Roots Corp Q1 2019 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Just -- I want to circle back on the SG&A, Jim. You mentioned that there were 2 factors in there, higher omnichannel costs and then transition costs related to the new DC. So can you quantify for us what the transition costs were? And then secondly, with respect to the higher omnichannel fulfillment costs, is that simply just on higher volume? There was nothing unusual there, just that you had higher volume in the quarter?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : And my follow-up question is just on the inventory. Looks like you did a pretty good job of clearing a lot of the inventory in advance of opening the DC. So do you feel pretty confident by the time the DC -- you're opening the DC sometime in Q2, you may well have gotten that inventory where you really need it to be?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : I just wanted to just follow up quickly on the inventory question. Is there any way to quantify like how much of the aged inventory you're through? If you started at 100, where would you be now and how much would you have left?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay, okay. And then just on the gross margin, I just wanted to clarify just kind of the wording of the outlook. So it sounds as though you expect gross margin pressure again in Q2, and it sounds like, based on the wording, you would expect gross margins to be also down for the full year. Is that the correct way to think about it?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : In the past few quarters, and you can correct me if I'm not -- if I got this wrong, but management talked about how -- they didn't feel the brand voice in Canada was resonating due to actions in the U.S. and other actions. Just wondering how management feels about its marketing initiatives and if the brand voice is where it needs to be?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And just trying to understand the cadence of same-store sales growth from Q4 to Q1. Q4 had a tougher year-over-year comp and then Q1 still tough comp but a little bit easier than Q4. Just wondering why the little bit of sequential slowing? And did discounting have an impact on that? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2019 / 12:00PM, ROOT.TO - Q1 2019 Roots Corp Earnings Call

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : And AUR stands for?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. So that impact from the AUR should show up a little bit in Q2, and then we shouldn't have that AUR issue in Q3 and Q4?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And SG&A continues to grow at a rapid rate, and I know there was the DC initiatives in there in Q1. But I'm wondering if -- on the whole, if management is satisfied with its SG&A base and if there's opportunity for efficiency initiatives to maybe take a little bit of pressure away from the EBITDA margin trends?

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : E-comm (technical difficulty)

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : (technical difficulty) but I guess generally online (technical difficulty) in addition to...

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Sorry, I'll try again.

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : So just on -- yes, great. So just on the e-comm side. As that becomes a bigger part of the business and typically, I presume, the AURs there can be somewhat lower than the brick-and-mortar side. In addition to the fulfillment costs, are there other areas across the business you've identified that can help you maybe sustain or improve margins over time as online becomes a bigger part of your mix?

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Okay. Great. And then just a quick one on the e-comm. I guess, as we look beyond this year, I know you have the target for this year, but what do you see as a long-term potential for online as a percent of sales for the total Roots business, if we think 3, 5 years out?

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Okay and then just on the mechanizing side. You've talked over the last few quarters a little bit about introducing more end-season merchandise or more fashion oriented. I guess how much of a focus is that going to be over the long run? Historically, we've thought as the staples being a bigger part of the mix. Is this on a trial basis? Or do you want to maybe, over the long run, shift the brand to have more end season or fashionable products rather a bit more staplish? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2019 / 12:00PM, ROOT.TO - Q1 2019 Roots Corp Earnings Call

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Okay. And then one last one from me. Perhaps you can give us an update on how the U.S. business is trending. If - are there any updated thoughts on when the profitability there will be in line with Canada? Just the traction across the different cities and how some of your stores that opened first are moving or progressing?