Good morning. My name is Lara, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Roots second quarter earnings conference call for fiscal 2023. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. On the call today, we have Meghan Roach, President and Chief Executive Officer, and Leon Wu, Chief Financial Officer.
Before the conference call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements concerning its current and future plans, expectations and intentions, results, level of activities, performance, goals or achievements, or any other future events or developments. This information is based on management's reasonable assumptions 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 second quarter management's discussion and analysis dated September 11th, 2023, and/or its annual information form 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 second quarter earnings release, the related financial statements and the management's discussion and analysis are available in SEDAR, as well as on the Roots Investor Relations website at www.investors.roots.com. A supplementary presentation for the Q2 2023 conference call is also available on the Roots Investor Relations site. Finally, please note that all figures discussed in this conference call are in Canadian dollars, unless otherwise stated. Thank you. You may begin your conference.
Thank you, operator. Good morning, everyone, and thank you for joining us today for our Q2 2023 earnings call. As a reminder, Q2 has historically only represented approximately 15% of our total annual sales. We are pleased with our overall sales growth of 3.4% in the second quarter, despite challenging economic conditions. We benefited from the earlier shipment of orders to our Taiwanese operating partner in the quarter, which helped to increase our Partners and Other sales year-over-year. We do anticipate solid growth in this region on a full year basis, and in addition, our investments in China are continuing to pay off with strong growth in that market as well. On the direct-to-consumer side, revenues were down 3.5% compared to Q2 2022 due to the ongoing softness in demand for fleece bottoms.
However, we enjoyed strong customer traction in our Active, One, and Beaver Canoe collections, as well as with dresses. As we look to the second half of the year, we have several bottom silhouettes gaining traction with consumers. For example, our men's woven Park Tech pant is made with a sustainable performance fabric and blends tailoring with comfort for a seamless look that can take you from the office to the golf course. For the second consecutive quarter, our emerging active collection, which accounts for approximately 10% of DTC sales, delivered a year-over-year increase of more than 50%. We saw sustained growth in Active on the strength of new customer acquisitions and expanded styles from last year, including the addition of more golf and tennis offerings. Our new always-on approach to paid media in this area has also helped to drive increased market awareness.
Our gender-free minimal logo fleece collection, One, and our Heritage Beaver Canoe line also contributed double-digit growth in the second quarter, reflecting the diversity and the reach of our brand. Turning to our 50th anniversary, on August fifteenth, Roots officially turned 50. Celebrations began in mid-August with the first product drop of the Roots Sporting Goods and the Golden Beaver collection. Our launch events, held in Canada and Taiwan, were well attended by longtime Roots fans, celebrities, influencers, and media, and we have been very pleased with the global media focus and attention generated thus far. Throughout the next 12 months, we anticipate the curated assortment of limited edition products, collaborations, and events to generate excitement among longtime Roots customers and new fans.
In the near term, we will be launching a 50th anniversary commemorative print magazine, Roots Stories, which brings the stories of our customers and their relationship with Roots and Roots products to the forefront, and relaunching the renowned Negative Heel shoe, which we're calling the Sport Roots, that Roots first introduced to the market in August 15th, 1973. The Negative Heel shoe will be the first item in a broader relaunch of our new footwear collection, which hits stores this fall. Our planned festivities tapped into the emotional connection between our customers and the Roots brand while creating new iconic products for tomorrow's consumer. As we look at the Roots brand against the backdrop of our 50th anniversary, we are not reinventing it, but reimagining the brand in a more modern way and seeking to expand our customer base with new core favorites.
In closing, it has been great to see the early customer response to our 50th anniversary collection, and we look forward to exciting new and existing customers with what is still to come this year. We also have a strong balance sheet with a healthy inventory position and ample liquidity, which continues to enable us to support our growth strategy. However, we continue to expect the higher interest rates and the current economic environment to weigh on consumers, particularly in Canada, which remains a headwind for us. I will now pass the call over to Leon.
Thanks, Meghan, and good morning, everyone. I will discuss our financial performance for the quarter and then provide an update on our balance sheet and liquidity. Starting with our Q2 2023 results, total sales increased 3.4% to CAD 49.4 million, driven by our Partners and Other segment. DTC sales were CAD 37.1 million, down 3.5% year-over-year. This decline was driven by the challenging economic conditions and the competitive environment. As Meghan indicated earlier, sales in our emerging apparel collections delivered strong year-over-year growth, including a 50% sales increase in our active collection for the second consecutive quarter. However, these increases were not sufficient to offset softness in our fleece bottoms. Partners and Other segment sales grew 31.7% to CAD 12.3 million in Q2 from CAD 9.3 million last year.
