Root, Inc. Annual Report 2020

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FY2020 Annual Report · Root, Inc.

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Annual Report
F I S C A L 2 0 2 0

O U R V I S I O N

To inspire the world to
experience everyday adventures
with comfort and style

DISCLAIMER

All figures discussed in this annual report are stated in $CAD millions, unless otherwise noted.

NON-IFRS MEASURES AND INDUSTRY METRICS

This annual report makes reference to certain non-IFRS measures including certain metrics specific to the industry in which we operate. These measures are not recognized
measures under IFRS, do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies.
Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from
management’s perspective. Accordingly, these measures are not intended to represent, and should not be considered as alternatives to net income or other performance
measures derived in accordance with IFRS as measures of operating performance or operating cash flows or as a measure of liquidity. In addition to our results determined in
accordance with IFRS, we use non-IFRS measures including EBITDA, adjusted EBITDA, adjusted net income and adjusted net income per diluted share. We believe these non-IFRS
measures and industry metrics provide useful information to both management and investors in measuring our financial performance and condition and highlight trends in
our core business that may not otherwise be apparent when relying solely on IFRS measures. Definitions and reconciliations of non-IFRS measures to the relevant reported
measures can be found in our MD&A under “Cautionary Note Regarding Non-IFRS Measures and Industry Metrics”.

FORWARD-LOOKING INFORMATION

Certain information in this annual report contains forward-looking information. This information is based on management’s reasonable assumptions and beliefs in light of the
information currently available to us and are made as of April 7, 2021. Actual results and the timing of events may differ materially from those anticipated in the forward-looking
information as a result of various factors. Information regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets
in which we operate is forward-looking information. Statements containing forward-looking information are not facts but instead represent management’s expectations,
estimates and projections regarding future events or circumstances. Many factors could cause our actual results, level of activity, performance or achievements or future
events or developments to differ materially from those expressed or implied by the forward-looking statements.

See “Cautionary Note Regarding Forward-Looking Information” and “Risks and Uncertainties” in the Company’s MD&A and “Forward-Looking Statements” and “Risk
Factors” in the Company’s AIF dated April 7, 2021, which are available on SEDAR at www.sedar.com, for a discussion of the uncertainties, risks and assumptions
associated with these statements. Readers are urged to consider the uncertainties, risks and assumptions carefully in evaluating the forward-looking information and are
cautioned not to place undue reliance on such information. We have no intention and undertake no obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as required by applicable securities law.

A W O R D F R O M E R O L

“Shopping habits may evolve as we come out of
the pandemic; however, comfort, quality, and
versatility are always in demand, as Roots
has demonstrated for the past 47 years.”

Fellow Shareholders,

On behalf of the Board of Directors, I would like to congratulate the Roots team for everything
they achieved in 2020 and thank them for their contribution during what has been a particularly
challenging year. COVID-19 caused significant changes in business operations, primarily due to
periodic government-mandated store closures and work-from-home directives. However, by
leading with the Company’s competitive advantages and taking decisive action early on, Roots
delivered enhanced profitability and free cash flow within the year.

In 2020, the Company was operating under a new executive team. There were new leaders in
three of the four most senior positions in the organization, including the Chief Executive Officer
Meghan Roach, who has been leading the Company since January. With an immediate focus
on strengthening the fundamentals of the business, the team closed several unprofitable stores
in the U.S., reduced breadth and depth of promotional activity, and tightened overall cost
controls. In addition, while prioritizing employee and customer health and safety, Roots
seamlessly pivoted between in-store and online, driving impressive eCommerce growth.

Roots also heightened its focus on diversity and inclusion. The commitment to driving impactful
and lasting change within its organization and communities runs deep through all levels of the
Company. Management and the Roots Diversity Equality Equity and Inclusion Council report
directly to the Board on company initiatives and commitments. In addition, through product
donations and funds raised through the production of the Company’s made-in-Canada
reusable face masks, Roots donated to numerous charitable organizations that support
underserved communities across Canada.

This year, as a result of the COVID-19 pandemic, our board members worked closely with
management on employee health, safety and wellbeing, effective remote working, enhanced
cost controls, liquidity risk management, and maintaining operational resilience. Facilitated by
the flexibility of virtual meetings and a culture of openness, our directors significantly increased
our engagement with management beyond regularly scheduled meetings, an approach that
was invaluable in supporting the Company’s rapid adaptability.

We have also deepened our board experience in fashion and expanded into areas such as
sustainability with the recent appointment of accomplished entrepreneur and award-winning
fashion industry veteran, Dexter Peart.

While we continue to face the challenges of COVID-19, I expect that better days are ahead.
The Board continues to work with management and is confident in their ability to enhance the
brand to deliver exceptional products and experiences to our consumers. Shopping habits may
evolve as we come out of the pandemic; however, comfort, quality, and versatility are always in
demand, as Roots has demonstrated for the past 47 years.

To conclude, I would like to thank the Roots Founders, Michael Budman and Don Green, for
their friendship and guidance. I would also like to acknowledge my fellow directors for their
insight and commitment to the long-term success of the brand. Finally, I would like to thank
our customers for their loyalty and you, our valued shareholders, for your continued support.

Sincerely,

Erol Uzumeri
Chairman of the Board of Directors

T H O U G H T S F R O M M E G H A N

“The determination and resilience of the team,
the power of the Roots brand, the strength of
our omni-channel platform, and our disciplined
approach to cost management enabled us to
end Fiscal 2020 in a stronger financial position
than Fiscal 2019.”

To our Shareholders:

In 2020, we experienced a market disruption unlike anything we have seen during the last
47 years of our operations. With more than 140 million people globally becoming infected with
the Coronavirus, individuals around the world meaningfully changed the ways in which they
worked and lived. Despite these challenges, the determination and resilience of the team, the
power of the Roots brand, the strength of our omni-channel platform, and our disciplined
approach to cost management enabled us to end Fiscal 2020 in a stronger financial position than
Fiscal 2019. In particular, year-over-year the Company’s gross margins increased 470 bps and
Adjusted EBITDA rose 48.6%, while free cash flow increased $34.0 million.

In our major markets, the pandemic resulted in new operating restrictions and government-
mandated lockdowns that caused our directly operated stores to be closed for more than 30%
of the year and contributed to a 27% decline in Fiscal 2020 revenue compared to Fiscal 2019.
However, the shift in personal habits also led to a more rapid casualization of North American
wardrobes and high online penetration rates. As a brand known for comfort and quality since
1973 and a company with robust omni-capabilities, demand for our core products rose in 2020
and online sales increased by 50% within the year to 50% of direct-to-consumer sales. Online
sales benefited from the one pool of inventory for both retail and eCommerce held at our
consolidated distribution center as well as our ability to use stores as fulfilment hubs even
during the government-mandated lockdowns.

While eCommerce has played a significant role the past year, we know that stores remain an
important part of Roots offering. In 2020, we focused on strengthening our store fleet by closing
select locations and obtaining more favourable business terms for others. We also took
advantage of more affordable rents and short-term leases during the year to open pop-ups,
a strategy that we will continue to employ in 2021.

As a brand known for our comfortable, high-quality products and effortless style, we were
well-positioned in 2020 to meet the needs of consumers seeking versatile options for the new
realities of work and life. We saw increased demand for our core products and strong sell-
through of new products during the year. Even though consumer shopping habits may evolve
as we slowly emerge from the pandemic, as we have been demonstrating since 1973, comfort,
quality and versatility are always in demand.

The strength of the brand and the product drove us to take a more strategic and disciplined
approach to promotions in 2020. We reduced both the overall breadth and depth of promotions
throughout the year and notably removed Salt & Pepper sweats, an iconic product that we have
been making for over 40 years, from all discounts.

In addition to more promotional discipline, we also tightly managed costs and capital
expenditures in Fiscal 2020. By focusing on the return on invested capital, we enabled a
$13.2 million reduction in capital expenditures in the year without postponing important growth
initiatives. Further, we reduced selling, general, and administrative expenses by more than 30%
owing to better management of wages and corporate costs including rents.

In 2020, the communities in which we live and operate also suffered immensely both from the impacts of the Coronavirus pandemic and issues
of social justice. At Roots, community stands as a core pillar of our values, which made both giving back proactively and enhancing our focus on
diversity, equality, equity and inclusion priorities for us in 2020. From a charitable aspect, we were able to donate over $1.5 million in products in
2020 and, by leveraging the success of our non-medical face mask sales, we made more than $400,000 in cash donations in the year.

We have also made meaningful strides forward in our focus on diversity, equality, equity, and inclusion including establishing a cross-functional
council to evaluate and progress important initiatives in this area. Our ultimate ambition is to be a preferred place to work for all, regardless of
ethnicity, gender, sexual orientation, or ability, and an ally for social change and representation within the local and global communities in which
we operate.

Undoubtedly, 2020 was one of the most challenging years that Roots has faced in our nearly five-decade history. However, we believe we have
emerged in a place of strength with a clear path forward as we move into Fiscal 2021. We continue to remain an iconic heritage brand with loyal
and engaged customers in our core markets. We have meaningful opportunities for growth globally through our omni-channel offering and, as
we demonstrated in 2020, a flexible operating cost base. Roots also has a well-invested, scalable infrastructure, which should continue to lead
to an attractive free cash flow profile.

As I reflect on my first year as Chief Executive Officer, I am extremely proud of the Roots team for their hard work in 2020 and their continued
commitment to making Roots a desirable global brand.

I would also like to thank our customers for their continued loyalty, as well as our Board of Directors and the Roots Founders, Michael Budman
and Don Green, for their support and guidance as we continue to work to deliver on our commitments to you, our valued shareholders.

Sincerely,

Meghan Roach
President & Chief Executive Officer

ROOTS CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Fiscal Year Ended January 30, 2021)

The following Management’s Discussion and Analysis (“MD&A”) dated April 7, 2021 is intended
to assist readers in understanding the business environment, strategies and performance and risk
factors of Roots Corporation (together with its consolidated subsidiaries, referred to herein as
“Roots”, the “Company”, “us”, “we” or “our”). This MD&A provides the reader with a view and
analysis, from the perspective of management, of the Company’s financial results for the fourth
quarter and the fiscal year ended January 30, 2021. This MD&A should be read in conjunction
with our audited consolidated financial statements for the fiscal year ended January 30, 2021,
including the related notes thereto (the “Annual Financial Statements”).

BASIS OF PRESENTATION

Our Annual Financial Statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”), using the accounting policies described therein. All amounts are presented in thousands
of Canadian dollars, unless otherwise indicated.

All references in this MD&A to “Q4 2020” are to our fiscal quarter for the 13-week period ended
January 30, 2021, and all references to “Q4 2019” are to our fiscal quarter for the 13-week period
ended February 1, 2020. All references in this MD&A to “F2020” are to the 52-week fiscal year
ended January 30, 2021, all references to “F2019” are to the 52-week fiscal year ended February
1, 2020, and all references to “F2018” are to the 52-week fiscal year ended February 2, 2019.

The Annual Financial Statements and this MD&A were reviewed by our Audit Committee and
approved by our Board of Directors (the “Board”) on April 7, 2021.

Certain totals, subtotals, and percentages throughout this MD&A may not reconcile due to
rounding.

CAUTIONARY NOTE REGARDING NON-IFRS MEASURES AND INDUSTRY METRICS

This MD&A makes reference to certain non-IFRS measures including certain metrics specific to
the industry in which we operate. These measures are not recognized measures under IFRS, do
not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to
similar measures presented by other companies. Rather, these measures are provided as
additional information to complement those IFRS measures by providing a further understanding
of our results of operations from management’s perspective. Accordingly, these measures are not
intended to represent, and should not be considered as alternatives to, net income (loss) or other
performance measures derived in accordance with IFRS as measures of operating performance
or operating cash flows or as a measure of liquidity. In addition to our results determined in
accordance with IFRS, we use non-IFRS measures including “Adjusted DTC Gross Profit”,
“Adjusted DTC Gross Margin”, “EBITDA”, “Adjusted EBITDA”, “Adjusted Net Income (Loss)”, and
“Adjusted Net Income (Loss) per Share”. This MD&A also refers to “Comparable Sales Growth
(Decline)”, a commonly used metric in our industry but that may be calculated differently
compared to other companies. We believe these non-IFRS measures and industry metrics
provide useful information to both management and investors in measuring our financial
performance and condition and highlight trends in our core business that may not otherwise be
apparent when relying solely on IFRS measures.

Management also uses non-IFRS measures to exclude the impact of certain expenses and
income that management does not believe reflect the Company’s underlying operating
performance and that make comparisons of underlying financial performance between periods
difficult. Management also uses non-IFRS measures to measure our core financial and operating
performance for business planning purposes and as a component in the determination of
incentive compensation for salaried employees. We may exclude additional items, from time to
time, if we believe doing so would result in a more effective analysis of our underlying operating
performance.

“Adjusted DTC Gross Profit” is defined as gross profit in our direct-to-consumer (“DTC”)
segment, adjusted for the impact of certain cost of goods sold that are non-recurring, infrequent,
or unusual in nature and would make comparisons of underlying financial performance between
periods difficult.

“Adjusted DTC Gross Margin” is defined as Adjusted DTC Gross Profit, divided by sales in our
DTC segment.

“EBITDA” is defined as net income (loss) before interest expense, income taxes expense
(recovery) and depreciation and amortization.

“Adjusted EBITDA” is defined as EBITDA, adjusted for the impact of certain income and
expenses that are non-recurring, infrequent-, or unusual in nature and would make comparisons
of underlying financial performance between periods difficult. Beginning in the first quarter of
F2019 (“Q1 2019”), the Company adopted IFRS 16 – Leases (“IFRS 16”) using the modified
retrospective approach. To improve the comparability of underlying performance with periods
prior to our adoption of IFRS 16, Adjusted EBITDA for Q4 2020, Q4 2019, F2020 and F2019 have
been adjusted to exclude, in addition to certain other adjustments, the impact of IFRS 16. We
believe that Adjusted EBITDA is useful, to both management and investors, in assessing the
underlying performance of our ongoing operations and our ability to generate cash flows to fund
our cash requirement.

“Adjusted Net Income (Loss)” is defined as net income (loss), adjusted for the impact of certain
income and expenses that are non-recurring, infrequent-, or unusual in nature, and would make
comparisons of underlying financial performance between periods difficult, net of related tax
effects. Beginning in Q1 2019, the Company adopted IFRS 16 using the modified retrospective
approach. To improve the comparability of underlying performance with periods prior to our
adoption of IFRS 16, Adjusted Net Income (Loss) for Q4 2020, Q4 2019, F2020 and F2019 have
been adjusted to exclude, in addition to certain other adjustments, the impact of IFRS 16. We
believe that Adjusted Net Income (Loss) is useful, to both management and investors, in
assessing the underlying performance of our ongoing operations.

“Adjusted Net Income (Loss) per Share” is defined as Adjusted Net Income (Loss), divided by
the weighted average common shares outstanding during the periods presented. Beginning in Q1
2019, the Company adopted IFRS 16 using the modified retrospective approach. To improve the
comparability of underlying performance with periods prior to our adoption of IFRS 16, Adjusted
Net Income (Loss) for Q4 2020, Q4 2019, F2020 and F2019 have been adjusted to exclude, in
addition to certain other adjustments, the impact of IFRS 16. We believe that Adjusted Net Income
(Loss) per Share is useful, to both management and investors, in assessing the underlying
performance of our ongoing operations, on a per share basis.

“Comparable Sales Growth (Decline)” is a retail industry metric used to compare the percentage
change in sales derived from mature stores and eCommerce, in a certain period, compared to
the prior year sales from the same stores and eCommerce, over the same time period of the prior
fiscal year. We believe Comparable Sales Growth (Decline) helps explain our sales growth (or
decline) in established stores and eCommerce, which may not otherwise be apparent when
relying solely on year-over-year sales comparisons. Comparable Sales Growth (Decline) is
calculated based on sales (net of a provision for returns) from stores that have been open for at
least 52 weeks in our DTC segment, including eCommerce sales (net of a provision for returns)
in our DTC segment, and excludes sales fluctuations during store renovations and material
external events and circumstances that make comparisons of year-over-year results less
meaningful (including the impact of the COVID-19 pandemic, as further described below).

Comparable Sales Growth (Decline) also excludes the impact of foreign currency fluctuations by
applying the prior year’s U.S. dollar to Canadian dollar exchange rates to both current year and
prior year comparable sales to achieve a consistent basis for comparison. Our Comparable Sales
Growth (Decline) may be calculated differently compared to other companies.

Commencing in the first quarter of F2020 (“Q1 2020”), the Company’s DTC segment was
significantly impacted by COVID-19. Due to the negative impacts that COVID-19 has had on the
apparel retail operating environment, including periods of temporary store closures, phased re-
openings and retail store operating limitations, the Company does not believe that Comparable
Sales Growth (Decline) is a representative metric of Q4 2020 and F2020 performance.
Accordingly, this MD&A does not include a discussion of the Company’s Comparable Sales
Growth (Decline) in respect of Q4 2020 and F2020. Management will continue to monitor and
evaluate the effects of COVID-19 and will resume the evaluation of Comparable Sales Growth
(Decline) when year-over-year results are no longer significantly impacted by COVID-19. See
also “Key Business Developments – COVID-19”.

See “Reconciliation of Non-IFRS Measures” for a reconciliation of certain of the foregoing non-
IFRS measures to their most directly comparable measures calculated in accordance with IFRS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

This MD&A contains “forward-looking information” within the meaning of applicable securities
laws in Canada. Forward-looking information may relate to anticipated events or results and may
include information regarding our business, financial position, results of operations, business
strategy, growth plans and strategies, budgets, operations, financial results, taxes, plans and
objectives. Particularly, information regarding our expectations of future results, performance,
achievements, prospects or opportunities or the markets in which we operate is forward-looking
information.

In some cases, forward-looking information can be identified by the use of forward-looking
terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an
opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “forecasts”, “projection”,
“prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”, “believes”, or variations of
such words and phrases or state that certain actions, events or results “may”, “could”, “would”,
“should”, “might”, “will”, “will be taken”, “occur” or “be achieved”. In addition, any statements that
refer to expectations, intentions, projections or other characterizations of future events or
circumstances contain forward-looking information. Statements containing forward-looking
information are not facts but instead represent management’s expectations, estimates and
projections regarding future events or circumstances.

Many factors could cause our actual results, level of activity, performance or achievements or
future events or developments to differ materially from those expressed or implied by the forward-
looking information, including, without limitation, the factors discussed in the “Risks and
Uncertainties” section of this MD&A and in the “Risk Factors” section of our annual information
form (“AIF”). A copy of the AIF can be accessed under our profile on the System for Electronic
Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and on our website at
www.roots.com. These factors are not intended to represent a complete list of the factors that
could affect us; however, these factors should be considered carefully.

The purpose of the forward-looking information is to provide the reader with a description of
management’s current expectations regarding the Company’s financial performance and may not
be appropriate for other purposes; readers should not place undue reliance on forward-looking
information contained herein. To the extent any forward-looking information in this MD&A
constitutes future-oriented financial information, within the meaning of applicable securities laws,
such information is being provided to demonstrate the potential of the Company and readers are
cautioned that this information may not be appropriate for any other purpose. Future-oriented
financial information, as with forward-looking information generally, are based on current
assumptions and subject to risks, uncertainties and other factors. Furthermore, unless otherwise
stated, the forward-looking information contained in this MD&A are made as of the date of this
MD&A, and we have no intention and undertake no obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise, except as
required under applicable securities laws in Canada. The forward-looking statements contained
in this MD&A are expressly qualified by this cautionary statement.

OVERVIEW

Established in 1973, Roots is a premium outdoor lifestyle brand. We unite the best of cabin and
city through unmistakable style built with uncompromising comfort and quality. We offer a broad
range of products designed for life’s everyday adventures, including women’s and men’s apparel,
leather goods, footwear, accessories, and kids, toddler and baby apparel. Starting from a little
cabin in Algonquin Park, Canada, Roots has grown to become a global brand. As at January 30,
2021, we operated 111 corporate retail stores in Canada, two corporate retail stores in the United
States, 117 partner-operated stores in Taiwan, 26 partner-operated stores in China, two partner-
operated stores in Hong Kong, and a global eCommerce platform, roots.com. Roots Corporation
is a Canadian corporation doing business as “Roots” and “Roots Canada”.

On October 14, 2015, Searchlight Capital Partners, L.P. (“Searchlight”) incorporated Roots
Corporation under the laws of Canada and its subsidiary, Roots USA Corporation, under the laws
of the State of Delaware. Pursuant to a purchase and sale agreement dated October 21, 2015,
Roots and its subsidiaries acquired substantially all of the assets of Roots Canada Ltd., former
wholly-owned subsidiary Roots U.S.A., Inc. (refer to “Key Business Developments – RTS USA
Corp. Chapter 7 Filing”), Roots America L.P., entities controlled by our founders Michael Budman
and Don Green (the “Founders”), and all of the issued and outstanding shares of Roots
International ULC, effective December 1, 2015 (the “Acquisition”).

The Company’s common shares (the “Shares”) are listed on the Toronto Stock Exchange (“TSX”)
under the trading symbol “ROOT”.

KEY BUSINESS DEVELOPMENTS

COVID-19

In December 2019, COVID-19 surfaced in Wuhan, China, spreading quickly, resulting in the World
Health Organization declaring a global emergency on January 30, 2020 with respect to the
outbreak, which was subsequently characterized as a pandemic on March 11, 2020, leading many
countries to take drastic measures to manage the spread of the virus. The worldwide pandemic,
along with ensuing recommendations and restrictions imposed by government authorities to help
curb the spread of COVID-19, has significantly impacted the operations and financial performance
of the Company.

Operational Response

In March 2020, we temporarily closed our corporate retail stores in Canada and the United States
in response to COVID-19, prioritizing the health and safety of our customers and employees and
helping to manage the spread of the virus. In accordance with local government and health
organization guidelines, we began a phased reopening of our corporate retail stores, under
reduced operating hours and other procedural and capacity provisions, starting on May 15, 2020.
During Q4 2020, in response to a second wave of government mandated lockdowns, we
temporarily closed our corporate retail stores within certain regions of Canada. As of January 30,
2021, 69 of our corporate retail stores in Ontario and Québec remained temporarily closed under
local government guidelines. We will continue to adhere to all future guidelines provided by the
local government and health organizations. See also “Subsequent Events” for further details on
store closures in relation to COVID-19.

As permitted by government regulations, through the pandemic we continue to operate our global
eCommerce business and our distribution centre, with strict cleaning protocols and social
distancing measures in place. We have also continued to operate our wholesale, business-to-
business and licensing business, as well as our head office functions under a “work-from-home”
model. In addition, we repurposed a portion of our Company-operated leather factory for non-
medical face mask production and donated a portion of the proceeds to charitable organizations
across Canada.

In March 2020, our international operating partner in Asia temporarily closed select stores in
China and reduced hours across the remainder of its store portfolio in China, Hong Kong, and
Taiwan. All Roots stores operated by our international operating partner in Asia were reopened
during Q1 2020.

