Roots Corp

TSX:ROOT

Earnings Call Transcript 2021-Q4

[Operator]

Good morning. My name is Jack, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Roots Fiscal 2020 year-end and Fourth 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 Roots. 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 events or developments. This information is based on management's reasonable assumption 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 2020 year-end and fourth 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 2020 year-end and fourth 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 note that all figures discussed today 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 2020 year-end and fourth quarter operational performance as well as our strategic outlook for fiscal 2021. Then she will turn the call over to Mona Kennedy, our Chief Financial Officer; who will discuss our financials in greater detail. After which, we will open up the call for questions. Meghan?

[Meghan Roach, CEO, President & Director]

Thank you, Kristen. Good morning, everyone. I hope you and your loved ones are staying safe and healthy. As we look at our results from fiscal 2020, I'm happy with what we've achieved. Through the determination and resilience of our team, the power of our brand, the strength of our omni-channel platform and our disciplined approach to promotions and cost management. We navigated unprecedented destruction in our industry in 2020. Along with our competitive advantages, while also taking decisive actions early on that strengthened the company's foundations. This approach resulted in enhanced profitability and free cash flows in the year as well as a solid base on which to build our future. Our historical investments in our omnichannel platform also paid significant dividends in 2020 as customer adoption of our online experience was at all-time high, with our stores closed for approximately 30% of the year, we faced prolonged periods where e-commerce was the only channel available to our customers. In addition, even when stores were open, our operations were limited by government-mandated capacity restrictions and reduced operating hours. As we have discussed in previous quarters, we have a robust omnichannel capability. With the ability to ship to home, ship to store, ship from store or allowed customers to pick up with curbside. We also have a shared pool of inventory for retail and e-commerce at our distribution center, which has enabled us to better manage shifts in customer demand across our channels. Our ability to seamlessly pivot between in-store and online drove impressive e-commerce growth in the year. Online sales reached record levels, increasing more than 50% year-over-year to account for approximately 50% of total 2020 DTC revenue. From a fulfillment perspective, the investments we made to scale up our distribution center capabilities supported the faster and more accurate completion of substantially elevated order volumes throughout 2020. In addition, our in-store fulfillment capabilities for online orders as well as our curbside and click and collect, enables us to leverage inventory across our channels and allowed our customers to access inventory at our closed stores. During the year, we also delivered enhancements to our digital shopping experience with improved storytelling and product education. We created new experiences as well, such as virtual appointments, shopping via QR code from outside our stores, and AI technology that enable us to offer instant 24x7 first level customer support. Most recently, we launched our partnership with Afterpay, which offers our existing customers new methods to engage and transact with us, while also helping us to acquire new customers. While e-commerce has played a significant role in the past year, stores remain an important part of the Roots offering. When customers were able to visit us in store, they were doing so with a strong intent to purchase, resulting in increases in overall conversion rates. We know our customers are also seeking a multichannel relationship with us. And our most recent customer survey, which we conducted in November 2020, more than 60% of the Canadian surveyed indicated that they still want to try on or see a product in-store before buying it. In addition, 35% of the Canadians we surveyed indicated that they mainly or only shop in our stores. In 2020, we focused on improving our Canadian store fleet economics, closing select locations and moving to more favorable business terms for others, such as percentage rent, for example. We also took advantage of more formal rents and short-term leases during the year, opening 6 pop-ups, where we had to temporarily close many of these locations due to second wave lockdowns, we are still pleased with our performance from both the sales and contribution perspective. Going forward, we will continue to explore pop-ups as we believe they represent a low-risk, high-reward approach to showcasing our key products and collections, capturing event-driven or seasonal traffic and testing new markets. From a product perspective, with the increased casualization in North American wardrobes we played into our strength. We saw increased demand for our major product categories with positive sell-throughs in new products. In