TORONTO — Roots Corp. executives say the back half of 2024 will likely see consumers edging back into purchasing discretionary goods they forewent as inflation and interest rates climbed.
"Interest rates are playing a big impact on consumer discretionary spending broadly. We saw that in the fourth quarter and we expect to continue to see that in the first half of the year," Meghan Roach, chief executive of the Toronto-based apparel manufacturer, said on a Wednesday call with analysts.
"Our expectation, I think, consistent with the market's expectation, is that there should be some easing of that into the second half of the year, which should have a positive effect on consumer discretionary in general."
Roach's optimism around the consumer's willingness to spend comes as many feel the Bank of Canada will begin cutting its key lending rate in the coming months. Should the central bank make such a move, it would ease some of the financial pressures Canadians with hefty mortgage payments have been feeling.
That would be welcome news for Roots and other retailers, which saw their sales come under pressure over the last year.
In its most recent quarter, Roots' sales hit $108.2 million, down three per cent from $111.5 million a year earlier.
Despite buzzy collaborations with Barbie and streetwear brand Clot, the fourth-quarter drop came as Roots said its direct-to-consumer sales, which includes its corporate retail stores and e-commerce sales, totalled $97.8 million, down from $98.5 million a year earlier.
Sales with its various partners totalled $10.5 million for the period ended Feb. 3, down from $12.9 million last year, because of a company decision to not continue business with a wholesale partner.
However, Roots said Wednesday that its fourth-quarter profit rose to $14.6 million, up from $13.0 million a year earlier. That profit amounted to 36 cents per share, up from 31 cents per share a year earlier.
Its gross margin reached 58.6 per cent, up from 56.5 per cent a year earlier.
Roach considered the quarterly numbers a "solid performance" despite the headwinds.
She conceded Roots had closed an unspecified number of stores recently, but said the majority of affected locations were consolidating and moving to larger locations.
"What we're trying to do right now is really focus on not necessarily looking at the number of stores we have, but also the productivity of the stores, as well as the footprint in terms of where our consumers are and where we think we're going to have the benefit of those consumers going forward," she said.
On the same call, chief financial officer Leon Wu added the current store network "is a good size but we'll always continue to look at where there's opportunities to either move around stores or improve efficiency."
Moving forward, Roach said Roots would be focused on improving the company's product margins by reducing costs in many cases without hampering quality.
The company will also make strategic investments in artificial intelligence, which it plans to use to personalize more relevant content to consumers and push shoppers to make purchases.
This report by The Canadian Press was first published April 10, 2024.
Companies in this story: (TSX:ROOT)
Tara Deschamps, The Canadian Press
