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Good morning. My name is Jack, and I will be your conference operator today. At this time, I would like to welcome everyone to the Roots Fiscal 2019 Third Quarter Conference Call. [Operator Instructions] On the call today, we have Jim Gabel, President and Chief Executive Officer; Meghan Roach, Interim Chief Financial Officer; and Kristen Davies, Head of Investor Relations for Roots. Before the call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements about current and future plans, expectations and intentions, results, levels of activities, performance, goals or achievements or any other future events or developments. The information is based on management's reasonable assumption and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its fiscal 2019 third quarter management's discussion and analysis and/or its annual information form dated April 2, 2019 for a summary of the significant assumptions underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on these statements. Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The fiscal 2019 third quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as on Roots' Investor Relations website at www.investors.roots.com. Finally, please also note that all figures discussed on this conference call are in Canadian dollars, unless otherwise stated. Thank you. Ms. Davies, you may begin your conference
Thank you, operator. Good morning, everyone, and thank you for joining us. Jim Gabel, our Chief Executive Officer, will begin today's call by discussing our fiscal 2019 third quarter highlights. Then he will turn the call over to Meghan Roach, our interim Chief Financial Officer, who will review our financial results for the quarter in detail. After that Jim will review our outlook and then open the call to questions. I will now turn the call over to Jim.
Thank you, Kristen, and good morning, everyone. While DTC sales for the quarter increased 4.6% over last year to $73.9 million, and we recorded comparable sales growth of 3% for the quarter, our overall results fell below our expectations. We have improved some operations at our new distribution center and completed the shift to fulfilling 100% of our e-commerce orders in-house in the quarter. However, we continue to face inefficiencies at the DC, including delays in the flow of product to our stores that are negatively affecting sales and driving increased costs. In addition, our new U.S. stores are performing well below expectations. We are seeing an overall sales lift in the target regions, but the stores are not scaling at the rate we had expected. In terms of product performance in the quarter, the categories that fell short of last year were accessories and leather. Leather customization continues to gain momentum. Orders were more than double year-over-year, driven predominantly by women's custom handbags. Outside of customization, we also continue to see success with our new men's selection of briefcases and laptop bags. The softness we saw was predominantly in wallets, both men's and women's, as we continue to work to introduce newness into our collection that better aligns with current trends. The importance of our leather business goes beyond sales, though. It is a long-standing driver of the brand. In the quarter, we collaborated on a limited-edition Roots Elton Jacket to celebrate a long friend of the brand, Elton John's farewell tour. We also continued to deepen our relationship with MLSE as a partner of choice for premium gifting, including the players, and we sold more Raptors Championship jackets. We saw growth in multiple other product categories, led by footwear, which was up 50% over last year. We expanded our models that we tested last year and reintroduced certain classic Roots styles into the fall line. Most notably, we relaunched our Tuff Boot, collaborating with NBA Champion and Toronto Raptor, Fred VanVleet, on a limited-edition version in the launch campaign TUFFSTEPS. We hosted Fred at our Eaton Centre store for a media and influencer filled event where he talked about the collaboration, his experiences with Roots when he moved to Toronto and the tough steps he took to get him to where he is today. It was a great way to bring Tuff back into the market. We also saw growth in our men's and women's categories, which were both up again year-over-year. We performed well during the back-to-school period, testing new transitional sweats as part of the product line. We also saw strength in our world-famous sweats as we celebrated the 40th anniversary of our iconic Salt & Pepper. Not only did we honor classic silhouettes, but we also combined emerging trends with our Salt & Pepper fabric for a distinctive style meets comfort limited-edition capsule collection. While the business is currently experiencing near-term operational challenges, we continue to believe the brand is resonating well and remain focused on building closer connections with our consumers. As such, we are continuing to enhance the level of personalization of our consumer interactions, be it in-store or online. In the quarter, we implemented our new CRM platform, which provides for greater consumer insight, leading to heightened consumer engagement and personalized