DAVIDsTEA Inc. (TSX-Venture: DTEA) (“DAVIDsTEA” or the “Company”),
a leading tea merchant in North America, announced today its
financial results for the third quarter ended November 2, 2024.
“We are highly encouraged by our ongoing sales
momentum in the third quarter of 2024 with double-digit growth
across all distribution channels year-over-year,” said Sarah Segal,
Chief Executive Officer and Chief Brand Officer, DAVIDsTEA. “This
strong performance reflects our value proposition that continues to
resonate with consumers, offering a wide assortment of premium teas
and accessories for the holiday season, along with unmatched
product quality and seasonal collection drops. Equally important,
our omnichannel growth strategy is gaining traction, supported by
our presence across physical stores, online platforms, and
wholesale partnerships. Simply put, we are thrilled that tea lovers
are discovering and rediscovering the world of DAVIDsTEA.”
“In September, we launched our 19th store at the
prestigious Royalmount Mall followed by the opening of our 20th
store at Montreal's Eaton Centre in November. These latest
milestones highlight our commitment to the sensory in-store retail
experience and strengthening of our presence in key markets. Our
focus remains on delivering exceptional value, service, and
innovation, ensuring we meet customers wherever they are. At the
same time, we are steadfast in our intent to significantly expand
our store footprint over the next three years and drive sustained,
profitable growth, while reconnecting with many communities that
already know us,” added Ms. Segal.
“We are pleased with our financial performance
and improved working capital management in the third quarter,” said
Frank Zitella, President, Chief Financial and Operating Officer,
DAVIDsTEA. “For the first time in recent memory, we generated
positive cash flow from operations, which strengthened our cash
position on a sequential basis. Additionally, we successfully
transitioned to a more agile and cost-effective IT platform, which
will enable us to better engage with new customers and deepen
relationships with existing ones. While this transition
necessitated a $3.1 million write-off in the quarter, it should
generate annual cost savings of approximately $4 million.”
“Moving forward, we’ll continue sharpening
working capital and supply chain levers to take advantage of
further cost-saving opportunities and drive demand in each of our
channels to achieve sustained profitability in 2025. Our improved
gross profit margin of 51.5%, compared to 37.9% in the prior year,
reflects the success of our efforts to optimize our operations and
deliver value to both consumers and shareholders.”
Operating Results for the Third Quarter
of Fiscal 2024
Three Months Ended November 2, 2024 compared to
Three Months Ended October 28, 2023
Sales. Sales for the third
quarter of fiscal 2024 increased by $1.9 million to $14.0 million,
or 15.6%, compared to the prior year quarter. Sales in Canada,
which accounted for 85.5% of total revenue, grew by $1.5 million,
or 13.8%, compared to the same quarter last year. U.S. sales grew
by $0.4 million or 27.6% compared to the prior year quarter.
The Company’s focus has been on delivering a
value proposition that resonates with consumers supported by a
memorable experience, both in person and online, to generate sales
while dealing with macro-economic headwinds.
- Online
sales of $6.3 million increased by $0.6 million, or 11.4%,
from $5.7 million in the prior year quarter. Online sales
represented 45.3% of sales compared to 47.0% of sales in the prior
year quarter.
-
Brick-and-mortar sales of $4.7 million increased
by $0.8 million, or 19.2%, from $3.9 million for the same period in
the prior year. Brick-and-mortar sales represented 33.7% of sales
compared to 32.6% of sales in the prior year quarter.
-
Wholesale channel sales of $3.0 million increased
by $0.5 million, or 19.3%, from $2.5 million in the prior year
quarter. Wholesale sales represented 21.0% of sales compared to
20.4% of sales in the prior year quarter.
Gross profit. Gross profit
increased by 56.8% to $7.2 million from the prior year quarter due
to higher sales, better product margin and a decrease in unitized
freight, shipping and fulfillment costs. Gross profit as a
percentage of sales increased to 51.5% for the quarter compared to
37.9% in the prior year quarter. At a segment level, Gross profit
as a percentage of sales reached 49.8% and 61.5% in the quarter
compared to 36.8% and 45.1% in the prior year quarter in Canada and
in the U.S., respectively.
Selling, general and administration
expenses. Selling, general and administration expenses
(“SG&A”) of $8.7 million increased by $0.4 million, or 4.5%,
compared to the prior year quarter. This increase includes amounts
due under onerous IT contracts of $3.1 million and software
implementation costs of $0.6 million, partially offset by a
reversal of impairment of property and equipment of $2.1 million.
Adjusting SG&A for non-recurring items, these expenses would
have amounted to $7.1 million, an improvement of $1.0 million or
12.6% over the prior year quarter. As a percentage of sales, and
after adjusting SG&A for non-recurring items, SG&A expenses
decreased to 50.7% in the third quarter from 67.0% in the prior
year quarter.
During the third quarter, the Company
transitioned its complete IT infrastructure to a lower cost and
more agile set of solutions. Existing service contracts for
technology no longer in use were fully recognized in the quarter
resulting in a loss of $3.1 million.
