Roots Corp

TSX:ROOT

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Cristal, and I will be your conference operator today. At this time, I would like to welcome everyone to the Roots Fiscal 2021 First Quarter Conference Call. [Operator Instructions] On the call today, we have Meghan Roach, Chief Executive Officer; Mona Kennedy, Chief Financial Officer; and Kristen Davies, Head of Investor Relations for. Before the call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements about current and future plans, expectations and intentions, results, levels of activities, performance, goals or achievements or any other future or events or developments. This information is based on management's reasonable assumptions and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its fiscal 2021 first quarter management's discussion and analysis and/or its Annual Information Form dated April 7, 2021, for a summary of the significant assumptions underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on these statements. Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The fiscal 2021 first quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as on the Roots Investor Relations website at www.investors.roots.com. Finally, please also note that all figures discussed on this conference call are in Canadian dollars unless otherwise stated. Thank you. Ms. Davies, you may begin your conference.

[Kristen Davies, Head of Investor Relations]

Thank you, operator. Good morning, everyone, and thank you for joining us. Meghan Roach, our Chief Executive Officer, will discuss our fiscal 2021 first quarter operational performance as well as our strategic outlook for the fiscal year. Then she will turn the call over to Mona Kennedy, our Chief Financial Officer, who will discuss our financials in greater detail. After that, we will open up the call to questions. Meghan?

[Meghan Roach, CEO, President & Director]