storytelling. We also embarked on a deeper consumer analysis project to more precisely define our North American customer base across our 3 key consumer categories. As part of this initiative, we launched a survey with their existing database. In less than 72 hours, we had more than 20,000 responses. That level of incredible engagement reflects our commitment to fostering genuine connections with our brand community. On the international front, we saw a sales decline as expected. Partners and Other sales were down $3.8 million over last year. This was primarily due to the performance of our Asia business with the driving forces being, as we discussed last quarter, delivering certain orders in Q2 at the request of our partner rather than Q3 as initially planned and the impact of macroeconomic headwinds in the 3 Asian markets where we operate. In terms of store count at quarter end, our partner had 114 stores in Taiwan, choosing not to renew a lease for 1 of its locations. In China, the store count reflected 1 net new opening for a total of 35 locations. And in Hong Kong, remains consistent with last quarter at 1 store. While we expect ongoing near-term challenges within our Asia business as headwinds persist, we remain confident in the long-term growth prospects for Roots in the region. Before I turn the call to Meghan, I want to take a brief moment to discuss the management changes we have recently announced. First off, as we announced earlier this week, we are excited to be welcoming Mona Kennedy to the team as our new Chief Financial Officer. Mona is an accomplished retail industry finance executive and brings with her extensive experience in financial planning and analysis, capital markets, IT implementation as well as corporate strategy, development and execution. And just as important, she's a long-standing fan of the brand. Mona will assume the role from Meghan, who has been serving as interim Chief Financial Officer since August 9 of this year. Mona will join us on January 6. However, to facilitate a smooth transition, her official appointment as CFO will be by the end of Q1 fiscal 2020 with Meghan remaining in the interim role until then. Today, we also announced the resignation of our Chief Merchant, Nancy Lepler, effective immediately. Nancy is leaving for personal reasons, and we wish her all the best. We will immediately commence a search for her replacement. With these changes, we continue to demonstrate the strength of our teams we have in place and our ability to execute on the business and effectively manage through change. On that note, I'll pass the line to Meghan to discuss our financial results for the quarter in greater detail.
Thank you, Jim, and good morning, everyone. Before diving into our financial results in detail, I wanted to take a moment to provide an update on our distribution center. As discussed during our Q2 call, our main operational focus in the third quarter was completing the transition of the distribution center. And by the end of October, we were fulfilling all e-commerce orders in-house alongside our retail operations. I want to thank the cross-functional team that has worked on this project for over a year for all their hard work. With this major milestone now complete, we will be shifting our attention to improving the overall operational efficiency at the DC. As a reminder to those on the call, the move to the new DC was necessary to support the long-term growth of the business, as our legacy retail-only distribution center was no longer fit for purpose. However, we also anticipated that it would come with attractive financial benefits and improved customer service, which will be derived from things like moving to a single inventory for e-commerce and retail, reducing the number of shipments for order and reducing in-store fulfillment. Within the quarter, we also completed an in-depth review of the major process at the DC, which allowed us to develop a targeted improvement plan that we've been working through methodically. At this point, we believe we've identified most of the areas where we can realize greater efficiencies. In many areas, we have already made the necessary changes. However, certain modifications will be delayed until slower financial quarters. So it's fair to expect some ongoing volatility through the end of the fiscal year. Moving on to our financial results for the quarter. As Jim already discussed our top line results, I will start gross margin. For the quarter, our adjusted DTC gross margin was 59.3%, down from 62% in Q3 2018. Of the 267 basis points year-over-year decline, approximately 60% related to the costs associated with the distribution center and 40% related to the negative impact of foreign exchange. It is important to remember that the higher DC costs in gross margin related partially to the shift in certain e-commerce fulfillment costs from SG&A. It is also worth noting that product margins were flat in the quarter as a result of fewer clearance sales. Selling, general and administrative expenses for Q3 2019 were $40.7 million, down 4.2% from $42.5 million in Q3 2018. However, when excluding the impact of IFRS 16, SG&A was essentially flat year-over-year. Notable expense increases in the quarter included: rent and facilities costs