addition, customers responded well to our decrease in promotional depth and breadth. As demonstrated by the 490 basis points improvement in 2020 DTC gross margins. In previous quarters, we also highlighted some of our pivots within the year. Including refocusing a portion of our leather factory and producing non-medical face masks to the onset of a pandemic. These were a net new revenue stream and we continue to build on with the launch of Mask Lanyards and hand sanitizer holders to create wellness bundles [indiscernible]. We also used our leather factory to capitalize on changes in customer needs and test and learn, with many people working from home and adopting more state-at-home lifestyle, we saw an opportunity to launch other products in the home segment, such as leather baskets, trays and other accessories. We also recently launched a leather pet collection, while early in the life cycle, these initiatives highlight areas where we were able to quickly implement learning and adjust our strategy for further success. As a brand known for comfortable, high-quality products and effortless style, we are well positioned for those consumers seeking versatile options for today's new reality of work and life. While consumer shopping habits may evolve as we slowly come out of the pandemic comfort, quality and versatility are always in demand, as we have demonstrated for the past 48 years. Looking briefly at our international markets. A year ago, we transitioned to a digitally-led strategy in the U.S. with a closure of 7 of our retail locations, an effect that eliminated $6.1 million in adjusted EBITDA losses at the stores. While the U.S. accounts were a smaller portion of our overall DTC business, it is worth noting that this shift in strategy transitioned the business from loss-making to profitable in fiscal 2020. In addition, with modest investments in targeted marketing, our U.S. e-commerce sales grew 65% in the fourth quarter. Throughout the year, our partner business in Asia also faced the same pandemic-related challenges as our Canadian operations. In Taiwan, which accounts to the vast majority of our Asian business, we are pleased with the recovery we are seeing. In terms of China, which remains a small part of our business today. We had a year-over-year decrease in stores of 10. This is indicative of our plans to transition to a largely digital-led business in 2021, a shift we expect to undertake over the course of the year. And looking at the shopping trends in the region, and those of you are seeing and having had success within the U.S. market, we believe this approach will better position us to execute on the market opportunities in the region in the near term. The communities in which we live and work have always been important to Roots. So giving back, even in this challenging year, remain a priority for the company. I am pleased to see the efforts of our team and the support of our local customers. We were able to give back to local charities and organizations across Canada. In total, we donated $1.5 million in products and by leveraging the success of our non-medical face masks, we were able to give back more than $400,000 in cash donations within the year.We also continued to make good progress in our commitment to celebrating diversity, equality, equity and inclusion at Roots. We recently announced the launch of the Roots Emerging Creators Project, a new community-focused designer mentorship program that will nurture and give exposure to emerging brands led by underrepresented creators. I'm very excited about this initiative and looking forward to sharing more details with you in the coming months. Undoubtedly, 2020 was one of the most challenging years that Roots has faced in our nearly 5 decade history. However, we believe we have emerged in place of strength with a clear path forward as we move into fiscal 2021. We're an iconic, heritage brand with a loyal and engaged customer base in our core markets. We have a robust omnichannel platform with meaningful opportunities for growth. We have a diverse product portfolio with good white space opportunities. We have a flexible operating cost base as we demonstrated throughout 2020, and we have a well invested, scalable infrastructure with an attractive free cash flow profile. And as we look to the future investments, we will continue to make them with an [indiscernible] approach and focus on the return on investment in each of them. Before I turn the call over to Mona, I want to take a moment to acknowledge the Roots team at our stores, distribution center, leather factory head office. I am extremely proud of what we've accomplished here in this year. Everyone continues to pivot, adopt and think big to meet the new realities of our operations. Thank you for your continued commitment. I'd also welcome Dexter Peart to our Board of Directors. He is in an accomplished entrepreneur, award-winning fashion industry veteran and co-founder, with his brother Byron, of the leading sustainable design marketplace GOODEE, a B-Corp certified e-commerce platform. We will greatly benefit from his insight and invaluable experience, which we already saw as he joined us for our meetings this quarter. I will now pass the line to Mona to discuss our financial results for the fourth quarter in greater detail. Mona?