The resulting pro-forma annualized cost savings
are estimated at $4.0 million which triggered a review of
previously recorded impairment of property and equipment in the
Company’s retail stores, each of which is considered a cash
generating unit (“CGU”). The recoverable amount of each CGU was
assessed by taking a fair value less cost of disposal method and
calculated based on an EBITDA multiple. The resulting recoverable
amount was then compared to the carrying amount of each CGU, which
led the Company to reverse impairments related primarily to
leasehold improvements expensed in both the prior and current year.
A reversal of previously impaired property and equipment of $2.1
million was recorded in the quarter.
EBITDA and Adjusted EBITDA1.
EBITDA was negative $0.8 million in the quarter compared to
negative $2.8 million in the prior year quarter. Adjusted EBITDA
was $0.8 million compared to negative $2.5 million for the same
period in the prior year. The increase in Adjusted EBITDA of $3.3
million reflects the impact of higher Sales and Gross profit, along
with a decrease in ongoing SG&A expenses.
Net loss. Net loss totaled $1.6
million in the quarter compared to a net loss of $3.7 million in
the prior year quarter. Adjusted net income was $12.0 thousand in
the quarter compared to an adjusted net loss of $3.5 million in the
prior year quarter.
Fully diluted net loss per
share. Fully diluted net loss per common share amounted to
$0.06 in the third quarter compared to a fully diluted net loss per
common share of $0.14 in the prior year quarter. Adjusted fully
diluted net income per common share1, which is adjusted net income
on a fully diluted weighted average shares outstanding basis, was
nil in the quarter compared to an adjusted fully diluted net loss
of $0.13 in the prior year quarter.
Liquidity and Capital Resources
As at November 2, 2024, the Company had $7.9
million of cash held by major Canadian financial institutions.
Working capital was $10.4 million as at November
2, 2024 compared to $19.7 million as at February 3, 2024. The
decrease in working capital can be attributed to reduced cash and
prepaid expenses and deposits and an increase in accounts payable.
These items were partially offset by an increase in accounts
receivable and a decrease in deferred revenue.
The Company is progressing toward positive
earnings, which will strengthen its balance sheet, support working
capital, and enable future investments.
As at November 2, 2024, the Company had
financial commitments in connection with the purchase of goods and
services that are enforceable and legally binding, amounting to
$4.8 million, net of $0.5 million of advances (February 3, 2024 -
$9.9 million, net of $0.4 million of advances) which are expected
to be discharged within 12 months.
Use of Non-IFRS Financial Measures and
RatiosThis press release includes “non-IFRS financial
measures” defined as including: 1) EBITDA and Adjusted EBITDA, 2)
Adjusted net (loss) income, and 3) Adjusted fully diluted (loss)
income per common share. These non-IFRS financial measures are not
defined by or in accordance with IFRS and may differ from similar
measures reported by other companies. DAVIDsTEA believes that these
non-IFRS financial measures provide knowledgeable investors with
useful information with respect to its historical operations. The
Company presents these non-IFRS financial measures as supplemental
performance measures because it believes they facilitate a
comparative assessment of operating performance relative to
performance based on 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 Company’s Management Discussion and Analysis for a
reconciliation to IFRS financial measures.
NoteThis release should be read in conjunction
with the Company’s Management Discussion and Analysis, which is
filed by the Company with Canadian securities regulatory
authorities on SEDAR+ at www.sedarplus.ca.
Condensed Consolidated Financial Data(Canadian
dollars, in thousands, except per share information)
|
|
For the three-months ended |
|
For the nine-months ended |
|
|
November 2, |
|
October 28, |
|
November 2, |
|
October 28, |
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
14,039 |
|
|
$ |
12,145 |
|
|
$ |
38,565 |
|
|
$ |
36,292 |
|
|
Cost of sales |
|
6,815 |
|
|
|
7,539 |
|
|
|
20,270 |
|
|
|
22,428 |
|
|
Gross profit |
|
7,224 |
|
|
|
4,606 |
|
|
|
18,295 |
|
|
|
13,864 |
|
|
Selling, general and administration expenses |
|
8,700 |
|
|
|
8,325 |
|
|
|
23,860 |
|
|
|
23,955 |
|
|
Results from operating activities |
|
(1,476 |
) |
|
|
(3,719 |
) |
|
|
(5,565 |
) |
|
|
(10,091 |
) |
|
Finance costs |
|
185 |
|
|
|
143 |
|
|
|
450 |
|
|
|
502 |
|
|
Finance income |
|
(86 |
) |
|
|
(132 |
) |
|
|
(306 |
) |
|
|
(628 |
) |
|
Net loss |
$ |
(1,575 |
) |
|
$ |
(3,730 |
) |
|
$ |
(5,709 |
) |
|
$ |