to support a larger physical footprint, cost is resulting from higher omnichannel sales and onetime distribution center transition costs, including the continued use of third-party distribution facilities such as our third-party e-commerce fulfillment partner for approximately 2 months of the quarter. These increases were offset by lower head office salaries partially related to the temporary vacancies in certain senior leadership roles and a reduction to our wages. The team has been doing a good job of managing store hours with simultaneously improving the customer experience. As many of you know, we regularly run customer experience surveys at the store level, and we continue to see our scores improve. In terms of earnings, Q3 2019 adjusted EBITDA was $10.6 million, up 3.5% compared to $10.2 million in Q3 2018. And adjusted net income was $4.1 million or $0.10 per share compared to 40 -- $4.7 million or $0.11 per share in Q3 2018. With our ongoing focus on inventory management, we also continue to make meaningful progress in aligning inventory with the needs of our business. At the end of the quarter, our inventory balance is $70.4 million, up 4% compared to $67.4 million as of Q3 2018. In addition, our investments in the DC slowed, and as a result, our overall capital requirements for the business decreased. And therefore, we recorded $5.1 million of free cash flow in the quarter compared to $11.4 million negative in Q3 2018. As a reminder, with the seasonality of our business, we incur our highest inventory investments in the second and third quarter as we build inventory to support peak period sales, which results in debt levels being elevated in the third quarter. Given that context, we continue to be comfortable with our overall debt levels and remain in line with our covenants. The total amount outstanding on our credit facility, net of cash and deferred financing costs, at the quarter end, was $132.9 million compared to $133.2 million as of Q3 2018. On that note, I will pass the call to Jim.
Thank you, Meghan. When looking to the remainder of the year through Black Friday and Cyber Monday, we are generating comparable sales growth in the fourth quarter. However, given the compressed holiday selling season this year and the current operational headwinds we are facing, we now expect our fiscal 2019 sales to fall below our previously disclosed target range. Naturally, this will further impact our expectations for fiscal 2019 adjusted EBITDA and adjusted net income, which, as we discussed last quarter, are expected to fall below our previously disclosed target range. The fourth quarter continues to be an important time for our business. The team has worked hard to well position the brand for the holiday season, bringing thematic cohesiveness to product marketing, store design in our digital holiday gift guide, which together celebrate our heritage, introduce newness and connect with our consumers. We launched our digitally led 2019 holiday campaign Nice Together, and it is resonating extremely well with our customers. The campaign features a cast of everyday people of all ages, backgrounds and life experiences and showcases the moments that bring people together. We have also enhanced our in-store storytelling. Our holiday collection centers around our iconic Roots concepts, they are particularly popular during the holiday season, including Park Plaid, our Cabin Collection, Salt & Pepper and outerwear with expanded product collections for these concepts. Across many of our locations, you will see dedicated concept shops, including a Roots Cabin and Plaid Takeover. While we continue to face certain challenges that are placing pressure on our current performance, we continue to believe that we are taking the right steps to best position the roots brand and business for the long term. Operator, that concludes our prepared remarks. Please open the line to questions.
[Operator Instructions] Patricia Baker with Scotiabank.
Jim and Meghan, can we just talk about your change -- effective change to guidance that you've given that you're not going to be able to meet the low end of guidance on sales and that will top -- as you just said, Jim, that EBITDA and net income will fall below? Is there a reason why you're not giving us sort of an actual new guidance on numbers? And can you just kind of directionally give us an indication of just how far first short, you think you're going to fall off the previous guidance?
Sure, Patricia. So first of all, coming out of Q3 with 3% comp sales growth, while we are encouraged by that, and as I said, that did fall short of our expectations. And the third quarter is 30% of our business. So when we talked the last time and shared our guidance, it was with a perspective for not just Q3, but also Q4. It's important to note, and that's why we shared with you that coming out of Black Friday, Cyber Monday of this week that we are generating, again, positive comp sales. But we -- as we look at the shortened selling period between now and Christmas as well as our ability to get the right product in the right place at the right time, we feel that we're going to fall short of our expectations. So that's the level of guidance that we are willing to give at this time on the business.
