Investors in Roots Corp. (ROOT-T) are waiting to see what kind of holiday season the Canadian retailer had amid pandemic lockdowns in key markets when its fourth-quarter earnings are released on Thursday.
The results, expected before the market opens, could move the stock, which has soared by more than 400 per cent since hitting its all-time low of 62 cents a year ago. Roots shares were pummelled by the initial pandemic closures last spring, alongside other brick-and-mortar retailers.
Shares of the iconic retailer, which went public in Oct. 2017 at $12 per share, were trading around $3.25 on the Toronto Stock Exchange mid-day Wednesday, an increase of more than 55 per cent year-to-date. The stock is down from highs above $13 in the spring of 2018.
Analysts are expecting the Toronto-based retailer to report revenue of $104-million and earnings of 32 cents per share in the fourth quarter, compared to sales of $127.5-million and earnings of 31 cents per share for the fourth quarter ended Feb. 1, 2020, before the pandemic led to widespread store closures.
Sales in the third quarter ended Oct. 31, 2020 were $72.9-million, down 15.5 per cent year-over-year but in line with the consensus forecast of $73.1-million and benefitting from a 40-per-cent jump in e-commerce sales. Several analysts increased their targets after that report in early December. The consensus target price today is $2.83, according to S&P Capital IQ. Among the six analysts that cover the stock, one has a “buy” recommendation and five a “hold” rating.
After the third-quarter earnings report, Roots chief executive officer Meghan Roach said the retailer entered the fourth quarter with new government restrictions “placing even tighter limitations on retail store operations in important markets across Canada.”
She also said the fourth quarter is the company’s largest “from a profitability and sales perspective,” adding that the restrictions “may negatively impact the momentum we saw leading into this period.”
Still, she said the company believes customers would continue to seek out “trusted brands, like Roots, for their holiday shopping,” while also citing “rapid casualization of the North American wardrobe” since the pandemic forced many people to work from home.
BMO Nesbitt Burns analyst Stephen MacLeod is expecting Roots to report sales of $96.8-million for the fourth quarter, a drop of about 24 per cent versus a year-earlier period, and adjusted net income to come in at $12.9-million or 31 cents per share. The company reported an adjusted profit of $13.3-million or 31 cents for the same quarter a year ago.
In a Jan. 21 note on the impact of lockdowns on the retail sector, Mr. MacLeod said he expected apparel companies to be hit harder over the holiday period than furniture retailers, “but in all cases we expect e-commerce to rise meaningfully during the period of closures as was the case in the initial spring 2020 pandemic-related lockdowns.”
In the December 2020 analyst call, Ms. Roach, who was named interim CEO in January 2020 and officially took on the role in May, highlighted the growth in e-commerce and curbside pickup options available at many of its stores. She also said the company has been pulling back on the heavy promotions it has done in the past, particularly on core items such as its sweats.
“We’re going to continue to implement that strategy across future years as we believe the Roots brand is loved by customers, and we believe that you don’t need heavy levels of promotion to increase that brand love. So going into future years, we’re going to continue on this strategy, but it is kind of important to mention that we’re in a pretty volatile environment right now. So we have to stay agile, and we will continue to shift our strategy as needed in future quarters and also into next year.”
As of Oct. 31, 2020, the company said it operated 113 corporate-retail stores in Canada, two corporate-retail stores in the U.S, 116 partner-operated stores in Taiwan, 28 partner-operated stores in China, two partner-operated stores in Hong Kong and its global e-commerce platform.
The company’s top shareholder is Searchlight Capital Partners, LP, with a 48.6-per-cent stake, according to S&P Capital IQ. Before being named Roots CEO, Ms. Roach was interim chief financial officer at the company, which she joined from Searchlight Capital Partners. Prior to Searchlight, she was a member of the private equity investment team at the Ontario Teachers’ Pension Plan.
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