Roots reports Q3 sales and profit down from year ago as it faces economic headwinds

TORONTO — The chief executive of Roots Corp. says the retailer has a "cautious outlook" these days because some shoppers are delaying holiday purchases as they become more price sensitive.

"Discounts obviously are driving consumer purchasing behaviour, (but) there is a longer time now between Black Friday and the holiday period, so I do think we're expecting people to push out their sales a little bit more," Meghan Roach told an investor conference call Wednesday to discuss the company's latest results.

Roots reported that its third-quarter profit and sales were down compared with a year ago as it faced what it said was economic headwinds and changing shopper behaviour.

The window Roach offered into the Toronto-based apparel retailer comes well into a holiday shopping period many are watching as inflation and higher interest rates weighed on consumers and force some to seek out sales more often.

"With the consumer being more cautious out there, I do anticipate also that people are going to continue to look for value and for deals," Roach said.

Deloitte recently predicted the average Canadian shopper's holiday spending will drop 11 per cent from last year to $1,347 this year.

Forty-eight per cent of the more than 1,000 Canadians the consultancy company surveyed planned to buy only what their family needs. Seventy-one per cent will seek items on sale and 29 per cent will seek less expensive retailers to patronize.

In response to financial pressures, some shoppers didn't wait for Black Friday and made purchases sooner, but early indicators suggest the Nov. 24 sales day wasn't a bust for Canadian retailers.

E-commerce giant Shopify Inc. says Black Friday sales this year across its merchants were $4.1 billion, 22 per cent higher than the year before, while Salesforce added online sales on Black Friday totalled $70.9 billion globally and in Canada were up two per cent from the year before.

Roots started its Black Friday sales almost a week earlier and Roach said the strategy was "well received."

The decision is part of a more cautious approach Roots has taken to discounts. The company has been "less promotional" over the last three years, Roach said, potentially impacting its gross margins.

Asked by an analyst about whether the company expects to see competitors have blowout sales like womenswear company Aritzia Inc. offered in October, Roach said, "there are some retailers who have a lot of excess inventory still and there's others who are in a much healthier inventory position."

"I think a lot of people are taking stock post Black Friday and looking at what their inventory position looks like at that point," she said.

In reporting its third-quarters results, Roots said earned $519,000 or a penny per share for the quarter ended Oct. 28, down from a profit of $2.2 million or five cents per share in the same quarter last year.

Sales totalled $63.5 million for the quarter, down from $69.8 million a year earlier.

The company said the drop came as direct-to-consumer sales, which includes its corporate retail stores and e-commerce sales, totalled $52.2 million, down from $56.9 million a year ago.

The drop was driven by lower discounted sales and the tightening of consumer discretionary spending, while full-price sales rose three per cent compared with a year ago.

Partner and other sales, which includes wholesale branded products, licensing to manufacturing partners and certain custom products, totalled $11.3 million, down from $12.9 million in the same quarter last year.

This report by The Canadian Press was first published Dec. 6, 2023.

Companies in this story: (TSX:ROOT, TSX:ATZ)

Tara Deschamps, The Canadian Press