Roots, the Canadian lifestyle apparel chain, filed for an initial public offering to accomplish ambitious growth goals in the years ahead, including adding about a dozen new doors in the U.S.

According to its prospectus, the retailer generated sales of approximately Canadian $282 million (U.S.$231 mm) in fiscal 2016, growing at a CAGR of approximately 14 percent from 2014 to 2016. In 2016, the company saw comparable sales growth of 8.3 percent over the previous fiscal year, recognized net income of C$8 million ($6.5 mm), adjusted net income of C$21 million ($17.2 mm), and adjusted EBITDA of C$42 million ($34.5 mm).

Roots’ targets by the end of Fiscal 2019 include

  • Sales of C$410 to C$450 million, which implies a CAGR of 13 percent to 17 percent from fiscal 2016 to fiscal 2019;
  • Adjusted EBITDA of C$61 to C$68 million, which implies a CAGR of 14 percent to 18 percent from fiscal 2016 to fiscal 2019; and
  • Adjusted net income of C$35 to C$40 million, which implies a CAGR of 18 percent to 23 percent from fiscal 2016 to fiscal 2019.

The underlying assumptions to support the growth include:

  • Average annual comparable sales growth in line with or above the level achieved in fiscal 2016;
  • E-commerce penetration increasing to 20 percent to 22 percent of total DTC sales by the end of fiscal 2019;
  • 29 to 33 store renovations and expansions by the end of fiscal 2019;
  • The opening of 8 to 10 new stores in Canada by the end of fiscal 2019;
  • The opening of 10 to 14 new stores in the U.S. by the end of fiscal 2019;
  • Continued expansion in existing and new international markets; and
  • Strategic expansion of its existing product offering in leather and footwear.

As of July 29, the company had 116 corporate retail stores in Canada, 4 corporate retail stores in the U.S., 109 partner-operated stores in Taiwan, 27 partner-operated stores in China and a global e-commerce platform that shipped to 54 countries during its most recently completed fiscal year.

Specifically in the U.S., Roots said the “lasting halo effect from investments relating to the 2002 Winter Olympics in Salt Lake City, Utah, and Canada’s proximity to the United States have created a solid base of consumer awareness for the Roots brand.”

Having engaged a third party consultant to analyze e-commerce data and conduct external market research to prioritize key markets, near-term expansion in the U.S. is expected to be in the Northeast and Midwest regions that are in in close proximity to its existing infrastructure. Store openings are being evaluated in Boston, Detroit, Philadelphia, Washington and Chicago. It’s four existing stores are in New York City, NY; Los Angeles, CA; Park City, UT; and Birmingham, MI.

Beyond further expanding in Canada and other international markets, growth initiatives includes growing leather and footwear, two categories representing approximately 16 percent of sales in fiscal 2016. The company plans on “modernizing the range of our leather bags, accessories and jackets” while adding on-site leather experts and customization technology to a select number of stores.

Launched in 1973 with the negative heel shoe, Roots has also found success with iconic footwear styles such as the Tuff Boot and Shorty Boot, but still feels its footwear assortments are under-represented in its mix.

Roots said the brand was originally inspired by the “great Canadian outdoors” but has morphed into “an inclusive lifestyle brand for those who want to enjoy the moment and embrace the spirit of the open air.”

With 99 percent aided brand awareness in Canada, it counts its Canadian heritage as one of its competitive strengths and has benefited by “successfully exporting our heritage globally.” In fiscal 2016, Roots products were sold in 54 countries worldwide and 29 percent of its system-wide sales were generated outside of Canada.

“While the world around us has changed, we have stayed true to the guiding principles of our brand,” Roots writes in its prospectus. “We believe that our uniquely Canadian self-confidence, authenticity, quality and unwavering integrity are more relevant today than ever before.”

Other competitive strengths includes its diversified portfolio spanning apparel, leather goods, accessories and footwear across seasons, as well as its broad demographic reach and omnichannel capabilities. E-commerce penetration has increased  from 8.1 percent to 12.8 percent of DTC sales over the past three fiscal years.

Roots also pointed to its “experienced and passionate” management team, led by president and CEO, Jim Gabel; CFO, Jim Rudyk; and chief merchandising officer, Priscilla Shum.

Prior to taking over as CEO in February 2016, Gabel served as president of The Performance Group of Wolverine Worldwide, where he oversaw Saucony, Merrell and Chaco. Past posts include president of Adidas Group Canada and president of Reebok North America.

Rudyk, who joined Roots just before Gabel in January 2016, was formerly CFO for Shred-it International. Shum, joining Roots in April 2016, was previously VP of merchandising and product development at Joe Fresh.

The management changes came after the Toronto-based company sold a majority stake to New York-based private equity firm Searchlight Capital Partners.

Under the new team, Roots has have implemented a number of transformational initiatives designed to strengthen and drive efficiencies across the business.

In addition to investments in other hires, Roots has established a single global product range coordinated across collections and categories to support a “simplified and scalable product assortment” while being able to faster react to trends. Some stores have benefitted from renovations, relocations and expansions while a “more analytical, data-driven approach” has been taken to store portfolio optimization. Online has also received a greater emphasis under the new team.

“We are already realizing operational improvements resulting from these initiatives and intend to continue leveraging these investments to accelerate sales growth and realize higher margins,” Roots wrote in its prospectus.

In the half ended July 29, Roots’ net loss was reduced to C$8.3 million ($6.8 mm) from C$14.9 million a year ago. Sales grew 16.4 percent to C$106.4 million ($87.3 mm). The lower loss reflected the revenue gains as well as improved product costing and a more favorable product mix.

In 2016, sales grew 10 percent to C$281.9 million ($231.4 mm) with year-ago results adjusted for the acquisition. Net income was reduced C$8.2 million ($6.7 mm) from income of C$16.5 million in 2015. Interest expense rose to C$6.1 million ($5.0 mm) from C$2.5 million the prior year due to incremental debt relating to financing the acquisition.

The amount of shares sold, selling shareholders and the projected prices in the IPO have not yet been disclosed. The retailer is seeking to raise about C$200 million in the share sale and could have a market value of about C$700 million ($574 million) after listing, sources told Bloomberg.

The offering is being co-led by TD Securities Inc., Credit Suisse Securities (Canada), Inc. and BMO Capital Markets, together with Jefferies Securities, Inc., RBC Dominion Securities Inc. and Scotia Capital Inc., as joint bookrunners, and CIBC World Markets Inc., Canaccord Genuity Corp. and National Bank Financial Inc., as underwriters.

The company has applied to list on the Toronto Stock Exchange under the symbol ROOT.

The full prospectus IS HERE.

Photo courtesy Roots