[Mona Kennedy, Chief Financial Officer]

Thanks, Meghan, and good morning, everyone. Our 2020 results speak to a quick action and strong execution of our team. Despite the sales headwinds we faced as a result of government-mandated store closures, traffic declines and operating limitations, online sales performed incredibly well. Gross margins were strong, and we maintained tight cost controls, which drove strong bottom line improvement. Total sales in the fourth quarter were $99.4 million, down 22% from $127.5 million last year. DTC sales were $91.8 million, down from $119.1 million in Q4 last year. While our stores were closed for almost 30% of the quarter, our e-commerce channel maintained strong momentum. Online sales improved 60% year-over-year, driven by our product offering, which continues to resonate with our customers' evolving lifestyle and our robust omnichannel capabilities. On the Partners and Other front, sales were $7.6 million, down from $8.4 million last year. This was primarily a result of COVID-19 related declines. We had another quarter of strong gross margin improvement. We continue to take a more strategic approach to promotions in the quarter, excluding our heritage collections and our best seller from our promotions, testing consumer response to lower discount rates and adjusting our strategy according to the consumer buying trends we're seeing. While this shift is likely placing some downward pressure on sales in the short term, we believe it is beneficial to the brands and profitability of the business over the long term. At 59.8%, our DTC gross margin for the fourth quarter improved 460 basis points over the 55.2% we recorded last year. For the full year, DTC gross margin improved 490 basis points to 61.1%. We continue to manage our expenses tightly while closely monitoring our top line performance. Excluding noncash impairments, we recorded $38.1 million in SG&A expenses for Q4 2020, down from $50.2 million last year. The year-over-year decrease predominantly reflects $7.3 million in COVID-19-related cost reductions, including lower overall store wages as a result of temporary store closures, reduced store operating hours and labor managed in accordance with store sales as well as the management of overall corporate costs, including net rent savings of $1.7 million. In the quarter, we also benefited from $0.7 million in government rent subsidies and $1.6 million in government wage subsidies. In addition, we realized $3 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 in the first quarter. Of particular note in the fourth quarter is the fact that despite our stores being closed during what is typically our busiest and most productive time of the year, we delivered profitability that was in line with last year when all of our stores were open, reflecting our gross margin expansion, cost savings and the benefit of the government subsidies that helped offset our decline in sales, we recorded adjusted EBITDA of $26.1 million, consistent with Q4 fiscal 2019. For the full year, adjusted EBITDA was $38.7 million. This is a 49% increase compared to $26.1 million for fiscal 2019. Now turning to inventory. Our inventory balance at the end of the year was $42.4 million, while up slightly over $40.2 million at the end of last year, it was primarily a result of our pack and hold strategy. As we're holding some inventory for sale in future quarters. Excluding the pack and hold, inventory would have been down year-over-year as we have continued to diligently manage our inventory levels and de-risk our overall assortments in response to COVID-19. By taking quick action and remaining diligent, we improved liquidity more than 50% year-over-year. Free cash flow for fiscal 2020 was up approximately $34 million over last year. This was a result of improved profitability, a reduction in CapEx and improved working capital. At year-end, we have paid down the entire balance of our revolving credit facility of $75 million and had net cash of $9.2 million. With net debt of $61.9 million, down from $95.8 million in 2019, we reduced our net debt to 1.6x adjusted EBITDA from 3.7x a year ago. In closing, I wanted to echo Meghan's gratitude for the entire Roots team. Although we still face an uncertain macro environment, we're confident our brand positioning, product assortment, omnichannel capabilities, flexible operating cost base and well-invested infrastructure well position us to successfully execute in 2021 and beyond.

[Meghan Roach, CEO, President & Director]

Thanks, Mona. Before turning the call to questions, I want to take a brief moment to discuss the status of our stores in light of the recent provincial government announcements. We entered Q1 2021 with approximately 70 stores closed. But early March, all the key stores were open again. However, with the announcements from Québec and yesterday's announcement from Ontario, we are once again transitioning to a number of stores to curbside. The change impacts 2 stores in Québec as well as 62 stores in Ontario and also 5 pop-ups in Ontario. While this is a challenging way to start fiscal 2021, we continue to prioritize the health and safety of our team and our communities, and we are confident in our ability to manage the business through these unprecedented times. With that, operator, please open the line to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod, Analyst]

I was just wondering if you could give a little bit of color on maybe how your stores were performing into fiscal Q1 to date -- or sorry, how stores in e-commerce were performing into fiscal Q1 to date ahead of these recent store closures that have just come up in Ontario and Québec.