Financial Performance & Liquidity Impact

As a result of the significant negative impact that COVID-19 has had on the global economy,
consumer confidence, and the retail operating environment, our consolidated financial results in
F2020 have been materially impacted. The temporary corporate retail store closures in F2020,
adjusting consumer behaviours in response to COVID-19, capacity restrictions and adherence to
strict social distancing practices since reopening have caused our F2020 corporate retail store
sales to be below prior year sales. Store sales decline has been partially offset by an increase in
eCommerce sales year-over-year as a result of our omni-channel platform.

Since March 2020, we have implemented many strategies to reduce costs and manage liquidity
to overcome the negative impacts of the pandemic, including the following:

 Substantially reduced selling, general and administrative expenses (“SG&A expenses”),

capital expenditures and discretionary spending across all areas of the business;

 Realized personnel cost savings related to temporary layoffs as a result of store closures,
temporary reductions in compensation to the Board and head office employees, hiring and
salary freezes, and the elimination of F2019 bonuses;

 Reduced and adjusted forward inventory purchases;

 Worked closely with our partners and suppliers, as well as service and logistics providers,

to identify further areas of cost reduction and/or payment deferral;

 Worked with our landlords to abate or defer a portion of our corporate retail store rent

during the store shut down and/or subsequent periods; and

 Evaluated, qualified and applied for applicable government relief programs, including the
Canada Emergency Wage Subsidy (“CEWS”) program and the Canada Emergency Rent
Subsidy (“CERS”) program. See Note 20 in our Annual Financial Statements for further
details.

As a result of the strategies mentioned above, we have reduced and managed our costs across
all areas of the business. We have been able to effectively manage our liquidity with a 53% year-
over-year increase in available liquidity as at the end of F2020 and a reduction of our leverage
from 3.7x Adjusted EBITDA in F2019 to 1.6x Adjusted EBITDA in F2020.

Risks beyond F2020

Based on events and circumstances known to us to date, we believe that:

 Consumer demand will be the most significant issue amidst the uncertainty in the global
economy, negatively impacting our corporate retail stores, as well as the businesses of
our international operating partner and our North American wholesale and retail partners.
Regions that previously had higher densities of tourism and/or commercial urban traffic
will experience a greater negative impact and slower recovery;

 While eCommerce sales have fared better than retail, we may nevertheless suffer
significant sales losses as overall customer demand and consumer spending is expected
to continue to decline, as compared to F2019, in response to COVID-19 and the related
global economic impacts;

 Social distancing restrictions to protect the safety of our customers and employees may
limit both the number of customers we can serve at our corporate retail stores during peak
selling periods, and the volume of goods we are able to manufacture and fulfill through
our leather factory and distribution centre, respectively. More severe government-imposed
restrictions, including store capacity restrictions and future lockdowns, could further
restrict our ability to service our customers. See also “Subsequent Events” for further
discussion on store closures in relation to COVID-19;

 Cases of COVID-19 infection that arise at our corporate retail stores, leather factory,
distribution centre, or head office may disrupt our operations, which could lead to lost sales
and/or additional costs;

 We may also face challenges through our supply chain network if there are disruptions in
service at our distribution centre, third-party logistics fulfillment partners, suppliers,
manufacturing facilities and/or logistics providers. Increased market demand for certain
third-party services may also increase our operating costs and/or limit our ability to fulfill
sales;

 We may face restrictions on our ability to transport goods from our international suppliers

due to international restrictions on free movement; and

 The costs of operating our stores, leather factory and distribution centre may increase as
a result of enhanced health and safety measures taken to protect our employees, including
the provision of personal protective equipment.

While the full extent of the impact of COVID-19 on the Company’s business remains unclear, we
believe that the cost reductions and liquidity management strategies employed will partially
mitigate the above risks to our financial performance. The Company expects to have access to
borrowings and other forms of support to be made available to businesses impacted by this
pandemic. However, to the extent that COVID-19 continues, or further public restrictions are
imposed by the government, the degree to which the Company’s operations could be affected
may increase.

RTS USA Corp. Chapter 7 Filing

From F2018 to F2020, we opened seven corporate retail stores in the United States, including
two stores in the Greater Boston Area, three in the Washington D.C. area, one in Chicago and a
pop-up location in Woodbury Commons, New York (the “New U.S. stores”). In aggregate, we
incurred an Adjusted EBITDA loss of $(6,067) in F2019 pertaining to these stores and our
corporate retail store on Elizabeth Street in New York that was closed in the third quarter of F2019
(“Q3 2019”), primarily driven by sales that were well below expectations.

On April 29, 2020, we announced the liquidation of our wholly-owned subsidiary formerly known
as Roots USA Corporation (“RTS USA Corp.”), pursuant to Chapter 7 of Title 11 of the United
States Code (the “Chapter 7 filing”). The Chapter 7 filing has resulted in the permanent closure
of the New U.S. stores.

We continue to believe in the U.S. market opportunity. However, the Adjusted EBITDA loss and
the increasing challenges in the discretionary retail environment resulting from COVID-19 led us
to believe that the permanent closure of these New U.S. stores was our best option. In the near
term, we believe a principally eCommerce-based distribution model is best to serve our U.S.
customer base. We will also continue to operate our two longstanding stores in Michigan and
Utah, as both locations play important roles in our heritage and have well-established customer
bases.

Under a Chapter 7 filing, control of RTS USA Corp. no longer rests with the Company, but rather
with the court-appointed trustee in charge of administering the case. Accordingly, effective April
29, 2020, the Company no longer consolidated this wholly-owned subsidiary and has
deconsolidated the assets and liabilities with respect to this subsidiary resulting in the difference
being recorded as a net gain of $4,774 in the statement of net income (loss).

In F2020, we incurred $1,283 of costs associated with the Chapter 7 filing recorded in SG&A
expenses. The costs were primarily related to professional service fees and other costs incurred
in relation to the Chapter 7 filing.

In F2020, the Company incurred an Adjusted EBITDA loss of $(2,144), pertaining to the
operations of the New U.S. stores prior to their closure, compared to an Adjusted EBITDA loss of
$(6,067) in F2019. F2019 figures also include losses associated with our corporate retail store
on Elizabeth Street in New York that was closed in Q3 2019.

FACTORS AFFECTING OUR PERFORMANCE

We believe that our performance and future success depend on a number of factors that present
significant opportunities for us. These factors are also subject to a number of inherent risks and
challenges, some of which we discuss below. See also the “Risks and Uncertainties” section of
this MD&A and the “Risk Factors” section of our AIF.

Brand Awareness

The Roots brand is well-known in Canada and Taiwan, with locations also in the United States,
mainland China and Hong Kong. Any loss of brand appeal from factors such as changing
consumer trends and increased competition may adversely affect our business and financial
results. To address this, we focus on building our brand and strengthening our brand voice
through innovative, impactful brand initiatives as well as delivering customer insight-driven

product designs. In addition, we work to best position our brand and business globally by
leveraging the operational investments that we have made and growing our omni-channel
footprint.

Our Omni-Channel Business

Our corporate retail stores and eCommerce platform are integrated, providing our customers with
a seamless omni-channel shopping experience whether they are shopping online from a desktop
or mobile device, or in one of our retail stores. This includes the ability to:

 order online and collect in-store;
 order in-store for home delivery;
 order online for home delivery;

 shop anytime, anywhere at roots.com;
 obtain in-store inventory display on roots.com; and


return goods seamlessly via any channel.

locate your desired store online;

The success of our business is heavily dependent on our ability to continue to drive strong
comparable sales in our DTC segment and to grow our omni-channel footprint. This includes
enhancing our eCommerce capabilities and optimizing our corporate retail store footprint. Our
ability to successfully execute our omni-channel strategy is an important driver of our longer-term
growth.

As eCommerce continues to become a larger component of our omni-channel footprint, we
depend on third-party logistics partners to fulfill sales transactions with our customers in a
dependable and timely manner. Changes in geographic coverage, service levels, capacity levels,
and labour disruptions at our logistics partners may adversely affect our business and financial
results. We continue to work with our third-party logistics partners to ensure that options are
available in order to mitigate the risk of a disruption to delivery services.

During F2019, we relocated from two separate facilities – our legacy retail-only distribution centre
and our third-party online order fulfillment and distribution facility – to a single fully-integrated
Roots-operated distribution centre (the “DC Relocation Project”). As of Q3 2019, we completed
the transition such that all retail store distribution and eCommerce fulfillment is now completed at
this single Roots-operated facility. Being able to fulfill centrally enables us to more effectively
scale and execute our omni-channel strategy. Conversely, any failure of our new distribution
centre to meet the demands of the Company, or to keep pace with our growth, could have a
material adverse effect on our business and financial results. See also “Key Business
Developments – COVID-19”.

Our International Operating Partner

Much of the success of our international business is dependent on the performance of our
international operating partner’s retail operations. Our ability to continue to recognize wholesale
sales of Roots-branded products to our partner and to generate royalty revenue from our partner’s
retail sales of Roots-branded products depends on our partner continuing to grow its business.
Our partner’s ability to successfully execute on its multi-channel strategy and our ability to support
our partner in this growth will impact the performance of our business. Our partner’s sales are
also impacted by shifts in economic conditions in the regions in which it operates that are beyond
our and our partner’s control, including: employment rates; consumer confidence levels;

consumer debt; and interest rates, all of which could limit the disposable income and discretionary
spending levels of consumers. See also “Key Business Developments – COVID-19”.

Product Development and Merchandising

Our sales are driven primarily from major Canadian markets during the fall and winter months.
However, we are not defined by one product, season, geography, or demographic. With nearly
five decades of product leadership, our product range is diversified and comprised of apparel,
leather goods, accessories and footwear. Serving as the foundation of our distinct identity, many
of our enduring icons have been in our product assortment for decades and remain favourites
among customers today.

We continue to execute our broader merchandising strategy of bringing better products and
assortments to our diverse and global consumer base. Through our more formalized and analysis-
driven approach to product line development and our distribution channel upgrades, we are better
able to deliver coordinated collections across all lines of products, bringing the right products
through the right channels to our broadening base of customers.

Our business is affected by our ability to continue to develop products that resonate with
consumers and we are working to accelerate our product development as we continue to
introduce products to mitigate the seasonal nature of our business (as further described below)
and expand our addressable geographic market. See also “Key Business Developments –
COVID-19”.

Foreign Exchange

We generate the majority of our revenues in Canadian dollars, while a significant portion of our
cost of goods sold is denominated in U.S. dollars, which exposes us to fluctuations in foreign
currency exchange rates. We may enter into hedging arrangements to mitigate the risks
associated with fluctuations in the U.S. dollar relative to the Canadian dollar. See “Financial
Instruments” for a further discussion of our hedging arrangements.

Seasonality

We experience seasonal fluctuations in our retail business, as we generate a meaningful portion
of our sales and earnings in our third and fourth fiscal quarters. Our working capital requirements
generally increase in the periods preceding these peak periods, and it is not uncommon for our
EBITDA to be negative in the first two fiscal quarters. The average portion of our annual sales
generated during each quarter of a fiscal year over the last three completed fiscal years is outlined
in the following table:

First fiscal quarter . . . . . . . . . . . . . . . . . . . . . .
Second fiscal quarter . . . . . . . . . . . . . . . . . . .
Third fiscal quarter . . . . . . . . . . . . . . . . . . . . .
Fourth fiscal quarter . . . . . . . . . . . . . . . . . . . .
Annual Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

14%
16%
27%
43%
100%

Weather

Our corporate retail stores could be adversely impacted by extreme weather conditions in regions
in which they operate. For example, severe or abnormal snowfall, rainstorms, ice storms, or other
adverse weather conditions could decrease customer traffic in our stores and could adversely
impact our results. Our omni-channel presence helps to mitigate the impact of extreme weather
conditions as customers are able to order products through our eCommerce platform.
Furthermore, we are subject to risks relating to unseasonable weather patterns, such as warmer
temperatures in the fall and winter seasons and cooler temperatures in the spring and summer
seasons, which could cause our inventory to be incompatible with prevailing weather conditions
and could diminish demand for seasonal merchandise.

Consumer Trends

Our success largely depends on our ability to anticipate and respond to shifts in consumer trends,
demands and preferences in a timely manner. All of our products are subject to changing
consumer preferences that cannot be predicted with certainty. If we are unable to adequately
respond to changing consumer trends, our sales could be adversely impacted, or we could
experience higher inventory markdowns which could decrease our profitability. This is mitigated
by our focus on continuous product development to create products that resonate with our
consumers, our diverse product range across multiple categories, and the fact that our enduring
icons have remained favourites of our customers for decades and continue to be customer
favourites today. Our sales are also impacted by shifts in economic conditions that are beyond
our control, such as: employment rates; consumer confidence levels; consumer debt; and interest
rates, all of which could limit the disposable income and discretionary spending levels of
consumers. See also “Key Business Developments – COVID-19”.

SEGMENTS

We report our results in two segments: (1) DTC and (2) Partners and Other. We measure each
reportable operating segment’s performance based on sales and segment gross profit. Our DTC
segment comprises sales through our corporate retail stores and eCommerce. Our Partners and
Other segment consists primarily of the wholesale of Roots-branded products to our international
operating partner and the royalties earned on the retail sales of Roots-branded products by our
partner. Our Partners and Other segment also includes royalties earned through the licensing of
our brand to select manufacturing and wholesale distribution partners, the wholesale of Roots-
branded products to select retail partners, and the sale of custom Roots-branded products to
select business clients.

Our DTC and Partners and Other segments contributed 86.6% and 13.4% of our sales,
respectively, in F2020 (F2019 – 87.2% and 12.8% of our sales, respectively).

SUMMARY OF FINANCIAL PERFORMANCE

We refer the reader to the sections entitled “Components of our Results of Operations”, “Factors
Affecting our Performance” and “Cautionary Note Regarding Non-IFRS Measures and Industry
Metrics” in this MD&A for the definition of the items discussed below and, when applicable, to the
section entitled “Reconciliation of Non-IFRS Measures” for reconciliations of non-IFRS measures
with the most directly comparable IFRS measure. Unless otherwise indicated, financial
information includes the impact of the implementation of IFRS 16.

The following table summarizes our results of operations for the periods indicated:

CAD $000s (except per share data)
Statement of Net Income (Loss) Data:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selling, general and administrative expenses . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from deconsolidation of RTS USA Corp. (2). . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . .

Non-IFRS Measures and Other Performance
Measures:
Corporate retail stores, end of period . . . . . . . . . . . . . . . . . .
Adjusted DTC Gross Profit (3) . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted DTC Gross Margin (3) . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income per Share (3) . . . . . . . . . . . . . . . . . . . .
_______________
Note:

Q4 2020

Q4 2019

F2020

F2019

F2018(1)

99,397
58,854

59.2%
39,009
–
–
12,344
$0.29
$0.29

113
55,681
60.7%
26,091
16,272
$0.39

127,453
69,290

54.4%
69,445
44,799
–
(44,577)
$(1.06)
$(1.06)

122
65,957
55.4%
26,053
13,269
$0.31

240,506
139,739

58.1%
114,807
–
4,774
13,080
$0.31
$0.31

113
128,142
61.5%
38,748
16,511
$0.39

329,865
176,189

53.4%
188,308
44,799
–
(62,029)
$(1.47)
$(1.47)

122
162,630
56.5%
26,068
4,018
$0.10

329,028
188,490

57.3%
166,790
–
–
11,400
$0.27
$0.27

121
173,816
61.2%
41,903
20,179
$0.48

(1) On February 3, 2019, the Company adopted IFRS 16 using the modified retrospective approach. As a result of this approach, F2018 figures have
not been restated. Excluding the impacts of IFRS 16 and non-cash fixed asset impairment, SG&A expenses were: $37,226 in Q4 2020, $48,245 in
Q4 2019, $117,345 in F2020, $170,536 in F2019, and $165,415 in F2018. See “Results of Operations” for further discussion on year-over-year
variances on SG&A expenses.

(2) See “Key Business Developments - RTS USA Corp. Chapter 7 Filing”.

(3) Adjusted DTC Gross Profit, Adjusted DTC Gross Margin, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per Share are non-

IFRS measures. See “Cautionary Note Regarding Non-IFRS Measures and Industry Metrics” for a description of these measures.

Selected Financial Results for Q4 2020 Compared to Q4 2019

 Total sales decreased by $28,056, or 22.0%, to $99,397 in Q4 2020, from $127,453 in Q4

2019.

 DTC sales decreased by $27,289, or 22.9%, to $91,761 in Q4 2020, from $119,050

in Q4 2019.

 Partners and Other sales decreased by $767, or 9.1%, to $7,636 in Q4 2020, from

$8,403 in Q4 2019.

 Gross profit decreased by $10,436, or 15.1%, to $58,854 in Q4 2020, from $69,290 in Q4

2019.

 DTC gross profit decreased by $10,814, or 16.5%, to $54,846 in Q4 2020, and as
a percentage of sales (“DTC gross margin”) increased to 59.8% in Q4 2020, from
55.2% in Q4 2019.

 Adjusted DTC Gross Profit(1) decreased by $10,276, or 15.6%, to $55,681 in Q4
2020, and Adjusted DTC Gross Margin(1) increased to 60.7% in Q4 2020, from
55.4% in Q4 2019.

 Recorded no goodwill impairment in Q4 2020, compared to a goodwill impairment of

$44,799 in Q4 2019.

 SG&A expenses decreased by $30,436, or 43.8%, to $39,009 in Q4 2020, from $69,445
in Q4 2019. SG&A expenses includes a fixed asset impairment of $886 in Q4 2020 and
$19,183 in Q4 2019.

 Adjusted EBITDA(1) increased by $38, or 0.1%, to $26,091 in Q4 2020, from $26,053 in

Q4 2019.

 Net income (loss) increased by $56,921 to a net income of $12,344 in Q4 2020, from a

net loss of $(44,577) in Q4 2019.

 Adjusted Net Income(1) increased by $3,003 to $16,272 in Q4 2020, from $13,269 in Q4

2019.

 Basic earnings (loss) per Share increased to $0.29 in Q4 2020, from $(1.06) in Q4 2019.

 Adjusted Net Income per Share(1) increased to $0.39 in Q4 2020, from $0.31 in Q4 2019.

Selected Financial Results for F2020 Compared to F2019

 Total sales decreased by $89,359, or 27.1%, to $240,506 in F2020, from $329,865 in

F2019.

 DTC sales decreased by $79,532, or 27.6%, to $208,230 in F2020, from $287,762

in F2019.

 Partners and Other sales decreased by $9,827, or 23.3%, to $32,276 in F2020,

from $42,103 in F2019.

 Gross profit decreased by $36,450, or 20.7%, to $139,739 in F2020, from $176,189 in

F2019.

 DTC gross profit decreased by $34,528, or 21.3%, to $127,262, and DTC gross

margin increased to 61.1% in F2020, from 56.2% in F2019.

 Adjusted DTC Gross Profit(1) decreased by $34,488, or 21.2%, to $128,142 in
F2020, and Adjusted DTC Gross Margin(1) increased to 61.5% in F2020, from
56.5% in F2019.

 SG&A expenses decreased by $73,501, or 39.0%, to $114,807 in F2020, from $188,308
in F2019. SG&A expenses includes a fixed asset impairment of $886 in F2020 and
$19,183 in F2019.

 Recorded no goodwill impairment in F2020, compared to goodwill impairment of $44,799

in F2019.

 A net gain of $4,774 was recorded in F2020, related to the deconsolidation RTS USA

Corp., compared to $nil in F2019. See “Key Business Developments – RTS USA Corp.
Chapter 7 Filing”.

 Adjusted EBITDA(1) increased by $12,680, or 48.6%, to $38,748 in F2020, from $26,068
in F2019. Adjusted EBITDA was 16.1% of sales in F2020, increasing from 7.9% of sales
in F2019.

 Net income (loss) increased by $75,109 to a net income of $13,080 in F2020, from a net

loss of $(62,029) in F2019.

 Adjusted Net Income(1) increased by $12,493 to $16,511 in F2020, from $4,018 in F2019.
Adjusted Net Income was 6.9% of sales in F2020, increasing from 1.2% of sales in F2019.

 Basic earnings per Share was $0.31 in F2020, up from basic loss per Share of $(1.47) in

F2019.

 Adjusted Net Income per Share(1) increased to $0.39 in F2020 from $0.10 in F2019.

Key Operational Developments

Real Estate

During F2020, in North America, we relocated two corporate retail stores, completed major
renovations on one of our existing corporate retail stores, opened six temporary pop-up locations
in Ontario, and closed three corporate retail stores in Canada as we continue to optimize our real
estate portfolio. During F2020, we also closed seven of our U.S. stores as part of the Chapter 7
filing of RTS USA Corp. (see “Key Business Developments – RTS USA Corp. Chapter 7 Filing”).

In Q4 2020, we:

 opened two temporary pop-up locations in Ontario;

 closed our South Keys store in Ottawa, Ontario; and

 closed our Kenaston store in Winnipeg, Manitoba.

The following table summarizes the change in our corporate retail store count for the periods
indicated, excluding various pop-up locations.

Number of stores, beginning of period . . . . . . . . . . . .
New stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of stores, end of period . . . . . . . . . . . . . . . .
Stores renovated or relocated . . . . . . . . . . . . . . . . . . . .

115
–
2
113
–

122
1
1
122
–

122
–
9
113
3

121
5
4
122
6

Q4 2020

Q4 2019

F2020

F2019

Note:

(1) Adjusted DTC Gross Profit, Adjusted DTC Gross Margin, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) per
Share are non-IFRS measures. See “Cautionary Note Regarding Non-IFRS Measures and Industry Metrics” for a description of these measures.

International Partnership

During F2020, our international partner had a net increase of three stores in Taiwan. In China, a
comparatively newer and very small market for Roots, our international partner had a net
decrease of 10 stores. The net decline in China store count is reflective of a transition to a digitally-
led strategy, a shift that we expect to undertake over the course of fiscal 2021 to better position
the Company to execute on the market opportunity in China. In Hong Kong, our international
partner had a net increase of one store.

With shorter lease terms and rapidly changing market dynamics in Asia, our international partner
will continue to optimize its overall store portfolio, including choosing not to renew leases for
certain locations. During F2020, our international partner opened six new stores and closed three
stores in Taiwan, opened two stores and closed 12 stores in China and opened one store in Hong
Kong. At the end of F2020, we had 117 partner-operated stores in Taiwan, 26 partner-operated
stores in China, and two partner-operated stores in Hong Kong.

COMPONENTS OF OUR RESULTS OF OPERATIONS

In assessing our results of operations, we consider a variety of financial and operating measures
that affect our operating results.

Sales

Sales in our DTC segment includes sales through our corporate retail stores in North America
and through our eCommerce operations. Sales to customers through our corporate retail stores
are recognized at the time of purchase, net of a provision for returns. eCommerce sales are
recognized at the time of delivery, net of a provision for returns. The provision for returns is
estimated based on the last 12 months’ return rate for retail stores and eCommerce sales,
respectively.

