Roots sees ‘adjustment period’ as shoppers remain wary during postpandemic reopening

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Even as businesses reopen, Roots Corp. is expecting an “adjustment period” as some customers continue to feel wary about in-store shopping.

“We’re going to look at it very closely as stores open today in Ontario, and see how the customers are showing up,” president and chief executive officer Meghan Roach said on a conference call to discuss the company’s earnings on Friday. “But I don’t think it’s going to be right up to the way it was, and back to normal, because customers have an adjustment period that they need to get through.”

Ms. Roach said she is confident that a recovery is on the way as the rollout of COVID-19 vaccines accelerates. As the world emerges from the pandemic, she added that she expects customers to continue to seek out comfortable and versatile clothing – and to shop online more often, even as people return to stores.

Roots reported a narrower first-quarter net loss on Friday, as the company continues to cut costs and benefited from elevated e-commerce sales during the pandemic.

On Friday, the Toronto-based retailer reported that its total sales rose 24.7 per cent to $37.3-million in the 13 weeks ended May 1, compared with the same period last year.

Roots reported a net loss of $4.9-million or 12 cents per share, compared with $7.8-million or 18 cents per share in the first quarter last year.

The retailer known for its signature sweats and leather goods, is also experimenting with more premium-priced items and design collaborations. For example, a limited-edition fleece sweatshirt that was embroidered at the company’s leather factory in Toronto, sold out within days at $198 – more than double the $78-$84 price range for sweatshirts in its core collection. While Roots is not shifting its pricing strategy across the board, it will introduce more new product categories and collaborations, particularly this fall, Ms. Roach said. And premium items have helped to draw in some new customers, she added.

“The way we view our collection is, just like many other brands, it’s important for us to have a premium offering within the collection,” Ms. Roach said.

As governments imposed renewed lockdown measures to curb a third wave of COVID-19, the company’s North American stores were closed for approximately 30 per cent of the quarter, compared with roughly half of the quarter in the same period last year. The comparatively shorter shutdown contributed to higher sales in the quarter. In addition, e-commerce sales grew by 50 per cent in the quarter, partly offsetting the loss of store sales during the closings.

Roots has now reopened its six stores in Quebec and Nova Scotia, and on Friday the company began reopening stores in Ontario, which is Roots’s largest market. But because Ontario has not yet permitted stores in malls to open unless they have street-facing entrances, 36 of Roots’s 62 stores in the province remain closed. The rest are now operating under Ontario’s current 15-per-cent capacity limit.

Roots is expecting slightly higher marketing spending as stores reopen this year.

The company closed all of its U.S. stores last year but continues to sell to American customers online. On Friday Ms. Roach said she believes there is room to grow the U.S. e-commerce business.

Like other retailers, Roots has seen delays in product shipments owing to supply chain pressures caused by the pandemic, but chief financial officer Mona Kennedy said on Friday that the company took precautions by moving up its delivery dates. So while products are arriving later than planned, they are still in season.

The company’s selling, general and administrative expenses decreased in the first quarter, as Roots has continued to reduce costs. The retailer has also scaled back on promotions that it put in place earlier in the pandemic to drive sales, and is more focused on full-priced offerings, Ms. Kennedy said.

“In our view, Roots is one of the companies that will emerge from the pandemic far better positioned,” Bank of Nova Scotia analyst Patricia Baker wrote in a research note on Friday. “In fact, it is obvious that over the course of the last five quarters, this team has focused hard on driving improving fundamentals, with noted success. This paves the way for a significantly enhanced performance once we emerge from the pandemic-specific challenges associated with lockdowns and retail restrictions.”

Roots’s share price rose by nearly 9.6 per cent in trading on Friday, to $3.89 per share. The stock has rebounded somewhat this year after dipping below 70 cents per share in early April, 2020, as the pandemic began to hit the retail sector – and particularly apparel retailers – and mandated store closings heightened the uncertainty.