Canadian retailer Roots files for IPO, plans international expansion

Roots (Photo by Source, Fair use)

TORONTO — Another Canadian clothing retailer, Roots Corp., wants to take its company public as it plans a massive North American and international expansion over the next several years.

For the heritage-fashion retailer the switch from being a private company for more than four decades comes against a challenging retail environment that’s seen numerous bankruptcies, and mass store closures and layoffs in recent years.

The company known for its poor boy style hats and woolly winter mitts that have adorned both Canada’s Olympic athletes and consumers has applied to list on the Toronto Stock Exchange under the symbol ROOT.

The retailer, which operates 120 stores in North America and has a partner running another 136 between Taiwan and China, is looking to open dozens of new locations.

That includes up to 10 in Canada and up to 14 in the States by the end of its 2019 financial year.

Roots is also eyeing international markets, hoping to grow by up to 25 new locations between Taiwan and China, and build a presence in Singapore and Malaysia in the same time frame.

Beyond that, the company is evaluating partnerships in a dozen new markets abroad.

“When you have such large expansion goals and projections, then it makes sense to go forward with an IPO,” said Tamara Szames, a Canadian fashion and apparel analyst for the NPD Group.

An initial public offering would provide some of the capital necessary to fund the expansion plan, she said.

The price and the number of shares being sold by Searchlight, Budman and Green — the private investment firm that purchased a majority stake in Roots in 2015 — was not immediately disclosed. A Roots spokesman declined to comment.

The company’s IPO comes against “a favourable backdrop,” said Craig Fehr, principal investment strategist at Edward Jones Investments.

Investor sentiment is quite positive, equity markets have a lot of momentum behind them and stock prices are up across the board, he said.

Additionally, Roots disclosed financial growth in its preliminary prospectus that’s quite strong, he said, a good sign that its managing ongoing disruption to the retail industry by the rise of e-commerce and other factors.

The retailer is following in the footsteps of other Canadian fashion companies, including recent initial public offerings by Vancouver-based Aritzia (TSX:ATZ) and Toronto-based winter-coat maker Canada Goose (TSX:GOOS).

Shares in Canada Goose have soared more than 40 per cent since they began trading earlier this year, however Aritzia shares have struggled and fallen well below their IPO price. The shares debuted on the Toronto Stock Exchange in Oct. 2016, with an IPO price of $16, but are currently trading below $14.

Fehr said the different paths of those retailers may demonstrate that a company with a niche offering like Canada Goose is more likely to succeed.

Investors may be more comfortable betting on a luxury retailer whose parkas sell for upwards of $1,400, added Szames, than on Aritzia, which sells its goods at a price range where many retailers are struggling.

Roots, which points to its leather goods and footwear products as a possible area of expansion, could position itself in a high price bracket, Szames said.

However, both IPOs had one thing in common, she said, highlighting that each stock soared on the first day of trading.

Szames anticipates Roots will be seen as a similarly hot item.

“We’re going to see that surge,” she said, adding no one can predict what will happen next.