Sales in our Partners and Other segment consist primarily of wholesale sales to our international
partner and other corporate customers, and royalty revenue earned from the retail sale of Roots-
branded products by our international partner and other third-party licensees. Wholesale sales
from the sale of goods are recognized when the performance obligations of goods delivery have
been passed to the customer which, depending on the specific contractual terms of each
customer, is either at the time of shipment or receipt. Contractually, our international partner and
wholesale partners are unable to return goods purchased from us. Royalty sales are earned and
recognized on an accrual basis in accordance with the various contractual agreements, at the
later of (i) sales of licensed goods as reported by our international partner and other third-party
licensees, and (ii) when all performance obligations pertaining to the royalty have been satisfied.

Gross Profit

Gross profit is sales less cost of goods sold. Cost of goods sold includes the cost of purchasing
products from manufacturers, including direct purchase costs, freight costs, and duty and non-
refundable taxes. For select leather products manufactured by us in-house, cost of goods sold
includes the cost of manufacturing our products, including raw materials, direct labour and
overhead, plus freight costs. Cost of goods sold also includes variable distribution centre costs
incurred to prepare our inventory for sale. Commencing in Q3 2019, as a result of our transition
to a single Roots-operated distribution centre in connection with the DC Relocation Project, cost
of goods sold also includes variable distribution centre costs incurred to fulfill our eCommerce

orders. Previously, eCommerce order fulfillment costs, incurred through our third-party online
order fulfillment and distribution facility, were recorded in SG&A expenses. The CEWS received
associated with our distribution centre and leather factory employee compensation has been
recorded as an increase to gross profit in respect of F2020.

Gross margin measures our gross profit as a percentage of sales.

The primary driver of our cost of goods sold is the cost of purchased products from our
manufacturers, which is predominantly sourced in U.S. dollars. The Company utilizes a hedging
program to manage its foreign currency risk related to U.S. dollar inventory purchases. See
“Financial Instruments”.

Selling, General and Administrative Expenses

SG&A expenses consist of selling costs to market and deliver our products, depreciation of store
and eCommerce assets, non-cash fixed asset and ROU asset impairments, and costs incurred
to support the relationships with our retail partners, wholesale distributors, and licensees. SG&A
expenses also include our marketing and brand investment activities, and the corporate
infrastructure required to support our ongoing business.

Selling costs as a percentage of sales is usually higher in the lower-volume first and second
quarters of a fiscal year, and lower in the higher-volume third and fourth quarters of a fiscal year
because a substantial portion of these costs are relatively fixed.

General and administrative expenses represent costs incurred in our corporate offices, primarily
related to personnel costs, including salaries, variable-incentive compensation, benefits, share-
based compensation, and marketing costs. It also includes rent and depreciation and amortization
expenses for all office support assets and intangible assets.

Foreign exchange gains and losses, excluding changes in the fair value of foreign currency
forward contracts (see “Financial Instruments”) are recorded in SG&A expenses and comprise
translation of monetary assets and liabilities denominated in currencies other than the functional
currency of the entity.

In F2020, the CEWS received associated with our corporate retail store and head office employee
compensation has been recorded as a reduction to the eligible remuneration expenses within
SG&A expenses.

Interest Expense

Interest expense relates to interest accrued on our lease liabilities and our Credit Facilities (as
defined below). See “Indebtedness”.

Income Taxes

We are subject to income taxes in the jurisdictions in which we operate and, consequently, income
taxes expense or recovery is a function of the allocation of taxable income by jurisdiction and the
various activities that impact the timing of taxable events. The primary regions that determine the
effective income tax rate are Canada and the United States. Over the long-term, we expect our
annual effective income tax rate to be, on average, approximately 27-28%, subject to changes to
income tax rates and legislation in the jurisdictions in which we operate.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes our recent results of operations for the periods indicated. The
selected consolidated financial information set out below for F2020 and F2019 has been derived
from our Annual Financial Statements. The selected consolidated financial information set out
below for Q4 2020 and Q4 2019 is unaudited.

CAD $000s

Sales
Cost of goods sold

Gross Profit

Selling, general and administrative expenses
Goodwill impairment
Gain from deconsolidation of RTS USA Corp.

Income (loss) before interest expense and income

Q4 2020

Q4 2019

F2020

F2019

99,397
40,543

58,854

39,009
–
–

127,453
58,163

69,290

69,445
44,799
–

240,506
100,767

139,739

114,807
–
4,774

329,865
153,676

176,189

188,308
44,799
–

taxes expense (recovery)

19,845

(44,954)

29,706

(56,918)

Interest expense

Income (loss) before taxes

2,421

17,424

3,962

(48,916)

11,741

17,965

15,567

(72,485)

Income taxes expense (recovery)

5,080

(4,339)

4,885

(10,456)

Net income (loss)

12,344

(44,577)

13,080

(62,029)

Basic earnings (loss) per Share

Diluted earnings (loss) per Share

$0.29

$(1.06)

$0.31

$(1.47)

The following table provides selected balance sheet information for the periods indicated:

Consolidated Statement of Financial Position Data:
CAD $000s (except per Share amounts)
Current assets ..........................................................................
Non-current assets ...................................................................
Current liabilities ......................................................................
Non-current liabilities ...............................................................
Net working capital ...................................................................
Shareholders’ equity ................................................................

As at January 30, 2021 As at February 1, 2020
$53,677
387,097
67,208
223,060
26,465
150,506

$61,869
298,364
65,163
160,980
21,094
164,180

RESULTS OF OPERATIONS

Analysis of Results for Q4 2020 as compared to Q4 2019 and F2020 as compared to F2019

The following section provides an overview of our financial performance during Q4 2020
compared to Q4 2019 and during F2020 compared to F2019.

Sales

The following table presents our sales by segment for each of the periods indicated:

CAD $000s
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partners and Other . . . . . . . . . . . . . . .

Total Sales . . . . . . . . . . . . . . . . . . . . . .

Q4 2020

Q4 2019

% Change

F2020

F2019

% Change

91,761
7,636

99,397

119,050
8,403

127,453

(22.9)%

(9.1)%

(22.0)%

208,230
32,276

240,506

287,762
42,103

329,865

(27.6)%

(23.3)%

(27.1)%

Total sales were $99,397 in Q4 2020 as compared to $127,453 in Q4 2019, representing a
decrease of $28,056, or 22.0%.

DTC sales decreased $27,289, or 22.9%, in Q4 2020 as compared to Q4 2019. The year-over-
year decline in Q4 2020 DTC sales was primarily a result of COVID-19, in particular pandemic-
related temporary store closures in response to government mandated lockdowns (stores were
closed for 35% of Q4 2020), traffic declines, capacity limitations, and reduced operating hours
(see “Key Business Developments – COVID-19”). This decline was partially offset by eCommerce
sales that grew by more than 60% year-over-year.

Sales in the Partners and Other segment decreased by $767, or 9.1%, in Q4 2020 as compared
to Q4 2019, reflecting negative COVID-19 impacts. The Company’s international partner in Asia
reduced its wholesale purchases, as it managed inventory levels in response to pandemic-related
temporary store closures and traffic declines. In addition, the pandemic drove a decline in demand
in the Company’s licensing and wholesale businesses, resulting in a year-over-year decrease in
licensing sales and wholesale orders.

Total sales were $240,506 in F2020 as compared to $329,865 in F2019, representing a decrease
of $89,359, or 27.1%.

F2020 sales in the DTC segment decreased by $79,532, or 27.6%, as compared to F2019. The
year-over-year decline in F2020 DTC sales was predominately a result of COVID-19, including
pandemic-related temporary store closures (stores were closed for 31% of F2020), traffic
declines, capacity limitations, and reduced store operating hours (see “Key Business
Developments – COVID-19”), which were partially offset by eCommerce sales that grew by more
than 50% year-over-year.

Sales in the Partners and Other segment decreased by $9,827, or 23.3%, during F2020 as
compared to F2019, reflecting negative COVID-19 impacts. The year-over-year decline was a
result of the aforementioned factors described above.

Gross Profit

The following tables present our gross profit and gross margin by segment for each of the periods
indicated:

CAD $000s
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partners and Other . . . . . . . . . . . . . . .

Total Gross Profit . . . . . . . . . . . . . . . .

Q4 2020

Q4 2019

% Change

F2020

F2019

% Change

54,846
4,008

58,854

65,660
3,630

69,290

(16.5)%

10.4%

(15.1)%

127,262
12,477

139,739

161,790
14,399

176,189

(21.3)%

(13.3)%

(20.7)%

Gross profit as a percentage
of sales
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partners and Other . . . . . . . . . . . . . . .

Total Gross Margin . . . . . . . . . . . . . .

Q4 2020

Q4 2019

F2020

F2019

59.8%
52.5%

59.2%

55.2%
43.2%

54.4%

61.1%
38.7%

58.1%

56.2%
34.2%

53.4%

Gross profit was $58,854 in Q4 2020, as compared to $69,290 in Q4 2019, representing a
decrease of $10,436, or 15.1%.

Gross profit in the DTC segment decreased $10,814, or 16.5%, in Q4 2020 as compared to Q4
2019. The decrease in gross profit in the DTC segment was driven by lower sales in the DTC
segment, partially offset by a higher gross margin on those sales. DTC gross margin was 59.8%
in Q4 2020, up from 55.2% in Q4 2019.The 460 basis point improvement was predominantly a
result of the decision to decrease promotional breadth and depth year-over-year. While the
reductions in promotions likely placed some downward pressure on sales in the short term, we
believe it is beneficial to the brand and profitability of the business over the long term. Gross
margin also reflects the benefit of CEWS of $206 recognized in Q4 2020 DTC gross margin (of
the total $1,559 in CEWS recognized in Q4 2020).

Gross profit in the Partners and Other segment increased by $378, or 10.4%, in Q4 2020 as
compared to Q4 2019. The increase in gross profit in the Partners and Other segment was
attributable to higher gross margin on sales to our domestic and international partners.

Gross profit was $139,739 in F2020, as compared to $176,189 in F2019, representing a decrease
of $36,450, or 20.7%.

During F2020, gross profit in the DTC segment decreased by $34,528, or 21.3%, as compared to
F2019. The decrease in gross profit in the DTC segment was driven by lower sales in the DTC
segment, partially offset by a higher gross margin on those sales. DTC gross margin was 61.1%
in F2020, up from 56.2% in F2019. The 490 basis point improvement was predominantly a result
of the decision to decrease promotional breadth and depth year-over-year and a shift in mix
toward higher margin products. These factors were partially offset by the reclassification of certain
costs into cost of goods sold from SG&A expenses with the Company’s transition to in-house
fulfillment of all eCommerce orders. Gross margin also reflects the benefit of CEWS of $1,607
recognized in F2020 DTC gross margin (of the total $12,822 in CEWS recognized in F2020).

During F2020, gross profit in the Partners and Other segment decreased by $1,922, or 13.3%, as
compared to F2019. The decrease in gross profit in the Partners and Other segment was driven
by the decline in sales.

Selling, General and Administrative Expenses

SG&A expenses were $39,009 in Q4 2020 as compared to $69,445 in Q4 2019, representing a
decrease of $30,436, or 43.8%. In Q4 2020, we recorded a non-cash fixed asset impairment of
$886, compared to $19,183 in Q4 2019, of which $12,738 was related to our New U.S. stores.
Excluding the non-cash fixed asset impairment, SG&A expenses declined $12,139, or 24.2%, in
Q4 2020 as compared to Q4 2019.

The year-over-year decrease in SG&A expenses predominantly reflects:

 savings of $7,268 driven by the Company’s efforts to reduce costs across all areas of the
business in response to COVID-19, including a decrease in store wages as a result of
reduced store operating hours and labour managed in accordance with store sales,
management of overall corporate costs and rent savings of $1,709;

 government grants received of $696 in CERS and $1,559 in CEWS, of which $1,200 was
recorded as a reduction to SG&A expenses, $153 as a reduction to capitalized labour at
our leather factory, and $206 as a reduction to cost of sales; and

 savings of $2,975 related to our U.S. business, predominantly as a result of the permanent

closure of the New U.S. stores in Q1 2020.

SG&A expenses were $114,807 during F2020 as compared to $188,308 in F2019, representing
a decrease of $73,501, or 39.0%. Excluding the aforementioned non-cash fixed asset impairment,
SG&A expenses decreased $55,204, or 32.6%, in F2020 as compared to F2019.

The year-over-year decrease predominantly reflects:

 savings of $37,522 driven by the Company’s efforts to reduce costs across all areas of the
business as a result of COVID-19, including lower overall store wages as a result of
government-mandated temporary store closures, reduced store operating hours and
labour managed in accordance with store sales, as well as the management of overall
corporate costs, including rent savings of $7,476;

 government grants received of $696 in CERS and $12,822 in CEWS, of which $9,639 was
recorded as a reduction to SG&A expenses, $1,576 as a reduction to capitalized labour
at our leather factory, and $1,607 as a reduction to cost of sales; and

 savings of $7,347 related to our U.S business, predominantly as a result of the permanent

closure of the New U.S. stores in Q1 2020.

These savings were partially offset by $1,283 of incremental costs incurred in relation to the
Chapter 7 filing of RTS USA Corp. (see “Key Business Developments – RTS USA Corp. Chapter
7 Filing”).

Goodwill Impairment

During Q4 2020 and F2020, the Company recorded a goodwill impairment of $nil, as compared
to $44,799 in Q4 2019 and F2019. The goodwill balance was previously recognized as a result of
the Company’s acquisition of assets from Roots Canada Ltd., former wholly-owned subsidiary
Roots U.S.A. Inc. (now RTS USA Corp.), Roots America L.P., entities controlled by our founders

Michael Budman and Don Green, and all of the issued and outstanding shares of Roots
International ULC, effective December 1, 2015. The Company performs an annual impairment
assessment of goodwill by comparing the carrying value of each cash generating unit (“CGU”)
group to the recoverable amount of the CGU group. The recoverable amount is based on the
higher of the fair value less cost to sell (“FVLCS”) and the value-in-use (“VIU”). In F2019, the
goodwill impairment pertained to the DTC CGU and was driven by more conservative forward-
looking growth assumptions, as a result of trends and shortfalls against past projections.

Deconsolidation of RTS USA Corp.

During F2020, the Company recorded a net gain of $4,774, resulting from the deconsolidation of
assets and liabilities of RTS USA Corp. subsequent to the Chapter 7 filing, compared to $nil in
F2019. See “Key Business Developments – RTS USA Corp. Chapter 7 Filing”.

Interest Expense

Interest expense was $2,421 in Q4 2020 as compared to $3,962 in Q4 2019, representing a
decrease of $1,541, or 38.9%. During F2020, interest expense was $11,741 as compared to
$15,567 in F2019, representing a decrease of $3,826, or 24.6%. The decrease in interest expense
for both Q4 2020 and F2020 primarily related to lower year-over-year drawings on our Revolving
Credit Facility (as defined below), lower market interest rates, and lower accretion expense on
lease liabilities. See “Indebtedness”.

Income Taxes Expense (Recovery)

Income taxes expense (recovery) was $5,080 in Q4 2020 as compared to $(4,339) in Q4 2019,
representing an increase of $9,419. The effective income tax rates for Q4 2020 and Q4 2019
were 29.2% and 8.9%, respectively. During F2020, income taxes expense (recovery) was $4,885
as compared to $(10,456) in F2019, representing an increase of $15,341. The effective income
tax rates for F2020 and F2019 were 27.2% and 14.4%, respectively.

The effective income tax rates in Q4 2020 and F2020 were predominately driven by non-
deductible share-based compensation expenses, the deconsolidation of RTS USA Corp., and the
unrecognized deferred tax assets on capital losses. In Q4 2019 and F2019, the effective income
tax rates were predominately driven by the unrecognized deferred tax assets on deductible
differences and tax losses, and expenses related to goodwill impairment.

Net Income (Loss)

Net income was 12,344 in Q4 2020 as compared to a net loss of $(44,577) in Q4 2019,
representing an increase of $56,921. During F2020, net income was $13,080 as compared to net
loss of $(62,029) in F2019, representing an increase of $75,109. The increase in net income (loss)
results from the factors described above.

QUARTERLY FINANCIAL INFORMATION

The following table summarizes the results of our operations for the eight most recently completed
fiscal quarters. This unaudited quarterly information has been prepared in accordance with IFRS.
Due to seasonality, the results of operations for any quarter are not necessarily indicative of the
results of operations for the fiscal year.

CAD $000s (except per Share data) Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
(Unaudited)
Sales
Net Income (Loss) . . . . . . . . . . . . . . .
Net Earnings (Loss) per Share:

127,453
(44,577)

38,214
(1,820)

29,949
(7,785)

61,683
(9,653)

99,397
12,344

86,377
1,969

72,946
10,341

54,352
(9,768)

Basic earnings (loss) per Share . . .
Diluted earnings (loss) per Share . .

$ 0.29
$ 0.29

$ 0.25
$ 0.24

$ (0.04)
$ (0.04)

$ (0.18)
$ (0.18)

$ (1.06)
$ (1.06)

$0.05
$0.05

$(0.23)
$(0.23)

Corporate retail stores, end of period

113

115

116

122

124

121

SUMMARY OF NON-IFRS MEASURES

The table below illustrates certain non-IFRS measures for the periods presented:

CAD $000s (except per Share data)
Adjusted DTC Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted DTC Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income per Share . . . . . . . . . . . . . . . . . . . . . .

Q4 2020

Q4 2019

F2020

F2019

55,681
60.7%
28,506
26,091
16,272
$0.39

65,957
55.4%
(34,448)
26,053
13,269
$0.31

128,142
61.5%
63,031
38,748
16,511
$0.39

162,630
56.5%
(17,312)
26,068
4,018
$0.10

See “Cautionary Note Regarding Non-IFRS Measures and Industry Metrics”.

RECONCILIATION OF NON-IFRS MEASURES

The tables below provide a reconciliation of DTC gross profit to Adjusted DTC Gross Profit, and
net income (loss) to EBITDA, Adjusted EBITDA, and Adjusted Net Income for the periods
presented:

CAD $000s
DTC gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add the impact of:

COGS: DC Relocation Project (a) . . . . . . . . . . . . . . . . . . . . .
COGS: Inventory provision (b) . . . . . . . . . . . . . . . . . . . . . . . .

Q4 2020

Q4 2019

F2020

F2019

54,846

65,660

127,262

161,790

–
835

297
–

45
835

840
–

Adjusted DTC Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . .

55,681

65,957

128,142

162,630

CAD $000s
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add the impact of:
Interest expense (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes expense (recovery) (c) . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization (c) . . . . . . . . . . . . . . . . . . . . . . . .

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjust for the impact of:

COGS: DC Relocation Project (a) . . . . . . . . . . . . . . . . . . . . . .
COGS: Inventory provision (b) . . . . . . . . . . . . . . . . . . . . . . . .
COGS: P&O Duty Reimbursement (d) . . . . . . . . . . . . . . . . . .
SG&A: IFRS 16: Rental expense excluded from net income
(loss) as a result of IFRS 16 (c) . . . . . . . . . . . . . . . . . . . . . . .
SG&A: IFRS 16: Impairment of ROU assets (c) . . . . . . . . . .
SG&A: Gain from the deconsolidation of RTS USA Corp. (e)
SG&A: Chapter 7 filing costs (e) . . . . . . . . . . . . . . . . . . . . . . .
SG&A: Purchase accounting adjustments (f) . . . . . . . . . . . . .
SG&A: Fixed asset impairment (g) . . . . . . . . . . . . . . . . . . . . .
SG&A: Goodwill impairment (h) . . . . . . . . . . . . . . . . . . . . . . . .
SG&A: Stock option expense (recovery) (i) . . . . . . . . . . . . . .
SG&A: DC Relocation Project (a) . . . . . . . . . . . . . . . . . . . . . .
SG&A: Changes in key personnel (j) . . . . . . . . . . . . . . . . . . . .
SG&A: Other non-recurring items (k) . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q4 2020

Q4 2019

F2020

F2019

12,344

(44,577)

13,080

(62,029)

2,421
5,080
8,661

3,962
(4,339)
10,506

28,506

(34,448)

–
835
–

(5,883)
1,162
–
43
42
886
–
176
–
324
–

26,091

297
–
–

(7,441)
3,215
–
–
58
19,183
44,799
(1,045)
–
1,165
270

26,053

11,741
4,885
33,325

63,031

45
835
–

(25,631)
1,162
(4,774)
1,283
169
886
–
705
–
1,036
1

38,748

15,567
(10,456)
39,606

(17,312)

840
–
175

(29,347)
3,215
–
–
582
19,183
44,799
(518)
1,648
2,339
464

26,068

CAD $000s
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q4 2020

Q4 2019

F2020

F2019

12,344

(44,577)

13,080

(62,029)

Reverse the impact of IFRS 16:

Rent expense excluded from net loss (c) . . . . . . . . . . . . . .
Depreciation on ROU assets (c) . . . . . . . . . . . . . . . . . . . . . . .
Impairment on ROU assets (c) . . . . . . . . . . . . . . . . . . . . . . .
Interest on lease liabilities (c) . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax impact (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total IFRS 16 impacts reversed . . . . . . . . . . . . . . . . . . . . . . .

Add the impact of:

COGS: DC Relocation Project (a) . . . . . . . . . . . . . . . . . . . . .
COGS: Inventory provision (b) . . . . . . . . . . . . . . . . . . . . . . .
COGS: P&O Duty Reimbursement (d) . . . . . . . . . . . . . . . . .
SG&A: Gain from the deconsolidation of RTS USA Corp. (e)
SG&A: Chapter 7 filing costs (e) . . . . . . . . . . . . . . . . . . . . . .
SG&A: Purchase accounting adjustments (f) . . . . . . . . . . . .
SG&A: Fixed asset impairment (g) . . . . . . . . . . . . . . . . . . . .
SG&A: Goodwill impairment (h) . . . . . . . . . . . . . . . . . . . . . .
SG&A: Stock option expense (recovery) (i) . . . . . . . . . . . . .
SG&A: DC Relocation Project (a) . . . . . . . . . . . . . . . . . . . . .
SG&A: Changes in key personnel (j) . . . . . . . . . . . . . . . . . . .
SG&A: Other non-recurring items (k) . . . . . . . . . . . . . . . . . .
SG&A: Amortization of intangible assets acquired by
Searchlight (l) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Net Income(n) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

_____________
Notes:

(5,883)
5,620
1,162
1,466
(609)

1,756

–
835
–
–
43
42
886
–
176
–
324
–

575

2,881
(709)

16,272

(7,441)
6,244
3,215
2,261
(519)

3,760

297
–
–
–
–
58
19,183
44,799
(1,045)
–
1,165
270

692

65,419
(11,333)

13,269

(25,631)
21,047
1,162
6,724
(839)

2,463

45
835
–
(4,774)
1,283
169
886
–
705
–
1,036
1

2,302

2,488
(1,520)

16,511

(29,347)
24,721
3,215
9,048
(1,414)

6,223

840
–
175
–
–
582
19,183
44,799
(518)
1,648
2,339
464

3,539

73,051
(13,227)

4,018

(a)

In F2018, we commenced preparations for the DC Relocation Project. During the period of transition, we incurred expenses related to,
among other things, training, testing and administrative costs, along with rent and other operating costs in connection with the need to
operate two distribution centres simultaneously. These expenses would not be incurred as part of our normal business operations and
are not recurring.