Thank you, Kristen. Good morning, everyone, and thank you for joining us. Over the past 5 quarters, we have navigated unprecedented disruption in our industry as a result of COVID-19. However, by remaining focused on what we can control, we have significantly strengthened the fundamentals of the business, establishing a solid base on which to build long-term profitable growth. Our first quarter results highlight the continued excitement of our customers for the brand and enthusiastic responses to new product initiatives to the positive sell-through of [ beloved products ]. They also highlight the continued strength in our omnichannel capabilities as customers take advantage of our multichannel shopping experience, and our success in driving operational and cost efficiencies. In terms of gross margin SGU, specifically, we generated improvements year-over-year as well as significant progress relative to Q1 2019. During the quarter, we continued to leverage our digital capabilities, our single pool inventory at our distribution center and historically to successfully serve our customers through an omnichannel lens. E-commerce increased approximately 50% year-over-year, helping to offset declines caused by store closure. As we have seen in previous periods where our stores were open, our customers are also shopping with high intent to purchase, which resulted in-store conversions continued to outperform prior years. From a product perspective, we generated excitement with new and existing customers through a series of partnerships and collaborations, including Revolution Aire, Emma Knight and Avengers S.T.A.T.I.O.N.. We also partnered with [indiscernible] in weekend to design limit addition [ war ] jackets during the quarter that created significant brand hype. In many cases, each product sold out within days of launching. Collaborations and partnerships will continue to play an important role in the business going forward. As highlighted in previous quarters, these relationships enable us to seek new customers, to test new categories, innovate within our core products and create excitement amongst our loyal customer base. While customers love our collaborations, our heritage pieces also played a significant role in driving our business in the quarter. We continue to see many of our core products in our top sellers, and we released the Roots Retro Collection and incredibly positive customer response. The collection and the relaunch of our beloved Group logo and the company's archive and also updated colors and silhouette. We also saw an opportunity to attract new customers and give existing customers the reason to buy new leather items by playing with colors this season. For example, we offered 7 new colors in our Banff Bag, the product first launched in 1988 to great success. I think it reminded us that as a brand that we've been around for almost 50 years. We have deep archives of incredible products. We see significant opportunity to continue to innovate within our existing products. And as we saw in the quarter, even small things could prove to be very impactful. In line with our strategic [indiscernible] strategy, we also continue to test new products, particularly those that can be made or finished in our other factory. In 2020, we demonstrated our ability to successfully expand beyond our made in Canada leather products, reproducing scrubs and then fabric masks in our factory. In Q1 2021, we tested a premium fleece collection with our first ever limit edition drop of made in Canada fleece, embroidered in our leather factory in Toronto. Each sweatshirt represented 3.5 hours of our industry, [ winning ] 154,000 stitches and 9 sets of hands and 22 colors of thread. While it was a small product run, we saw a in a single weekend at a price more than double that of our other sweatshirts on the site. Turning briefly to our international business. Taiwan has shown signs of recovery, although we continue to expect volatility as they work through the impacts of multiple ways of COVID-19. China is also progressing in the right direction for us, and we continue to believe in the long-term growth potential in the United States. In both the United States and China, we also continue to believe addition to our strategy is the most appropriate for us in the near term. At this stage, the majority of our directly operated stores are in Canada, a market that remains significant challenged by the impact of COVID-19. As such, our continued success in navigating the unprecedented times says a lot of the strength of the brand, our products and our business. Over the longer term, we believe we can extend the strength internationally to drive further growth. Celebrating diversity, equality, equity, inclusion and delivering a positive impact within our communities remain important areas of focus for us and integral to the Root's brand. During the quarter, we donated a portion of our sales from made in Canada Fabric masks to select collaboration items to 2 amazing organizations. The first is the Black Academy, which is dedicated to breaking down barriers of disclamation and combating systematic racism in Canada by elevating inspiring anglophone and francophone black talent across the country. And the second is GEM, our Girls E-Mentorship programs designed to help the next-generation women leaders develop professional skills, pursue higher education and build successful clear path. I'm also personally excited to be participating as a mentor in the program in 2021.We also played a role in supporting vaccine roll out to Ontario. We arranged the vaccination clinics for our team in the surrounding communities of a distribution center, and we also gave employees paid time off to encourage them to get vaccinated. The team worked tirelessly to support the rollout of these vaccinations and we are continuing to do our part in the global fight against the pandemic. It feels encouraging to be moving into a more hopeful phase. However, the battle continues for many and our thoughts to with those who have been affected by COVID-19 and the communities and countries that are at earlier stages in the recovery than we are here in Canada. We also continue to progress our diversity, equality, equity and inclusion initiatives within our organization. We are pleased with our progress and we're retaining our momentum behind these efforts. Remember this is about long-term meaningful change. It will take time. And as we all know, the work around diversity, equality, equity and inclusion is never done. As we look to the second quarter, the uncertainties of pandemic remains in Canada, including government mandate store closures that are currently expected to persist until July. Over the last 5 quarters, we have been focused on what we can control and softly responding to that, which we cannot. For example, while we cannot control the provincial store opening plans or the changes in government subsidy programs, we are maintaining disciplines within our operation to help offset these impacts as possible. And overall, we have strengthened the fundamentals of the business over the last 5 quarters in a way that have positioned us well for future growth. We are optimistic that with the vaccine role out accelerating, we will start to see increasing macro recovery in due course. We are confident that as we slowly emerge from this pandemic, customers will continue to speak, express their style without sacrificing the comfort, quality and versatility to which they've become accustomed. We also continue to believe that digital convenience will be important to customers going forward. These are all areas of strength for Roots, and in many cases, have been for almost 50 years. With a focus in the long term, we plan to amplify our iconic brand with great creative, strong product execution and targeted investments focused on driving profitable growth, all while continuing to support our community. Before I turn the call over to Mona, I want to [indiscernible] team and their continued hard work and perseverance. The actions we took in 2020, which have carried forward into 2021, have had a meaningful impact on the business and position us well for a bright future post COVID-19.

