Canadian retailer Roots Ltd. said sales for this fiscal year will fall below previous expectations, as it faces various pressures across the business.
While comparable sales in stores open more than a year increased by 3 per cent in the latest quarter, overall performance was “below expectations,” chief executive Jim Gabel said on a call to discuss the company’s third-quarter earnings on Friday.
The company previously disclosed guidance for sales of $358-million to $375-million this year; while it did not provide new guidance, executives said it will fall below the low end of that range.
The challenges included softer sales in its leather and accessories categories, and falling international sales, as new stores in the United States significantly underperformed compared with the company’s expectations, and macroeconomic headwinds affected sales in its three Asian markets: China, Taiwan and Hong Kong.
The company also recently made the transition to a new distribution centre to begin fulfilling e-commerce orders itself and to manage its digital and store inventory together; but “inefficiencies” in that new distribution centre affected sales and drove up costs, a problem the company is now trying to fix. The period between Black Friday and Christmas is one week shorter than last year, which the company said could hurt sales.
“We are generating comparable sales growth in the fourth quarter. However, given the compressed holiday selling season this year and the current operational headwinds we are facing, we now expect our fiscal 2019 sales to fall below our previously disclosed target range,” Mr. Gabel said.
Shares of Roots were down about 0.5 per cent to $2.07 on the Toronto Stock Exchange in afternoon trading. The stock has been in a long-term slide since trading above $12 in mid-2018.
Roots reported net income of $1.97-million, or five cents a share, in the three months ended Nov. 2, down from $2.8-million or seven cents a share in the same period last year.
Total sales in the third quarter were $86.4-million, down from $87-million last year. Direct-to-consumer sales at its 122 corporate-owned retail stores and through e-commerce grew in the quarter, while sales were down in wholesale products, royalties from 150 retail partner stores in Asia, licensing and custom products.
Mr. Gabel called the transition to its new distribution centre “a major milestone” for the company.
“One of the key fundamental decisions around this project was having one inventory with both [the e-commerce and bricks-and-mortar] businesses. While it is early days, we are encouraged by having one inventory … and having greater visibility to the customer online than we would have had in the past,” he said.
However, early inefficiencies in distribution meant that Roots had some trouble getting the right products to stores in a timely manner. The retailer is working on improving its efficiency.
Categories that offer promise for growth include footwear – still a small part of the business – and leather goods, Mr. Gabel said. Leather sales were driven down primarily by a shift in how people are using small goods such as wallets, and the company will need to respond to changing trends, he said.
The company is also working on an analysis of its North American customers to try to better define its customer base and to offer more personalization.
On Friday, Roots announced the resignation of chief merchant Nancy Lepler, for personal reasons. The company has begun a search for her replacement.
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