(b) Represents inventory provision on the discontinuation of specific seasonal inventory styles that no longer align with the Company's

strategic product direction.

(c) The impact of IFRS 16 in Q4 2020 and Q4 2019 was: (i) an increase to SG&A expenses of $899 and $2,018, respectively, which comprised
the impact of depreciation and impairment on the ROU assets, net of the exclusion of rent payments from SG&A expenses, (ii) an increase
in interest expense of $1,466 and $2,261, respectively, arising from interest expense recorded on lease liabilities in the period, and (iii) a
deferred tax recovery impact of $609 and $519, respectively, based on tax attributes on the ROU assets and lease liabilities balances
recorded. The impact of IFRS 16 in F2020 and F2019 was: (i) a decrease to SG&A expenses of $3,422 and $1,411, respectively, which
comprised the impact of depreciation and impairment on the ROU assets, net of the exclusion of rent payments from SG&A expenses,
(ii) an increase in interest expense of $6,724 and $9,048, respectively, arising from interest expense recorded on the lease liabilities in
the period, and (iii) a deferred tax impact of $839 and $1,414, respectively, based on tax attributes on the ROU assets and lease liabilities
balances recorded.

(d) Represents a one-time reimbursement paid by Roots to our international partner related to import taxes in Taiwan incurred by our partner

on certain footwear categories shipped from China.

(e) Under the Chapter 7 filing, control of RTS USA Corp. no longer rests with the Company, but rather with the court-appointed trustee in
charge of administering the case. Accordingly, effective April 29, 2020, the Company is no longer consolidating the assets, liabilities or
operating results of RTS USA Corp. The Company recorded a net gain of $4,774 in relation to the deconsolidation. In addition, the
Company also incurred $1,283 of costs year-to-date associated with the Chapter 7 filing, primarily associated with professional service
fees and other costs incurred in relation to the Chapter 7 filing. In our view, the gain arising from the deconsolidation of RTS USA Corp.
and the Chapter 7 filing costs would not be incurred as part of our normal business operations and are not recurring.

(f) As a result of the Acquisition, we recognized an intangible asset for lease arrangements in the amount of $6,310, which when excluding
the impacts of IFRS 16, is amortized over the life of the leases and included in SG&A expenses. In our view, this cost does not reflect the
underlying profitability of the business and would reduce the ability to compare such underlying results to historical periods prior to the
Acquisition.

(g) Represents a non-cash impairment charge taken against certain leasehold improvements for stores where the recoverable amount is
deemed to be below the carrying value. Of the total non-cash impairment charge taken in F2019, $12,738 pertains to impairment of
leasehold improvements at the New U.S. stores.

(h) Represents a non-cash impairment charge taken against goodwill of the DTC CGU as the recoverable amount is deemed to be below

the carrying value.

(i) Represents non-cash share-based compensation expense in respect of our Legacy Equity Incentive Plan, Legacy Employee Option Plan,

and Omnibus Incentive Plan.

(j) Represents expenses incurred in respect of the Company’s efforts to recruit for vacancies in key management positions and severance

costs associated with such employee separations.

(k) Predominately represents prior year expenses incurred in respect of the following matters: (i) consulting costs relating to a non-recurring
brand positioning project, (ii) costs incurred related to rationalizing our store portfolio, and (iii) contract cancellation costs incurred as the
Company continues to review and optimize its operating costs. Management has determined that these projects are infrequent in nature
and, accordingly, such matters do not reflect the underlying profitability of the business and their inclusion would, therefore, reduce the
ability to compare such underlying results to historical periods.

(l) As a result of the Acquisition, intangibles relating to customer relationships of $7,766 with a useful life of 10 years and licensing
arrangements of $25,910 with useful lives ranging from four to 13 years were recognized in accordance with IFRS 3, Business
Combinations. The amortization expense resulting from the recognition of these intangible assets are non-cash in nature and are a direct
result of the Acquisition. If the Acquisition had not occurred, such intangibles would not have been recognized and, consequently, the
associated expenses would not have been incurred. Management is of the view that these costs do not reflect the underlying profitability
of the business and would, therefore, reduce the ability to compare such underlying results to historical periods prior to the Acquisition.

(m) Adjusted EBITDA excludes the impact of IFRS 16 in Q4 2020, Q4 2019, F2020 and F2019. If the impact of IFRS 16, net of impairments
on ROU assets, was included for Q4 2020 and F2020, Adjusted EBITDA would have been $30,771 and $63,049, respectively. If the
impact of IFRS 16, net of impairments on ROU assets, was included for Q4 2019 and F2019, Adjusted EBITDA would have been $30,221
and $51,618, respectively.

(n) Adjusted Net Income excludes the impact of IFRS 16 in Q4 2020, Q4 2019, F2020 and F2019. If the impact of IFRS 16, net of impairments
on the ROU assets, was included for Q4 2020 and F2020, Adjusted Net Income would have been $14,486 and $13,925, respectively. If
the impact of IFRS 16, net of impairments on the ROU assets, was included for Q4 2019 and F2019, Adjusted Net Income (Loss) would
have been $9,466 and $(2,632), respectively.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We principally use our funds for operating expenses, capital expenditures and debt service
requirements. We believe that cash generated from operations, together with amounts available
under our Credit Facilities, will be sufficient to meet our future operating expenses, capital
expenditures and debt service requirements. In addition, the aforementioned resources will
enable us to comply with our financial covenants (see “Indebtedness”). We believe that our capital
structure provides us with sufficient financial flexibility to pursue our future growth strategies.
However, our ability to fund future operating expenses, capital expenditures and debt service
requirements, and to comply with financial covenants, will depend on, among other things, our
future operating performance, which will be affected by general economic, financial and other
factors, including factors beyond our control. See “Key Business Developments – COVID-19”,
“Risks and Uncertainties” and “Factors Affecting our Performance” for additional information.

Cash Flows

The following table presents our cash flows for each of the periods presented:

CAD$000s
Net cash generated from operating activities . . . . . . . . . .

Net cash used in financing activities. . . . . . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . . . . . . . . .

Change in cash and bank indebtedness . . . . . . . . . . . .

Q4 2020

Q4 2019

F2020

F2019

33,838

(35,468)

(497)

(2,127)

44,834

(46,908)

(2,847)

(4,921)

50,922

(31,515)

(3,964)

15,443

40,044

(13,583)

(22,320)

4,141

Analysis of Cash Flows for Q4 2020 and F2020 compared to Q4 2019 and F2019

Cash Flows from Operating Activities

For Q4 2020 and F2020, cash flows from operating activities totalled $33,838 and $50,922,
respectively, compared to $44,834 and $40,044 in Q4 2019 and F2019, respectively. The year-
over-year decrease in cash flows from operating activities in Q4 2020 is attributable to the decline
in sales in Q4 2020 due to store closures leading to lower sell through of inventory. In addition,
cash flows from operating activities further decreased in Q4 2020 as a result of timing shifts of
income tax payments. The improvement in cash flows from operating activities in F2020
compared to F2019 is attributable to higher operating income generated year-over-year. The
Company has continued to negotiate extended payment terms with vendors and partners during
the COVID-19 pandemic, which has improved the Company’s working capital. In addition, cash
flows from operating activities were further improved by $3,503 of income tax refunds received in
Q1 2020, in relation to taxable losses from the prior tax year.

Cash Flows used in Financing Activities

For Q4 2020 and F2020, cash flows used in financing activities amounted to $35,468 and
$31,515, respectively, compared to $46,908 and $13,583 in Q4 2019 and F2019, respectively.
The year-over-year decrease in cash flows used in financing activities in Q4 2020 was largely
driven by lower incremental draws on our Revolving Credit Facility in Q4 2020, as a result of
higher operating income and lower capital expenditures.

The year-over-year increase in cash flows used in financing activities in F2020 is largely driven
by greater repayments on our Revolving Credit Facility. In F2020, we made $4,984 of repayments
on our Term Credit Facility (F2019 - $4,984) and $14,000 of net repayments on our Revolving
Credit Facility (F2019 – net draws of $9,000).

As at the end of F2020, the Company had a total amount outstanding under its Credit Facilities
of $72,232 (F2019 – $91,216).

Cash Flows used in Investing Activities

For Q4 2020 and F2020, cash flows used in investing activities amounted to $497 and $3,964,
respectively, compared to $2,847 and $22,320 in Q4 2019 and F2019, respectively. The decrease
is primarily due to fewer capital projects undertaken as compared to F2019, including the
completion of capital expenditures related to our DC Relocation Project in Q3 2019.

INDEBTEDNESS

The Company has a secured credit agreement (“Credit Agreement”) with a syndicate of lenders
consisting of a term loan (the “Term Credit Facility”) and a revolving credit loan (the “Revolving
Credit Facility” and, together with the Term Credit Facility, the “Credit Facilities”).

On March 27, 2020, the Company amended the Credit Facilities to adjust certain definitions and
limits of certain financial covenants to better reflect the initiatives and seasonality of the business.
The Company incurred $148 of costs associated with the amendment, which were recorded as
debt financing costs within long-term debt and will be recognized in interest expense over the
remaining term of the loan. The $75,000 Revolving Credit Facility limit less the aggregate swing
line loan of $10,000, and the September 6, 2022 maturity date for the Credit Facilities, remain
unchanged.

On December 4, 2020, the Company issued a letter of credit (“LoC”) in the normal course of
business for an amount of $416, which decreases the availability under the Revolving Credit
Facility. The LoC matures on December 4, 2021.

As at the end of F2020, the Company had unused borrowing capacity available under the
Revolving Credit Facility of $74,587 (F2019 - $61,000 unused borrowing capacity, less $7,226 of
net bank overdraft).

The Company has financial and non-financial covenants under the Credit Facilities. The key
financial covenants include covenants for senior secured debt to Adjusted EBITDA ratio (“Senior
Leverage Ratio”), total debt to Adjusted EBITDA ratio, and fixed charge coverage ratio. Adjusted
EBITDA used in the calculation of our key financial covenants may differ from the Adjusted
EBITDA non-IFRS measure as defined in this MD&A. As at the end of F2020, the Company was
in compliance with all covenants.

The Credit Facilities bear interest according to the type of borrowing advanced, which may be
based on a reference rate of the U.S. base rate or the Canadian prime rate, plus a margin that
ranges from 125 to 250 basis points (“bps”) or the LIBOR rate or bankers’ acceptances rate, plus
a margin that ranges from 225 to 350 bps. The applicable margins are derived from our Senior
Leverage Ratio, as follows: (i) where the U.S. base rate or a Canadian prime rate is used, the
margins range from 125 bps at less than 2.0x Senior Leverage Ratio, to 250 bps at greater than
or equal to 3.5x Senior Leverage Ratio; and (ii) where the LIBOR rate or bankers’ acceptances
rate is used, the margins range from 225 bps at less than 2.0x Senior Leverage Ratio, to 350 bps
at greater than or equal to 3.5x Senior Leverage Ratio.

The following table sets out the mandatory repayment of the Credit Facilities:

CAD $000s
Within 1 year . . . . . . . . . . . . . . . . .
Within 1 - 2 years . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .

Term
Credit Facility

4,984
67,248
72,232

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

The following table summarizes our significant contractual obligations and other obligations as
well as our off-balance sheet arrangements as at January 30, 2021:

CAD$000s
Term Credit Facility (1) . . . . . . . .
Interest commitments relating
to long-term debt (2) . . . . . . . . . . .
Payments on lease liabilities . . .
Remaining lease obligations (3) .
Inventory purchase
commitments (4) . . . . . . . . . . . . . .
Total commitments and
obligations . . . . . . . . . . . . . . . . .
__________
Notes:

FY 2021

4,984

FY 2022 FY 2023 FY 2024 FY 2025 Thereafter
–

67,248

–

Total
72,232

1,886
23,354
13

1,327
22,047
157

–
20,882
157

–
16,192
170

–
13,186
178

–

3,213
24,459 120,120
1,703

1,028

39,952

–

39,952

70,189

90,779

21,039

16,362

13,364

25,487 237,220

(1) The repayment of the Term Credit Facility may occur prior to the mandatory repayment time if certain events occur and/or at the discretion of the

Company.

(2) Based on the interest rate in effect as at January 30, 2021, and assuming no prepayments are made to the Term Credit Facility.

(3) Remaining lease obligations include obligations on leases that have been excluded from lease liabilities under IFRS 16 either due to recognition
exemptions for leases with less than one year remaining as of the date of adoption or due to contractual commitments for leases with future
commencement dates. Remaining lease obligations reflect minimum annual commitments for our operating leases on those premises, excluding
renewal options and variable rent.

(4)

Inventory purchase commitments reflect the cost of outstanding inventory purchases ordered from our vendors and expected to be received within
the period. Inventory purchases are part of the normal course of our business and will be primarily funded through sales in our DTC segment.

Due to the seasonal fluctuations of our retail business (see “Factors Affecting our Performance –
Seasonality”), our net debt position may be higher during the first three fiscal quarters when
working capital requirements peak and will generally decrease in the fourth fiscal quarter.
Historically, contractual obligations and commitments during the first three fiscal quarters were
funded primarily through draws on our Revolving Credit Facility (see “Indebtedness”), and, to a
lesser extent, sales generated from our operations and our management of working capital. In
the fourth fiscal quarter, we have historically generated positive cash flow from operations to fund
our remaining contractual obligations and commitments and would make repayments against
draws on our Revolving Credit Facility during the first three fiscal quarters.

We will continue to fund our upcoming commitments and obligations through the use of our
Revolving Credit Facility and cash flow from operations. We believe that we will continue to
generate sufficient cash flow from operations over the course of a fiscal year to fund our
contractual obligations and commitments and the cost of our growth and development activities
incurred during such fiscal year (see also “Key Business Developments – COVID-19”).

FINANCIAL INSTRUMENTS

We have designated foreign currency forward contracts as a cash flow hedge to manage our
exposure to certain U.S. dollar denominated purchases. At the inception of a hedging relationship,
the Company designates and formally documents the relationship between the hedging
instrument and the hedged item, the risk management objective and the strategy in undertaking
the hedge transaction. At inception and each fiscal quarter-end thereafter, the Company formally
assesses the effectiveness of the cash flow hedges.

To the extent the hedging relationship is assessed as effective, the change in the fair value of the
foreign currency forward contracts, net of taxes, is recognized in other comprehensive income
(loss) and presented in accumulated other comprehensive income (loss). Any ineffective portion

of changes in the fair value of the foreign currency forward contracts are recognized immediately
in profit or loss.

The fair value of foreign currency forward contracts is determined using a valuation technique that
employs the use of market observable inputs and based on the differences between the contract
rates and the market rates as at the period-end date, taking into consideration discounting to
reflect the time value of money.

As of January 30, 2021, the Company has recorded derivative obligations of $418, representing
foreign currency forward contracts to buy US$27,260 at an average rate of 1.29. As at January
31, 2021, the exchange rate was 1.28. The forward contracts have maturity dates between
February 1, 2021 and January 4, 2022.

Of the outstanding foreign currency forward contracts, US$1,648, with an accumulated loss of
$105 (net of tax – $77), was in relation to future U.S. dollar denominated purchases that were no
longer expected to occur as a result of the Company’s efforts to reduce forward inventory
purchases in response to COVID-19 (see “Key Business Developments – COVID-19”). As a
result, the Company is no longer designating these forward contracts for hedge accounting and
has reclassified the accumulated unrealized loss associated with these forward contracts from
other comprehensive income (loss) to profit or loss. These US$1,648 of forward contracts have
maturity dates between February 1, 2021 and January 4, 2022, at an average forward rate of
1.33.

The Company had temporarily paused its hedging program from April 2020 to December 2020
due to the uncertainties surrounding future inventory purchase commitments as a result of
COVID-19.

All other financial assets and financial liabilities are measured at amortized cost using the effective
interest method, with the exception of cash which is measured at fair value through profit and
loss.

CURRENT SHARE INFORMATION

As of April 7, 2021, there were 42,198,082 Shares issued and outstanding (April 28, 2020 –
42,124,451) and nil preferred shares issued and outstanding (April 28, 2020 – nil).

During F2020, the Company granted 1,206,500 time-based options under the Omnibus Plan. In
addition, the Company issued 73,631 Shares from treasury as a result of the exercise of 73,631
restricted share units (“RSUs”) granted under the Omnibus Plan. During F2020, 379,929 options
and 16,586 RSUs were forfeited and cancelled. As at January 31, 2021, 2,025,308 stock options
and 93,563 RSUs were granted and outstanding and 544,762 options and 15,985 RSUs were
vested as of such date. Each option and RSU is, or will become, exercisable for one Share.

During F2020, the Company also granted 243,517 deferred share units (“DSUs”) under the
Company’s deferred share unit plan (the “DSU Plan”). As of January 30, 2021, 419,670 DSUs
were outstanding under the DSU Plan. No Shares will be issued upon the settlement of DSUs.

RELATED PARTY TRANSACTIONS

The Company’s related parties include key management personnel and key shareholders of the
Company, including other entities under common control. Investment funds managed by
Searchlight beneficially own approximately 48.6% of the total issued and outstanding Shares and
the Founders beneficially own approximately 12.4% of the total issued and outstanding Shares.
All transactions described below are in the normal course of business and have been accounted
for at their exchange value.

The Company leases the building for its manufacturing facility and, until August 2019, leased the
building for its former distribution centre, from companies that are under common control of the
Founders. For Q4 2020 and F2020, the rent paid as it relates to the lease of these properties was
$71 (Q4 2019 – $71) and $248 (F2019 – $616), respectively.

On August 6, 2019, Meghan Roach, a managing director of Searchlight, was appointed as Interim
Chief Financial Officer on a temporary secondment basis. Subsequent to the appointment of a
new Chief Financial Officer, on January 6, 2020, Ms. Roach was appointed to the role of Interim
Chief Executive Officer on a temporary secondment basis. Ms. Roach provided her services at
no cost to the Company during this time. On May 26, 2020, the Company announced the
appointment of Ms. Roach as the Company’s President and Chief Executive Officer, no longer on
an interim basis. Ms. Roach continued in this role at minimal cost to the Company through
December 31, 2020.

In February 2016, a former member of the Company’s executive team purchased the equivalent
of 214,193 Shares from Searchlight at a price of $4.67 per Share. The purchase was paid for
using $500 in cash and a $500 loan from the Company. The $500 loan from the Company is to
be repaid at the earlier of six years from the loan date and upon a liquidity sale of the Company.
Interest accrues at a rate of 4.0% per annum and is payable at the start of each calendar year
following the date of the loan. Unpaid interest may be deemed paid by increasing the principal
amount outstanding. As at January 30, 2021, the outstanding balance on the loan and accrued
interest was $608 (February 1, 2020 – $585). The officer resigned from the Company effective
August 9, 2019.

RISKS AND UNCERTAINTIES

For a detailed description of risk factors relating to the Company, please refer to the “Risk Factors”
section of our AIF, which is available on SEDAR at www.sedar.com.

In addition, we are exposed to a variety of financial risks in the normal course of our business,
including foreign currency exchange, interest rate, credit and liquidity risk, as summarized below.
Our overall risk management program and business practices seek to minimize any potential
adverse effects on our consolidated financial performance.

Financial risk management is carried out under practices approved by our Board. This includes
identifying, evaluating and hedging financial risks based on the requirements of our organization.
Our Board provides guidance for overall risk management, covering many areas of risk including
foreign currency exchange risk, interest rate risk, credit risk, and liquidity risk.

Foreign Currency Exchange Risk

Our consolidated financial statements are expressed in Canadian dollars. However, a portion of
our operations are denominated in U.S. dollars. Sales and expenses of all foreign operations are
translated into Canadian dollars at the foreign currency exchange rates that approximate the rates
in effect at the dates which such items are recognized. Appreciating foreign currencies relative to
the Canadian dollar in respect of sales will positively impact operating income and net income
(loss) associated with our foreign operations by increasing our sales and vice versa.

We are also exposed to fluctuations in the prices of U.S. dollar denominated purchases resulting
from changes in U.S. dollar exchange rates. A depreciating Canadian dollar relative to the U.S.
dollar will have a negative impact on year-over-year changes in reported operating income and
net income (loss) by increasing the cost of finished goods and raw materials and vice versa. As
described above, we entered into certain qualifying foreign currency forward contracts that are
designated as cash flow hedges.

Interest Rate Risk

We are exposed to changes in interest rates on our cash and long-term debt. Debt issued at
variable rates exposes us to cash flow interest rate risk. Debt issued at fixed rates exposes us to
fair value interest rate risk. As of January 30, 2021, we only have variable interest rate debt.
Based on the outstanding borrowings as discussed under “Indebtedness”, a one percentage point
change in the average interest rate on our borrowings would have changed interest expense by
$230 in Q4 2020 and $1,033 in F2020. The impact of future interest rate expense resulting from
future changes in interest rates will depend largely on the gross amount of our borrowings at such
time.

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. The Company’s financial instruments that are exposed to
concentrations of credit risk are primarily cash, loan receivable and accounts receivable. The
Company limits its exposure to credit risk with respect to cash by dealing primarily with large
Canadian and U.S. financial institutions. The Company’s accounts receivable consist primarily of
receivables from our business partners from the Partners and Other segment, which are settled
in the following fiscal quarter.

Liquidity Risk

Liquidity risk is the risk that the Company will be unable to fulfill its obligations on a timely basis
or at a reasonable cost. We manage liquidity risk by continuously monitoring actual and projected
cash flows, taking into account the seasonality of our sales, income and working capital needs.
The Revolving Credit Facility is also used to maintain liquidity, allowing the Company to access
funds for operations. Continued compliance with the covenants under the Credit Facilities is
dependent on the Company achieving certain financial results. Market conditions are difficult to
predict and there is no assurance that the Company will achieve certain results. In the event of
non-compliance, the Company’s lenders have the right to demand repayment of the amounts
outstanding under the current lending agreements or pursue other remedies including provision
of waivers for financial covenants. The Company will continue to carefully monitor its compliance
with its covenants and seek waivers if such need arises at that time. See “Key Business
Developments – COVID-19” and “Indebtedness”.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that
information required to be disclosed by the Company in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized
and reported within the time periods specified in the securities legislation and include controls and
procedures designed to ensure that information required to be disclosed by the Company in its
annual filings, interim filings or other reports filed or submitted under securities legislation is
accumulated and communicated to the Company’s management, including its certifying officers,
namely the CEO and CFO, as appropriate to allow timely decisions regarding public disclosure.

An evaluation of the design of the Company’s disclosure controls and procedures, as defined
under National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim
Filings (“NI 52-109”), was carried out under the supervision of the CEO and CFO and with the
participation of the Company’s management. Based on that evaluation, the CEO and CFO have
concluded that the design and operation of these controls were effective as of January 30, 2021.