[Mona Kennedy, Chief Financial Officer]

Thanks, Meghan, and good morning, everyone. During the first quarter and now into our second quarter, we continue to face headwinds and uncertainty as a result of government-mandated store closures and operating limitations. Nonetheless, in Q1 2021, we delivered sales growth, gross margin expansion and bottom line improvements. Our Q1 results continue to demonstrate a few key factors: customer excitement for and loyalty to the brand, our robust omnichannel capabilities and our success in driving operational and cost efficiencies. Now looking at our financial results in greater detail. Total sales in the first quarter were $37.3 million, up 24.7% from total sales of $29.9 million last year. DTC sales were $31.4 million, a 27.6% improvement over $24.6 million last year. Our year-over-year sales increase was driven by stores, e-commerce and the P&L segment. Our stores were closed for approximately 30% of the quarter in comparison to 50% last year. So we naturally saw higher sales just by the nature of being open for more of the quarter. However, we're also encouraged by having seen sales close to pre-pandemic 2019 and 2020 levels when our stores were all open in the quarter. In terms of e-commerce, as we have seen in previous quarters, e-commerce growth moderates as stores reopen. However, online sales were still up approximately 50% year-over-year, and that is on top of the growth we achieved in Q1 2020. On the partners on other fronts, sales were $5.9 million, up from $5.3 million last year. This was primarily a result of an increase in our Asia partner business in Taiwan, which was significantly impacted by temporary store closures and reduced traffic last year as a result of COVID-19. It was also the result of a shift in timing of wholesale orders that contributed to higher sales in the quarter. We had another quarter of strong gross margin improvement as a result of our continued promotional discipline. At 61.2%, our DTC gross margin for the first quarter improved 320 basis points over the 58% we recorded last year. We continue to manage our expenses tightly, while closely monitoring our top line performance. We recorded $25.9 million in selling, general and administrative expenses for Q1 2021, down from $27.8 million last year. The year-over-year decrease predominantly reflects our continued effort to reduce costs and increase efficiencies. These savings were partly offset by higher variable costs as a result of the year-over-year increase in DTC sales as well as higher costs related to investments in talent and marketing. Our Q1 SG&A also reflects $2.5 million in government wage and rent subsidies, which compares to $1.3 million last year. In addition, we realized $1.7 million in SG&A savings related to the U.S., predominantly as a result of the permanent closure of 7 of our U.S. stores a year ago. Reflecting our sales growth, gross margin expansion, cost savings and the benefit of government subsidies that helped offset the impact of store closures in the quarter, we recorded an adjusted EBITDA of negative $2.5 million, a $5 million improvement over negative $7.5 million we recorded in Q1 2020. Now turning to inventory. Our inventory balance at the end of the quarter was $42.5 million. While up slightly over $40.3 million a year ago, it is primarily a result of our pack and hold strategy. As I'm sure you're aware, there are industry-wide concerns about delivery delays, largely as a result of the evolving pressures on our supply chain from COVID outbreaks in India, Southeast Asia as well as congestion at the ports. We aren't seeing any material impacts at the moment as we took precautions early and move delivery dates up in our calendar. So while, in some cases, product is arriving later than initially planned, it continues to be seasonally relevant. It is a buffer that we have built in that are being squeezed or lost. Nonetheless, this is something we continue to monitor very closely, and we can turn to our pack and hold inventory layering it in to bridge delays as needed. At quarter end, we had an outstanding revolver balance of $10.5 million and had net cash of $4.1 million, with net debt of $76.4 million, down from $97.3 million in Q1 2020. Subsequent to the quarter, on the back of our strong profitability in 2020, we amended our credit agreement. We extended the original maturity date of September 2022 to September 2024, demonstrating the ongoing support of our lenders. In addition, the amendment reduced our $75 million revolving credit facility to $60 million, reflecting improvements in the borrowing needs of our business. We're pleased with our Q1 results, including the significant improvement in gross margin, SG&A and adjusted EBITDA relative to Q1 2019 pre-pandemic. As we're now progressing through Q2 2021, and government restrictions are slowly lifting, we have been able to reopen our stores in Québec and Nova Scotia, and today, we're reopening 26 of our 62 Ontario locations at 15% capacity. Nonetheless, we anticipate having a higher number of temporary corporate retail store closures in Ontario, which is our largest market and typically includes our highest revenue stores in comparison to the second quarter of last year. In addition, we're operating under tighter government-mandated capacity limitations than last year. To partially offset the short term pressures, we will continue to manage costs and leverage government programs. However, due to the changes in the program, the government wage subsidy is available at a declining rate compared to Q2 2020. To put it into context, in Q2 2020, the subsidy rate was 75%. Under the new formula, our effective rate would have been less than half of that for the same period. We remain confident in our ability to deliver on the areas of the business within our control. Through all of our efforts over the last 5 quarters, we have reduced our cost base, captured efficiencies, strengthened the overall fundamentals of the business, all while continuing to build on nearly half a century of brand strength. As such, as government operating restrictions ease and short-term pressures alleviate, we expect to return to recovery. In closing, I wanted to echo Meghan's gratitude for the entire Roots team for another quarter of hard work and commitment despite the ongoing challenges as a result of the pandemic. With that, operator, please open the line to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Brian Morrison with TD Securities.

