DAVIDsTEA Reports Second Quarter Fiscal 2020 Financial Results
DAVIDsTEA Inc. (Nasdaq:DTEA) reported second-quarter results for the period ending August 1, 2020, showcasing a significant 189.9% increase in e-commerce and wholesale sales, totaling $23.0 million amid a 41.2% drop in overall sales compared to the previous year. Gross profit fell to $8.3 million, down 61.8%. Despite a decrease in SG&A expenses by 76.5% to $7.4 million, the ongoing restructuring under the Companies’ Creditors Arrangement Act (CCAA) poses challenges. The company reported net income of $2.6 million, a recovery from last year's loss of $11.3 million, reflecting strategic pivots toward a digital-first approach.
- E-commerce and wholesale sales surged by 189.9% to $23.0 million, representing 100% of total sales for the quarter.
- Net income improved to $2.6 million from a loss of $11.3 million in the same period last year.
- EBITDA increased to $5.4 million, a $10.3 million improvement over the prior year.
- Overall sales decreased by 41.2% compared to the prior year, down $16.1 million.
- Gross profit fell to $8.3 million, a 61.8% decline from the previous year.
- Working capital turned negative at $13.2 million, a significant decrease from $36.4 million in February 2020.
Financial and Operational Highlights:
189.9% increase in e-commerce and wholesale sales to$23.0 million (representing100% of sales for the quarter)- Gross profit of
$8.3 million $24.2 million decrease in SG&A- EBITDA of
$5.4 million - Implementation of Restructuring activities under Companies’ Creditors Arrangement Act (CCAA) ongoing
- Subsequent to quarter end, 18 DAVIDsTEA stores re-opened in Canada in support of the Company’s digital first strategy
MONTREAL, Sept. 21, 2020 (GLOBE NEWSWIRE) -- DAVIDsTEA Inc. (Nasdaq:DTEA) (DAVIDsTEA or “the Company”), a leading tea merchant in North America, announces its second quarter results for the period ended August 1, 2020. All dollar amounts are expressed in Canadian dollars.
“Second quarter results reflect the solid performance of our online retailing and wholesale distribution activities as we accelerate our transformation towards a digital first strategy. We are very pleased by the momentum experienced in the first quarter carrying over to the second quarter, resulting in sequential sales growth of
Digital First Strategy
The Company continues to pivot to a digital first strategy focused on promoting customer migration from retail store to online and wholesale channels, and to generate organic growth. Several key initiatives have been implemented or are underway in support of this strategy. Since the beginning of the year, the Company has continued to enhance the customer experience via davidstea.com, including the ability to virtually connect with its tea guides, providing a human and personalized interaction. This is in addition to the capabilities of DAVI, the virtual assistant that helps customers shop, discover new collections, stay in the loop with the latest tea accessories, and much more. From a product development and go-to market standpoint, DAVIDsTEA also continues to enhance its ability to quickly launch new tea blends and better anticipate and adapt to the needs of its customers. The Company’s digital first strategy will be supported by a network of 18 retail stores located across Canada, with a concentration in the Ontario and Quebec markets, re-opened subsequent to second quarter end on August 21, 2020.
“The simplicity and clarity of our brand is resonating online as we successfully bring our tea expertise online, by providing a clear and interactive experience for our customers to continue to explore, discover and taste teas they love. Our virtual tea guides, video content and tea learning have been great tools to enhance a tea experience at home. We continue to leverage our online platform to connect with customers in a personal and responsive and personal manner, while at the same time more efficiently launching new tea blends in response to emerging consumer trends,” said Sarah Segal, Chief Brand Officer.
“DAVIDsTEA’s shift towards e-commerce and wholesale is progressing above our expectations, and we are pleased to see that our brand continues to passionately resonate with consumers,” stated Herschel Segal, Founder, Chairman and Interim CEO of DAVIDsTEA. “The management team is working tirelessly to emerge from our Restructuring process as a stronger, more efficient and focused company, better adapted to the needs of North American consumers.”
Operating Results for the Second Quarter of Fiscal 2020
Three Months Ended August 1, 2020 compared to Three Months Ended August 3, 2019
Sales. Sales for the three months ended August 1, 2020 decreased
Gross profit. Gross profit of
As the Company pivots to a digital first strategy, the cost of delivery and distribution that is included in arriving at gross profit will compare unfavorably to prior periods that were predominantly focused on retail sales distribution. We expect that the increased cost to deliver online purchases will be less than the selling expenses incurred in a retail environment that have been historically included as part of Selling, general and administration expenses.