Although the Company’s disclosure controls and procedures were operating effectively as of
January 30, 2021, there can be no assurance that the Company’s disclosure controls and
procedures will detect or uncover all failures of persons within the Company to disclose material
information otherwise required to be set forth in the Company’s regulatory filings.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Internal controls over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements in accordance with
IFRS. Management is responsible for establishing adequate internal controls over financial
reporting for the Company.

As required by NI 52-109, the CEO and the CFO have caused the effectiveness of the internal
controls over financial reporting to be evaluated using the framework and criteria established in
“Internal Control – Integrated Framework’ published by The Committee of Sponsoring
Organizations of the Treadway Commission, 2013”. Based on that evaluation, the CEO and the
CFO have concluded that the design and operation of the Company’s internal controls over
financial reporting, as defined by NI 52-109, were effective as at January 30, 2021.

In designing such controls, it should be recognized that due to inherent limitations, any controls,
no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives and may not prevent or detect misstatements. Additionally,
management is required to use judgement in evaluating controls and procedures. Therefore, even
when determined to be designed effectively, disclosure controls and internal control over financial
reporting can provide only reasonable assurance with respect to disclosure, reporting and
financial statement preparation.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Annual Financial Statements have been prepared in accordance with IFRS. The preparation
of our financial statements requires us to make estimates and judgements that affect the reported
amounts of assets, liabilities, sales and expenses. We base our estimates on historical experience
and on various other assumptions that we believe are reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or conditions. While our

significant accounting policies are more fully described in our Annual Financial Statements, we
believe that the following accounting policies and estimates are critical to our business operations
and understanding our financial results.

The following are the key judgements and sources of estimation uncertainty that we believe could
have the most significant impact on the amounts recognized in our consolidated financial
statements.

Inventory valuation

Merchandise inventories are valued at the lower of average cost, using the retail method, and net
realizable value, which requires the Company to utilize estimates related to fluctuations in
shrinkage, future retail prices, future sell-through of units, seasonality and costs necessary to sell
the inventory. The Company records a write-down to reflect management’s best estimate of the
net realizable value of inventory based on the above factors.

Impairment of non-financial assets

The Company is required to use judgement in determining the grouping of assets to identify their
CGUs for the purpose of testing store related fixed assets, including ROU assets. Judgement is
further required to determine appropriate groupings of CGUs for the level at which non-store
related assets are tested for impairment including intangible assets and goodwill. The Company
has determined that each store location is a separate CGU for the purpose of fixed assets and
ROU assets impairment testing. For purposes of non-store related non-financial assets, CGUs
are grouped at the lowest level that these assets are monitored for internal management purposes
or the lowest level where cash inflows are generated. In addition, judgement is used to determine
whether a triggering event has occurred requiring an impairment test to be completed.

In determining the recoverable amount, defined as the higher of the FVLCS and the VIU of a CGU
or a group of CGUs, various estimates are used. FVLCS for fixed assets and right-of-use assets
is determined using estimates such as market rental rates of comparable properties and discount
rates. VIU for fixed assets and right-of-use assets is determined using estimates such as
projected future sales, gross profit margin and earnings, and a discount rate consistent with
external industry information, reflecting the risk associated with the specific cash flows. The
Company determines FVLCS for goodwill and indefinite life intangible assets using estimates
such as projected future sales, gross profit margin and earnings, a terminal growth rate and a
discount rate.

Share-based compensation

The Company measures the value of equity-settled transactions with employees by reference to
the fair value of the equity instruments at the date on which they are granted. Estimating fair value
for share-based compensation requires determining the most appropriate valuation model for a
grant of equity instruments, which is dependent on the terms and conditions of the grant. The
Company is also required to determine the most appropriate inputs to the valuation model,
including estimates and assumptions with respect to expected life, risk-free interest rate, volatility,
distribution yield, and forfeiture rate.

Gift card breakage

The Company recognizes revenue from unredeemed gift cards (“gift card breakage”) if the
likelihood of gift card redemption by the customer is considered to be remote. The Company
estimates its average gift card breakage rate based on historical redemption rates. The resulting
revenue from gift card breakage is recognized over the estimated period of redemption based on
historical redemption patterns commencing when the gift card is issued.

Income taxes

The calculation of current and deferred income taxes requires management to make certain
judgements regarding the tax rules in jurisdictions where the Company performs activities.
Application of judgements is required regarding classification of transactions and in assessing
probable outcomes of claimed deductions including expectations of future operating results, the
timing and reversal of temporary differences, and possible audits of income tax and other tax
filings by the tax authorities.

Leases

The Company has applied judgement to determine the lease term for lease contracts that include
renewal or termination options. The assessment of whether the Company is reasonably certain
to exercise such options impacts the lease term, which significantly affects the amount of lease
liabilities and ROU assets recognized.

The Company is required to estimate the incremental borrowing rates used to discount lease
liabilities if the interest rate implicit in the lease is not readily determined. In determining the
incremental borrowing rates, management considers the Company’s creditworthiness, the
security, the term, the value of the underlying leased asset and the economic operational
environment of the leased asset. The incremental borrowing rates are subject to change primarily
due to macroeconomic factors.

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED IN THE YEAR

Amendment to IFRS 16, Leases – COVID-19-Related Rent Concessions

In May 2020, the IASB published COVID-19-Related Rent Concessions, which amends IFRS 16,
Leases, to provide lessees with a practical expedient that relieves lessees from assessing
whether a COVID-19-related rent concession is a lease modification. COVID-19-related rent
concessions qualify for the practical expedient if there was a decrease in lease consideration,
reduction of lease payments that affected payments originally due on or before June 30, 2021,
and no substantive changes to other terms and conditions of the lease. The amendment became
effective for annual reporting periods beginning on or after June 1, 2020. Earlier application is
permitted.

The Company has applied the practical expedient for F2020 and has recorded any eligible change
in lease payments resulting from COVID-19-related rent concessions in the consolidated
statement of net income (loss), at the later of the date upon which the rent concession
arrangement is executed and the period to which the rent concession relates. In F2020, the
Company received $3,525 of base rent concessions, which qualified for the practical expedient
and was recorded as a reduction to SG&A expenses. In addition, in F2020 the Company received

$3,729 of rent concessions that were either not eligible for the practical expedient or were variable
lease payments excluded from the scope of IFRS 16, Leases.

IAS 20, Government Grants

The Company recognizes a government grant when there is reasonable assurance that it will
comply with the conditions required to qualify for the grant, and that the grant will be received by
the Company. The Company recognizes the government grants as a reduction to the related
expense that the grant is intended to offset.

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

In January 2020, the IASB issued Classification of Liabilities as Current or Non-current, which
amends International Accounting Standard 1 – Presentation of Financial Statements. The narrow
scope amendments affect only the presentation of liabilities in the statement of financial position
and not the amount or timing of its recognition. It clarifies that the classification of liabilities as
current or non-current is based on rights that are in existence at the end of the reporting period
and specifies that classification is unaffected by expectations about whether an entity will exercise
its right to defer settlement of a liability. It also introduces a definition of ‘settlement’ to make clear
that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets
or services. The amendments are effective for annual reporting periods beginning on or after
January 1, 2023. Earlier application is permitted. The Company is currently assessing the
potential impact of these amendments.

SUBSEQUENT EVENTS

In Q4 2020, in response to a second wave of government mandated lockdowns, the Company
temporarily closed corporate retail stores within certain regions of Canada. As of March 11, 2021,
the Company had reopened all but two corporate retail stores in these regions.

This month, in accordance with further changes to provincial guidelines, the Company has shifted
its store operations to curbside pick-up and eCommerce fulfillment only for certain regions in
Québec, effective April 2, 2021, and for the province of Ontario, effective April 8, 2021. This
represents two corporate retail stores in Québec, as well as 62 Roots corporate retail stores and
five pop-up locations in Ontario. The changes in operation for these locations will be in place for
at least 10 days in Québec and four weeks in Ontario.

ADDITIONAL INFORMATION

Additional information relating to the Company, including the AIF, is available on SEDAR at
www.sedar.com. The Company’s Shares are listed for trading on the TSX under the symbol
“ROOT”.

ROOTS CORPORATION

Consolidated Financial Statements

For the 52-week periods ended January 30, 2021 and
February 1, 2020
(In Canadian dollars)

Table of Contents

Table of Contents .................................................................................................................. 37

Independent Auditors’ Report ............................................................................................... 38

Consolidated Statement of Financial Position ....................................................................... 44

Consolidated Statement of Net Income (Loss) ..................................................................... 45

Consolidated Statement of Comprehensive Income (Loss) .................................................. 46

Consolidated Statement of Changes in Shareholders’ Equity .............................................. 47

Consolidated Statement of Cash Flows ................................................................................ 48

Notes to Consolidated Financial Statements ........................................................................ 49

Nature of operations and basis of presentation ....................................................... 49

Significant accounting policies ................................................................................. 54

3. Operating segments ................................................................................................ 63

Accounts receivable ................................................................................................. 64

Inventories ............................................................................................................... 64

Fixed assets ............................................................................................................. 65

Intangible assets and Goodwill ................................................................................ 67

Financial instruments ............................................................................................... 69

Leases ..................................................................................................................... 70

10. Long-term debt ........................................................................................................ 72

11. Share capital ............................................................................................................ 74

12. Earnings (loss) per Share ........................................................................................ 75

13. Share-based compensation ..................................................................................... 76

14. Financial risk management ...................................................................................... 78

15.

Income taxes expense (recovery) ............................................................................ 81

16. Contingencies .......................................................................................................... 83

17. Personnel expenses ................................................................................................ 83

18. Related party transactions ....................................................................................... 83

19. Deconsolidation of RTS USA Corp. ......................................................................... 85

20. Government grants .................................................................................................. 86

21. Subsequent events .................................................................................................. 87

KPMG LLP
100 New Park Place, Suite 1400
Vaughan, ON L4K 0J3
Tel 905-265 5900
Fax 905-265 6390
www.kpmg.ca

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Roots Corporation

Opinion

We have audited the consolidated financial statements of Roots Corporation (the “Entity”), which
comprise:



the consolidated statement of financial position as at January 30, 2021 and February 1, 2020

the consolidated statement of net income (loss) for the 52 week periods then ended

the consolidated statement of comprehensive income (loss) for the 52 week periods then ended

the consolidated statement of changes in shareholders’ equity for the 52 week periods then
ended

the consolidated statement of cash flows for the 52 week periods then ended

 and notes to the consolidated financial statements, including a summary of significant accounting

policies

(Hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at January 30, 2021 and February 1, 2020, and its
consolidated financial performance and its consolidated cash flows for the 52 week periods then ended
in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditors’ Responsibilities for the
Audit of the Financial Statements” section of our auditors’ report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in
accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements for the year ended January 30, 2021. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

We have determined the matters described below to be the key audit matters to be communicated in
our auditors’ report.

Evaluation of Impairment of Indefinite Life Intangible Assets for the Direct-to-
Consumer Segment

Description of the matter

We draw attention to Notes 1(g)(ii), 2(f) and 7 to the financial statements. Indefinite life intangible assets
are tested for impairment at least annually at the year-end reporting date, and whenever there is an
indication that the asset may be impaired. An impairment loss is recognized for the amount by which
the asset’s carrying amount exceeds its recoverable amount. The Entity has recorded indefinite life
intangible assets of $175,044 thousand. For the purpose of impairment testing, indefinite life intangible
assets are allocated to the grouping of cash generating units (“CGUs”), which represent the lowest
level within the Entity at which these assets are monitored for internal management purposes.
Management has determined this grouping to be consistent with the two reportable operating
segments: Direct-to-Consumer and Partners and Other. The recoverable amount is based on the
greater of the CGU group’s fair value less cost to sell (“FVLCS”) and its value-in-use (“VIU”). The
Entity’s significant estimates used in determining the FVLCS include projected future sales, gross profit
margin and earnings, terminal growth rate and discount rate.

Why the matter is a key audit matter

We identified the evaluation of impairment of indefinite life intangible assets for the Direct-to-Consumer
segment as a key audit matter. This matter represented an area of significant risk of material
misstatement given the magnitude of the indefinite life intangible assets and the high degree of
estimation uncertainty in determining the recoverable amount. Significant auditor judgement and the
involvement of professionals with specialized skill and knowledge was required to evaluate the
evidence supporting the Entity’s significant estimates due to the sensitivity of the recoverable amount
to minor changes in certain significant estimates.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

We evaluated the design and tested the operating effectiveness of the control over the Entity’s review
of the recoverable amount of the Direct-to-Consumer segment. This control included the review of
estimates used to determine the recoverable amount.

We compared the Entity’s projected future sales, gross profit margin and earnings used in the prior
year estimate to actual results to assess the Entity’s ability to predict projected future sales, gross profit
margin and earnings used in the current year impairment testing.

We evaluated the appropriateness of the projected future sales, gross profit margin and earnings to
the actual historical sales, gross profit margin and earnings generated by the Direct-to-Consumer
segment. We took into account changes in conditions and events affecting the segment to assess the
adjustments or lack of adjustments made in arriving at the projected future sales, gross profit margin
and earnings estimates.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

 Evaluating the appropriateness of the terminal growth rate by comparing it against long-term

estimates of inflation in Canada

 Evaluating the appropriateness of the discount rate by comparing it against a discount rate range

that was independently developed using publicly available market data for comparable entities.

Evaluation of Impairment of Fixed Assets and Right-of-use Assets for Store Locations

Description of the matter

We draw attention to Notes 1(g)(ii), 2(f), 6 and 9 to the financial statements. Fixed assets and right-of-
use assets are tested for impairment by the Entity whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The Entity has recorded
fixed assets and right-of-use assets of $47,981 thousand and $79,995 thousand, respectively. A
significant portion of the fixed assets and right-of-use assets tested for impairment are comprised of
assets used in store locations. The Entity has determined that each store location is a separate CGU
for the purpose of impairment testing. The recoverable amount is based on the greater of the CGU’s
FVLCS and its VIU, which is determined using a discounted cash flow model. The Entity’s significant
estimates include:

 Market rental rates for FVLCS

 Discount rate, projected future sales and earnings for VIU.

Why the matter is a key audit matter

We identified the evaluation of impairment of fixed assets and right-of-use assets for store locations as
a key audit matter. This matter represented an area of significant risk of material misstatement due to
the magnitude of the balance and the high degree of estimation uncertainty in determining the
recoverable amount. Significant auditor judgement was required to evaluate the evidence supporting
the Entity’s significant estimates due to the sensitivity of the recoverable amount to minor changes in
certain significant estimates.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

We evaluated the design and tested the operating effectiveness of the control over the Entity’s review
of the recoverable amount of the store locations. This control included the review of estimates used to
determine the recoverable amount.

For a selection of store locations, we evaluated the appropriateness of the:

 Projected future sales and earnings estimates used in determining VIU by comparing them to the

actual historical sales and earnings generated by the store location. We took into account
changes in conditions and events affecting the store location to assess the adjustments or lack of
adjustments made in arriving at the projected future sales and earnings estimates

 Market rental rates used in the Entity’s impairment model by comparing them to publicly available
market information such as commercial real estate property listings for comparable properties.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating
the appropriateness of the discount rate used in the VIU model by comparing it against a discount rate
range that was independently developed using publicly available market data for comparable entities.

Other Information

Management is responsible for the other information. Other information comprises:



the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions.

the information, other than the financial statements and the auditors’ report thereon, included in a
document likely to be titled “2020 Annual Report”.

Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, and remain alert for
indications that the other information appears to be materially misstated.

We obtained the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditors’ report.

We have nothing to report in this regard.

The information, other than the financial statements and the auditors’ report thereon, included in a
document likely to be titled “2020 Annual Report” is expected to be made available to us after the date
of this auditors’ report. If, based on the work we will perform on this other information, we conclude that
there is a material misstatement of this other information, we are required to report that fact to those
charged with governance.

Responsibilities of Management and Those Charged with Governance for the
Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud
or error.

In preparing the financial statements, management is responsible for assessing the Entity’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that
includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgement and maintain professional skepticism throughout the audit.

We also:



Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting
intentional omissions,
misrepresentations, or the override of internal control.

involve collusion,

from error, as

fraud may

forgery,

 Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Entity's internal control.

 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

 Conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Entity's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditors’ report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors’ report. However, future events or conditions may cause the Entity
to cease to continue as a going concern.

 Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.

 Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

 Provide those charged with governance with a statement that we have complied with relevant

ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.

 Determine, from the matters communicated with those charged with governance, those matters

that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditors’ report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our auditors’ report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.

Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Farah Bundeali.

Vaughan, Canada
April 7, 2021

ROOTS CORPORATION
Consolidated Statement of Financial Position
(In thousands of Canadian dollars)

As at January 30, 2021 and February 1, 2020

Assets
Current assets:
Cash
Accounts receivable
Inventories
Prepaid expenses
Total current assets

Non-current assets:

Loan receivable
Lease receivable
Fixed assets
Right-of-use assets
Intangible assets
Goodwill
Total non-current assets

Note

19
4, 14
5, 19

14, 18
9, 14
6, 19
9, 19
7
7

January 30,
2021

February 1,
2020

9,166
7,165
42,401
3,137
61,869

608
1,187
47,981
79,995
190,777
7,906
328,454

949
7,158
40,152
5,418
53,677

585
1,511
55,694
128,322
193,079
7,906
387,097

Total assets

390,323

440,774

–
25,850
5,759
5,955
22,197
4,984
418
65,163

15,891
78,989
66,100
160,980
226,143

197,333
3,682
(227)
(36,608)
164,180

7,226
20,252
6,011
2,008
26,569
4,984
158
67,208

13,942
124,590
84,528
223,060
290,268

196,903
3,407
(116)
(49,688)
150,506

390,323

440,774

Liabilities and Shareholders’ Equity
Current liabilities:

Bank indebtedness
Accounts payable and accrued liabilities
Deferred revenue
Income taxes payable
Current portion of lease liabilities
Current portion of long-term debt
Derivative obligations
Total current liabilities

Non-current liabilities:

Deferred tax liabilities
Long-term portion of lease liabilities
Long-term debt
Total non-current liabilities

Total liabilities

Shareholders’ equity:
Share capital
Contributed surplus
Accumulated other comprehensive income (loss)
Retained earnings (deficit)

Total shareholders’ equity

Total liabilities and shareholders’ equity

Contingencies
Subsequent events

On behalf of the Board of Directors:

14, 19

15
9, 14, 19
10, 14
8, 14

15
9, 14, 19
10, 14

11
13

16
21

“Erol Uzumeri”

“Richard P. Mavrinac”

Director

See accompanying notes to consolidated financial statements.

ROOTS CORPORATION
Consolidated Statement of Net Income (Loss)
(In thousands of Canadian dollars, except per share amounts)

For the 52-week periods ended January 30, 2021 and February 1, 2020

Sales

Cost of goods sold

Gross profit

Selling, general and administrative expenses

Goodwill impairment

Gain from deconsolidation of RTS USA Corp.

Income (loss) before interest expense and

income taxes expense (recovery)

Interest expense

Income (loss) before income taxes

Income taxes expense (recovery)

Net income (loss)

Basic earnings (loss) per share
Diluted earnings (loss) per share

Note

January 30,
2021

February 1,
2020

$ 240,506

$ 329,865

100,767

153,676

139,739

176,189

114,807

188,308

–

44,799

4,774

–

29,706

11,741

(56,918)

15,567

17,965

(72,485)

4,885

(10,456)

$ 13,080

$ (62,029)

$
$

0.31
0.31

$
$

(1.47)
(1.47)

12
12

See accompanying notes to consolidated financial statements.

ROOTS CORPORATION
Consolidated Statement of Comprehensive Income (Loss)
(In thousands of Canadian dollars)

For the 52-week periods ended January 30, 2021 and February 1, 2020

Note

January 30,
2021

February 1,
2020

Net income (loss)

$ 13,080

$ (62,029)

Other comprehensive income, net of taxes:

Items that may be subsequently reclassified to profit or loss:

Effective portion of changes in fair

value of cash flow hedges

Cost of hedging excluded from

cash flow hedges

Tax impact of cash flow hedges

Total other comprehensive income

8, 14

362

425

(22)

(91)
249

362

(210)
577

Total comprehensive income (loss)

$ 13,329

$ (61,452)

See accompanying notes to consolidated financial statements.

ROOTS CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity
(In thousands of Canadian dollars)

For the 52-week periods ended January 30, 2021 and February 1, 2020

January 30, 2021

Note

Share Contributed
surplus
capital

Accumulated
Retained
other
earnings comprehensive
income

(deficit)

Total

Balance, February 1, 2020

$ 196,903

3,407

(49,688)

(116) $ 150,506

Net income

Net gain from change in fair
value of cash flow hedges,
net of income taxes

Transfer of realized loss on cash
flow hedges to inventories, net
of income taxes

Share-based compensation

–

Issuance of shares

11, 13

430

–

705

(430)

13,080

–

13,080

–

249

(360)

–

705

–

Balance, January 30, 2021

$ 197,333

3,682

(36,608)

(227) $ 164,180

February 1, 2020

Note

Share Contributed
surplus
capital

Accumulated
other
Retained comprehensive
income (loss)
earnings

Total

Balance, February 2, 2019

$ 196,853

3,975

13,608

268

$ 214,704

Adjustment on adoption of IFRS 16

–

(1,267)

–

(1,267)

Balance, February 3, 2019

$ 196,853

3,975

12,341

268

$ 213,437

Net loss

Net gain from change in fair
value of cash flow hedges,
net of income taxes

Transfer of realized loss on cash
flow hedges to inventories, net
of income taxes

Share-based compensation

–

Issuance of shares

11, 13

–

(518)

(50)

(62,029)

–

(62,029)

–

577

(961)

–

(961)

(518)

–

Balance, February 1, 2020

$ 196,903

3,407

(49,688)

(116) $ 150,506

See accompanying notes to consolidated financial statements.

ROOTS CORPORATION
Consolidated Statement of Cash Flows
(In thousands of Canadian dollars)

For the 52-week periods ended January 30, 2021 and February 1, 2020

Cash provided by (used in):

Operating activities:

Net income (loss)
Items not involving cash:

January 30,
2021

Note

February 1,
2020

$ 13,080

$ (62,029)

Depreciation and amortization
Share-based compensation expense (recovery)
Impairment of fixed assets and right-of-use assets
Impairment of goodwill
Gain from deconsolidation of RTS USA Corp.
Unrealized losses on forward contracts
Gain on lease modification
Rent concessions related to practical expedient
Interest expense
Income taxes expense (recovery)
Interest paid
Payment of interest on lease liabilities
Taxes refunded (paid)

Change in non-cash operating working capital:

Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue

6, 7, 9
13
6, 9
7
19
8
9
9
10
15

4
5

Financing activities:

10
Issuance (repayment) of long-term debt
10
Long-term debt financing costs
10
Repayment of Term Credit Facility
Payment of principal on lease liabilities, net of tenant allowance 9

33,325
705
2,048
–
(4,774)
105
(310)
(3,525)
11,741
4,885
(4,337)
(6,724)
1,056

(7)
(4,540)
2,281
6,165
(252)
50,922

(14,000)
(148)
(4,984)
(12,383)
(31,515)

Investing activities:

Additions to fixed assets
Deconsolidation of RTS USA Corp.