[Brian Morrison, Research Analyst]

First question, you've done a very good job of optimizing your gross margin and SG&A. I'm curious if you feel maybe outside of scale if there's any additional identifiable buckets for further improvement? And maybe specifically through your omnichannel capabilities?

[Mona Kennedy, Chief Financial Officer]

Sorry, Brian, you cut out a little bit. The sound is all very good. Do you mind repeating your question?

[Brian Morrison, Research Analyst]

Yes, sure. Sorry, Mona, about that. You've done a very good job of optimizing your gross margin and SG&A. I'm just curious if you feel maybe outside of scale, if there's any additional identifiable buckets for further cost improvement, specifically through your omnichannel capabilities?

[Mona Kennedy, Chief Financial Officer]

I think when I kind of like to think about margin and costs, those are areas that we're going to continually focus on and as it relates to the business, right? So as our omni-channel business kind of expands, we will continue to focus on those areas to improve contribution margins. So when I think about cost savings, we've had a number of areas where we've seen permanent cost savings as it relates to the U.S., as it relates to our store labor being more efficient, as it relates to our corporate costs being more efficient. So I think those are permanent cost savings that we're going to continue to see. And on the margin front, you've seen it coming up five quarters in a row. We're working on it, and we're seeing great expansion in margins. And we're going to continue to work on it. And as it relates to omni, it's going to become more of our business. We're going to see customers basically shopping where they want to shop. So that's where our focus is going to shift. And we've got strategies to focus on that as well.

[Meghan Roach, CEO, President & Director]

And then just add to that, I think -- sorry, I think your [indiscernible] question, Brian, was also are we going to see any significant profits, especially omnichannel that we're going to see more potential cost savings. I think we've identified a few additional areas that we are looking at for cost savings. But I think we, in 2020, took out a lot. And so I don't think you should expect to see significant incremental cost savings coming in the second half of this year.

[Brian Morrison, Research Analyst]

Okay. And then just on a temporary basis, are there any costs associated -- I mean, you're doing a very admirable job of the shift between e-commerce and bricks-and-mortar with the lock downs. I'm just wondering if there's any costs associated with the shift during the lockdowns? And has this hampered your inventory position at all?

[Mona Kennedy, Chief Financial Officer]

No. It hasn't really hampered our inventory position. Obviously, being able to fulfill orders from stores and doing curbside has given customers access to inventory. So we've been able to actually access to inventory at stores that have been closed. So no, I wouldn't say that it has hampered it. And I think we've kind of managed that fine. As you know, in e-commerce, obviously, there's incremental shipping costs that the stores don't have, but also stores have rents that e-commerce doesn't have, right? So there's, obviously, a give and take. But I wouldn't say it has hampered it or added incremental costs.

[Brian Morrison, Research Analyst]

Okay. And then last question, I guess. Your pack and hold strategy, I'm wondering if it's -- there's a specific season that this pertains to? I would have thought that it would have been spring and summer merchandising that we would start to see a lessening impact from this.

