Roots Corp Q2 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 : I have a number of questions. So one of the things that impacted the quarter, Jim, was, you said, there was soft store traffic. Can you just talk about that a little bit? And was that weather related or attributable to something else? And when you indicated that things are improving in the third quarter, does that mean -- were you referencing also the fact that traffic is improving in the third quarter?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. That's helpful. And then the other big issue in the quarter was the delay of flow of product to the stores. And can you just talk about how that happened? When did you start to see that problem and where -- how far through -- how much -- at the peak of the delay of the flow and where you are now, how does it compare?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Excellent. So if you're currently at 60% of capacity, do you have a target for when you think you'll be at 100% capacity?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Fair enough. And then just a clarification here, you have mentioned that you extended with your e-commerce partner out to October. So that's the third-party delivery contract, if extension is successful.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : I just wanted to come back -- circle back on the traffic. You mentioned that traffic was weak sort of heading into the quarter and improved as moving into August and September. Can you just talk a little bit about what you think the traffic drivers were in terms of driving the weakness and then driving the improvements, sort of late in the quarter?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Great. Okay. Okay, and then just along those lines, you cited in SG&A that you had some higher store wages related to increased in-store fulfillment of online orders. Would that be related to some of the challenges you saw in the DC? I mean is it -- how do I interpret that? Or can you explain exactly how that works?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. Okay. That's helpful. And then just looking at the full year, you talked about the $5 million to $6 million impact, which I assume is safe to assume that at least at this point EBITDA should -- target should be $5 million to $6 million lower. You talked about the factors affecting DTC

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Just I guess, just a follow-up on that guidance. I may have missed this earlier. But I guess when you say EBITDA guidance would be lower and then you mentioned that $5 million to $6 million amount, should we assume that your kind of new implied guidance range is about $5 million to $6 million below the low end on the range? Just trying to put some parameters around the range. 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. SEPTEMBER 11, 2019 / 12:00PM, ROOT.TO - Q2 2019 Roots Corp Earnings Call

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Okay. Great. And then I think you mentioned a little bit on the cash on the leverage earlier. Do you sort of have a time line for when some of those that DC-related cost will moderate and you can see some improvement in the leverage? And do you have a approximate range for where you expect to be on leverage by year-end?

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Okay. And then one last one just on the e-commerce strategy. How was the -- I guess the penetration there coming along? And you mentioned some incremental cost, should we assume that your e-commerce penetration maybe is coming in ahead of expectations and you have some additional cost there? Just trying to understand how far along that a strategy is today?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Just on the balance sheet, I may have missed this of off the top. Is there a specific debt to EBITDA leverage level that management thinks is a level which they want to be below? I understand that you suspect there'll be cash generated in the future, but if you can give us that tolerance, that'd be helpful.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. So I understand that. The reason why I'm asking is because, I think management said in -- as response to a prior question that they'll be looking to use the future cash flows in the best way possible. So I was just wondering, if investors can look at your leverage levels and try to put their own assumptions around that, so that's why I'm asking. So is there help you can give us there?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. In terms of one of the indications in the past that you provided to us on marketing and brand spend, is management content where they are in terms of the actual level of investment in marketing? Or do we need some more here to accelerate the trends a little bit further?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. In terms of the store network, is management content with the store network? Is there a need to be reviewed to see if there is stores that are may be no hitting the hurdle rates that you anticipated? Is this still -- is it still reasonable for investors to expect Roots network to grow in size over time?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And just one more here. Management indicated that trends are starting to improve in Q3. But Q3 last year was an outlier in terms of a little bit of weakness there. So wondering if that improvement is due to lapping easier comps or if it's actually concrete improvement that we should see extend into Q4 and Q1, et cetera, et cetera. 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. SEPTEMBER 11, 2019 / 12:00PM, ROOT.TO - Q2 2019 Roots Corp Earnings Call