Roots Corp Q3 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 : Jim and Meghan, can we just talk about your change -- effective change to guidance that you've given that you're not going to be able to meet the low end of guidance on sales and that will top -- as you just said, Jim, that EBITDA and net income will fall below? Is there a reason why you're not giving us sort of an actual new guidance on numbers? And can you just kind of directionally give us an indication of just how far first short, you think you're going to fall off the previous guidance?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Does that -- I don't want to belabor this point, but I just want to understand, is that in any way related to the fact that you have, say, limited visibility on where you think Q4's going to fall?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Fair enough. And just one other question. Let's go back to the continued operational inefficiencies. And you did say you had some -- realized some improvements with the DC, but you're still having a delayed close of products. I think on the second quarter call, you provided an indication of where you expect it to be as you exited the year and where you expect it to be with respect to the DC currently. Are you there? Or are you behind where you thought you'd be?

Question: Patricia A. Baker - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And then my last question, let's talk about the U.S. business. And you said that, you're performing below expectations there. When you look at this, analyze this and think about that U.S. business, do you have a sense of what you think the factors are? Why do you think you're performing lower than you had anticipated? And sort of, as you just said you've got to make decisions, so what are -- what's your current thinking on the U.S. strategy?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : I just had a question for you. Just on the same-store sales growth in the quarter, you mentioned that it fell below your expectations. Can you talk a little bit about what components fell below your expectations and what key drivers were?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. And if you talk -- if you were to talk about the components of same-store sales growth, like was in-store sales versus e-commerce relatively in line with your expectations? Were traffic levels relatively in line with your expectations, just thinking of some of the components there? 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. DECEMBER 06, 2019 / 1:00PM, ROOT.TO - Q3 2019 Roots Corp Earnings Call

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. That's fair. And then was -- I've seen you recalling your Q2 store traffic was down year-over-year. Was store traffic down year-over-year in Q3 as well?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. That's right. And then just finally, on the gross margin. Meghan you walk through -- I think you said 60% of the decline was due to incremental DC costs. Can you talk a little bit about -- now that you've closed your third-party DC, what -- how much is the dollar amount that flows out of SG&A into cost of goods sold?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : The Q4 reduction will be the same amount that flows into gross margin? Or is that...

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : I just wanted to ask quickly on the international side, I guess. Obviously, there was a step-down this quarter, but do you see sort of a normalization early 2020 or sooner than that? What are some of the trends you're seeing on the ground and the feedback from your partners there?

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : Okay. And then on the U.S. side, do you see that strategy as sort of to have these stores continue to work for them? Or do you have certain internal thresholds that you're looking to hit by a certain time to kind of reevaluate the expansion you've had in that market? Or is that sort of -- those stores are in place, and you'll continue to operate them? Or is that...

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : And then on the e-commerce penetration, I think last quarter, you mentioned you're likely tracking ahead of your guidance that you had out at the time of the IPO. Are you able to provide an update on what you're seeing into Q4? Where you might shake out on e-commerce penetration on a full year basis by the end of this year?

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : Okay. And then just one last one on the management change related to the Chief Merchant that you announced this morning. I guess it is a little late in the year. So I'm assuming the Christmas sort of product is out in the market. Are you sort of comfortable with having the right offering and stuff there early in the year, while you find a new person to fill that role?