[Meghan Roach, CEO, President & Director]

Yes. I mean, I'd say we were happy with the way we were trending entering into Q1. Obviously, there's a balance between e-commerce and the way stores are performing, once the stores are open. Obviously, it's disappointing to see the stores closing again. We -- as we mentioned, we have 67 stores impacted in Ontario and 2 stores impacted in Québec. We feel confident that we're capable to continue to manage through the pandemic as we continue to see these unusual times. But obviously, we were happy with where we were trending. And this will make it more challenging for us to have in Q1.

[Stephen MacLeod, Analyst]

Okay. Okay. And then just sticking on stores or the sort of sales base. You talked about e-commerce, which has been a huge offset when the stores being closed, up 60% in the quarter. I think you said now running at about 50% of the overall sales base. Do you have any idea or any sort of target as to where you think e-commerce as a percent of total sales might settle once things sort of normalize coming out of the pandemic?

[Meghan Roach, CEO, President & Director]

Yes. We don't give a specific target for e-commerce will settle after the pandemic. What I would say is that fiscal 2020 was a strong reminder to us of the importance of the omnichannel business. We continue to enable our customers to buy us in whichever way they wanted, whichever way they preferred. And so we continue to believe that we'll see a good balance between digital and stores once the stores will open again. I would say that we do anticipate having some decline in the penetration of online once our stores were open, just the natural settling of the way that business occurs. But we do anticipate online being elevated in comparison to prior years.

[Stephen MacLeod, Analyst]

Okay. That's great. And then maybe just finally, you've had some really nice gross margin improvement from your discipline around promotional activity. Is this something that was maybe in response to the pandemic backdrop? Or is this something that you intend to continue going forward? And maybe you can talk a little bit about what learnings you've had around promotional discipline that you can bring into future quarters and even coming out of the pandemic?

[Mona Kennedy, Chief Financial Officer]

Yes, absolutely. I mean, starting Q1 of last year, we started implementing some strategies around reducing the depth and the breadth of our promotions. We started excluding some of our key collections and some of our heritage items from our promotions, including, for example, our Salt & Pepper sweats and things of that nature. And we've learned that it's working, right? We've been able to deliver improved gross margins all year round, and I think that's been really strong, and we're going to continue to experiment with some new strategies and continue with the strategies that we implemented last year. I should mention that in Q4, one of the reasons that we saw higher margins is because the stores were closed during Black Friday and Boxing Day. So we're closed some of the higher promotional periods of the year. So that's one of the reasons we saw higher margins, but also the change in the strategy that we've seen all year. So we expect going into the year, our margins to continue to be high, but we potentially not at the same extent that we saw in Q4.

[Stephen MacLeod, Analyst]

Okay. That's great. And then maybe just one final one, if I could. I saw that you closed 2 stores in the quarter. One in Ottawa, 1 in Manitoba, I believe. Can you talk about your store network strategy going forward? If you have any targets for number of stores? Or are you being more selective on stores that you underperforming stores that you may be closing?

[Mona Kennedy, Chief Financial Officer]

Absolutely. I mean, we act as an omnichannel retailer. We continue to evaluate our store network. We don't have a target number of stores, obviously, in the long term, every retailer is challenging the number of stores that they need and the profitability of the network. pre pandemic, 90% of our stores were profitable, which is fantastic, and we continue to kind of look at that. And if any store is not profitable, we look at whether we can make it profitable, and if not, that's when the closures generally happen. Throughout the pandemic, we've been able to negotiate some really favorable rents that has made some other unprofitable stores profitable, which has been fantastic. So we're going to continue to look at our network in different ways and see how we can utilize them. For instance, in this past year, we had 7 pop-up stores that we experimented with that were quite successful, and we're really happy with the results. We're testing out, moving some of our stores as fulfillment hubs and things of that nature. So we believe that there's a space for our stores as the future of Roots. We believe that customers are going to come back to the stores. As Meghan mentioned during the call, hitting 60% of our customers said that they want to come to the store and try things on. And so there is a place for stores, and we're going to continue to explore that and experiment with different things. So I mean to answer your question, no target in terms of store reductions, the stores we closed were unprofitable stores, and we're going to continue to develop different strategies.