The growth was mainly due to higher sales to our international operating partner in Taiwan, including earlier year-over-year delivery on approximately 2.6 million of orders, in addition to organic volume increases. Total gross profit amounted to CAD 27.4 million in Q2 2023, compared to CAD 28.3 million in Q2 2022, representing a decrease of 3.2%. Consolidated gross margin reached 55.5% in Q2 2023, compared to 59.3% in the same period last year. The 380 basis point reduction in gross margin is primarily due to a higher mix of lower margin partners and other sales in the quarter. DTC gross margin was 52.7% in the quarter, 130 basis points lower than 64% in Q2 2022.
The reduction in DTC gross margin can be attributed to higher product costs from the transition to sustainable materials and increased sales mix of discounted products, which together drove a 270 basis point decline. These factors were partially offset by lower freight costs, including 40 basis points of air freight tailwinds. DTC gross margin was also affected by an unfavorable foreign exchange impact on U.S. dollar purchases. As previously communicated, we anticipate that the decline in our gross margin will gradually moderate in the second half of the year as our transition to sustainable materials comes full circle on an annual basis. As a reminder, we expect to also benefit from approximately 130 basis points of DTC gross margin tailwind in the second half of 2023, as we comp off air freight costs incurred last year.
We are pleased with the trajectory of our DTC gross margin and our discipline on discounting as we executed on our inventory management strategy. Even as we work through our higher inventory levels, DTC gross margin remained well above pre-pandemic levels. SG&A expenses were CAD 32.3 million in Q2 2023, compared to CAD 30.6 million in Q2 2022. The 5.6% increase in SG&A expenses is mainly related to higher personnel costs at both our stores and corporate offices, and contractual increases in store rent charges. It should be noted that with the minimum wage increase scheduled for October first in the province of Ontario, which represents our largest concentration of labor, we expect our SG&A cost base will increase by approximately CAD 300,000 in the second half of 2023, and CAD 700,000 on a full year basis.
Net loss totaled CAD 5.3 million, or CAD 0.13 per share in Q2 2023, compared to a net loss of CAD 3.2 million, or CAD 0.08 per share in Q2 2022. Adjusted EBITDA amounted to a loss of CAD 3 million in Q2 2023, compared to a loss of CAD 0.6 million for the same period last year. Moving to our balance sheet, as noted earlier, we have made substantial progress towards improving our inventory position, which rose 2% or CAD 1.1 million year-over-year, compared to 28.6% at the end of Q1 2023. The inventory increase in Q2 2023 was primarily driven by CAD 3.9 million of higher core inventory to be released for sale in the second half of the year under our pack and hold strategy.
1.2 million of higher product costs related to our transition to sustainable materials, and a CAD 2.6 million dollar increase for more on-hand units, which was partially caused by the earlier timing of inventory receipts. These factors were largely offset by CAD 6.6 million dollars decrease of lower in-transit inventory as we strategically managed our inventory buys for the second half of the year. By leveraging our pack and hold collections and tightening orders, we remain on track to right-size inventory by the end of the year. At the end of the second quarter, our financial position remained solid, with net debt of CAD 50.9 million, essentially flat from CAD 50.2 million a year ago. We also had total liquidity of CAD 61.1 million at quarter end, including CAD 57.8 million available borrowing capacity under our revolving credit facility.
In closing, we continue to believe in the long-term fundamentals of the business and the value of our brand's distinctive positioning. We have maintained a robust balance sheet and ample liquidity to support our ongoing operations, future growth initiatives, and capital management strategies. Accordingly, we completed our largest share repurchases since implementing our NCIB program nearly two years ago, buying back over 874,000 shares for a total consideration of CAD 2.7 million in Q2 2023. As a reminder, the NCIB allows us to repurchase for cancellation up to 2.1 million shares during the 12-month period ending December 15th, 2023. At the end of Q2 2023, we had repurchased 1.6 million shares under the current NCIB program.