Selling, general and administration expenses. Selling, general and administration expenses (“SG&A”) decreased by
Results from operating activities. Income from operating activities was
Finance costs. Finance costs amounted to
Finance income. Finance income of
EBITDA. EBITDA was
Net income (loss). Net income was
Fully diluted income (loss) per common share. Fully diluted income per common share was
Liquidity and Capital Resources
As at August 1, 2020 we had
Our primary source of liquidity is cash on hand as we have no access to any form a debt financing. Our primary cash needs are to finance working capital and capital expenditures in connection with enhancing the functions and features of our online store. Our working capital requirements are for the purchase of inventory and payment of payroll and other operating costs. Furthermore, in light of implementing the Restructuring Plan, the Company expects to use cash on hand to pay for professional fees and for the settlement of Initial Order obligations upon acceptance of a plan of arrangement that will be presented to creditors. Our working capital requirements fluctuate during the year, rising in the second and third fiscal quarters as we take title to increasing quantities of inventory in anticipation of our peak selling season in the fourth fiscal quarter. We fund our capital expenditures and working capital requirements from a combination of cash on hand and cash provided by operating activities.
| Condensed Consolidated Financial Data | ||||||||||||||||
| (Canadian dollars, in thousands, except per share information) | ||||||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| August 1, | August 3, | August 1, | August 3, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales | $ | 23,031 | $ | 39,167 | $ | 55,273 | $ | 83,432 | ||||||||
| Cost of sales | 14,694 | 17,362 | 32,263 | 35,291 | ||||||||||||
| Gross profit | 8,337 | 21,805 | 23,010 | 48,141 | ||||||||||||
| SG&A expenses | 7,409 | 31,563 | 29,042 | 59,583 | ||||||||||||
| Restructuring plan activities, net | (3,172 | ) | — | 34,228 | — | |||||||||||
| Operating income (loss) | 4,100 | (9,758 | ) | (40,260 | ) | (11,442 | ) | |||||||||
| Finance costs | 1,559 | 1,781 | 3,226 | 3,608 | ||||||||||||
| Finance income | (68 | ) | (195 | ) | (308 | ) | (386 | ) | ||||||||
| Net income (loss) | $ | 2,609 | $ | (11,344 | ) | $ | (43,178 | ) | $ | (14,664 | ) | |||||
| EBITDA1 | $ | 5,426 | $ | (4,829 | ) | $ | (34,940 | ) | $ | (1,687 | ) | |||||
| Adjusted SG&A1 | 8,565 | 26,538 | 28,480 | 54,558 | ||||||||||||
| Adjusted operating loss 1 | (228 | ) | (4,711 | ) | (5,470 | ) | (6,395 | ) | ||||||||
| Adjusted EBITDA1 | 1,365 | 361 | 430 | 3,630 | ||||||||||||
| Adjusted Net loss 1 | $ | (1,719 | ) | $ | (6,297 | ) | $ | (8,388 | ) | $ | (9,617 | ) | ||||
| Basic earnings (loss) per common share | $ | 0.10 | $ | (0.44 | ) | $ | (1.65 | ) | $ | (0.56 | ) | |||||
| Fully diluted earnings (loss) per common share | 0.10 | (0.44 | ) | (1.65 | ) | (0.56 | ) | |||||||||
| Adjusted basic loss per common share1 | $ | (0.07 | ) | $ | (0.24 | ) | $ | (0.32 | ) | $ | (0.37 | ) | ||||
| Adjusted fully diluted loss per common share1 | $ | (0.06 | ) | $ | (0.24 | ) | $ | (0.32 | ) | $ | (0.37 | ) | ||||
| Gross profit as a percentage of sales | 36.2 | % | 55.7 | % | 41.6 | % | 57.7 | % | ||||||||
| SG&A as a percentage of sales | 32.2 | % | 80.6 | % | 52.5 | % | 71.4 | % | ||||||||
| Adjusted SG&A as a percentage of sales1 | 37.2 | % | 67.8 | % | 51.5 | % | 65.4 | % | ||||||||
| Cash (used in) provided by operating activities | $ | (3,823 | ) | $ | 3,083 | $ | (7,879 | ) | $ | 3,443 | ||||||
| Cash used in financing activities | (1,195 | ) | (5,799 | ) | (5,571 | ) | (11,622 | ) | ||||||||
| Cash provided by (used in) investing activities | (40 | ) | (3,050 | ) | 1,397 | (4,170 | ) | |||||||||
| Decrease in cash during the period | (5,058 | ) | (5,766 | ) | (12,053 | ) | (12,349 | ) | ||||||||
| Cash, end of period | $ | 34,285 | $ | 29,725 | $ | 34,285 | $ | 29,725 | ||||||||
| August 1, | May 2, | February 1, | August 3, | |||||||||||||