[Operator]

Your next question comes from the line of Brian Morrison with TD Securities.

[Brian Morrison, Research Analyst]

Congratulations on your free cash flow performance during the pandemic, that's exceptional. Can I just, first of all, ask about -- when I think about the consumer data that you're collecting and tailoring your product going forward, just from an operational standpoint, what changes can we expect to see in your product offering? And will we see more or less shoes, more focused on kids, focused on heritage? And really, how are you going to drive this excitement and keep your margins at these elevated levels in your costs mitigated?

[Meghan Roach, CEO, President & Director]

So I'll speak to the first part of that around the consumer data, and then I'll maybe let Mona jump in as it relates to margins. So what I would say we're doing is we've been spending a lot of time this last year, really learning more of our customers, what our customers are like, where they live, what they want from us from a product perspective. And so we are definitely looking at modifications and changes that we can make to our product categories to be more suited to the customer needs. I would say as an example, we had a great for sleepwear business in Q4 and sleepware as an area that our customers continue to see a lot of demand from us as the company. So we'll be seeing more products coming out this year and focus on sleep and trying to develop more of a year-round set category. There's a few other product innovations that are coming in the pipeline that I'll let you wait for because they're quite exciting in terms of things that we're doing with more premium fleece or other things we're doing in Canada. Another area we pivoted is when we look at home. We've seen a big demand for home products in the marketplace, and we have a leather factory in Toronto, where we can make our own Made in Canada leather products for the home space. And so again, we launched a product category there. So what I would say is you should continue to expect us to innovate within our core categories. You should continue to expect us to be adaptable and to pivot into categories where we see opportunities based on consumer data that we've gotten and the research we've done there. And you continue -- you should expect us to see some more innovation around some of the premium places and some of the adjacent categories associated with that. Footwear is a business that we continue to have. We will not be putting a lot of effort into footwear within fiscal 2020, as we believe we have some styles that are continuing to perform. But that's more of a later year expansion for us. And I'll let Mona comment a little bit on the gross margins in the year also.

[Mona Kennedy, Chief Financial Officer]

From a gross margin perspective, as I mentioned, we have a huge focus on gross margin, and we're going to continue to do so with new products, with old products with heritage products. We're going to continue to work on the strategies around promotions, around input costs and all the various elements of margin. So I don't necessarily think the new product innovation will have a huge impact on margin. We're going to continue to work on it and and focus on bottom line profitability and profitable growth.

[Brian Morrison, Research Analyst]

So -- and I hope you can answer this question. But when I take a look at your margins now and the recovery that they've had, do you have any internal targets in terms of operating margins that we can think about in terms of a normalized environment, you used to trend to double-digit operating margins, and it looks like you're heading back that way. Is that a good assumption to use going forward?

[Meghan Roach, CEO, President & Director]

It's not something we specifically disclose in terms of where we're targeting from a business -- from an operating margin perspective. I think what you can expect from us as a company, and Mona and I in particular, is that we are very focused on driving cross-sale growth in the business. So when we're making decisions around the products that we're launching, we're looking to an internal margin target that should be accretive to the overall business. And we're making a decision about the cost that we're spending in the business. We're really focused on running out those costs to then generating return for us overall. So I'm not going to give you a specific operating margin target, but you should expect us to continue to be focused on driving growth in all those areas.

[Brian Morrison, Research Analyst]

Okay. Turning to free cash flow, as I said, exceptional, but is there any pull forward that's going to happen or did happen in '20 that we can expect to impact '21? And then, Mona, can you provide us sort of what your CapEx outlook is for fiscal '21?