[Mona Kennedy, Chief Financial Officer]

So our pack and hold strategy, it was inventory both for spring and summer and also for fall and winter, and we had a pretty even split. We also didn't expect that our stores were going to be closed for a lot of Q1 and also a lot of Q2. So obviously, the pack and hold strategy didn't move as that we had strategized. But as stores will open in Ontario starting today, we're hoping to kind of see movement in the summer and spring inventory. And then we still have some for the fall as well. The pack and hold inventory that we're sitting on for the fall is actually helping us right now given the challenges of the ports and the delay in shipments. So we're actually quite happy about that strategy, and it's benefiting us more than we had expected.

[Brian Morrison, Research Analyst]

And I can only presume that you feel this is all current as well.

[Meghan Roach, CEO, President & Director]

Yes. Yes.

[Operator]

Your next question comes from the line of Patricia Baker with Scotiabank.

[Patricia A. Baker, Analyst]

Congratulations on the hard work in this quarter and the narrowing of the loss. I've got a couple of questions. The first one is, what more can you tell us about your experience in Q1 in the U.S. Now that you've got an -- for all intents and purposes, an online-only strategy there? What did you see in the markets where you closed stores? And did your -- the revenue in the U.S. in the quarter, did it get in line with what you expected would happen along the lines of this new strategy or approach to the U.S. market?

[Meghan Roach, CEO, President & Director]

I'll take that one, Patricia. Yes, I mean, I think we're not going to give you specific details as it relates to each market. It's just a lot disclosure will go to. But what I can say overall is we continue to be happy with our strategy in the U.S. and we are -- we do believe that a digitally-led strategy for us in the near-term is the right way to go. We think we have a lot of potential to continue to grow our e-commerce business there. And so we're happy with the way it's currently performing. But it is the main part of our business. And so there is a lot of opportunity still to drive growth. And there's still a lot that we need to do to continue to develop our footprint there.

[Patricia A. Baker, Analyst]

Okay. And then secondly, on -- you noted in the quarter that you had higher marketing expenses. I guess I have 2 questions around that. What is the outlook for marketing for the remainder of the year? And then secondly, presumably, given the strong sales that you have with that marketing efforts really provided some fuel to drive the top line and was a worthwhile investment for you?

[Meghan Roach, CEO, President & Director]

Yes, absolutely. I think last year, the pandemic had just started in Q1, right? So we did everything we could to cut costs as we had so much uncertainty in front of us. And as we face this year, we're making decisions based on returns. So as kind of we're being more strategic with our marketing spending. We -- I would expect a little bit of elevated spending with marketing just because we're going to be investing in areas where there is return. And also additionally, stores were open more in Q1 of this year, which then results in higher marketing spending and investment as it relates to stores. So there's going to be a little bit of linkage around store openings as well.

[Patricia A. Baker, Analyst]

And if I may, I'll ask a third question. So Q1 was a very -- was a quarter where you accomplished a lot in terms of creating excitement, and you pointed out all the number of things that you did with the collaboration and partnerships. Should we expect that, that same level of innovation or new products and partnerships, et cetera, as we move through the remainder of the year? Or was this just a particularly concentrated effort?

[Meghan Roach, CEO, President & Director]

We have a lot of collaborations and partnerships coming later on in the year. We've got a few meaningful ones coming more towards the fall, which is our peak trading period. So I think Q1, I mean, typically is a lower sales period for us. So we tend to try to push things a little bit more into Q3 Q4 we see [indiscernible] on the brand. That being said, from a product innovation perspective, you should continue to expect to see product innovation from us throughout the year. I'm not sure if you saw in the second quarter, but we did a lot of testing and learning. So as an example, our providence grew that I mentioned at the beginning of the call, which was made in Canada and then embroider our leather factory. That was $198 crew, and it's sold out in days. And our typical crew outline is more in the $78 to $84 range. So we continue to test this premium fleece. We're continuing to test new products as it relates to leather categories. We have new fleece products that come in. And then in the fall, we have a number of new product categories and innovations that are coming in. So one of our main focus areas, as we go forward, is to test innovation in our product categories and then the [indiscernible] scale strategy is quite important to drive future growth. So you should definitely continue to see more collaborations and also more innovation in the product going forward.

