Ms. Meghan Roach reports

ROOTS REPORTS SECOND QUARTER FISCAL 2026 RESULTS & BUSINESS UPDATES

Roots Corp. has released its financial results for its second quarter ended Aug. 1, 2026 (Q2 2026). All financial results are reported in Canadian dollars unless otherwise stated. Certain metrics, including those expressed on an adjusted basis, are non-IFRS (international financial reporting standards) measures.

Strategic review update

As previously announced on Aug. 20, 2026, the company entered into an arrangement agreement whereby Marquee Brands, through its operating partner, JM&A Design and Development Inc., would acquire all of the company's issued and outstanding common shares at a price of $4.10 per share in cash, implying an equity value of approximately $161-million. The transaction is expected to close in the fourth quarter of fiscal 2026, subject to shareholder, court and regulatory approvals. In Q2 2026, the company incurred $1.0-million in incremental consulting and legal costs related to this process. Year to date, the costs incurred related to this process have been $1.5-million.

Distribution centre transition update

The company completed its transition to the Metro Supply Chain distribution centre (DC) in July, 2026. In Q2 2026, the company incurred $2.0-million incremental costs related to this transition, $1.2-million of which was driven by the accelerated non-cash depreciation of existing fixed assets, and $800,000 from non-recurring transition costs, including operating costs of two distribution centres during the move. Year to date, the company has incurred $3.8-million incremental costs related to this transition, $2.9-million of which was driven by the accelerated non-cash depreciation.

Starting June, 2026, with the new distribution partnership, gross margins began to include DC occupancy costs that were previously recorded within SG&A (selling, general and administrative) when distribution operations were managed in-house.

"Subsequent to the quarter, Roots agreed to be acquired in a transaction that strongly endorses the Roots brand. Over the past several years, we have restored Roots to a position of strength, with a distinctive Canadian identity that resonates with customers here and around the world," said Meghan Roach, president and chief executive officer of Roots.

"Despite the short-term impact of the Whistler relocation, we were pleased to end the quarter with over 26 per cent growth in adjusted EBITDA," continued Ms. Roach.

Second quarter highlights:

• Sales were $49.5-million, a 2.4-per-cent reduction, as compared with $50.8-million in Q2 2025:
  • DTC (direct-to-consumer) sales were $40.5-million, a 1.3-per-cent reduction, as compared with $41.0-million in Q2 2025.
  • DTC comparable sales decline was 1.0 per cent.
• Gross margin was 58.3 per cent, as compared with 60.7 per cent in Q2 2025:
  • DTC gross margin was 60.6 per cent, as compared with 63.2 per cent in Q2 2025:
    • Excluding all DC costs, DTC gross margin was 67.2 per cent, as compared with 66.4 per cent in Q2 2025.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to negative $1.6-million, as compared with negative $2.1-million in Q2 2025
• Net loss totalled $6.0-million, as compared with $4.4-million in Q2 2025:
  • Adjusted net income (loss), which excludes the costs arising from the DC transition and strategic review, along with other non-recurring or unusual costs outside the normal course of operations, was $3.2-million, as compared with $3.8-million last year.
• Net debt was reduced 11.8 per cent year over year to $33.6-million.

"We are pleased to have largely completed the distribution centre transition and relocation of our flagship Whistler store," said Leon Wu, chief financial officer. "Thanks to the hard work of our cross-functional teams, we are well positioned to scale operations and better serve our customers during the larger second half of the year."

Second quarter overview

Total sales were $49.5-million in Q2 2026, representing a decrease of 2.4 per cent from $50.8-million in the second quarter of fiscal 2025.

DTC sales (corporate retail store and e-commerce sales) were $40.5-million, a 1.3-per-cent decrease from $41.0-million in Q2 2025. The year-over-year variance in DTC sales was primarily impacted by the temporary closure of a flagship store location in Whistler, B.C., as part of a scheduled relocation. Excluding this temporary closure, total DTC sales in Q2 2026 would have grown relative to Q2 2025. Additionally, sales were impacted by the temporary delays in the introduction of new seasonal products during the DC transition in the second half of Q2.

P&O (partners and others) sales (wholesale Roots branded products, licensing to select manufacturing partners and the sale of certain custom products) amounted to $9.0-million in Q2 2026, decreasing 7.3 per cent as compared with $9.7-million in Q2 2025. P&O sales were primarily driven by lower wholesale sales volumes to the company's international operating partner in Taiwan and timing shifts in licensing royalties from select manufacturing partners into the next quarter. This was partially offset by continued positive momentum across our North American wholesale and custom products channels.