[Mona Kennedy, Chief Financial Officer]

Yes, absolutely. So from a pull forward perspective, I think the only element of free cash flow that you may want to think about is the pack-and-hold strategy that we implemented on inventory. As you know, we have some inventory that we're holding on to for spring and fall of this coming year. So that will improve our free cash flow for '21. As that inventory has already been paid for. From a capital perspective, our capital for next year is going to be elevated over 2020. And -- but not -- obviously, not at the same levels that we saw in 2019. And before, our stores are well invested. We had a great store development program prior to 2019. DC is built. So some of the big areas of investments are behind us. Our future investment is going to be focused on omni capabilities. And it's going to be elevated over 2020, I think around the $5 million mark is what we're targeting for this coming year.

[Brian Morrison, Research Analyst]

Okay. And then last question, just -- I read about the digital shift in China. And the store closures that are taking place. I'm wondering if that's something that might take place in Taiwan as well. And then if you do see this shift as a positive or a negative to your international business model?

[Meghan Roach, CEO, President & Director]

Yes. So I think I'll tackle the Taiwan question first. So no, in Taiwan, we anticipate having continued focus on driving growth in our digital channel as I think digital is becoming more important everywhere, but we continue to expect to have a robust store base there. In China, it's a very small market for us today. What we're looking at is enhancing our digital strategy and doing it in a very premium way. And so we do anticipate that being something that we'll be focused on throughout 2021, but won't really have a material impact in the business during that period of time. But the strategies are slightly different in China, I think we have a much smaller presence in that marketplace, and it's also a very small portion of our business. And so we feel like we can drive incremental growth by doing enhanced digital strategy there, which is a little bit different to Taiwan, where we've been in the market for 20 years, have a very well-established store base.

[Operator]

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

[Patricia A. Baker, Analyst]

I have a few questions. Meghan, you gave us a few steps from the consumer survey that you conducted in in November. Were there any other incremental insights that were particularly important from that survey besides the 2 that you shared with us?

[Meghan Roach, CEO, President & Director]

Yes. I mean, I think those 2 are important for us as it relates to the importance of our store base. So I think what it was important to emphasize is that customers do you think our store base is important. So that's one of the reasons we wanted to bring this up. I would say the other stats that are great. I mean we have strong NPS scores. We continue to see our customers really being loyal to us and being tenderable brand amongst our consumers. And those scores have continued to go up comparison to service we did a year ago around the same time. In addition to that, I would say that from a customer perspective, they've given us more insights in terms of the product categories they want from us, which I mentioned in Brian's question earlier. So that has also been very helpful to us. And then I'd say the only other thing from a customer perspective that has been, I think, relevant and [ impossible ] to us. It's really just how we think about our omnichannel balance going forward and really thinking about [indiscernible] there the relative to stores or at omnichannel and how we can put more focus and effort on investing in our digital business to be best-in-class. And so there's lots of great insights in these reports, but I think I would highlight to you.

[Patricia A. Baker, Analyst]

Okay. And I'm just curious whether or not you saw any mix shift in 2020 because it was such an unusual year between your men's or women's and kids business? Or was it pretty stable relative to how it had historically performed?

[Meghan Roach, CEO, President & Director]

We have not seen actually that material of shift across the business. We continue to see women's being our biggest segment followed by men. Kids has been a growing portion of the business. I would say maybe our accessories business has been a little bit lower in comparison to our kids business as Mona alluded to, we did some business pop-ups within the year, and that benefited our business overall, and we could showcase our product categories more so. Outside of that, we continue to see strength in our [ shoes ] category, which is consistent with what the market is seeing, and this has been an area of strength for us over the last 48 years. So that's been quite successful to us. And I think above all, I mean, one of the things our customers also chose in our consumer survey was that they look to us for quality and comfortable products. And so the versatility that we've been able to offer to customers this year, looking at different ways of working from home or working into their lifestyle with the pandemic, I think has been really important to our success.