| As at | 2020 | 2020 | 2020 | 2019 | ||||||||||||
| Cash | $ | 34,285 | $ | 39,343 | $ | 46,338 | $ | 29,725 | ||||||||
| Accounts receivable | 6,757 | 4,371 | 6,062 | 3,913 | ||||||||||||
| Prepaid expenses and deposits | 8,476 | 4,928 | 4,542 | 9,890 | ||||||||||||
| Inventories | 24,354 | 23,450 | 22,363 | 27,893 | ||||||||||||
| Trade and other payables | $ | 26,642 | $ | 18,000 | $ | 20,794 | $ | 13,810 | ||||||||
________________
1 Please refer to “Use of Non-IFRS financial measures” in this press release.
Use of Non-IFRS Financial Measures
This press release includes “non-IFRS financial measures” defined as including: 1) EBITDA and Adjusted EBITDA, 2) Adjusted operating loss, 3) Adjusted selling, general and administration expenses, 4) Adjusted net loss, 5) Adjusted fully diluted loss per share and 6) Adjusted selling, general and administration expenses as a percentage of sales. These non-IFRS financial measures are not defined by and in accordance with IFRS and may differ from similar measures reported by other companies. We believe that these non-IFRS financial measures provide knowledgeable investors with useful information with respect to our historical operations. We present these non-IFRS financial measures as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that vary from period-to-period but not in substitution to IFRS financial measures.
Please refer to the non-IFRS financial measures section in the Management’s Discussion and Analysis section of our Form 10-Q for a reconciliation to IFRS financial measures.
Note
This release should be read in conjunction with the Company’s Management’s Discussion and Analysis, which will be filed by the Company with the Canadian securities regulatory authorities on www.sedar.com and with the U.S. Securities and Exchange Commission on www.sec.gov and will also be available in the Investor Relations section of the Company’s website at www.davidstea.com.
Caution Regarding Forward-Looking Statements
This press release includes statements that express our opinions, expectations, beliefs, plans or assumptions regarding future events or future results and there are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes”, “expects”, “may”, “will”, “should”, “approximately”, “intends”, “plans”, “estimates” or “anticipates” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our Restructuring Plan, the COVID-19 pandemic, our strategy of transitioning to e-commerce and wholesale sales, future sales through our e-commerce and wholesale channels, the closing of certain of our retail stores, future lease liabilities, our results of operations, financial condition, liquidity and prospects, the impact of the COVID-19 pandemic on the global macroeconomic environment, and our ability to avoid the delisting of the Company’s common stock by Nasdaq due to the restructuring or our inability to maintain compliance with Nasdaq listing requirements.
While we believe these opinions and expectations are based on reasonable assumptions, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including the risk factors set forth in our annual report on Form 10-K for the fiscal year ended February 1, 2020, and in our Form 10-Q for the three-month period ended May, 2, 2020 filed with the United States Securities and Exchange Commission and with the Autorité des marchés financiers.
About DAVIDsTEA
DAVIDsTEA is a leading branded retailer and growing mass wholesaler of specialty tea, offering a differentiated selection of proprietary loose-leaf teas, pre-packaged teas, tea sachets and tea-related gifts and accessories primarily through its e-commerce platform at www.davidstea.com. A selection of DAVIDsTEA products is available in more than 2,500 grocery stores and pharmacies across Canada. The Company also owns and operates 18 retail stores in Canada. The Company is headquartered in Montréal, Canada.
| Investor Contact | Media Contact |
| MaisonBrison Communications | PELICAN PR |
| Pierre Boucher | Lyla Radmanovich |
| 514-731-0000 | 514-845-8763 |
| investors@davidstea.com | media@rppelican.ca |
FAQ
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