jacket that typically would have hit shelves in July or August did not arrive until October. And a push to get products to stores quickly when they did arrive, affected online sales somewhat, she added.
In addition to global pressures, last months’ floods in British Columbia also delayed some shipments.
“As we looked at the third quarter, we did see some pressure on sales as a result of the fact that we didn’t have everything in at the time we expected,” Ms. Roach said.
The company spent the most heavily on air shipping to meet holiday demand: the fourth quarter typically accounts for roughly 70 per cent of Roots’s annual sales.
Some collections that have not arrived on time, and were not shipped by air, are being packed up to hold for selling next year, Ms. Roach said.
Roots reported that total sales increased by 4.6 per cent to $76.3-million in the quarter. On Tuesday the company announced a share-buyback program, intending to repurchase up to approximately 2.2-million common shares over the next year.
Sales at Roots’s corporate-owned stores and e-commerce operations were roughly flat compared to last year, though online sales continue to be higher than they were before the pandemic, according to the company.
Ms. Roach was appointed interim CEO in January of 2020, after serving as interim chief financial officer during a time of upheaval in the company’s executive ranks. She came to the retailer from its biggest shareholder, private equity firm Searchlight Capital Partners, and removed the “interim” from her title in May of 2020.
“As we reflect on the last seven quarters since [chief financial officer] Mona [Kennedy] and I have joined Roots, it has been exceptional to see the transformation in business fundamentals,” Ms. Roach said on Tuesday.
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