First quarter sales increase of 9.4% to C$48.7
millionAnnounces Departure of Chief Financial Officer, Luis Borgen,
in July 2017
DAVIDsTEA Inc. (Nasdaq:DTEA) today announced financial results for
the three months April 29, 2017.
For the three months ended April 29,
2017:
- Sales increased by 9.4% to C$48.7 million from C$44.5 million a
year ago. Comparable sales decreased by 5.7%.
- Gross profit increased by 4.3% to C$24.2 million from C$23.2
million, while gross profit as a percent of sales decreased to
49.7% from 52.1%. The decrease in gross profit as a percent of
sales was driven by additional promotional activity, a shift in
product sales mix and the adverse impact from the stronger U.S.
dollar on U.S. dollar denominated purchases.
- Net loss was C$(0.4) million compared to net income of C$1.5
million. Adjusted net income (loss), a non-IFRS measure, which
excludes the impact of onerous contracts in the first quarter of
2017 (see Reconciliation of IFRS basis to Adjusted net income
(loss) table), was C$(1.1) million compared to C$1.5 million.
- Fully diluted income (loss) per common share was C$(0.01)
compared to C$0.06. Adjusted fully diluted income (loss) per common
share, a non-IFRS measure, which is adjusted net income (loss) on
an adjusted fully diluted weighted average shares outstanding basis
(see Reconciliation of fully diluted weighted average common shares
outstanding table), was C$(0.04) per share compared to C$0.06 per
share.
DAVIDsTEA President and Chief Executive Officer, Joel Silver,
stated, “Our first quarter sales trends remained challenging as we
continued to work through our excess inventory position. Total
sales were up close to 10%. As well, the year-over-year gross
profit margin decline was less than anticipated. Since taking over
as CEO in late March, I have confirmed my belief that DAVIDsTEA is
highly recognized, is known for quality and innovation, and has a
very solid retail concept. But there is considerable work to be
done to reinvigorate the overall business and get back to the core
of the DAVIDsTEA brand. We are encouraged with the initial progress
we are making against our strategic priorities that are centered
around improving the product assortment, in-store experience and
raising the bar on our e-commerce platform during this reset year.
Our overriding objective is to make the tea core experience better
for our customers and ensure that the DAVIDsTEA brand can realize
its full potential.”
Other financial metrics
- Selling, general and administration expenses (“SG&A”)
increased to C$24.2 million from C$21.1 million. As a percent of
sales, SG&A increased to 49.6% from 47.5%. Adjusted SG&A, a
non-IFRS measure, which excludes the impact of onerous contracts in
the first quarter of fiscal 2017 (see Reconciliation of IFRS basis
to Adjusted selling, general and administration expenses),
increased to C$25.6 million from C$21.1, due primarily to the
hiring of additional staff to support the growth of the Company,
including new stores, and higher store operating expenses to
support the operations of 232 stores as of April 29, 2017 as
compared to 198 stores as of April 30, 2016. As a percent of sales,
adjusted SG&A increased to 52.6% from 47.5%.
- Results from operating activities were C$0.0 million as
compared to C$2.0 million. Adjusted results from operating
activities, a non-IFRS measure, which excludes the impact of
onerous contracts in the first quarter of fiscal 2017 (see
Reconciliation of IFRS basis to Adjusted results from operating
activities), decreased to C$(1.4) million from C$2.0 million.
- Adjusted EBITDA was C$1.5 million compared to C$4.6. Adjusted
EBITDA, a non-IFRS measure, excludes non-cash or one-time costs in
the current and prior year periods (see Reconciliation of Adjusted
EBITDA table).
- Strong balance sheet with cash of C$56.3 million and total
liquidity (cash plus availability on a C$20.0 million revolving
facility) of C$76.3 million.
- The Company opened 1 net new store in the first quarter of
fiscal 2017 and ended the quarter with a total of 232 stores in
Canada and the U.S.
Fiscal 2017 Outlook
“We expect continued gross profit margin pressure
in the second quarter with some delayed promotions coinciding with
our planned annual summer clearance event, as we continue to work
through our excess inventory position. Looking ahead to the
rest of the year, Canada will be a clear focus where we anticipate
opening ten to fifteen new stores as we approach our total goal of
230 stores. We will also concentrate on re-energizing the existing
U.S. store base. U.S. new store growth will be up to five stores,
as we will be selective in any new undertakings to ensure those we
do open deliver higher returns.
“As previously stated, fiscal 2017 will be a reset
year and as such, we will not be issuing quarterly and annual
guidance through 2017. We will re-evaluate this at the appropriate
time. We remain focused on the mid-term vision and realignment of
DAVIDsTEA as we implement the needed strategic initiatives to make
the core tea experience better and deliver enhanced shareholder
returns,” commented Mr. Silver.