6
19

(3,423)
(541)
(3,964)

39,606
(518)
22,398
44,799
–
–
(520)
–
15,567
(10,456)
(5,904)
(9,048)
(2,200)

(531)
9,381
1,025
(2,039)
513
40,044

9,000
(163)
(4,984)
(17,436)
(13,583)

(22,320)
–
(22,320)

Increase in cash

15,443

4,141

Cash and bank indebtedness, beginning of period

(6,277)

(10,418)

Cash and bank indebtedness, end of period

9,166

(6,277)

See accompanying notes to consolidated financial statements.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Notes to Consolidated Financial Statements

1. Nature of operations and basis of presentation

Nature of operations

Established in 1973, Roots is a premium outdoor lifestyle brand. We unite the best of cabin and city
through unmistakable style built with uncompromising comfort and quality. We offer a broad range of
products designed for life’s everyday adventures, including women’s and men’s apparel, leather goods,
footwear, accessories, and kids, toddler and baby apparel. Starting from a little cabin in Algonquin Park,
Canada, Roots has grown to become a global brand. As at January 30, 2021, we operated 111
corporate retail stores in Canada, two corporate retail stores in the United States, 117 partner-operated
stores in Taiwan, 26 partner-operated stores in China, two partner-operated stores in Hong Kong, and
a global eCommerce platform, roots.com. Roots Corporation is a Canadian corporation doing business
as “Roots” and “Roots Canada”.

Roots Corporation was incorporated under the Canada Business Corporations Act on October 14,
2015. Its head office and registered office is located at 1400 Castlefield Avenue, Toronto, Ontario M6B
4C4. Roots Corporation and its subsidiaries are collectively referred to in these consolidated financial
statements as the “Company” or “Roots Corporation”.

The Company’s common shares (“Shares”) are listed on the Toronto Stock Exchange (“TSX”) under
the trading symbol “ROOT”.

Basis of preparation

(a) Fiscal period

The fiscal year of the Company consists of a 52 or 53 week period ending the closest Saturday
to January 31 of each year. The current and comparative fiscal periods for the consolidated
financial statements contain 52 weeks.

(b) Statement of compliance

The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”) and using the accounting policies described herein.

The consolidated financial statements were authorized for issuance by the Company’s Board of
Directors (“Board”) on April 7, 2021.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

The consolidated financial statements were prepared on a historical cost basis, except for
derivative financial instruments consisting of forward hedging contracts, and share-based
compensation, which are measured at fair value.

The significant accounting policies set out below have been applied consistently in the
preparation of the consolidated financial statements for the periods presented.

(d) Functional currency

The consolidated financial statements are presented in Canadian dollars, the Company’s
functional currency, unless otherwise stated. All financial information presented in Canadian
dollars has been rounded to the nearest thousand, unless otherwise stated.

(e) Basis of consolidation

The consolidated financial statements include the accounts of Roots Corporation and its wholly-
owned subsidiaries, Roots International ULC and Roots Leasing Corporation. An entity is
controlled when the Company has the ability to direct the relevant activities of the entity, has
exposure or rights to variable returns from its involvement with the entity, and is able to use its
power over the entity to affect its returns from the entity.

Transactions and balances between the Company and its consolidated subsidiaries have been
eliminated on consolidation.

(f) COVID-19

On March 11, 2020, COVID-19 was declared a pandemic by the World Health Organization,
leading many countries to take drastic measures to manage the spread of the virus. The
worldwide pandemic, along with ensuing recommendations and restrictions imposed by
government authorities to help curb the spread of COVID-19, has significantly impacted the
operations and financial performance of the Company.

Since March 2020, in accordance with local government and health organization guidelines, the
Company has experienced intermittent government mandated closures of its corporate retail
stores and partner-operated stores, as well as capacity restrictions. The Company continued to
operate its global eCommerce business and its distribution centre, with strict cleaning protocols
and social distancing measures in place, successfully leveraging its omni-channel platform to
generate substantial online sales growth that has partially offset the impact of retail store
closures, constraints and store traffic declines. The Company also continued to operate its
wholesale, business-to-business and licensing business, as well as its head office functions
under a primarily “work-from-home” model.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

As a result of the significant negative impact that COVID-19 has had on the global economy,
consumer confidence, and the retail operating environment, the Company’s consolidated
financial results in fiscal 2020 have been materially impacted. Since March 2020, the Company
has implemented many strategies to reduce costs and manage liquidity to overcome the
negative impacts of the pandemic, including the following:

 Substantially

reduced selling, general and administrative costs, capital

expenditures and discretionary spending across all areas of the business;

 Realized personnel cost savings related to temporary layoffs as a result of store
closures, temporary reductions in compensation to the Board and head office
employees, hiring and salary freezes, and the elimination of fiscal 2019 bonuses;

 Reduced and adjusted forward inventory purchases;

 Worked closely with partners and suppliers, as well as service and logistics
providers, to identify further areas of cost reduction and/or payment deferral;

 Worked with landlords to abate or defer a significant portion of corporate retail store

rent during the store shut down or subsequent period; and

 Evaluated, qualified and applied for applicable government relief programs,
including the Canada Emergency Wage Subsidy (“CEWS”) program and the
Canada Emergency Rent Subsidy (“CERS”) program. See Note 20.

Management recognizes that while it has implemented an action plan to best navigate the
impacts of COVID-19 on the business, there is still uncertainty with respect to the duration and
extent to which the pandemic may adversely impact the Company. The Company expects to
have access to borrowings and other forms of support to be available to businesses impacted
by this pandemic. However, to the extent that COVID-19 continues, or further public restrictions
are imposed by the government, the degree to which the Company’s operations could be
affected may increase.

(g) Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

(i)

Inventory valuation

Merchandise inventories are valued at the lower of average cost, using the retail method,
and net realizable value, which requires the Company to utilize estimates related to
fluctuations in shrinkage, future retail prices, future sell-through of units, seasonality and
costs necessary to sell the inventory. The Company records a write-down to reflect
management’s best estimate of the net realizable value of inventory based on the above
factors.

(ii)

Impairment of non-financial assets

The Company is required to use judgement in determining the grouping of assets to
identify their cash generating units (“CGUs”) for the purpose of testing store related fixed
assets, including right-of-use assets. Judgement is further required to determine
appropriate groupings of CGUs for the level at which non-store related assets are tested
for impairment including intangible assets and goodwill. The Company has determined
that each store location is a separate CGU for the purpose of fixed assets and right-of-
use assets impairment testing. For purposes of non-store related non-financial assets,
CGUs are grouped at the lowest level that these assets are monitored for internal
management purposes or the lowest level where cash inflows are generated. In addition,
judgement is used to determine whether a triggering event has occurred requiring an
impairment test to be completed.

In determining the recoverable amount, defined as the higher of the fair value less cost to
sell (“FVLCS”) and the value-in-use (“VIU”) of a CGU or a group of CGUs, various
estimates are used. FVLCS for fixed assets and right-of-use assets is determined using
estimates such as market rental rates of comparable properties and discount rates. VIU
for fixed assets and right-of-use assets is determined using estimates such as projected
future sales, gross profit margin and earnings, and a discount rate consistent with external
industry information, reflecting the risk associated with the specific cash flows. The
Company determines FVLCS for goodwill and intangible assets using estimates such as
projected future sales, gross profit margin and earnings, a terminal growth rate and a
discount rate.

(iii)

Share-based compensation

The Company measures the value of equity-settled transactions with employees by
reference to the fair value of the equity instruments at the date on which they are granted.
Estimating fair value for share-based compensation requires determining the most
appropriate valuation model for a grant of equity instruments, which is dependent on the
terms and conditions of the grant. The Company is also required to determine the most
appropriate inputs to the valuation model, including estimates and assumptions with
respect to expected life, risk-free interest rate, volatility, distribution yield, and forfeiture
rate.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

(iv) Gift card breakage

The Company recognizes revenue from unredeemed gift cards (“gift card breakage”) if
the likelihood of gift card redemption by the customer is considered to be remote. The
Company estimates its average gift card breakage rate based on historical redemption
rates. The resulting revenue from breakage is recognized over the estimated period of
redemption based on historical redemption patterns commencing when the gift card is
issued.

(v)

Leases

The Company has applied judgement to determine the lease term for lease contracts that
include renewal or termination options. The assessment of whether the Company is
reasonably certain to exercise such options impacts the lease term, which significantly
affects the amount of lease liabilities and right-of-use assets recognized.

The Company is required to estimate the incremental borrowing rates used to discount
lease liabilities if the interest rate implicit in the lease is not readily determined. In
determining the incremental borrowing rates, management considers the Company’s
creditworthiness, the security, the term, the value of the underlying leased asset, and the
economic operational environment of the leased asset. The incremental borrowing rates
are subject to change primarily due to macroeconomic factors.

(vi)

Income taxes

The calculation of current and deferred income taxes requires management to make
certain judgements regarding the tax rules in jurisdictions where the Company performs
activities. Application of judgements is required regarding classification of transactions
and in assessing probable outcomes of claimed deductions including expectations of
future operating results, the timing and reversal of temporary differences, and possible
audits of income tax and other tax filings by tax authorities.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

2. Significant accounting policies

The accounting policies described below have been applied consistently to the periods presented in
the consolidated financial statements:

(a) Foreign currency

Monetary assets and liabilities denominated in foreign currencies at the reporting date are
translated into the functional currency at the exchange rate at that date. Non-monetary assets
and liabilities denominated in foreign currencies are translated into Canadian dollars at the
exchange rates prevailing at the respective transaction dates. Revenue and expenses
denominated in foreign currencies are translated into Canadian dollars at average exchange
rates prevailing during the period. The resulting gains or losses on translation are included in
the determination of net income (loss) for the period and comprehensive income (loss).

(b) Revenue recognition

Revenue includes sales to customers through retail stores operated by the Company and
through eCommerce. Sales to customers through retail stores are recognized at the time of
purchase, net of a provision for returns. eCommerce sales to customers are recognized at the
time of delivery, net of a provision for returns. The provision for returns is estimated based on
the last 12 months’ return rate for retail stores and eCommerce sales, respectively.

Revenue also includes sales to the Company’s international partner and other corporate
customers, which are recognized at the time of shipment or receipt, depending on the specific
contractual terms with each customer. Contractually, the Company’s international partner and
wholesale partners are unable to return goods purchased from the Company.

Royalty revenue is included in sales and is recognized on an accrual basis in accordance with
the various contractual agreements, based on the financial results as reported by the
Company’s international partner and other third-party licensees, and when collectability is
reasonably determined.

The Company sells gift cards to customers and recognizes revenue as gift cards are redeemed.
The Company also recognizes gift card breakage if the likelihood of gift card redemption by the
customer is considered to be remote.

The liability associated to gift cards is recorded as deferred revenue on the consolidated
statement of financial position.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Finished goods are comprised of merchandise inventories which are valued at the lower of
average cost using the retail method and net realizable value. For inventories purchased from
third party vendors, cost includes the cost of purchase, freight, import taxes and duties that are
directly incurred to bring inventories to their present location and condition.

For inventories manufactured by the Company, cost includes direct labour, raw materials,
manufacturing and overhead costs. Raw materials inventories are recorded at the lower of cost
and net realizable value.

Work in progress is recorded at the lower of average cost and net realizable value.

The Company estimates the net realizable value as the amount at which inventories are
expected to be sold, taking into account fluctuations in retail prices due to seasonality, age,
excess quantities, condition of the inventory, nature of the inventory and the estimated variable
costs necessary to make the sale.

Inventories are written down to net realizable value when the cost of inventories is not
estimated to be recoverable due to obsolescence, damage or declining selling prices. When
circumstances that previously caused inventories to be written down below cost no longer exist,
the amount of the write-down previously recorded is reversed.

(d) Fixed assets

Fixed assets are recorded at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.
When parts of an item of fixed assets have different useful lives, they are accounted for as
separate items (major components) of fixed assets.

Depreciation is primarily recognized in selling, general and administrative expenses in the
consolidated statement of net income (loss), on a diminishing-balance or straight-line basis,
over the estimated useful lives of each component of an item of fixed assets from the date that
they are available for use. Depreciation methods, useful lives and residual values are reviewed
at each annual reporting date and adjusted, prospectively, if appropriate.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Fixed assets are depreciated over the estimated useful lives of the assets, from the date they
are available for use, based on the following annual rates:

Asset

Computer hardware
Furniture and fixtures
Equipment
Computer software
Leasehold improvements

Basis

Diminishing-balance
Diminishing-balance
Diminishing-balance
Straight-line
Straight-line

Assets held under finance leases

Straight-line

Rate

20%
20%
10%
3 - 5 years
Term of lease to a
maximum of 10 years
Term of lease

(e) Intangible assets

Intangible assets that have a definite useful life are measured at cost less any accumulated
amortization and accumulated impairment losses. Intangible assets with definite lives are
amortized over their useful economic life on a straight-line basis from the date that they are
available for use. Amortization relating to licence agreements and customer relationships is
recognized in selling, general and administrative expenses in the consolidated statement of net
income (loss). The estimated useful lives for the current period are as follows:

Licence agreements
Customer relationships
Leases
Trade names
Goodwill

4 - 13 years
10 years
Life of the lease
Indefinite life
Indefinite life

Amortization methods, useful lives and residual values are reviewed at each annual reporting
date and adjusted, prospectively, if appropriate.

Intangible assets with indefinite lives, comprising of trade names, are not amortized but are
tested annually for impairment, or more frequently, if events or changes in circumstances
indicate that the asset might be impaired, as detailed in the accounting policy note on
impairment of non-financial assets.

(f)

Impairment of non-financial assets

Assets with finite lives are tested for impairment at each reporting date whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill
and indefinite life intangibles are tested for impairment at least annually at the year-end
reporting date, and whenever there is an indication that the asset may be impaired.

Events or changes in circumstances which may indicate impairment include a significant
change to the Company’s operations, a significant decline in performance or a change in
market conditions which adversely affect the Company.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is based on the greater of the CGU’s FVLCS
and its VIU. For purposes of measuring recoverable amounts, store assets are grouped at the
lowest levels for which there are largely independent cash flows, which is referred to as a CGU,
being at the individual store level for the Company.

The Company’s corporate assets do not generate separate cash inflows. If there is an
indication that a corporate asset may be impaired, then the recoverable amount is determined
for the CGU or group of CGUs to which the corporate asset belongs.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment
losses recognized in prior periods are assessed at each reporting date for any indication that
the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment
loss had been recognized.

(g) Leased assets

The Company assesses whether a contract is, or contains, a lease at the inception of the
applicable contract. The Company recognizes a right-of-use asset and a lease liability as the
present value of future lease payments when the lessor makes the leased asset available for
use by the Company.

Lease liabilities include the net present value of fixed payments, variable lease payments that
are based on an index or a rate, amounts expected to be payable by the Company under
residual value guarantees, and the exercise price of a purchase option or penalties for
terminating the lease, if the Company is reasonably certain to exercise those purchase or
termination options. Lease liabilities are recognized net of lease incentives receivable. The
lease payments are discounted using the interest rate implicit in the lease, or, if that rate cannot
be readily determined, the lessee’s incremental borrowing rate. Subsequent to initial
measurement, the Company measures lease liabilities at amortized cost using the effective
interest rate method.

Lease terms applied are the contractual non-cancellable periods of the lease, plus periods
covered by renewal options or termination options, if the Company is reasonably certain to
exercise those options. Lease liabilities are remeasured when there is a change in lease term,
a change in the assessment of an option to purchase the leased asset, a change in expected
residual value guarantee, or a change in future lease payments resulting from a change in an
index or a rate used to determine those payments.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Right-of-use assets are measured at cost less accumulated depreciation and accumulated
impairment losses. Cost includes the amount of the initial measurement of the related lease
liability, plus any lease payments made at or before the commencement date and any initial
direct costs and future restoration costs, less any lease incentives received. Right-of-use
assets are depreciated on a straight-line basis from the date that the underlying asset is
available for use. Depreciation is recorded over the shorter of the lease term and the useful life
of the underlying asset, unless the lease transfers ownership of the underlying asset to the
lessee by the end of the lease term, in which case depreciation is recorded over the useful life
of the underlying asset.

Lease payments for assets that are exempt through the short-term exemption and variable
payments not based on an index or rate continue to be recognized in selling, general and
administrative expenses.

Subleases

When the Company enters into sublease arrangements as an intermediate lessor, it assesses
whether the sublease is classified as a finance sublease or an operating sublease by reference
to the corresponding right-of-use asset arising from the head lease, rather than by reference
to the underlying asset. A sublease is a finance sublease if substantially all the risks and
rewards incidental to ownership of the related right-of-use asset on the head lease have been
transferred to the sub-lessee.

(h) Income taxes

Income taxes expense (recovery) comprises current and deferred income taxes. Current
income taxes and deferred income taxes are recognized in net income (loss) for the period,
except for items recognized directly in equity or in other comprehensive income (loss).

Current income tax is the expected tax payable on the taxable income or net income (loss) for
the period, using tax rates enacted or substantively enacted at the reporting date.

Deferred income tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred income tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences
relating to investments in subsidiaries and jointly-controlled entities to the extent that it is
probable that they will not reverse in the foreseeable future. In addition, deferred income tax is
not recognized for taxable temporary differences arising on the initial recognition of goodwill.
Deferred income tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

enforceable right to offset current tax liabilities and assets, and they relate to income taxes
levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(i) Share-based compensation

The grant date fair value of share-based compensation awards granted to employees is
recognized as an employee expense, with a corresponding increase in contributed surplus,
over the period that the employees unconditionally become entitled to the awards. The amount
recognized as an expense is adjusted to reflect the number of awards for which the related
service and non-market vesting conditions are expected to be met, such that the amount
ultimately recognized as an expense is based on the number of awards that meet the related
service and non-market performance conditions at the vesting date.

(j) Earnings (loss) per share (“EPS”)

Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of
the Company by the weighted average number of Shares outstanding during the period.

Diluted EPS is calculated by dividing the profit or loss attributable to common shareholders of
the Company by the weighted average number of Shares outstanding, plus the weighted
average number of Shares that would be issued on exercise of dilutive securities granted to
employees, as calculated under the treasury stock method, so long as the result would not
reduce the loss per Share.

(k) Financial instruments

Non-derivative financial assets are initially measured at fair value and subsequently measured
at amortized cost using the effective interest method, net of any impairment losses.

The Company uses the “expected credit loss” model for calculating impairment and recognizes
expected credit losses as a loss allowance in the consolidated statement of financial position
if they relate to a financial asset measured at amortized cost. The Company’s accounts
receivable are typically short-term receivables with payments received within a 12-month
period and do not have a significant financing component. Therefore, the Company recognizes
impairment and measures expected credit losses as lifetime expected credit losses. The
carrying amount of these assets in the consolidated statement of financial position is stated net
of any loss allowance.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Non-derivative financial liabilities are initially recognized at fair value less any directly
attributable transaction costs. Subsequent to initial recognition, these liabilities are measured
at amortized cost using the effective interest method.

The Company designates foreign currency forward contracts (“forward contracts”) under a cash
flow hedge for its foreign currency exposures on a portion of its U.S. dollar denominated
purchases. On initial designation of the hedge, the Company formally documents the
relationship between the hedging instruments and hedged items, including the risk
management objectives and strategy in undertaking the hedge transaction, together with the
methods that will be used to assess the effectiveness of the hedging relationship. At inception
and each quarter-end thereafter, the Company formally assesses the effectiveness of its cash
flow hedges.

For a cash flow hedge in respect of a forecasted transaction, the transaction should be highly
probable to occur and should present an exposure to variations in cash flows that could
ultimately affect reported net income (loss). The time value component of forward contracts
designated as cash flow hedges is excluded from the hedging relationship and recorded in
other comprehensive income (loss) as a cost of hedging and presented separately.

The forward contracts used for hedging are recognized at fair value. Subsequent to initial
recognition, the forward contracts are measured at fair value and changes therein are
accounted for as described below.

When a derivative is designated as the hedging instrument in a hedge of the variability in cash
flows attributable to a particular risk associated with a recognized asset or liability or a highly
probable forecasted transaction that could affect net income (loss), the effective portion of
change in the fair value of the derivative is recognized in other comprehensive income (loss)
and presented in accumulated other comprehensive income (loss), net of deferred taxes. When
the Company purchases the hedged inventories, the amounts are reclassified from
accumulated other comprehensive income (loss) to cost of purchases. Any ineffective portion
of changes in the fair value of the forward contracts is recognized immediately in net income
(loss).

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold,
terminated or exercised, then hedge accounting is discontinued prospectively. If the forecasted
transaction is no longer expected to occur, then the balance in accumulated other
comprehensive income (loss) is recognized immediately in net income (loss).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

The Company has classified its financial assets and financial liabilities as follows:

Financial assets:
Cash
Accounts receivable
Loan receivable
Lease receivable
Derivative assets

Financial liabilities

Accounts payable and
accrued liabilities
Derivative obligations
Long-term debt
Finance lease obligation

Classification

Fair value through profit or loss
Amortized cost
Amortized cost
Amortized cost
Fair value through OCI

Amortized cost
Fair value through OCI
Amortized cost
Amortized cost

The Company measures fair values using the following fair value hierarchy, which reflects the
significance of the inputs used in making the measurements:



Level 1 – inputs that are quoted market prices (unadjusted) in active markets for
identical instruments;

Level 2 – inputs other than quoted market prices included within Level 1 that are
observable either directly (i.e., as prices) or indirectly (i.e., derived from prices). This
category includes instruments valued using: quoted market prices in active markets for
similar instruments; quoted prices for identical or similar instruments in markets that
are considered less than active; or other valuation techniques in which all significant
inputs are directly or indirectly observable from market data; and

Level 3 – inputs that are unobservable. This category includes all instruments for which
the valuation technique includes inputs that are not observable and the unobservable
inputs have a significant effect on the instrument’s valuation. This category includes
instruments that are valued based on quoted prices for similar instruments for which
significant unobservable adjustments or assumptions are required to reflect the
difference between the instruments.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

(l) New standards and interpretations adopted in the year

Amendment to IFRS 16, Leases – COVID-19-Related Rent Concessions

In May 2020, the IASB published COVID-19-Related Rent Concessions, which amends IFRS
16, Leases, to provide lessees with a practical expedient that relieves lessees from assessing
whether a COVID-19-related rent concession is a lease modification. COVID-19-related rent
concessions qualify for the practical expedient if there was a decrease in lease consideration,
reduction of lease payments that affected payments originally due on or before June 30, 2021,
and no substantive changes to other terms and conditions of the lease. The amendment
became effective for annual reporting periods beginning on or after June 1, 2020. Earlier
application is permitted.