Gross profit was $28.9-million in Q2 2026, as compared with $30.8-million in Q2 2025, representing a year-over-year decrease of 6.4 per cent. Gross margin was 58.3 per cent in Q2 2026, as compared with 60.7 per cent in Q2 2025.

DTC gross margin was 60.6 per cent in Q2 2026, as compared with 63.2 per cent in Q2 2025. DTC gross margin was impacted by both non-recurring DC transition costs and the reporting of DC occupancy costs that were recorded within SG&A expenses in the prior year. Excluding all DC costs, DTC gross margin would have been 67.2 per cent, as compared with 66.4 per cent in Q2 2025.

SG&A expenses totalled $35.2-million in Q2 2026, as compared with $34.7-million in Q2 2025, representing a year-over-year increase of 1.4 per cent. The year-over-year change in SG&A expenses was primarily driven by $1.4-million of incremental costs related to the DC transition, the majority of which comprised accelerated depreciation on existing assets, and $1.0-million of incremental costs related to the strategic review. Excluding these project costs, SG&A expenses decreased 5.4 per cent, driven by the management of corporate costs, lower variable selling costs and impacts from cash settled instruments under the company's share-based compensation plan.

Net loss totalled $6.0-million, or 15 cents per share, in Q2 2026, as compared with a net loss of $4.4-million, or 11 cents per share, in Q2 2025. As the second quarter historically represents approximately 17 per cent of the full-year sales, the impacts of the non-recurring projects had a more pronounced impact on net earnings. Adjusted net loss, which adjusts primarily for the costs of the DC transition and strategic review, was $3.2-million, as compared with $3.8-million in Q2 2025.

Adjusted EBITDA amounted to negative $1.6-million in Q2 2026, improving from negative $2.1-million in Q2 2025.

Year-to-date (YTD) results

For the first six months of fiscal 2026, total sales amounted to $92.1-million, representing an increase of 1.5 per cent compared with the first six months of fiscal 2025, which amounted to $90.7-million. DTC sales increased 0.8 per cent to $76.3-million, with comparable sales growth of 0.9 per cent, while P&O sales increased by 4.8 per cent to $15.8-million. Gross profit stood at $54.4-million, or 59.0 per cent of sales, down from $55.4-million, or 61.0 per cent of sales, last year.

Net loss totalled $16.1-million, or 41 cents per share, as compared with $12.3-million, or 31 cents per share, last year. Adjusted net loss, which primarily adjusts for the costs of the DC transition and strategic review, was $10.8-million, as compared with $11.1-million in YTD 2025.

Adjusted EBITDA amounted to negative $9.0-million, improving from negative $9.2-million in YTD 2025.

Financial position

Inventory was $57.8-million at the end of Q2 2026, as compared with $49.9-million at the end of Q2 2025, representing an increase of $7.9-million or 15.8 per cent. The increase in inventory was driven by higher in-transit inventory from earlier shipments related to the company's upcoming holiday season. Excluding the higher in-transit inventory, inventory was down $400,000 or 1 per cent to Q2 2025.

Free cash flow was negative $10.1-million in Q2 2026, as compared with negative $6.9-million in Q2 2025. The year-over-year reduction in free cash flow was driven by the impacts of incremental costs related to the strategic review and the non-recurring cash costs related to the DC transition, along with higher capital expenditures and earlier receipts of inventory.

As at the end of Q2 2026, Roots had net debt of $33.6-million, improving from $38.1-million or 11.8 per ent a year earlier. The company's leverage ratio, defined as total net debt to trailing-12-month adjusted EBITDA, was 1.4 times as at the end of Q2 2026. As at the end of Q2 2026, Roots had $38.0-million outstanding under its credit facilities and total liquidity of $40.9-million, including net cash and borrowing capacity available under its revolving credit facility.

About Roots Corp.

Established in 1973, Roots is a global lifestyle brand. Starting from a small cabin in Northern Canada, Roots has become a global brand, which, as at the end of Q2 2026, operated 97 corporate retail stores and 10 temporary pop-up locations in Canada, two stores in the United States, and an e-commerce platform. Roots has more than 100 partner-operated stores in Asia and it also operates a dedicated Roots-branded storefront on Tmall.com in China. Roots designs, markets and sells a broad selection of products in different departments, including women's, men's, children's and gender-free apparel, leather goods, footwear and accessories. The company's products are built with uncompromising comfort, quality and style that allows you to feel At Home With Nature. Roots offers products designed to meet life's everyday adventures and provide you with the versatility to live your life to the fullest. Roots also wholesales through business-to-business channels and licenses the brand to a select group of licensees selling products to major retailers. Roots is a Canadian corporation doing business as Roots and Roots Canada.

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