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A Roots store is seen in a June 12 2019, file photo.

Fred Lum/The Globe and Mail

Canadian retailer Roots Corp. is scaling back its bricks-and-mortar presence in the United States, permanently closing seven stores there and filing bankruptcy for its U.S. subsidiary.

The shutdowns are due to continued underperformance along with growing pressures owing to the COVID-19 pandemic, the company said in a statement on Wednesday. The company will shutter locations in Boston, Washington and Chicago, and a pop-up store in New York. Two long-standing stores in Michigan and Utah will remain open. Roots will liquidate its subsidiary, Roots USA Corp., through a Chapter 7 bankruptcy filing. The retailer will continue to sell to U.S. customers through e-commerce.

Toronto-based Roots had been expanding its store footprint in the U.S. in the past three years, but is now abandoning that strategy. The U.S. represents a small portion of Roots’s retail footprint, with just eight stores plus the temporary pop-up; the company has 114 stores in Canada that make up the bulk of its revenue, as well as partner-operated stores in Asia including 114 locations in Taiwan, 36 in China and one in Hong Kong.

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COVID-19 has dealt a major blow to non-essential retailers such as Roots, which have been forced to temporarily close stores and rely solely on digital revenue. Even before concerns about the virus began to affect business in North America, however, the U.S. stores were underperforming, the company said.​ Roots temporarily closed all its North America locations in mid-March, laying off employees in those stores, and reduced the salaries of head office employees including the management team. All of the company’s stores in Asia are currently open, but traffic has been down because of the pandemic, Roots reported.

The company also repurposed its leather factory in Toronto to produce non-medical-grade face masks for sale, and is donating 3,000 medical-grade masks to health care facilities.

Roots reported fourth-quarter earnings on Wednesday; since the quarter ended Feb. 1, the results did not reflect the effect on sales from COVID-19. However, interim chief executive Meghan Roach said in a statement that e-commerce performance recently has been better than expected because of the retailer’s “extensive collection of sweats.” Leisure wear has been in high demand as people have been urged to stay inside and are shopping for more comfortable clothing.

“We are working diligently, under operational constraints, to get customers the products they want in a timely fashion,” Ms. Roach said on a conference call to discuss the results on Wednesday. She added it is too soon to say when the stores will be able to reopen because provinces are just coming out with their recovery plans for COVID-19. However, the company is “comfortable” with its liquidity while those stores remain closed. Like other retailers, Roots has seen a bump in e-commerce sales, but not enough to make up for the impact of store closings.

As in previous quarters, Roots was affected by macroeconomic headwinds in its Asian markets, as well as by “inefficiencies” at its new distribution centre. The company changed its distribution model last year in order to manage the fulfilment of its own e-commerce orders, but the transition has driven costs higher, a problem the company is trying to address.

The company has been cutting costs, and after the impact of pandemic-related store closings, Roots has been negotiating rent relief measures with its landlords, chief financial officer Mona Kennedy said on the call on Wednesday.

Roots reported sales of $127.5-million in the three months ended Feb. 1, down from $130.8-million in the same period the year before. The sales decrease was owing to lower traffic to its bricks-and-mortar stores, while e-commerce growth was not sufficient to offset those declines. The company reported a net loss of $44.6-million or $1.06 per share, including an impairment charge of $44.8-million. That compared with net earnings of $18.3-million or 43 cents per share in the same period the prior year.

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For the full year ended Feb. 1, Roots had sales of $329.9-million, compared with $329-million the year before. The company reported a net loss of $62-million, or $1.47 per share, down from $11.4-million or 27 cents per share in the prior year. That was also affected by the impairment charge and other factors, the company said.

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