Okay. Does that -- I don't want to belabor this point, but I just want to understand, is that in any way related to the fact that you have, say, limited visibility on where you think Q4's going to fall?
Well, I think that, as I said, with the shortened time period between now and the holiday period, between Christmas, we're uncertain how the consumer is going to respond to that shortened period. And therefore, we think it's prudent for us to give the direction that we will be below earlier guidance on the sales level. But again, we are tracking positive on comp sales. But we need to get the right product in the right place at the right time, and that's a key part of our customer experience over the next 4 weeks.
Okay. Fair enough. And just one other question. Let's go back to the continued operational inefficiencies. And you did say you had some -- realized some improvements with the DC, but you're still having a delayed close of products. I think on the second quarter call, you provided an indication of where you expect it to be as you exited the year and where you expect it to be with respect to the DC currently. Are you there? Or are you behind where you thought you'd be?
I think that's a good question, Patricia. So when we looked at the DC in the second quarter call, we wanted to give you kind of a broad indication of where we were. But subsequently, what we've been able to do and have been obviously doing some the implements of DC as we're going through each of the processes in each of the sections of the DC pretty methodically and looking through those processes to understand varying levels of efficiency. And so while I don't want to give you an overall percentage basis that says we're at x percent, what I can tell you is that we're happy with the work that we've done. And to give you an example, if you look at our e-commerce shipments this year, we're shipping at the same level, and in some cases, above what our third-party e-commerce fulfillment center was doing last year. So we really have been able to scale quite substantially there. But also, we have to make decisions and choices. And so as we look at a business that's now doing both retail and e-commerce, in some cases, we've had to make decisions that results maybe in us getting more e-commercers out at the expense of getting potentially more goods into the stores. And so that's kind of what Jim was alluding to in his commentary.
Okay. And then my last question, let's talk about the U.S. business. And you said that, you're performing below expectations there. When you look at this, analyze this and think about that U.S. business, do you have a sense of what you think the factors are? Why do you think you're performing lower than you had anticipated? And sort of, as you just said you've got to make decisions, so what are -- what's your current thinking on the U.S. strategy?
Sure. So if I look at the U.S. business, we have 3 parts of the business. We have an e-commerce business, we have 2 legacy stores, and then we have the new stores that we have opened up in 3 different markets. Our e-commerce business, we are encouraged by. And in the markets where we have physical stores that e-commerce business has accelerated from the rest of the market. If I look at our legacy stores, they remain very profitable for us. And as I look at the new stores that we've opened up, we've now been in some of the markets for a year. And as we look at how those stores are performing, they are below our expectations. It is taking us time to build community around those stores, much like we've enjoyed in Canada or in Taiwan, where when we talk about Salt & Pepper or Cabin or Roots' heritage leather, customers understand what that means, and they appreciate the value, and in some cases, mark their calendars when the new releases of products come out. We have not built that community level yet in the marketplace, and we need to spend time and effort to do that. It also -- when we talk -- as Meghan said about product flow and getting the right product in right place, that certainly does affect our U.S. business as well, and our ability to get the stores fully replenished in key concepts that are exciting the consumer.
Brian Morrison with TD Securities.
Jim, just -- I want to know how comfortable you are with visibility to the path to the DC meeting efficiency targets or getting to you where you -- your expectations where you thought it should be.
Brian, I'll take that one. So I think we have some pretty good visibility. I mean we have spent quite a lot of time going through in depth all the various processes. And so we have a very methodical plan laid out in terms of targeting the levels of efficiencies that we want to get. What we've been doing is focusing on those efficiencies we want to implement before the peak trading period, and certain ones have been shifted out to slower times of the year. So I think we have a lot of visibility in what we need to do, and we're methodically working through that. But that's to say that at this point in time, we still have work to do.
So do you think when you started the project that you will be where you want to be by the end of Q4 or as you start the new year?
Yes. I think that we are progressing along the time line that we've laid out for ourselves in the right way. And so I'm not going to give you a specific, as I said to Patricia, kind of percentage of completion level, but we've done the things that we needed to do to prepare ourselves for the peak trading period. And as we get into next year, we'll continue to focus on the operational efficiencies that are required to support the further growth of the business over time.
