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Report on Business Roots cuts profit, sales outlook after third quarter falls short; shares sink

The Roots store in the Limeridge Mall in Hamilton, Ont.

Fred Lum/the Globe and Mail

Roots Corp. shares plunged Wednesday morning after the clothing company said it has lowered long-term financial targets set when it went public in October 2017.

The clothing company’s shares were trading near all-time lows after falling more than 20 per cent. They were at $3.62, down 92 cents from Tuesday’s close after about an hour of trading.

Earlier, Roots announced total sales for the three months ended Nov. 3 were “well below” its expectations at $87-million, and down three per cent from $89.7-million last year.

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Net income was $2.8-million or seven cents per share, down from $5.0-million or 12 cent per share last year.

Adjusted net income was $4.7-million or 11 cents per share, down from 23 cents per share in last year’s third quarter.

Analysts had estimated $90.6-million of revenue and 16 cents per share of adjusted earnings, according to Thomson Reuters Eikon.

Roots says its performance during the quarter ended Nov. 3 reflected the absence of a large marketing campaign and unseasonably warm fall weather and last year’s strong sales related to Canada’s 150th anniversary celebrations.

The company is now estimating between $358-million and $375-million of sales in fiscal 2018, compared with the estimated range of $410-million to $450-million when Roots did its initial public offering.

Roots is revising its fiscal 2019 target range for adjusted EBITDA to between $46-million and $50-million, from between $61-million and $68-million, and it’s also revising its adjusted net income target range to between $20-million and $24-million from its previously stated target range of between $35-million and $40-million.

After spending most of its history as a private company, Roots did an initial public offering last year. The stock began public trading at $11.50 on Oct. 25, 2017, rose to as high as $13.55 in May but fell after missing analyst estimates for the second-quarter and third-quarter.

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