The Company has applied the practical expedient for the annual period ending January 30,
2021 and has recorded any eligible change in lease payments resulting from COVID-19-related
rent concessions in the consolidated statement of net income (loss), at the later of the date on
which the rent concession arrangement is executed and the period to which the rent concession
relates. See Note 9.

IAS 20, Government Grants

The Company recognizes a government grant when there is reasonable assurance that it will
comply with the conditions required to qualify for the grant, and that the grant will be received
by the Company. The Company recognizes the government grants as a reduction to the related
expense that the grant is intended to offset. See Note 20.

(m) New standards and interpretations not yet adopted

In January 2020, the IASB issued Classification of Liabilities as Current or Non-current, which
amends IAS 1, Presentation of Financial Statements. The narrow scope amendments affect
only the presentation of liabilities in the statement of financial position and not the amount or
timing of its recognition. It clarifies that the classification of liabilities as current or non-current
is based on rights that are in existence at the end of the reporting period and specifies that
classification is unaffected by expectations about whether an entity will exercise its right to
defer settlement of a liability. It also introduces a definition of ‘settlement’ to make clear that
settlement refers to the transfer to the counterparty of cash, equity instruments, other assets
or services. The amendments are effective for annual reporting periods beginning on or after
January 1, 2023. Earlier application is permitted. The Company is currently assessing the
potential impact of these amendments.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

3. Operating segments

The Company has two reportable operating segments:

(a) The “Direct-to-Consumer” segment comprises sales through corporate retail stores and

eCommerce; and

(b) The “Partners and Other” segment consists primarily of the wholesale of Roots-branded
products to our international operating partner and the royalties earned on the retail sales of
Roots-branded products by our partner. The Partners and Other segment also includes
royalties earned through the licensing of our brand to select manufacturing partners, the
wholesale of Roots-branded products to select retail partners, and the sale of custom Roots-
branded products to select business clients.

The Company defines an operating segment on the same basis that the Chief Operating Decision
Maker (the “CODM”) uses to evaluate performance internally and to allocate resources. The Company
has determined that the President and Chief Executive Officer is its CODM. The accounting policies of
the reportable segments are the same as those described in the Company’s significant accounting
policies (see Note 2). The Company measures each reportable operating segment’s performance
based on sales and gross profit, which is the profit metric used by the CODM for assessing performance
of each segment. The Company does not report total assets or total liabilities based on its operating
segments.

Information for each reportable operating segment, as presented to the CODM, is included below:

Direct-to-
Consumer

January 30, 2021
Partners
and Other

February 1, 2020

Total

Direct-to-
Partners
Consumer and Other

Total

Sales
Cost of goods sold

Gross profit
Selling, general and administrative expenses(1)
Goodwill impairment(1)
Gain from deconsolidation of RTS USA Corp. (1)
Income (loss) before interest expense and

income taxes expense (recovery)

Interest expense(1)

$ 208,230
80,968

$ 32,276
19,799

127,262

12,477

$ 240,506 $ 287,762 $ 42,103 $ 329,865
153,676

125,972

100,767

27,704

139,739
114,807
–
4,774

29,706
11,741

161,790

14,399

176,189
188,308
44,799
–

(56,918)
15,567

Income (loss) before income taxes

17,965

$ (72,485)

(1) These unallocated items represent income and expenses which management does not report when analyzing

segment underlying performance.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

4. Accounts receivable

0-90
days

91-120
days

> 120
days

January 30,
2021

Total

0-90
days

91-120
days

> 120
days

Accounts receivable

$ 7,131 $

34 $

–

7,165

$ 6,652 $

121 $ 385 $

The following are continuities of the Company’s allowance for doubtful accounts receivable:

February 1,
2020

Total

7,158

Allowance for doubtful accounts receivable, beginning of period
Net write off

Allowance for doubtful accounts receivables, end of period

Inventories

Raw materials
Work in progress
Finished goods – On hand
Finished goods – In-transit

January 30,
2021

(126)
118

(8)

January 30,
2021

6,103
633
32,024
3,641

February 1,
2020

(83)
(43)

(126)

February 1,
2020

4,942
742
29,035
5,433

42,401

40,152

The cost of merchandise inventories recognized as an expense and included in cost of goods sold for
the period ended January 30, 2021 was $95,058 (period ended February 1, 2020 – $144,214). Cost of
inventories includes the cost of merchandise and all costs incurred to deliver inventory to the
Company’s distribution centre and stores including freight, import taxes and duties.

During the period ended January 30, 2021, the Company recorded a $1,037 provision for inventories
with net realizable values below cost (period ended February 1, 2020 – $1,607).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

6. Fixed assets

Cost

Computer
hardware

Furniture
and fixtures

Equipment

Computer
software

Leasehold
improvements

Finance
leases

Balance, February 2, 2019
IFRS 16 transition adjustments

1,611
–

5,266
–

9,109
–

$ 13,916
–

52,433
–

$ 1,112
(1,112)

Balance, February 3, 2019

1,611

5,266

9,109

$ 13,916

52,433

Additions
Disposals/adjustments

101
(10)

601
(56)

1,873
–

4,094
–

15,651
(1,320)

Balance, February 1, 2020

1,702

5,811

$ 10,982

$ 18,010

66,764

Additions
Disposals/adjustments

211
–

25
(484)

354
–

1,031
–

1,802
(969)

Balance, January 30, 2021

1,913

5,352

$ 11,336

$ 19,041

67,597

Accumulated depreciation and

impairment losses

Balance, February 2, 2019
IFRS 16 transition adjustments

Balance, February 3, 2019

Depreciation
Disposals/adjustments
Fixed asset impairment

491
–

491

195
(10)
–

1,119
–

1,119

846
(56)
–

Balance, February 1, 2020

676

1,909

Depreciation
Disposals/adjustments
Fixed asset impairment
Deconsolidation of RTS USA Corp. (Note 19)

Balance, January 30, 2021

Carrying amount

February 1, 2020
January 30, 2021

154
–
53
35

918

740
(484)
4
147

287
–

287

673
–
–

960

1,466
–
–
–

3,880
–

13,189
–

3,880

13,189

1,841
–
–

7,257
(1,320)
19,183

5,721

38,309

2,375
–
–
–

4,954
(969)
829
379

2,316

2,426

8,096

43,502

1,026
995

3,902
3,036

$ 10,022
8,910

$ 12,289
10,945

28,455
24,095

Total

83,447
(1,112)

82,335

22,320
(1,386)

103,269

3,423
(1,453)

105,239

19,284
(318)

18,966

10,812
(1,386)
19,183

47,575

9,689
(1,453)
886
561

57,258

55,694
47,981

–

–
–

–

–
–

–

318
(318)

–

–
–
–

–

–
–
–
–

–

–
–

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

For the period ended January 30, 2021, the Company deconsolidated $561 of fixed assets related to
RTS USA Corp. (see Note 19). The Company also recorded $886 (period ended February 1, 2020 –
$19,183) of impairment losses on fixed assets and $1,162 (period ended February 1, 2020 – $3,215)
of impairment losses on right-of-use assets as disclosed in Note 9. Impairment losses were in respect
of 13 CGUs (period ended February 1, 2020 – 21 CGUs) using a VIU test in the Direct-to-Consumer
operating segment as part of selling, general and administrative expenses.

For the period ended January 30, 2021, the Company had no impairment reversals on fixed assets and
right-of-use assets (period ended February 1, 2020 – $nil).

The recoverable amount for a store location is based on the VIU of the related CGU. When determining
the VIU of a store location, the Company develops a discounted cash flow model for each CGU. The
duration of the cash flow projections for individual CGUs varies based on the remaining lease term.
Sales forecasts for cash flows are based on actual operating results, operating budgets, and long-term
growth rates. The estimate of the VIU of the relevant CGUs was determined using a pre-tax discount
rate of 12.5% at January 30, 2021 (February 1, 2020 – 12.5%).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Intangible assets and Goodwill

License
Trade
names arrangements

Customer
relationships

Favourable
lease
agreements

Total
intangible
assets

Total
goodwill

Cost

Balance, February 2, 2019
IFRS 16 transition adjustments

$ 175,044
–

25,910
–

7,766
–

6,310 $
(6,310)

215,030
(6,310)

$ 52,705
–

Balance, February 3, 2019

175,044

25,910

7,766

Balance, February 1, 2020

175,044

25,910

7,766

–

208,720

52,705

208,720

52,705

Balance, January 30, 2021

$ 175,044

25,910

7,766

– $

208,720

$ 52,705

Accumulated amortization
and impairment losses

Balance, February 2, 2019
IFRS 16 transition adjustments

Balance, February 3, 2019
Amortization
Impairment

Balance, February 1, 2020
Amortization

Balance, January 30, 2021

–
–

–
–
–

–
–

–

9,634
–

9,634
2,764
–

12,398
1,527

2,468
–

4,204 $
(4,204)

16,306
(4,204)

–
–

2,468
775
–

3,243
775

–
–
–

–
–

12,102
3,539
–

15,641
2,302

–
–
44,799

44,799
–

13,925

4,018

– $

17,943

$ 44,799

Carrying amount

February 1, 2020
January 30, 2021

$ 175,044
175,044

13,512
11,985

4,523
3,748

– $
–

193,079
190,777

7,906
7,906

Amortization expenses, impairment losses and reversals are recorded in selling, general and
administrative expenses in the consolidated statement of net income (loss) in the period in which they
occur. No impairment losses or reversals were recognized on definite life intangible assets for the
period ended January 30, 2021 (period ended February 1, 2020 – $nil).

Amortization expense on definite life intangible assets of $2,302 for the period ended January 30, 2021
(period ended February 1, 2020 – $3,539) has been recognized in the consolidated statement of net
income (loss).

The Company has determined that trade names, primarily consisting of the Roots brand, have an
indefinite life based on the brand’s long history and the continued investment to be made to support
the brand, which is the key value contributor to the ongoing success of the business. Trade names are
not amortized and are instead tested for impairment annually or when such changes in events or
circumstances indicate a trigger for impairment or a change in its future economic benefits that would
result in assessing the appropriateness of its useful life.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

The goodwill balance was previously recognized as a result of the Company’s acquisition of assets
from Roots Canada Ltd., former wholly-owned subsidiary Roots U.S.A., Inc. (“RTS USA Corp.”), Roots
America L.P., entities controlled by the Company’s founders Michael Budman and Don Green, and all
of the issued and outstanding shares of Roots International ULC, completed on December 1, 2015.

The Company performs an annual impairment assessment of indefinite life trade names and goodwill
by comparing the carrying value of each CGU group to the recoverable amount of the CGU group. The
recoverable amount is based on the higher of the FVLCS and VIU.

For the purpose of impairment testing, indefinite life trade names and goodwill are allocated to the
grouping of CGUs, which represent the lowest level within the Company at which these assets are
monitored for internal management purposes. Management has determined this grouping to be as
follows:

Indefinite life trade names

Goodwill

Direct-to-
Consumer

Partners
and Other

Total

Direct-to-

Partners
Consumer and Other

Total

Balance, February 2, 2019

161,040 $

14,004

175,044 $

44,799

$ 7,906 $

52,705

Impairment

–

(44,799)

–

(44,799)

Balance, February 1, 2020

161,040

14,004

175,044

Balance, January 30, 2021

161,040 $

14,004

175,044 $

–

7,906

$ 7,906 $

7,906

As at January 30, 2021, the recoverable amount of each CGU group was based on FVLCS and was
determined by discounting the future cash flows generated from the CGU group.

The Company included five years of cash flows in its discounted cash flow model. Cash flows for the
five years were based on past experiences, actual operating results and management’s budget
projections. The cash flow forecasts were extrapolated beyond the five-year period using an estimated
terminal growth rate.

Key assumptions used in the Company’s annual impairment assessment as at January 30, 2021
include:

 Recovery of sales to pre-pandemic levels by 2022/2023

 Annual sales growth rates of up to 2 – 5% beyond 2023 (February 1, 2020 – up to 4%)

 Terminal growth rate of 2.0% (February 1, 2020 – 2.0%)

 After-tax discount rate of 14.0% (February 1, 2020 – 14.0%)

 Pre-tax discount rate of 18.5% (February 1, 2020 – 18.5%)

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Segment sales growth rates are based on management’s best estimates considering past experiences,
actual operating results, budget projections and the general outlook for the industry and markets in
which the CGU operates. The projections are prepared separately for each of the Company’s CGU
groups to which the individual assets are allocated and are based on the Company’s most recent
projections. The after-tax discount rate is based on a risk-free rate, an equity risk premium adjusted for
betas of comparable publicly traded companies, an entity-specific risk premium, an after-tax cost of
debt based on corporate bond yields and the capital structure of the Company.

For the period ended January 30, 2021, the Company completed its annual impairment tests for
indefinite life trade names and goodwill and concluded that the recoverable amount exceeded the
carrying amount for the CGUs. For the period ended February 1, 2020, the Company recorded a
goodwill impairment loss of $44,799, pertaining to the Direct-to-Consumer CGU, as a result of its annual
impairment tests.

8. Financial instruments

The Company has determined that the carrying amount of its short-term financial assets and financial
liabilities approximates its fair value due to the short-term maturity of these financial instruments.

The fair value of long-term debt approximates its carrying value, as determined based on Level 2 of the
fair value hierarchy (see Note 2).

The fair value of derivative assets and derivative obligations resulting from forward contracts are
determined using a valuation technique that employs the use of market observable inputs and are
based on the differences between the contract rates and the market rates as at the period-end date,
taking into consideration discounting to reflect the time value of money. This has been determined using
Level 2 of the fair value hierarchy.

There were no transfers between levels of the fair value hierarchy for the periods ended January 30,
2021 and February 1, 2020.

The Company enters into forward contracts to hedge its exposure for a portion of purchases
denominated in U.S. dollars. As at January 30, 2021, the Company had outstanding forward contracts
to buy US$27,260 (February 1, 2020 – US$44,885) at an average forward rate of 1.29 (February 1,
2020 – 1.33). As at January 30, 2021, the maturity dates on the forward contracts were between
February 1, 2021 and January 4, 2022.

For the periods ended January 30, 2021 and February 1, 2020, the effective portion of changes in the
fair value of all matured forward contracts and outstanding forward contracts resulted in a gain of $362
(net of tax – $265) and a gain of $425 (net of tax – $312), respectively, which were recorded in other
comprehensive income (loss).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

As of January 30, 2021, US$1,648 of future U.S. dollar denominated purchases, hedged by outstanding
forward contracts with an accumulated loss of $105 (net of tax – $77) (February 1, 2020 – $nil (net of
tax – $nil)), were no longer expected to occur as result of the Company’s efforts to reduce forward
inventory purchases in response to COVID-19 (see also Note 1(f)). As a result, the Company is no
longer designating these forward contracts for hedge accounting and has reclassified the accumulated
unrealized loss associated with these forward contracts from other comprehensive income (loss) to
profit or loss. The US$1,648 of forward contracts have maturity dates between February 1, 2021 and
March 1, 2021, at an average forward rate of 1.33.

The Company had temporarily paused its hedging program from April 2020 to December 2020 due to
the uncertainties surrounding future inventory purchase commitments as a result of COVID-19.

9. Leases

The Company leases various store locations, its head office, a distribution warehouse, a manufacturing
facility and equipment under non-cancellable operating lease agreements. Retail stores typically have
a contractual period of 5 to 10 years with additional renewal terms available thereafter.

(a) Right-of-use assets

The following table reconciles the changes in right-of-use assets for the periods ended January
30, 2021 and February 1, 2020:

January 30,
2021

February 1,
2020

156,498
1,423
637
(1,065)
(30,396)

137,294
16,902
8,832
(6,530)
–

127,097

156,498

28,176
21,009
1,162
(3,245)

–
24,961
3,215
–

47,102

28,176

79,995 $

128,322

Cost

Balance, beginning of period
Additions
Adjustments
Tenant allowances
Deconsolidation of RTS USA Corp. (Note 19)

Balance, end of period

Accumulated amortization
and impairment losses

Balance, beginning of period
Depreciation
Impairment losses (Note 6)
Deconsolidation of RTS USA Corp. (Note 19)

Balance, end of period

Carrying amount

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

(b) Lease liabilities

The following table reconciles the changes in lease liabilities for the periods ended January 30,
2021 and February 1, 2020:

Balance, beginning of period
Additions
Adjustments
Tenant allowances
Interest expense on lease liabilities
Rent concessions
Repayment of interest and principal on lease liabilities, net of tenant allowance
Deconsolidation of RTS USA Corp. (Note 19)

Balance, end of period

January 30,
2021

February 1,
2020

151,159
1,424
327
(1,065)
6,724
(3,525)
(19,107)
(34,751)

149,920
16,902
8,312
(6,530)
9,048
–
(26,493)
–

101,186

151,159

Recorded in the consolidated statement of financial position as follows:

Current portion of lease liabilities
Long-term portion of lease liabilities

22,197
78,989

26,569
124,590

101,186

151,159

The Company also has a future undiscounted cash flows of $1,703 (period ended February 1,
2020 – $1,703) related to leases not yet commenced but committed to.

(d) Variable Lease Payments

The Company makes variable lease payments for property tax and insurance charges on leased
properties. The Company has certain retail store leases where portions of the lease payments
are contingent on a percentage of sales earned in the retail store. During the period ended
January 30, 2021, $7,957 was recognized in selling, general and administrative expenses related
to these variable lease arrangements (period ended February 1, 2020 – $10,758).

(e) Sublease

A finance lease receivable is recognized as a lease receivable on the Company’s consolidated
statement of financial position. During the period ended January 30, 2021, the Company
recognized sublease income of $513 (period ended February 1, 2020 – $501).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

(f) Rent Concessions

For the period ended January 30, 2021, the Company received $3,525 of base rent concessions,
which qualified for the practical expedient and was recorded as a reduction in selling, general
and administrative expenses. In addition, for the period ended January 30, 2021, the Company
received $3,729 of rent concessions that were either not eligible for the practical expedient or
were variable lease payments excluded from the scope of IFRS 16, Leases.

10. Long-term debt

The Company has a secured credit agreement (“Credit Agreement”) with a syndicate of lenders
consisting of a term loan (“Term Credit Facility”) and a revolving credit loan (“Revolving Credit Facility”)
(together with the Term Credit Facility, the “Credit Facilities”).

On March 27, 2020, the Company amended the Credit Facilities to adjust certain definitions and limits
of certain financial covenants to better reflect the initiatives and seasonality of the business. The
Company incurred $148 of costs associated with the amendment, which were recorded as debt
financing costs within long-term debt and will be recognized in interest expense over the remaining
term of the loan. The $75,000 Revolving Credit Facility limit less the aggregate swing line loan of
$10,000, and the September 6, 2022 maturity date for the Credit Facilities, remain unchanged. As of
January 30, 2021, $nil of the Revolving Credit Facility has been drawn (February 1, 2020 - $14,000).

On December 4, 2020, the Company issued a letter of credit (“LoC”) in the normal course of business
for an amount of $416, which decreases the availability under the Revolving Credit Facility. The LoC
matures on December 4, 2021.

The following table reconciles the changes in cash flows from financing activities for long-term debt for
the periods ended January 30, 2021 and February 1, 2020:

January 30,
2021

February 1,
2020

Long-term debt, beginning of period

89,512

85,015

Long-term debt repayments of Term Credit Facility
Long-term debt financing costs
Long-term debt proceeds from (repayments of) Revolving Credit Facility
Total cash flow from long-term debt financing activities

(4,984)
(148)
(14,000)
70,380

Amortization of long-term debt financing costs
Total non-cash long-term debt activity

704
704

(4,984)
(163)
9,000
88,868

644
644

Total long-term debt, end of period

71,084

89,512

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Recorded in the consolidated statement of financial position as follows:

Current portion of long-term debt
Long-term portion of long-term debt

4,984
66,100

4,984
84,528

$ 71,084

$ 89,512

As at January 30, 2021, principal repayments due on long-term debt were as follows:

Within 1 year
Within 1 - 2 years

Total(1)

Term Credit
Facility

4,984
67,248

$ 72,232

(1) Total long-term debt of $71,084 is net of $1,148 unamortized long-term debt financing costs.

Total interest expense for the period ended January 30, 2021 was $11,741 (period ended February 1,
2020 – $15,567) and was comprised of:

Interest paid on long-term debt
Interest paid on lease liabilities (Note 9)
Amortization of long-term debt financing costs
Other

Interest Expense

January 30,
2021

February 1,
2020

4,021
6,724
704
292

5,688
9,048
644
187

$ 11,741

$ 15,567

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

11. Share capital

The Company’s authorized share capital consists of an unlimited number of Shares and an unlimited
number of preferred shares, issuable in series. The holders of Shares are entitled to receive
distributions as declared from time to time by the Board. Shareholders are entitled to one vote per
Share at shareholder meetings of the Company.

Preferred shares of each series, if and when issued, will, with respect to the payment of dividends, be
entitled to preference over Shares. Except as provided in any special rights or restrictions attaching to
any series of preferred shares issued from time to time, the holders of preferred shares will not be
entitled to vote at any shareholder meetings of the Company.

There were no dividends or distributions declared during the periods ended January 30, 2021 and
February 1, 2020.

During the period ended January 30, 2021, 73,631 Shares (February 1, 2020 – 4,220 Shares) were
issued from treasury as a result of the exercise of 73,631 restricted share units (“RSUs”) (February 1,
2020 – 4,220 RSUs) granted under the Company’s Omnibus Equity Incentive Plan (the “Omnibus Plan”)
(See Note 13).

As at January 30, 2021, there were 42,198,082 Shares (February 1, 2020 – 42,124,451 Shares) and
nil preferred shares (February 1, 2020 – nil preferred shares) issued and outstanding. All issued Shares
are fully paid.

The following table provides a summary of changes to the Company’s share capital:

January 30, 2021

February 1, 2020

Number of
Shares

Share
capital

Number of
Shares

Share
capital

Outstanding Shares,
beginning of period

Issuance of Shares

Outstanding Shares,

end of period

42,124,451
73,631

$ 196,903
430

42,120,231
4,220

$ 196,853
50

42,198,082

$ 197,333

42,124,451

$ 196,903

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

12. Earnings (loss) per Share

The Company presents basic and diluted EPS data for its Shares. Basic EPS is calculated by dividing
net income (loss) by the weighted average number of Shares outstanding during the period. Diluted
EPS is determined by adjusting net income (loss) and the weighted average number of Shares
outstanding, for the effects of all dilutive potential Shares, which comprise share-based compensation
granted to employees.

Weighted average Shares outstanding
Stock options

January 30,
2021

February 1,
2020

42,170,369
234,871

42,122,962
–

Dilutive weighted average Shares outstanding

42,405,240

42,122,962

Net income (loss)

January 30,
2021

February 1,
2020

$ 13,080

$ (62,029)

Basic earnings (loss) per Share
Diluted earnings (loss) per Share

0.31
0.31

(1.47)
(1.47)

For the periods ended January 30, 2021 and February 1, 2020, 818,808 and 1,198,737 stock options,
respectively, were not included in the calculation of basic or diluted EPS as they were anti-dilutive
and/or not in the money.

