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Dec 4, 2017

Roots set to give investors first look at its life as a public company

McCreath: Roots IPO a play on Canada

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Roots (ROOT.TO) is about to give investors their first look at how the apparel-maker is faring as a public company. The firm, known for bringing a heavy dose of Canadiana to its wares, will report third-quarter earnings before the opening bell Tuesday, ahead of the key holiday shopping season.

Shares of the retailer have declined since its initial public offering earlier this year and are currently trading below its $12 per share IPO price. It fell more than 16 per cent on its first day of trade alone. But TD Securities analyst Brian Morrison sees a number of reasons why the company may be a compelling buy ahead of the third quarter results. In a Nov. 27 research note to clients, Morrison said he thinks the risk reward profile of the company is compelling at the current share price.

“As we enter the seasonally strong second half for Roots, it is our view that its first reporting period as a public company should show signs of the initial benefits of its transformation plan,” Morrison wrote. “We believe that this should be most evident this quarter with respect to its top-line and [same-store sales growth] performance that should be well in excess of the average of Canadian retailers, aided by store renovations and further investment in its eCommerce/omni-channel platform.”

Morrison is among the most bullish analysts on the stock, with the equivalent of a buy rating, along with a $16 12-month target price indicating nearly 60 per cent upside a year from now. The stock has four buys, two holds and an average target price of $13.80.

A key focus for the company is keeping up the momentum of same-store sales growth. Sales at stores open at least a year grew 8.3 per cent in fiscal 2016, a rate the company assumes will continue in the near term. Roots says it plans to bolster those sales by opening as many as 24 stand-alone stores in Canada and the United States by the end of fiscal 2019, along with revamping and renovating as many as 33 other locations.

According to data compiled by Thomson Reuters, the average analyst estimate is for earnings per share of $0.17 on $94.1 million in revenue.