[Operator]

Stephen your line in open.

[Stephen MacLeod, Analyst]

I must have -- didn't hear that. I just wanted to follow-up on a couple of things here. Specifically, gross margin performance was quite strong in the quarter. You sort of came out of Q4 expecting gross margin to be flat year-over-year. So I'm just curious sort of where you saw out-performance against your expectations through Q1?

[Mona Kennedy, Chief Financial Officer]

Yes, absolutely. So in terms of gross margins, we continue to reduce depth and breadth of promotions as we kind of communicated over the past few quarters, and we saw some additional opportunities this year to reduce some promotions that we didn't think were going to have as much of an impact. For example, we had 20% off in e-commerce last year as the pandemic had just started. Also, we had a customer appreciation event in early March of last year that we didn't do this year. So we saw some margin improvement there. And we're going to continue to focus on that. I think probably your follow-on question will be, are you going to expect to see similar margin improvements in Q2. And I think I would have to say that I don't think so. We're going to continue on these strategies. But as you know, we had already started our new strategies in Q2 of last year. So we're going to be comping some of that, and we don't have a lot of additional promotions to eliminate. We're going to continue to focus on full price sales. But given that we had incremental store closures in Q1 of this year and now going into Q2, there is some inventory that we'll have to get through. So I -- we have to kind of see how the customers show up and what the demand for the product is. So I wouldn't expect similar margin improvements in Q2, but we're really happy with our results in Q1.

[Stephen MacLeod, Analyst]

Okay. That's great. So maybe expanding beyond Q2. The way we're thinking about gross margins through the year was this reduced promotional activity continuing, but then maybe kicking in again a little bit in Q4, assuming more of a normalized environment. Is that still your expectation for the year?

[Mona Kennedy, Chief Financial Officer]

Yes. Yes. As you know, in Q4 of last year, we were closed during Black Friday and if you are the highly promotional areas, and we missed some promotional sales. So yes, I would expect that in Q4, we would see some margin decline associated with having a more normalized environment.

[Stephen MacLeod, Analyst]

Right. Okay. That's helpful. Can you give a little bit of color around your channel profitability in-store versus e-commerce? Just trying to assess how much -- how mix through the pandemic and coming out of the pandemic will impact margins as you see shifts between in-store versus e-commerce sales?

[Mona Kennedy, Chief Financial Officer]

From a margin perspective, our profitability in-store and e-commerce are pretty equivalent. And I don't think it has really impacted our results by that much. We continue to focus on it. If we look at it and if there is any shift, we correct for it. So I would have to say that there isn't really that much of an impact. In e-commerce, we've got more variable costs, so costs will go up and down as units go up, including shipping costs. And in stores, obviously, we have more fixed cost. But in the kind of the past year, we've been able to turn some of those fixed costs into variable. As you know, we've been able to reduce labor, we've been able to negotiate better rents. So I would say they're fairly equivalent. And I wouldn't say our profitability has been impacted by too much.

[Stephen MacLeod, Analyst]

Okay. And then maybe just finally, it sounds like you're opening only 26 of 62 stores in Ontario as stores are allowed to reopen today. Maybe is there any reason why you're not opening 62? And then, I guess, as you think about ongoing openings, when would you expect to have your full store network opened in Ontario?

