October 25, 2017 / 1:42 PM / in a month

Canadian apparel firm Roots battered on debut by tough retail conditions

TORONTO (Reuters) - Canadian apparel company Roots Corp (ROOT.TO) began life as a publicly listed company on Wednesday in Toronto on a grim note, as investors balked at buying into an industry beset by cut-throat competition and shrinking margins.

Shares of the company, known for its trademark beaver logo, rustic casual wear and Canadian-made leather goods, opened at C$11.50, down 4.2 percent from their initial public offering price of C$12. They slumped 16.3 percent from the IPO price to C$10.05 at 1110 EST (1510 GMT).

Roots raised C$200 million ($158 million) in the IPO.

Roots’ bleak performance is the latest in a string of tribulations for the Canadian bricks-and-mortar retail industry. Besieged by competition from online players like Amazon.com Inc AMZN.N, profit margins for the sector have shrunk to under 5 percent.

“With the various problems facing retailers, there’s concern about buying into what’s essentially a retail store product,” said David Cockfield, portfolio manager at Northland Wealth Management in Toronto.

Roots has 116 stores in Canada and four in the United States, as well as 109 partner-operated stores in Taiwan and 27 in China, according to its IPO prospectus. The company also ships to 54 countries through its website.

A Roots spokesperson could not be immediately reached for comment.

Roots’ IPO price was reduced from the marketing range of C$14 to C$16, underscoring the company’s modest growth outlook and broader challenges for brick-and-mortar retailers.

Roots, in its prospectus, said it had compound annual growth in sales of about 14 percent in 2014 to 2016. That lagged rival Canada Goose Holdings Inc.’s (GOOS.TO) (GOOS.N) 38 percent and fashion retailer Aritzia Inc’s (ATZ.TO) 20 percent rate over a similar period. [nL2N1MD1A8]Canada Goose surged 40 percent from its IPO price on its trading debut in Toronto in March, and has appreciated 7.5 percent since it began trading, compared with a 2 percent gain in the Toronto Stock Exchange’s S&P/TSX composite index. .GSPTSE.

Still, it has fallen 21 percent from its June peak, slammed by the challenging retail environment, which most recently led to the collapse of department store chain Sears Canada.

Canada Goose fell 1.8 percent to C$25.65 in morning trading on Wednesday. Aritzia lost 0.4 percent to C$11.50, while the Toronto stock benchmark slipped 0.3 percent.

Reporting By Nichola Saminather; Editing by Chizu Nomiyama and David Gregorio

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