Chief Financial Officer
Departure
The Company also announced today that Chief Financial Officer,
Luis Borgen, has notified the company that he will be leaving,
effective July 31, 2017, to pursue other interests. DAVIDsTEA has
begun a comprehensive search for its next CFO.
Mr. Silver continued, “On behalf of everyone at
DAVIDsTEA, I would like to thank Luis for his leadership and many
contributions over the last five years. He played an integral role
in taking DAVIDsTEA public two years ago and has been instrumental
in instilling financial and cost discipline at the Company. We wish
him well in his future endeavors.”
Conference Call
Information:
A conference call to discuss the first quarter Fiscal 2017
financial results is scheduled for today, June 7, 2017, at 4:30
p.m. Eastern Time. The conference call will be webcast and may
be accessed via the Company’s Investor Relations section of its
website at www.davidstea.com. An online archive of the webcast will
be available within two hours of the conclusion of the call and
will remain available for one year.
Non-IFRS Information:
This press release includes non-IFRS measures including Adjusted
selling, general and administration expenses, Adjusted results from
operating activities, Adjusted EBITDA, Adjusted net income (loss),
and Adjusted fully diluted income (loss) per share. Adjusted
selling, general and administration expenses, Adjusted results from
operating activities, Adjusted EBITDA, Adjusted net income (loss)
and Adjusted fully diluted income (loss) per share are not
presentations made in accordance with IFRS, and the use of the
terms Adjusted selling, general and administration expenses,
Adjusted results from operating activities, Adjusted EBITDA,
Adjusted net income (loss) and Adjusted fully diluted income (loss)
per share may differ from similar measures reported by other
companies. We believe that Adjusted selling, general and
administration expenses, Adjusted results from operating
activities, Adjusted EBITDA, Adjusted net income (loss) and
Adjusted fully diluted income (loss) per share provide investors
with useful information with respect to our historical operations.
We present Adjusted selling, general and administration expenses,
Adjusted results from operating activities, Adjusted EBITDA,
Adjusted net income (loss) and Adjusted fully diluted income (loss)
per share 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. Specifically, Adjusted selling, general and
administration expenses, Adjusted results from operating
activities, Adjusted EBITDA, Adjusted net income (loss) and
Adjusted fully diluted income (loss) per share allow for an
assessment of our operating performance, including new store costs,
without the effect of non-cash charges of the period or other
one-time charges, such as depreciation, amortization, finance
costs, deferred rent, non-cash compensation expense, costs related
to onerous contracts or contracts where we expect the costs of the
obligations to exceed the economic benefit, gain (loss) on
derivative financial instruments, loss on disposal of property and
equipment, impairment of property and equipment, and certain
non-recurring expenses. These measures also function as benchmarks
to evaluate our operating performance. Adjusted selling, general
and administration expenses, Adjusted results from operating
activities, Adjusted EBITDA, Adjusted net income (loss), and
Adjusted fully diluted income (loss) per share are not measurements
of our financial performance under IFRS and should not be
considered in isolation or as alternatives to net income, net cash
provided by operating, investing or financing activities or any
other financial statement data presented as indicators of financial
performance or liquidity, each as presented in accordance with
IFRS. We understand that although Adjusted selling, general and
administration expenses, Adjusted results from operating
activities, Adjusted EBITDA, Adjusted net income (loss), and
Adjusted fully diluted income (loss) per share are frequently used
by securities analysts, lenders and others in their evaluation of
companies, they have limitations as analytical tools, and you
should not consider them in isolation, or as a substitute for
analysis of our results as reported under IFRS. Some of these
limitations are:
- Adjusted selling, general and administration expenses, Adjusted
results from operating activities, Adjusted EBITDA, Adjusted net
income (loss), and Adjusted fully diluted income (loss) per share
do not reflect changes in, or cash requirements for, our working
capital needs; and
- Although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect any
cash requirements for such replacements.
Because of these limitations, Adjusted selling, general and
administration expenses, Adjusted results from operating
activities, Adjusted EBITDA, Adjusted net income (loss), and
Adjusted fully diluted income (loss) per share should not be
considered as discretionary cash available to us to reinvest in the
growth of our business or as a measure of cash that will be
available to us to meet our obligations.