I would say, Brian, too that as we had a major milestone in the third quarter of integrating the e-com fulfillment into our DC, one of the key fundamental decisions around this project was having 1 inventory that then would service both businesses. And while it is early days, we are encouraged by having 1 inventory that now can service both of the businesses and make sure that we have greater availability to the customer online than we might have had in the past.
Okay. So I'm wondering if you're able to ballpark sort of the overruns or the cost inefficiencies that the DC has caused you to flow through continuing ops this year that shouldn't repeat next year. And then Meghan, while I've got you, just in terms of financial questions, the CapEx outlook, I presume, with major investments behind you, I'm wondering if you can give us an outlook as to where that should be as you go into next year?
Yes. So I'll take the question first on the impact of the onetime cost of the DC. So if you look through our MD&A, we do provide a summary of the onetime kind of nonrecurring costs that we see, we lay out there. And so I'll kind of direct you to that part of the MD&A, where we're saying roughly, there's about a $600,000 impact, both on COGS and SG&A in this quarter. And on a year-to-date basis, it's over $2 million. So that does look at the numbers that we've specifically called out. As we're going through this process around determining the overall efficiencies, we do anticipate there to be further cost savings. But at this point, I'm not going to quantify what those will be.
Could you quantify whether you put the cost overruns to date that flow through continuing operations of business?
I'm not going to give that level of specificity on this call.
Okay. And then the CapEx?
Yes. On the CapEx side of things. Again, we're not going to give you specific targets in terms of where we see. But it's very fair to say, if you look at the business and how the business has performed this year and its next year, there will be an increasing focus on driving profitability and increasing cash flow. And so as we get a lot of the major capital projects behind us, we are very focused on improving our overall cash flow in the business, and that will come with reduced capital spending.
Okay. And then last question, just higher level, Jim. Just in terms of the key initiatives to drive sales comps as you move into 2020, what are those? And what do you need to do to get the brand to really resonate consistently at a high level, such as it did with the Nice campaign several years back?
Yes. So the fundamental areas that we called out as growth drivers in our business, Brian, I don't think any of those have been exhausted. As I look at a category, while it is a smaller part of our business today, it was one of the ones that we believe continues to have promise, and that's footwear. In the third quarter, our footwear business is up more than 50%. We continue to see that trend moving through the fourth quarter. So I look at that. I look at our leather business, our ability to drive growth in our men's and women's business. Each of those categories continue to offer the promise that we believe when we set our plan 3 years ago. The marketing side and you're right, the Nice campaign in 2017 was highly successful for us. And you see a derivative of that, that is coming into the marketplace right now through the holiday season of Nice Together. And if you look at the commentary on our social channels, consumers are responding to that extremely well. So as we have changed our marketing approach from store openings to broad-based marketing and elevating key concepts, we're encouraged by how that's progressing. So those will be the drivers, Brian. It's coming down to 3 things. It's coming down to great consumer experience, and that includes having in-stock positions in all of our stores. It comes down to producing great products. And then it's with compelling marketing. We're fortunate that we've got a brand that many people love in Canada and Taiwan and other markets.
Stephen MacLeod with BMO Capital Markets.
I just had a question for you. Just on the same-store sales growth in the quarter, you mentioned that it fell below your expectations. Can you talk a little bit about what components fell below your expectations and what key drivers were?
Yes. We talked about that men's and women's -- that business continued to grow in the quarter, which we are encouraged by because that's the largest part of our business. I talked about footwear growing, a small category for us. But what we like about footwear, as we've said in the past, is that it drives the higher ASP. It is a business that the brand actually started in 1973. And we're continuing to see that accelerated growth as we move into the fourth quarter here. The softness in the business we talked of is that in some of our leather business, specifically the small leather goods, that market is changing quite dramatically in terms of how people are using wallets and those types of things, and we need to evolve with that part of the marketplace.
