Toronto-based Roots Corporation slightly narrowed its loss in the first quarter ended May 3 as sales grew 6.7 percent, marking the third consecutive quarter of growth. Founded in 1973, the retailer is known for its apparel, leather goods, footwear, and home furnishings. 

All financial results are reported in Canadian dollars.

“Our first-quarter results, marking the third consecutive quarter of year-over-year growth in sales, gross margin, and adjusted EBITDA, speaks to the growing resonance of the Roots brand and the discipline with which we are executing our strategic priorities,” said Meghan Roach, president and chief executive officer. “From elevated marketing to improved product availability and AI-operational enhancements, we drove meaningful gains across key performance metrics. As we begin 2025, I am proud of how our team continues to innovate and deliver value while navigating consumer preferences and the evolving retail landscape.”

“Our first quarter results reflect our ongoing commitment to balance top-line growth with cost discipline to improve long-term profitability and operating leverage,“ said Leon Wu, chief financial officer. “With a strong balance sheet, we are well-positioned to opportunistically respond to shifting market conditions while sustaining our current momentum.”

First Quarter Overview
Total sales were CN$40.0 million in Q1 2025, representing a 6.7 percent increase from CN$37.5 million in the first quarter of fiscal 2024. Direct-to-consumer (DTC) sales (corporate retail store and eCommerce sales) were CN$34.6 million, a 10.2 percent increase from CN$31.4 million in Q1 2024. DTC momentum carried into Q1, with comparable sales growth of 14.1 percent, driven by double-digit growth across both channels, led by conversion improvements through enhanced product curation, customer experience, and better in-stock position.

P&O sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to CN$5.4 million in Q1 2025 as compared to CN$6.1 million in Q1 2024. The decline in P&O sales is due to lower wholesale sales, as its international operating partner continues to optimize its inventory levels. The company noted that it partially offset the decline by double-digit growth from the remaining lines of business in the segment, including China Tmall e-commerce sales.

Gross profit reached CN$24.6 million in Q1 2025 compared to CN$22.1 million in Q1 2024, representing a year-over-year increase of 11.2 percent. Gross margin was 61.5 percent in Q1 2025 compared to 59.0 percent in Q1 2024. DTC gross margin was 62.9 percent in Q1 2025, up 80 basis points from 62.1 percent in Q1 2024. The increase in DTC gross margin was driven by 270 bps of product margin expansion from improved costing and lower discount sales, partially offset by the unfavorable foreign exchange impact on U.S. dollar purchases and increased freight premiums.

SG&A expenses totaled CN$33.3 million in Q1 2025 compared to CN$32.0 million in Q1 2024, representing a year-over-year increase of 4.1 percent. The company reported that the increase was partially driven by a CN$ 0.5 million unfavorable revaluation of cash-settled instruments under its share-based compensation plan. Excluding this item, SG&A expenses increased 2.6 percent, primarily reflecting higher investments in marketing, with sales-driven variable costs largely offset by savings from store fleet optimization initiatives.

Net loss totaled (CN$7.9) million, or (CN$20 cents) per share, in Q1 2025, improving from a net loss of (CN$8.9) million, or (CN$22 cents) per share, in Q1 2024.

Adjusted EBITDA amounted to (CN$7.1) million in Q1 2025, improving from (CN$8.0) million in Q1 2024.

Financial Position
Inventory was CN$40.5 million at the end of Q1 2025, as compared to CN$35.4 million at the end of Q1 2024, representing an increase of CN$5.1 million or 14.5 percent. The year-over-year increase in inventory was driven by the rise in certain on-hand core collections, which addressed shortages in these areas in Q1 2024, and by higher in-transit inventory to support the upcoming season.

Free cash flow was (CN$21.8) million in Q1 2025, as compared to (CN$14.6) million in Q1 2024. The change in free cash outflows was driven by increased inventory purchases and the timing of certain monthly occupancy cost payments. As at May 3, 2025, Roots had net debt of CN$29.6 million, improved from CN$31.7 million a year earlier. The company’s leverage ratio, defined as total net debt to trailing 12-months Adjusted EBITDA, was 1.3x as at Q1 2025. As of May 3, 2025, Roots had CN$40.6 million outstanding under its credit facilities and total liquidity of CN$65.9 million, comprising cash and borrowing capacity available under its revolving credit facility.

Stock Repurchases
Under its Normal Course Issuer Bid (“NCIB”) program, Roots repurchased 115,300 common shares of the company for a total consideration of CN$0.3 million in Q1 2025. The NCIB allows the company to repurchase for cancellation up to 1,347,118 shares during the 12-month period ending April 10, 2026. At the end of Q1 2025, 115,300 shares had been purchased under the current NCIB program.

Amendment To The Company’s Credit Agreement
On May 22, 2025, the company amended its credit agreement to extend the current maturity date of September 6, 2026 to September 6, 2027. In addition, the amendment reduced the CN$60 million Revolver Credit Facility, which includes a CN$10 million swing loan, to CN$45 million and increased the maximum annual excess cash flow sweep, as defined in the credit agreement, from CN$5 million to CN$7.5 million. The costs incurred by the company associated with the amendment will be recorded as debt financing costs within long-term debt and will be recognized in interest expense over the remaining term of the loan.

Roots operates over 100 corporate retail stores in Canada, as well as two stores in the United States (Birmingham, MI, and Park City, UT) and the roots.com e-commerce platform. It also has more than 100 partner-operated stores in Asia and operates a dedicated Roots-branded storefront on Tmall.com in China.

Image courtesy Roots