Why Roots Jumped 12% on Tuesday

Roots shares climbed after strong third-quarter earnings, and even more growth is expected by management next quarter.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 15, 2021 8:15 am EST

| More on: ROOT

Canadian clothing retail Roots (TSX:ROOT) saw shares jump over 12% on Tuesday from a strong third-quarter earnings report.

Roots saw sales reach $76.3 million during the third quarter, with adjusted earnings per share at $0.28.
Analysts expected a profit of $0.21 per share and $77.8 million in revenue.
Executives believe Roots will capitalize on the holiday season for an even stronger fourth quarter.

What happened in Q3 for Roots?

Roots stated its last quarter saw an increase in profit to $10.8 million earned in the third quarter. This was up from $10.3 million the year earlier. The profit equates to $0.28 per share on an adjusted basis compared to analyst estimates of $0.21 and up from $0.27 the year before.

Sales also increased to $76.3 million from $72.9 million the year before. And as management stated, this didn’t even include Black Friday and holiday sales. Management expects strong performance, despite supply chain issues with other companies. Roots remains well positioned and stocked to meet customer needs.

Shares of Roots jumped over 12% at its peak on Dec. 14 after earnings. As of writing, shares trade at $3.22.

What did Root’s management say?

As mentioned, management’s main response was that despite beating estimates, the next quarter should be even stronger. In fact, it reported stronger levels than its fiscal 2019 and 2020 third quarters. It practically all comes down to the incredible rebuild of its brand. This led to double-digit growth in sales, despite supply chain disruptions.

“We believe we are well-positioned to capitalize on the fourth quarter holiday season and pleased with the performance of our new products,” said Meghan Roach, president and CEO. “We are prepared to meet consumer demand with compelling gifts and healthy inventory levels in-store and online.”

What’s next for Roots?

Investors can still look forward to more growth from Roots in the fourth quarter, but there was even more great news. The company announced the intention for a normal course issuer bid for common shares. These shares would be repurchased for cancellation for up to 2,172,928 common shares. This would represent 10% of its public float between Dec. 16, 2021, and Dec. 15, 2022.

Shares of Roots are up 30% year to date and are currently trading at $3.22 per share. Yet it remains a deal, trading at 8.19 times earnings, and it has a target price of $4.46 by analysts even before these results.