Right. Okay. And if you talk -- if you were to talk about the components of same-store sales growth, like was in-store sales versus e-commerce relatively in line with your expectations? Were traffic levels relatively in line with your expectations, just thinking of some of the components there?
Yes. Well, if you look at -- while we have positive DTC growth and positive comp sales growth in the third quarter, as I said, we fell short of our expectations. And I think that we fell short of our expectations in a number of areas, and that contributed to a lower comp than we had expected. So it is about getting product in the right channels to be able to provide that high level of service that our customers are used to and that we are used to delivering. And it is making sure that all of our stores are performing to a high level.
Okay. Okay. That's fair. And then was -- I've seen you recalling your Q2 store traffic was down year-over-year. Was store traffic down year-over-year in Q3 as well?
We saw softness in some regions in our store traffic. So I wouldn't say that across the board, it was down, but we did see some softness in a few regions.
Okay. Okay. That's right. And then just finally, on the gross margin. Meghan you walk through -- I think you said 60% of the decline was due to incremental DC costs. Can you talk a little bit about -- now that you've closed your third-party DC, what -- how much is the dollar amount that flows out of SG&A into cost of goods sold?
So I'm not going to give you -- to be honest, that level of specific information kind of on the shift between SG&A and gross margin. But what I would say is that if you look at Q3, we had 2 months of a third-party distribution center in Q3. And so when you look into Q4, you'll see a reduction in SG&A, and that will be indicative of the amount that will be flowing to gross margins.
The Q4 reduction will be the same amount that flows into gross margin? Or is that...
Yes. It will be indicative. I mean, obviously, it's volume driven, right? So when you look at it, it's hard to give you a specific numbers by quarter. I mean, we obviously have them, but I don't want to give that level of detail. But when you look at Q4, as an example, when we get there, you will see 3 months without having our third-party distribution facility, whereas this one only has 1 month. And so while you have seen specific reductions in SG&A this quarter, the full impact of the reductions in SG&A we felt till next quarter, and we'll be seeing that movement into gross margin.
Sabahat Khan with RBC Capital Markets.
I just wanted to ask quickly on the international side, I guess. Obviously, there was a step-down this quarter, but do you see sort of a normalization early 2020 or sooner than that? What are some of the trends you're seeing on the ground and the feedback from your partners there?
Yes. So as we had indicated last call, we foresaw a shortfall in the third quarter, and that will persist into the fourth quarter. The macroeconomic headwinds that we face in those markets, I think, are well-known in terms of what's happening in China, Taiwan, with their upcoming election and then in Hong Kong, with some of the unrest there. If I look at our partner, adding an additional store in China and opening a store, for example, in A13 which is one of the prominent malls in Taiwan, those are indications that they continue to believe in the brand. And as we work closely with them to make sure that they can overcome some of the near-term challenges that they're facing in the marketplace, we have a lot of confidence in that business and its ability to grow.
Okay. And then on the U.S. side, do you see that strategy as sort of to have these stores continue to work for them? Or do you have certain internal thresholds that you're looking to hit by a certain time to kind of reevaluate the expansion you've had in that market? Or is that sort of -- those stores are in place, and you'll continue to operate them? Or is that...
Yes. We have high expectations for every one of our stores. And we go through a very disciplined approach every month, looking at the profitability of stores, the trending, the areas that they're performing on UPTs, conversions and the likes. And we have those same expectations of the U.S. stores. As I said, we've got 2 legacy stores that are very profitable. We've got an e-com business that is doing well in the U.S. and in the markets where we have physical stores. It's doing even better in those markets. But as we look at the U.S. business, we need to build a love for the brand that we enjoy here in Canada and Taiwan. And I -- very candidly, we have not done that in terms of building the community to the level that we need to around those stores so when we introduced Salt & Pepper or Park Plaid for some of those concepts that the consumer understands what great products and value those are and then obviously shop accordingly in our stores.
And then on the e-commerce penetration, I think last quarter, you mentioned you're likely tracking ahead of your guidance that you had out at the time of the IPO. Are you able to provide an update on what you're seeing into Q4? Where you might shake out on e-commerce penetration on a full year basis by the end of this year?