[Meghan Roach, CEO, President & Director]

Yes. Also good one, Stephen. So unfortunately, the government-mandated closures the way they've done it is that you can only reopen in Ontario today if you have a street front location. So of our stores, the 62 stores that we have in Ontario, only 26 of them have street front locations. So we and other retailers will not be able to open our mall-based stores. We anticipate -- the government has indicated that by July 2, they're hoping to go in an open mall-base store. So we -- I think, like everyone else, are hoping that happens earlier. But for the time being, our expectation is that it will be early July before we can open our full fleet of stores in Ontario.

[Operator]

[Operator Instructions] Your next question comes from the line of Matthew Lee with Canaccord.

[Matthew James Lee, Associate Analyst of Telecom and Media]

So just given the puts and takes involved with Q2 regarding store openings and e-commerce growth, are you expecting to see kind of similar double-digit DTC growth year-over-year in Q2 versus maybe Q1?

[Meghan Roach, CEO, President & Director]

Yes. Matthew, we're not going to give specific guidance on the quarter. I think that when we look at Q2, we want to make sure that we give you just all the information in terms of what we're seeing in light of the government-mandated changes. And so I think that what's fair to say is that our stores are going to be closed longer -- more stores are going to be closed in Q2 and for a longer period of time than last year, in addition to other stores that are open or operating a lower operating capacity. I think you have to take that in consideration. I don't think that the growth that we saw in Q1 is repeatable in Q2 as a result of that. But I think our stores are opening today and 26 of them at least in Ontario. And we are hoping that we'll see some good returns from our customers and because we do the high desirability to get back and go shopping. But from that perspective, I think you need to take into consideration that year-over-year, from a Q2 perspective, more stores are going to be closed and operating at a lower capacity than they were in 2021 -- sorry in 2020.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Okay. But -- okay. So maybe put a different way. If restrictions around COVID are completely removed as they have been in the U.S., are you guys comfortable with your ability to get your stores back up to full speed right away? Or is there maybe a process involved that's required to do so?

[Meghan Roach, CEO, President & Director]

I mean from the things that are under our control, we're ready to go. I think it's more about how comfortable the customer is in terms of showing up in stores. I think there's going to be a ramp-up period. I don't think -- traffics have been down. Customers aren't comfortable going into stores. So I think we're going to see declines in traffic, but conversion has been high. So whether that conversion is going to completely offset the traffic decline or how big that traffic decline is going to be, I think, are still a big question mark. We're going to look at it very closely and -- as stores open today in Ontario and see how customers are showing up. But I don't think it's going to be right up to the way it was and back to normal because customers have an adjustment period that they need to get through.

[Matthew James Lee, Associate Analyst of Telecom and Media]

That's fair. And then maybe just with regards to your premium fleece in the quarter. I mean, longer-term and higher level, should we be expecting routes to move towards that kind of more premium offering in that price range going forward?

[Meghan Roach, CEO, President & Director]

Not as for our full collection. I think the way we view our collection is just like many other brands, is that it's important for us to have a premium offering within the collection because we have desirability from our existing and new customers to buy into those types of products. We think made in Canada is important. We think using the skills and the artistry that we have in our leather factory to do different and unique things. It's something that people are desiring. And when we did those premium products, so far, what we've seen is that it is a mix of existing and new customers. So definitely we do see customers who are buying a lower price item are seeing the craft and in quality of the Roots brand and are interested and excited to buy a different thing in a more premium level. So you should think about it as it's going to continue to be kind of a collaborations where there's cream on the crop, right? So we've got a core product offering that we will continue to offer and innovate in. We're going to have premium fleece and other items like other leather items, et cetera, to kind of draw the customer in that was either interesting in an improved price. But we're not proposing this a shift in strategy where all of our products are going to be premium. It's going to be a nice mix of premium items that are drawing a unique and different customer base as well as giving our existing loyal customers something special to buy.

[Operator]

And we have no further remarks. I will turn back to management for closing remarks.

[Meghan Roach, CEO, President & Director]

Thank you, operator. That ends our schedule call today. We really appreciate all of your time and we look forward to seeing you next quarter.

[Operator]

This concludes today's conference call. You may now disconnect.