For the periods ended January 30, 2021 and February 1, 2020, nil and 183,780 RSUs, respectively,
were not included in the calculation of basic or diluted EPS as they were anti-dilutive.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

13. Share-based compensation

Under the various share-based compensation plans, the Company may grant stock options or other
security-based instruments to buy up to 6,708,806 Shares. As at January 30, 2021, 2,025,308 stock
options and 93,563 RSUs were granted and outstanding.

The following is a summary of the Company’s stock option activity:

For the period
ended January 30, 2021

Legacy Equity
Incentive Plan

Legacy Employee
Option Plan

Omnibus
Plan

Weighted
average
exercise
price

Number of
options

Weighted
average
exercise
price

Number of
options

Weighted
average
exercise
price

Number of
options

Total

Weighted
average
exercise
price

Number of
options

Outstanding options,

beginning of period

Granted
Forfeited

Outstanding options,
end of period

Exercisable options,
end of period

220,931
–
(220,931)

$ 4.67
–
4.67

444,439
–
(69,611)

$ 6.26
–
6.26

533,367
1,206,500
(89,387)

$ 6.16
1.39
8.04

1,198,737
1,206,500
(379,929)

$ 5.92
1.39
5.75

–

374,828

$ 6.26

1,650,480

$ 2.57

2,025,308

$ 3.26

374,828

$ 6.26

169,934

$ 6.59

544,762

$ 6.36

For the period
ended February 1, 2020

Legacy Equity
Incentive Plan

Legacy Employee
Option Plan

Omnibus
Plan

Weighted
average
exercise
price

Number of
options

Weighted
average
exercise
price

Number of
options

Weighted
average
exercise
price

Number of
options

Total

Weighted
average
exercise
price

Number of
options

Outstanding options,

beginning of period

Granted
Forfeited

Outstanding options,
end of period

Exercisable options,
end of period

2,375,884
–
(2,154,953)

$ 4.78
–
4.79

465,858
–
(21,419)

$ 6.26
–
6.26

421,523
808,105
(696,261)

$ 12.01
4.30
7.53

3,263,265
808,105
(2,872,633)

$ 5.93
4.30
5.47

220,931

$ 4.67

444,439

$ 6.26

533,367

$ 6.16

1,198,737

$ 5.92

130,765

$ 4.67

296,300

$ 6.26

44,476

$ 11.87

471,541

$ 6.35

The fair value of stock options granted during the period ended January 30, 2021 was $695 (period
ended February 1, 2020 – $1,211).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

The fair value of the stock options issued in the year are estimated at the date of grant using the Black
Scholes model and using the following assumptions:

Expected volatility
Share price at grant date
Exercise price
Risk-free interest rate
Expected term
Fair value per option

January 30, 2021

February 1, 2020

41.0% – 45.4%
$1.13 – $1.41
$1.13 – $1.41
0.35% – 0.39%
5.5 years – 6.5 years
$0.44 – $0.59

33.0% – 34.1%
$3.28 – $4.51
$3.28 – $4.51
1.34% – 1.60%
5.5 years – 6.5 years
$1.10 – $1.63

The computation of expected volatility was based on the historical volatility of comparable companies
from a representative peer group selected based on industry. The risk-free interest rate is based on
Government of Canada bond yields with maturities that coincide with the exercise period and terms of
the grant. The expected life estimate was determined by management based on a number of factors
including vesting terms, exercise behaviour and the contractual term of the options.

The following is a summary of the Company’s RSU and deferred share unit (“DSU”) activity:

For the period
ended January 30, 2021

Units, beginning of period
Granted
Exercised
Forfeited

Units, end of period

For the period
ended February 1, 2020

Units, beginning of period
Granted
Exercised
Forfeited

Units, end of period

Legacy Equity
Incentive Plan
Number of
RSUs

15,985
–
–
–

15,985

Legacy Equity
Incentive Plan
Number of
RSUs

15,985
–
–
–

15,985

Omnibus
Plan
Number of
RSUs

167,795
–
(73,631)
(16,586)

77,578

Omnibus
Plan
Number of
RSUs

43,087
243,313
(4,220)
(114,385)

167,795

DSU
Plan
Number of
DSUs

176,153
243,517
–
–

419,670

DSU
Plan
Number of
DSUs

34,237
141,916
–
–

176,153

Total

Number of
RSUs

Number of
DSUs

183,780
–
(73,631)
(16,586)

176,153
243,517
–
–

93,563

419,670

Total

Number of
RSUs

Number of
DSUs

59,072
243,313
(4,220)
(114,385)

34,237
141,916
–
–

183,780

176,153

The fair value of RSUs granted during the period ended January 30, 2021 was $nil (period ended
February 1, 2020 – $1,068). There were 15,985 RSUs vested as at January 30, 2021 (February 1, 2020
– 15,985). The fair value of DSUs granted during the period ended January 30, 2021 was $292 (period
ended February 1, 2020 – $469).

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

The fair values of RSUs and DSUs granted are calculated based on the closing price of a Share on the
TSX on the last trading date immediately prior to the date of grant.

The Company’s DSUs are cash-settled instruments, such that when exercised, participants will receive
a payment in cash equal to the fair market value of the Shares represented by the DSUs on the exercise
date. The Company records the fair market value of potential cash-settlement obligations from existing
DSUs in accounts payable and accrued liabilities. All changes to the fair value of the liability are
recorded in the consolidated statement of net income (loss). For the period ended January 30, 2021,
the fair market value of future DSU cash-settlement obligations was $932 (period ended February 1,
2020 – $329). During the periods ended January 30, 2021 and February 1, 2020, the Company
recorded a loss of $602 and $205, respectively, from the changes to fair market value of DSU cash-
settlement obligations.

The grant date fair value of share-based compensation awards granted to employees is recognized as
share-based compensation expense, recorded in selling, general and administrative expenses with a
corresponding increase to contributed surplus, over the period that the employees unconditionally
become entitled to the awards. The following is a summary of the Company’s share-based
compensation expense:

Legacy Equity Incentive Plan
Legacy Employee Option Plan
Omnibus Plan

January 30,
2021

February 1,
2020

2
52
651

(1,136)
259
359

Total share-based compensation expense (recovery)

705

(518)

The share-based compensation recovery recorded for the period ended February 1, 2020 was driven
by cancellation of unvested stock options and RSUs, primarily as a result of the departure of certain
key management personnel, including the Company’s former Chief Executive Officer, Chief Financial
Officer, and Chief Merchant.

14. Financial risk management

The Company has exposure to the following risks from its use of financial instruments:

(a) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations
associated with its financial liabilities. The Company prepares cash flow forecasts to ensure it
has sufficient funds through operations and access to debt facilities to meet its financial
obligations. The Company maintains the Credit Facilities, as described in Note 10, allowing it

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

to access funds for operations. Continued compliance with the covenants under the Credit
Facilities is dependent on the Company achieving financial forecasts. Market conditions are
difficult to predict and there is no assurance that the Company will achieve its forecasts. In the
event of non-compliance, the Company’s lenders have the right to demand repayment of the
amounts outstanding under the current lending agreements or pursue other remedies including
provision of waivers for financial covenants. The Company will continue to carefully monitor its
compliance with its covenants and seek waivers if such a need arises.

The contractual maturities of the Company’s current and long-term financial liabilities as at
January 30, 2021, excluding interest payments, are as follows:

Carrying
amount

Contractual
cash flows

Under
1 year

1 - 3
years

3 - 5
years

More than
5 years

Remaining to maturity

Non-derivative financial

liabilities

Accounts payable and
accrued liabilities

Long-term debt
Lease liabilities

(b) Currency risk

25,850
71,084
101,186

25,850
72,231
120,120

$ 25,850
4,984
23,354

–
67,247
42,929

–

29,378

–
–
24,459

$ 198,120

$ 218,201

$ 54,188

$ 110,176

$ 29,378

$ 24,459

The Company is exposed to foreign exchange risk on foreign currency denominated financial
assets and liabilities. A five-percentage point change in the Canadian dollar against the U.S.
dollar, assuming that all other variables are constant, would have changed pre-tax net income
for the period ended January 30, 2021 by $541 (period ended February 1, 2020 – $256), as a
result of the revaluation on these financial assets and liabilities.

The Company purchases a significant amount of its merchandise in U.S. dollars and enters
into forward contracts to reduce the foreign exchange risk with respect to these U.S. dollar
denominated purchases. The Company has performed a sensitivity analysis on its forward
contracts (designated as cash flow hedges), to determine how a change in the U.S. dollar
exchange rate would impact other comprehensive income (loss). A five-percentage point
change in the Canadian dollar against the U.S. dollar, assuming that all other variables remain
constant, would have changed other comprehensive income (loss) for the period ended
January 30, 2021 by $1,261 (period ended February 1, 2020 – $2,949), as a result of the
revaluation on the Company’s forward contracts.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Market fluctuations in interest rates impact the Company’s earnings with respect to cash
borrowings under the Credit Facilities. A one-percentage point change in the applicable interest
rate would have changed pre-tax net income for the period ended January 30, 2021 by $1,033
(period ended February 1, 2020 – $1,152).

(d) Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. The Company’s financial instruments that
are exposed to concentrations of credit risk are primarily cash, loan receivable, lease
receivable, and accounts receivable. The Company limits its exposure to credit risk with respect
to cash by dealing primarily with large Canadian and U.S. financial institutions. The Company’s
accounts receivable consists primarily of receivables from business partners in the Partners
and Other operating segment, which are settled in the following fiscal quarter.

As at January 30, 2021, the Company’s maximum exposure to credit risk for these financial
instruments was as follows:

Loan receivable
Lease receivable

Accounts receivable, excluding allowance for doubtful accounts (Note 4)

608
1,187
7,173

8,968

(e) Capital management

The Company manages its capital and capital structure with the objective of ensuring that
sufficient liquidity is available to support its financial obligations and to execute its strategic
plans. The Company considers income (loss) before interest expense, income taxes expense
(recovery) and depreciation and amortization (“EBITDA”) as a measure of its ability to service
its debt and meet other financial obligations as they become due.

The Company has financial and non-financial covenants under the Credit Facilities which allow
for certain adjustments to EBITDA (“Adjusted EBITDA”) for purposes of compliance with those
covenants. The key financial covenant includes a consolidated debt to Adjusted EBITDA ratio,
a total debt to Adjusted EBITDA ratio, and a fixed charge coverage ratio. As at January 30,
2021, the Company was in compliance with its covenants under the Credit Facilities.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

15. Income taxes expense (recovery)

The Company’s income taxes expense (recovery) comprises the following:

January 30,
2021

February 1,
2020

Current income taxes expense (recovery)

2,892

(2,237)

Deferred income taxes expense (recovery):

Origination and reversal of temporary differences

1,993

(8,219)

Total income taxes expense (recovery)

4,885

$ (10,456)

The effective income tax rate in the consolidated statement of net income (loss) and consolidated
statement of comprehensive income (loss) was reported at rates different than the combined basic
Canadian federal and provincial average statutory income tax rates, as follows:

January 30,
2021

February 1,
2020

Combined basic federal and provincial average

statutory tax rate

26.5%

26.7%

Non-deductible expenses
Deconsolidation of RTS USA Corp.
Change in unrecognized deferred tax assets
Other

Effective tax rate

2.9%
(17.6)%
16.6%
(1.2)%

27.2%

(4.0)%
–
(8.3)%
–

14.4%

The non-deductible expenses for income tax purposes primarily relate to meals and entertainment,
share-based compensation expense and non-deductible legal fees.

The deconsolidation of RTS USA Corp. led to the write-down of certain inter-company amounts for
which the related deferred tax assets have not been recognized.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

Deferred tax assets have not been recognized in respect of the following items:

Deductible temporary differences
Tax losses

January 30,
2021

February 1,
2020

–
18,201

$ 15,594
6,838

$ 18,201

$ 22,432

For the period ended January 30, 2021, deferred tax assets have not been recognized in respect
of capital losses as it is not probable that sufficient capital gains would be available in the future to
utilize this attribute. Capital losses can be carried forward indefinitely.

For the period ended February 1, 2020, deferred tax assets have not been recognized in respect
of these items, pertaining to RTS USA Corp., as it is not probable that sufficient taxable profit will
be available in the future to utilize the benefits. The tax losses begin to expire in 2030.

The following tables outline the movements in deferred tax liabilities balance associated with:

Deferred financing costs
Fixed assets
Right-of-use assets and lease liabilities
Intangible assets and goodwill
Derivative obligations

As at
February 1,
2020

Other
Expense Comprehensive
Income

(Recovery)

As at
January 30,
2021

101
296
(2,503)
16,091
(43)

56
(982)
1,139
1,807
(27)

–
–
–
–
(44)

157
(686)
(1,364)
17,898
(114)

$ 13,942

1,993

(44)

15,891

As at
February 2,
2019

IFRS 16
Transition
Adjustments

Other
Expense Comprehensive
Income

(Recovery)

As at
February 1,
2020

Deferred financing costs
Deferred lease costs
Fixed assets
Right-of-use assets and lease liabilities
Intangible assets and goodwill
Derivative obligations

37
(629)
(85)
–
23,341
97

–
629
–
(1,089)
–
–

64
–
381
(1,414)
(7,250)
–

–
–
–
–
–
(140)

101
–
296
(2,503)
16,091
(43)

22,761

(460)

$ (8,219)

(140)

13,942

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

16. Contingencies

In the course of its business, the Company, from time to time, becomes involved in various claims and
legal proceedings. In the opinion of management, certain claims and suits are adequately covered by
insurance. All claims and suits are provided for in accrued liabilities based on management’s best
estimate of economic outflows required to settle the claims and suits, or are not expected to materially
affect the Company’s financial position.

In addition, the Company is subject to tax audits from various tax authorities on an ongoing basis. As
a result, from time to time, tax authorities may disagree with the positions and conclusions taken by the
Company in its tax filings or legislation could be amended or interpretations of current legislation could
change, any of which events could lead to reassessments. The Company is not aware of any potential
liabilities from any reassessments, nor any other liabilities that may arise from the tax positions taken.

17. Personnel expenses

Wages and salaries
Benefits and other incentives

18. Related party transactions

January 30,
2021

February 1,
2020

$ 38,782
6,367

$ 56,115
9,129

$ 45,149

$ 65,244

The Company’s related parties include key management personnel and key shareholders of the
Company, including other entities under common control. Investment funds managed by Searchlight
Capital Partners, L.P. (“Searchlight”) beneficially own approximately 48.6% of the total issued and
outstanding Shares and shareholders of a company formerly known as Roots Canada Ltd., through
their wholly-owned entities (the “Founders”), beneficially own approximately 12.4% of the total issued
and outstanding Shares. All transactions described below are in the normal course of business and
have been accounted for at their exchange value.

(a) Transactions with shareholders

The Company leases the building for its leather factory and, until August 2019, leased the
building for its former distribution centre, from companies that are under common control of the
Founders. For the periods ended January 30, 2021 and February 1, 2020, the rent paid as it
relates to the lease of these properties was $248 and $616, respectively.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

(b) Transactions with key management personnel

Key management of the Company includes members of the Board, as well as members of the
Company’s executive team. Key management personnel remuneration includes the following:

January 30,
2021

February 1,
2020

Salaries, benefits and incentives, and consulting fees
Management share-based compensation
Director fees

2,660
446
322

3,875
(1,003)
548

3,428

3,420

On August 6, 2019, Meghan Roach, a managing director of Searchlight, was appointed as
Interim Chief Financial Officer on a temporary secondment basis. Subsequent to the
appointment of a new Chief Financial Officer, on January 6, 2020, Ms. Roach was appointed
to the role of Interim Chief Executive Officer on a temporary secondment basis. Ms. Roach
provided her services at no cost to the Company during this time. On May 26, 2020, the
Company announced the appointment of Ms. Roach as the Company’s President and Chief
Executive Officer, no longer on an interim basis. Ms. Roach continued in this role at minimal
cost to the Company through December 31, 2020.

In February 2016, a former member of the Company’s executive team purchased 214,193
Shares from Searchlight at a price of $4.67 per Share. The purchase was paid for using $500
in cash and a $500 loan from the Company. The $500 loan from the Company is to be repaid
at the earlier of six years from the loan date and upon a liquidity sale of the Company. Interest
accrues at a rate of 4.0% per annum and is payable at the start of each calendar year following
the date of the loan. Unpaid interest may be deemed paid by increasing the principal amount
outstanding. As at January 30, 2021, the outstanding balance on the loan was $608 (February
1, 2020 – $585). The officer resigned from the Company effective August 9, 2019.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

19. Deconsolidation of RTS USA Corp.

On April 29, 2020, the Company’s wholly-owned subsidiary formerly known as Roots USA Corporation
(“RTS USA Corp.”) filed for protection under Chapter 7 of Title 11 of the United States Code in the
United States Bankruptcy Court for the District of Delaware (“Chapter 7 filing”). The filing resulted in the
permanent closure of the Company’s stores in Boston, Washington and Chicago, as well as its pop-up
location in Woodbury Commons, New York. Roots will maintain a presence in the U.S. market by
continuing to operate two longstanding corporate retail stores in Michigan and Utah, as well as its global
eCommerce platform.

Under a Chapter 7 filing, control of RTS USA Corp. no longer rests with the Company, but rather with
the court-appointed trustee in charge of administering the case. Accordingly, effective April 29, 2020,
the Company no longer consolidates this wholly-owned subsidiary and has deconsolidated the assets
and liabilities with respect to this subsidiary resulting in the difference being recorded as a net gain of
$4,774 in the consolidated statement of net income (loss). Assets and liabilities related to the
deconsolidation of RTS USA Corp. were as follows:

Cash
Inventories
Fixed assets
Right-of-use assets
Accounts payable
Lease liabilities

Gain from the deconsolidation of RTS USA Corp.

(541)
(2,291)
(561)
(27,151)
567
34,751

4,774

During the period ended January 30, 2021, the Company incurred $1,283 of costs associated with the
Chapter 7 filing, recorded in selling, general and administrative expenses. The costs were primarily
related to professional service fees and other costs incurred in relation to the Chapter 7 filing.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

20. Government grants

In response to the negative economic impact of COVID-19, the Government of Canada announced the
Canadian Emergency Wage Subsidy (“CEWS”) program in April 2020. CEWS provides a wage subsidy
on eligible remuneration, subject to limits per employee, to eligible employers based on certain criteria,
including demonstration of revenue declines as a result of COVID-19. This subsidy is retroactive to
March 15, 2020 and is currently scheduled to end in June 2021. The qualification and application of the
CEWS is being assessed over multiple four-week application periods and is based on a rate determined
by year-over-year revenue declines.

The Company has determined that it has qualified for this subsidy from the March 15, 2020 effective
date through January 30, 2021 and has, accordingly, applied for, and for certain periods received, the
CEWS. The Company also intends to apply for the CEWS in subsequent application periods, subject
to continuing to meet the applicable qualification criteria.

For the period ended January 30, 2021, the Company has recognized $12,822 of CEWS and has
recorded it as a reduction to the eligible remuneration expense incurred by the Company during this
period. As of January 30, 2021, the Company has received $12,068 of CEWS and expects to receive
the remaining recognized subsidy in the following fiscal quarter.

In October 2020, The Government of Canada announced the Canadian Emergency Rent Subsidy
(“CERS”) program in order to provide rent relief measures for businesses that have experienced
revenue declines as a result of COVID-19. The CERS provides a rent subsidy for eligible property
expenses, such as rent on qualifying properties, based on certain criteria and is proportional to revenue
declines as a result of COVID-19. Additionally, businesses who are subject to a lockdown under public
health orders, and are part of the CERS program, may qualify for Lockdown Support, a top-up CERS
subsidy. Applications for the subsidy can only be submitted after rent payments are made. This subsidy
is retroactive from September 27, 2020 and is currently scheduled to end in June 2021. The qualification
and application of CERS is being assessed over multiple four-week application periods.

The Company has determined that it has qualified for this subsidy from the September 27, 2020
effective date through January 30, 2021 and has, accordingly, applied for the CERS. The Company
also intends to apply for the CERS in subsequent application periods, subject to continuing to meet the
applicable qualification criteria.

For the period ended January 30, 2021, the Company has recognized $696 of CERS and has recorded
it as a reduction to the eligible property expense incurred by the Company during this period. As of
January 30, 2021, the Company has received $262 of CERS and expects to receive the remaining
recognized subsidy in the following fiscal quarter.

ROOTS CORPORATION
Notes to Consolidated Financial Statements
For the 52-week periods ended January 30, 2021 and February 1, 2020

(In thousands of Canadian dollars, except share and per share amounts)

The following table provides the impacts of the recognized CEWS of $12,822 and CERS of $696 within
the Company’s consolidated financial statements for the period ended January 30, 2021:

Selling, general and administrative expenses
Cost of goods sold
Capitalized in inventories

CEWS

CERS

9,639
1,607
1,576

696
–
–

$ 12,822

696

21. Subsequent events

In the fourth quarter of 2020, in response to a second wave of government mandated lockdowns, the
Company temporarily closed corporate retail stores within certain regions of Canada. As of March 11,
2021, the Company had reopened all but two corporate retail stores in these regions.

This month, in accordance with further changes to provincial guidelines, the Company has shifted its
store operations to curbside pick-up and eCommerce fulfillment only for certain regions in Québec,
effective April 2, 2021, and for the province of Ontario, effective April 8, 2021. This represents two
corporate retail stores in Québec, as well as 62 Roots corporate retail stores and five pop-up locations
in Ontario. The changes in operation for these locations will be in place for at least 10 days in Québec
and four weeks in Ontario.

Corporate Information

Corporate Head Office

1400 Castlefield Avenue

Toronto, ON M6B 4C4

Canada

roots.com

Share Information
Shares in Roots Corporation are traded on
the Toronto Stock Exchange (TSX) under the
trading symbol “ROOT”

Auditor

KPMG

Toronto, ON

Transfer Agent

Computershare

Toronto, ON

Legal Counsel

Kaleb Honsberger

Roots

legal@roots.com

Investor Relations Contact

Kristen Davies

Roots

investors@roots.com

1-844-762-2343

Board of Directors

Erol Uzumeri – Chairman

Phil Bacal

Mary Ann Curran

Gregory David

Dale H. Lastman, C.M., O.Ont.

Richard P. Mavrinac

Dexter Peart

Meghan Roach

Joel Teitelbaum

Executive Officers

Meghan Roach
Chief Executive Officer

Mona Kennedy
Chief Financial Officer

James Connell
Chief eCommerce and Customer Experience Officer

Karuna Scheinfeld
Chief Product Officer

Non-Executive Senior Management

Kaleb Honsberger
Senior Vice President, General Counsel and
Corporate Secretary

Ron Ijack
Vice President, Information Strategy and Systems

Melanie Isaac-Taitt
Vice President, Marketing

Karl Kowalewski
Vice President, Leather Factory

Michelle Lettner
Senior Vice President, Human Resources

Melinda McDonald
Vice President, Wholesale and
Business Development

investors.roots.com

P R I N T E D I N C A N A D A O N R E C Y C L E D M A T E R I A L