Historically, the first half of the fiscal year represents less than 30% of our sales, and as Meghan mentioned, we have most of the year still to come. We are excited to celebrate Roots' 50th anniversary with our customers over the next 12 months, and we'll continue to strategically invest towards the execution of our long-term growth plans. This concludes our prepared remarks for Q2 2023. With that, operator, please open the line for questions.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. Again, that's star followed by the number one on your touchtone phone. If you would like to withdraw your request, please press star followed by the number two. Your first question comes from the line of Brian Morrison from TD Securities. Please go ahead.
Good morning, Meghan. Good morning, Leon.
Morning, Brian.
Good morning.
Well, maybe I can start out with the commodity pricing of the organic material. Is that falling back in line with expectations now? Should we see margin relief as we get into the second half of the year? Where is the pricing versus costs?
Yeah, Brian, on the organics, so we will be comping the launch of the organics from Q3 of last year. So over time, as we start rolling out more and more of the organics and the penetration of our overall sales last year, we should start seeing the margin relief there. So it won't fully be in Q3, but, as we fully roll it out in Q4 of last year, we should start seeing better IMUs .
Okay. And then in terms of your inventory, Leon, the CAD 2.6 million of inventory at hand, how much of that is out of season that will require promotional activity? I understand some of it's just timing.
Yeah. Actually, very little of it is the seasonal inventory. I think the team's done a great job of addressing the seasonal inventory concerns. Really, if we look at the breakdown of what's driving the inventory cost balance increase, it's largely just the higher cost per unit. The actual on-hands from a pack and hold and just normal on-hand inventory is largely offset by the lower in-transit inventory, which is part of our overall strategy of reducing second-half buys to get our inventory back on track.
Okay. Meghan, just a few things I saw over the summer, specifically in a number of stores.
Yes.
I saw products within Mark's stores.
Mm-hmm.
I wonder if this is a trial phase and if you're seeking opportunity to expand other external DTC partnerships?
Yeah. That was a trial that we did with Mark's last year, and I think, you know, we have an openness generally to expanding the business from a wholesale perspective. I think we have to make sure we have the right partners and the right products in those stores. And that specifically was just a trial with Mark's. But I think over time, what you're gonna see from a business perspective is us continuing to think about ways to grow the presence of Roots. And what's gonna be exciting this fall is you'll probably see a lot of Roots products in universities. We have quite a few university partners in Canada this year, and so you're definitely gonna start seeing Roots in a few more places.
How did the trial go with Mark's? Can you comment on that?
Not for me to comment at this point in time, but I think that, you'll be excited to see Roots again, as I said, in universities, and then over time, thinking about us going to different wholesale partners as we grow.
Okay. Last question: the opportunity in footwear. I know this was a growth driver back at the IPO. I think you backed off it to a certain extent.
Mm-hmm.
What's the driver behind the reinvestment at this point in time?
You know, we always have consumers who are coming into the brand and saying, "Listen, I love the Roots footwear. I've had it for X number of years." And I think that what we wanna do is be very, planful and also very conservative in terms of how we're buying footwear, but we think it's a great offering for our consumers. So what you're gonna see is we just launched the Negative Heel shoe or the Sport Root, we're calling it, last week. As we get into later September, you're gonna see some of our Tuff boots, and I think we have a couple of new heritage boots come into play, and they'll have more of the winter stuff coming out in October, late October into November.
So, I think when you look at our collection this year, it's gonna be tight, it's gonna be concise, it's gonna feel really on brand from a Roots perspective. We're making the products in Portugal. The leathers are fantastic. It's really good quality, and so we're looking to attract those consumers who, over the years, have been really loyal customers of Roots from a footwear perspective, and we anticipate it being, you know, a small but important part of the business, but it's not something where we're putting a massive growth pillar on it today. It's really more about completing the entire collection and giving people some excitement and playing back to the heritage that we've always had in the space.
Okay. Thank you very much.
Thank you.
Thank you. Just a reminder, ladies and gentlemen, should you have a question, please press star followed by the number one on your touch tone phone. Please stand by while we inquire for additional questions. Again, everyone, should you have a question, please press star followed by the number one on your touch tone phone. There are no further questions at this time. I'd now like to turn the call back over to Ms. Roach for any closing remarks.
Thank you, everyone, for joining us today for our Q2 results. We look forward to speaking to you in December when we release our Q3 2023 results. Have a great day.
Thank you so much, presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.