[Patricia A. Baker, Analyst]

Okay. And I just want to delve a little further into the results for the U.S. in 2020. Were you pleased? And with that rise in e-commerce there with the stores having been closed? Was that in line with your expectations? And was there any differential performance in markets where you had stores versus markets where you didn't have stores previously?

[Meghan Roach, CEO, President & Director]

Yes. So we were very happy with that performance. One of the things we mentioned when we decided to take the U.S. store closures in April of last year was that we were shifting to a digital strategy. And so we made concerted efforts within the second half of 2020 to put marketing dollars towards that -- that effort and it did pay dividends. And so we're happy with the returns there. We were happy that we switched the market from being a loss-making market for us to a profitable market, which, again, doing that digital-led with our stores close, obviously, it's quite important to us. I would say from a market perspective, there are certain markets that have always performed well for us in the U.S., and we saw continued growth in those specific areas. So there was no distinguishing factors of having stores or not having stores. There's more set of the markets where we've had 1 tenor or relationships with consumers in the past that continue to perform well. And then we saw some new markets, which were interesting to us, which I won't dive into specifically on this call. But we did see some growth in new customers also within the U.S., which are very positive.

[Patricia A. Baker, Analyst]

Okay. Excellent. And then just one final thing, just putting the e-commerce penetration of 50% in perspective. Can you remind us what the penetration was at the -- in 2019.

[Mona Kennedy, Chief Financial Officer]

[indiscernible]

[Operator]

[Operator Instructions] Matthew Lee with Canaccord.

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

Looking at summer trends and spring and summer trends going forward in F1, F2, I mean, it looks like summer fashion is headed towards something that does look more comfortable, which might be more in Roots' ballpark versus earlier years. Can you maybe talk about what your summer collection may or may not look like and whether you expect to see a relatively more even revenue cadence for the year than maybe in prior years?

[Meghan Roach, CEO, President & Director]

Yes, absolutely, I can speak about that. I would say that we are predominantly [ non-amateur ] brand. So you should continue to expect us to have most of our sales coming in the second half of the year. And we do have a robust collection for the spring/summer time period. And I think as you mentioned, we do have a great offering that exceeding the needs of consumers today. So customers continue to demand quality comfortable products. I mean that is something that at least does well. And I just emphasize the fact that we have done that well for 48 years. So I think that while we're seeing some good shifts in the marketplace from a casualization perspective, and that plays into our strength. We are a business that has offered these things for quite a long period of time, and our proprietary products have made a successful for that reason. So I think you should expect to see continued excitement coming out from the brand within that time period. Our retro collection, which recently launched was something that performed well for us in the marketplace. And it just goes to the fact that new consumers are really liking what we're doing. So that's very positive. But I don't think you're going to see such a meaningful shift, obviously, in the first half of the year that the second half of the year won't be our biggest time period because it will continue to do that.

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

Great. And then maybe just in terms of inventory, it's good to see the inventory kind of come down a little bit back from the $62 million seen in Q3. Are you pretty comfortable with the inventory you currently have in terms of the quality of it? And in terms of the strategy that you -- your tactical strategy?

[Mona Kennedy, Chief Financial Officer]

Yes, absolutely. We're feeling very comfortable with the help of our inventory. We implemented a number of different strategies last year to manage inventory from shifting things and packing things up, which we feel really good with. And the product that has packed up, we're starting to release it to stores for spring and summer, and it's performing well. So all in all, yes, we feel good, and we continue to execute on similar strategies as we go into 2021 as well. I learned some lessons from what we did last year. So we're feeling pretty good about it. Needless to say about stores have just announced closure. So that will impact inventory, obviously, but we've learned lots of last year that we can continue to employ.

[Operator]

There are no further questions at this time. It is now my pleasure to turn the call back over to Meghan Roach for closing comments.

[Meghan Roach, CEO, President & Director]

Thank you, operator. That concludes today's call. Thank you again for joining us, and we look forward to updating you on our progress when we report Q1 2020 fiscal results. Have a great day, safe day.

[Operator]

This concludes the Roots Fiscal 2020 year-end and fourth quarter conference call. We appreciate your participation. Have a wonderful day. You may now disconnect.