5 years after US bankruptcy, Roots notches third quarter of sales growth

Dive Brief:

Five years after Canadian brand Roots shuttered its U.S. operations in bankruptcy, pivoting to an e-commerce-first approach in the country, the brand recorded its third consecutive quarter of year-over-year sales growth. Sales grew 6.7% in Q1, reaching 40 million Canadian dollars ($29.5 million as of press time).
As part of a multiyear strategy, Roots is closing underperforming stores and focusing resources on “high potential locations” that have strong brand resonance, customer engagement and long-term profitability, CEO Meghan Roach said on a call with analysts.
Roots is also updating its existing fleet with a new store design that includes refreshed merchandising layouts, digital screens and flexible fixtures that allow for regular changes to highlight seasonal stories. The retailer still operates two stores in the U.S. and said at the time of its exit in 2020 that it believed in the market opportunity in the country.

Dive Insight:

Roots is beefing up its marketing and investing in physical stores as it seeks to increase conversion across channels.

DTC sales in the quarter grew 10%, with comps up 14%, but the retailer still netted a loss of CA$7.9 million in the quarter. Executives said losses were expected given Roots only does 30% of its business in the first half of the year and usually comes out positive in the second half of the year. Net debt was down 6.7% in the quarter, to CA$29.6 million, and the brand had a net leverage ratio of 1.3 times. Roots also updated its credit terms to extend maturity to 2027.

The retailer hired a new head of omnichannel growth in the quarter and discussed plans to update its stores and operations. Roots is investing in product development and sourcing and merchandising improvements, with the aim of reducing time to market. In-stock levels also improved in the quarter. 

When it comes to store design changes, those are based on customer feedback and in-store analytics, according to Roach, and are aimed at improving the store experience.

“The goal is to create a more immersive, intuitive and inspiring retail environment, one that aligns with our brand direction and deepens emotional connection with customers,” Roach said on a Friday call, according to a Seeking Alpha transcript. “Our stores are not only a point of sale but extensions of our brand ethos, and we remain committed to ensuring they deliver both inspiration and convenience.”

Executives also discussed plans to invest more deeply in marketing to communicate the turnaround work it has done over the past five years, which has included assortment improvements, an activewear launch and a more fashion-forward focus.

“We want to make sure that we’re getting those new products in front of consumers and also making sure that we’re speaking to them about the modernization we’ve done around the brand,” Roach said. “So you will continue to see us investing behind paid media.”

Roots also launched a brand ambassador program a year ago, which has “exceeded overall expectations.” Roach said influencers are a “key driver” of the brand’s marketing strategy and noted the brand recently signed a deal with NCAA women’s basketball player Toby Fournier, who will appear in marketing content and sport Roots apparel.

Roach described the marketing strategy, introduced at the end of last year, as “multipronged” and said the company has also seen success with in-store events like International Sweatpants Day. It’s planning to host more in the year ahead.

“We have seen the strong momentum gained from investing in authentic brand storytelling, increased brand reach and memorable brand experiences,” CFO Leon Wu said on the call. “We continue to believe in our long-term growth benefits unlocked through marketing and anticipate similar levels of increased spend in the second quarter, accelerating as we enter our peak fall and holiday season.”