Roots sees profit margins improve with fewer promotions and more full-price sales

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A Roots store in downtown Montreal, May 19, 2020.Christinne Muschi / Christinne Muschi / The Globe and

Roots Corp. sees its profit margins improve as the retailer continues to cut promotions, selling its clothing and accessories at high prices more regularly.

As supply chain issues continued to plague the industry during its most crucial selling season of the year, some retailers have slashed pre-holiday discounts. For Roots, the move is a longer-term strategy to readjust buyers’ expectations for the brand’s pricing. In the 13 weeks ended October 30, Roots had four days of promotion, up from 49 in the same period last year and 81 two years ago. Sales of regular priced merchandise increased.

“While our strategy of maximizing full-price sales created short-term pressure on revenue, it created the expected improvements in profitability and positioned us very well for the future,” said the Managing Director. Meghan Roach in a conference call on Tuesday to discuss the company’s results.

As is typically the case during the holiday season, Roots will be offering more promotions in the fourth quarter compared to the third, but the longer-term strategy continues, Ms. Roach said.

The Toronto-based retailer said its gross profit margin rose to 65.2 percent in the third quarter, from 58.9 percent in the same period two years ago.

Roots reported third quarter net income of $ 10.8 million or 25 cents per share, compared with $ 10.3 million or 25 cents per share in the same period last year. The results are an improvement over two years ago when sales fell and third quarter net income was around $ 2 million.

However, profits have been affected by higher transportation costs as Roots is among the retailers shipping more items by air to deal with disruptions in the global supply chain.

Those issues have led Roots to leave sales on the table, Ms. Roach said Tuesday. For example, a “cache” or shirt-jacket that would normally have been marketed in July or August did not arrive until October. And a push to get products to stores quickly when they arrive, has affected online sales somewhat, she added.

In addition to global pressures, flooding in recent months in British Columbia has also delayed some shipments.

“When we looked at the third quarter, we saw some pressure on sales due to the fact that we hadn’t planned it earlier,” Ms. Roach said.

The company spent the most on air travel to meet vacation demand: the fourth quarter typically accounts for about 70 percent of Roots’ annual sales.

Some collections that haven’t arrived on time and haven’t been air-shipped are packaged for sale next year, Ms. Roach said.

Roots said total sales rose 4.6 percent to $ 76.3 million in the quarter. On Tuesday, the company announced a share buyback program, with the intention of repurchasing up to approximately 2.2 million common shares over the next year.

Sales at company-owned stores and Roots e-commerce operations were roughly flat from a year ago, although online sales continue to be higher than they were previously. before the pandemic, according to the company.

Ms. Roach was appointed Interim CEO in January 2020, after serving as Interim CFO during a period of upheaval in the corporate leadership ranks. She came to the retailer of its largest shareholder, private equity firm Searchlight Capital Partners, and removed the “tentative” from its title in May 2020.

“As we reflect on the last seven quarters for [chief financial officer] Mona [Kennedy] and I joined Roots, it was amazing to see the fundamental transformation of the business, ”Ms. Roach said Tuesday.

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