Yes. As we said last call, we will eclipse the 17% to 19% that we laid out. We continue to be well on track for that. E-commerce continues to be a thriving part of our business. And I think that the omnichannel part of our business is working very well. And then a key part of e-commerce is to be able to fulfill all elements of the customers' expectations, whether it be pick up in store, whether it be return to store, and we're encouraged by how that's functioning.
Okay. And then just one last one on the management change related to the Chief Merchant that you announced this morning. I guess it is a little late in the year. So I'm assuming the Christmas sort of product is out in the market. Are you sort of comfortable with having the right offering and stuff there early in the year, while you find a new person to fill that role?
Yes. The product is -- we are working at any given time on 5 quarters, right? The quarter that we are in and right up until 4 more quarters out. So the -- as our team is prepared for a product through 2020 and into the back half of 2020, those plans are well in place. So that fortunately gives us time to be able to recruit the professional into that space. As well, our design team, we have brought back a previous senior designer for us that we've engaged on a consulting basis. And I'm really comfortable with how that teamwork is in place now. And if I look at -- so just one other comment. If I look at the overall depth of skill and talent that we have within our merchandising function, we have bolstered that over the last couple of years, and the team is responding very well to their ability to run the business and continue to come out with compelling products.
Matt Bank with CIBC.
Just one quick one for me. Can you just talk about how you see your store network evolving through 2020?
Sure. We don't have a physical number of stores that we expect to have. We have, in the past, closed stores when they've fallen short of our expectations, and we have expanded stores, and we've seen the benefits of expanding those stores in major malls like Square One or Yorkdale and the likes. I think the role of the store is continuing to evolve in terms of the omnichannel expectations of the customer. I talked earlier on one of the questions about the ability to pick up in store, return to store. Our stores are doing more customization of products and leather goods, more personalization of sweats in terms of providing patches and numbers on the sweats for the consumer. So I think that we look at the store to continue to evolve as part of that omnichannel solution. If the store is falling short of our financial targets, then we will, as we've done in the past, we'll either let it run a term of lease or we'll make decisions to shutter the store.
Matthew Lee with Canaccord.
So can you give me a little bit more color on the shortened holiday selling period? I mean, like, wouldn't that be something known early in the year? Or is the impact related more to the shorter period of time to deliver the product to your stores?
You're right. The calendar didn't change. So we have seen that there's 1 less week between Christmas and the -- what is a major holiday event being Black Friday and Cyber Monday. So we've known that for a long time. What you don't know with that is how the consumer is going to respond pre that period of time and post that period of time. And you're right. It does give us 1 less week to be shipping out goods to the customer. And so when you think of all those 3 variables, it does have an influence over how we see revenue streams unfolding in the quarter. And I'm encouraged by the fact that we've had positive comp sales coming through Black Friday and Cyber Monday, but there is 1 less week for us to be able to continue to perform.
Right. Okay, that's perfect. And then on the SG&A side. I mean on an ex IFRS basis, it looks like SG&A was relatively flat year-over-year. But my understanding is the launch of the DC should have moved some of the cost from SG&A to COGS. Is the offsetting increase in SG&A largely due to that third-party distribution? Or is this something else?
There's multiple -- I think as we talked about in the script, there's multiple impacts in terms of what's impacting SG&A. So I think on the positive side, we've got things like reductions in our wages and a number of things I kind of mentioned earlier on in the script. But yes, the distribution center shift is a positive impact. But as I mentioned, building 1 month out of the 3 months that we've seen so far this quarter. So that impact is not as significant as it otherwise potentially would be within this specific period.
There are no further questions at this time. It is now my pleasure to turn the call back over to Jim Gabel for final remarks.
Thank you, operator. That concludes today's call. We wish everybody a safe and happy holiday season. Thank you, again, everybody, for joining us. We look forward to updating you on our progress when we report Q4 and our year-end fiscal 2019 results. Have a great day.
This concludes the Roots Fiscal 2019 Third Quarter Conference Call. We thank you for your participation. You may now disconnect.