Why Roots Jumped 12% on Tuesday

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

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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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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