(9,965 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales - by country |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
$ |
12,007 |
|
|
$ |
10,553 |
|
|
$ |
33,366 |
|
|
$ |
31,129 |
|
|
USA |
|
2,032 |
|
|
|
1,592 |
|
|
|
5,199 |
|
|
|
5,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales - by channel |
|
|
|
|
|
|
|
|
|
|
|
|
Online |
|
6,358 |
|
|
|
5,705 |
|
|
|
18,584 |
|
|
|
18,226 |
|
|
Retail |
|
4,727 |
|
|
|
3,964 |
|
|
|
13,442 |
|
|
|
11,784 |
|
|
Wholesale |
$ |
2,954 |
|
|
$ |
2,476 |
|
|
$ |
6,539 |
|
|
$ |
6,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA1 |
$ |
(758 |
) |
|
$ |
(2,817 |
) |
|
$ |
(3,537 |
) |
|
$ |
(7,447 |
) |
|
Adjusted EBITDA1 |
|
845 |
|
|
|
(2,467 |
) |
|
|
(283 |
) |
|
|
(5,947 |
) |
|
Adjusted net income (loss)1 |
|
12 |
|
|
|
(3,546 |
) |
|
|
(2,597 |
) |
|
|
(9,051 |
) |
|
Adjusted fully diluted net income (loss) per common shares1 |
$ |
0.00 |
|
|
$ |
(0.13 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.34 |
) |
|
Gross profit as a percentage of sales |
|
51.5 |
% |
|
|
37.9 |
% |
|
|
47.4 |
% |
|
|
38.2 |
% |
|
SG&A expenses as a percentage of sales |
|
62.0 |
% |
|
|
68.5 |
% |
|
|
61.9 |
% |
|
|
66.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities |
$ |
2,665 |
|
|
$ |
(622 |
) |
|
$ |
(892 |
) |
|
$ |
(6,384 |
) |
|
Cash flows used in financing activities |
|
(825 |
) |
|
|
(789 |
) |
|
|
(2,385 |
) |
|
|
(2,330 |
) |
|
Cash used in investing activities |
|
(608 |
) |
|
|
(1,048 |
) |
|
|
(1,381 |
) |
|
|
(1,992 |
) |
|
Decrease in cash during the period |
|
1,232 |
|
|
|
(2,459 |
) |
|
|
(4,658 |
) |
|
|
(10,706 |
) |
|
Cash, end of period |
$ |
7,942 |
|
|
$ |
11,734 |
|
|
$ |
7,942 |
|
|
$ |
11,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, |
|
|
August 3, |
|
|
May 4, |
|
|
February 3, |
|
As at |
|
2024 |
|
|
2024 |
|
|
2024 |
|
|
2024 |
|
Cash |
$ |
7,942 |
|
|
$ |
6,710 |
|
|
$ |
8,772 |
|
|
$ |
12,600 |
|
|
Accounts and other receivables |
|
2,974 |
|
|
|
1,523 |
|
|
|
1,551 |
|
|
|
1,800 |
|
|
Prepaid expenses and deposits |
|
2,214 |
|
|
|
4,326 |
|
|
|
5,687 |
|
|
|
5,877 |
|
|
Inventories |
|
15,822 |
|
|
|
16,024 |
|
|
|
17,094 |
|
|
|
15,658 |
|
|
Trade and other payables |
$ |
11,687 |
|
|
$ |
6,553 |
|
|
$ |
8,935 |
|
|
$ |
8,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________1
Please refer to “Use of Non-IFRS Financial Measures and Ratios” in
this press release.
Caution Regarding Forward-Looking
StatementsThis 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
applicable Canadian securities law. 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
strategy of transitioning to e-commerce and wholesale sales, future
sales through our e-commerce and wholesale channels, and our
results of operations, financial condition, liquidity and
prospects. The Company can give no assurance that it will more than
double its Canadian store footprint in the next three years.
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 discussed in
Management Discussion and Analysis of Financial Condition and
Results of Operations for our fiscal year ended February 3, 2024,
filed with the Autorité des marchés financiers, on May 2, 2024
which could materially affect our business, financial condition or
future results.
Conference Call InformationA conference call to
discuss third quarter results for fiscal 2024 is scheduled for
December 17, 2024, at 8:30 am Eastern Time. The conference call
will be webcast and may be accessed via
https://www.gowebcasting.com/13864. An online archive of the
webcast will be available within two hours of the conclusion of the
call.
About DAVIDsTEADAVIDsTEA offers
a specialty branded selection of high-quality proprietary
loose-leaf teas, pre-packaged teas, tea sachets, tea-related
accessories and gifts through its e-commerce platform at
www.davidstea.com and the Amazon Marketplace, its wholesale
customers which include over 4,000 grocery stores and pharmacies,
over 1,500 convenience stores in Canada and 170 grocery stores in
the United States, as well as 20 company-owned stores
across Canada. The Company offers primarily proprietary tea blends
that are exclusive to the Company, as well as traditional
single-origin teas and herbs. The team’s passion for and knowledge
of tea permeates the Company’s culture and is rooted in an
excitement to explore the taste, health and lifestyle elements of
tea. With a focus on innovative flavours, wellness-driven
ingredients and organic tea, the Company launches seasonally driven
“collections” with a mission of making tea fun and accessible to
all. The Company is headquartered in Montréal, Canada.
|
Contact Information |
|
|
MBC Capital Markets AdvisorsPierre Boucher514-731-0000 |
DAVIDsTEA Investor Relationsinvestors@davidstea.com |
DavidsTea (TSXV:DTEA)
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