Forward-Looking
Statements:
This press release includes forward-looking statements. These
forward-looking statements generally can be identified by the use
of words such as “anticipate,” “expect,” “plan,” “could,” “may,”
“will,” “believe,” “estimate,” “forecast,” “goal,” “project,” and
other words of similar meaning. These forward-looking statements
address various matters including management’s beliefs about the
Company’s growth prospects, store openings, product offerings and
financial guidance for the coming fiscal quarter and fiscal year.
The Company cannot assure investors that future developments
affecting the Company will be those that it has anticipated. Actual
results may differ materially from these expectations due to risks
and uncertainties including: the Company’s ability to maintain and
enhance its brand image, particularly in new markets; the Company’s
ability to compete in the specialty tea and beverage category; the
Company’s ability to expand and improve its operations; changes in
the Company’s executive management team; levels of foot traffic in
locations in which the Company’s stores are located; changes in
consumer trends and preferences; fluctuations in foreign currency
exchange rates; general economic conditions and consumer
confidence; minimum wage laws; the importance of the Company’s
first fiscal quarter to results of operations for the entire fiscal
year; and other risks set forth in the Company’s Annual Report on
Form 10-K dated April 12, 2017 and filed with the Securities and
Exchange Commission on April 13, 2017. If one or more of these
risks or uncertainties materialize, or if any of the Company’s
assumptions prove incorrect, the Company’s actual results may vary
in material respects from those projected in these forward-looking
statements. Any forward-looking statement made by the Company in
this release speaks only as of the date on which the Company makes
it. The Company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by any
applicable securities laws.
About DAVIDsTEA:
DAVIDsTEA is a retailer of specialty tea, offering a
differentiated selection of proprietary loose-leaf teas,
pre-packaged teas, tea sachets and tea-related gifts, accessories
and food and beverages, primarily through 232 company-operated
DAVIDsTEA stores throughout Canada and the United States as of
April 29, 2017, and its website, davidstea.com. The Company is
headquartered in Montréal, Canada.
CONSOLIDATED BALANCE SHEETS |
|
[Unaudited and in thousands of Canadian
dollars] |
|
|
|
As at |
|
As at |
|
|
April 29,
2017 |
|
January 28,
2017 |
|
|
$ |
|
$ |
|
|
|
|
|
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
|
56,348 |
|
|
64,440 |
|
Accounts
and other receivables |
|
3,960 |
|
|
3,485 |
|
Inventories |
|
28,574 |
|
|
31,264 |
|
Income
tax receivable |
|
1,629 |
|
|
539 |
|
Prepaid
expenses and deposits |
|
8,159 |
|
|
5,659 |
|
Derivative financial instruments |
|
1,200 |
|
|
454 |
|
Total
current assets |
|
99,870 |
|
|
105,841 |
|
Property
and equipment |
|
51,407 |
|
|
51,160 |
|
Intangible assets |
|
3,106 |
|
|
2,958 |
|
Deferred
income tax assets |
|
13,522 |
|
|
14,375 |
|
Total
assets |
|
167,905 |
|
|
174,334 |
|
LIABILITIES AND EQUITY |
|
|
|
|
Current |
|
|
|
|
Trade and
other payables |
|
13,131 |
|
|
19,681 |
|
Deferred
revenue |
|
3,899 |
|
|
4,885 |
|
Current
portion of provisions |
|
2,123 |
|
|
2,562 |
|
Total
current liabilities |
|
19,153 |
|
|
27,128 |
|
Deferred
rent and lease inducements |
|
7,908 |
|
|
7,824 |
|
Provisions |
|
5,369 |
|
|
5,932 |
|
Total
liabilities |
|
32,430 |
|
|
40,884 |
|
Equity |
|
|
|
|
Share
capital |
|
265,564 |
|
|
263,828 |
|
Contributed surplus |
|
8,200 |
|
|
8,833 |
|
Deficit |
|
(142,746 |
) |
|
(142,398 |
) |
Accumulated other comprehensive income |
|
4,457 |
|
|
3,187 |
|
Total
equity |
|
135,475 |
|
|
133,450 |
|
|
|
167,905 |
|
|
174,334 |
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME
(LOSS) |
AND COMPREHENSIVE INCOME (LOSS) |
|
[Unaudited and in thousands of Canadian
dollars, except share and per share information] |
|
|
|
For the three months
ended |
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
$ |
|
$ |
|
|
|
|
|
Sales |
|
48,669 |
|
|
44,469 |
|
Cost of sales |
|
24,487 |
|
|
21,314 |
|
Gross
profit |
|
24,182 |
|
|
23,155 |
|
Selling, general and
administration expenses |
|
24,153 |
|
|
21,119 |
|
Results
from operating activities |
|
29 |
|
|
2,036 |
|
Finance costs |
|
131 |
|
|
17 |
|
Finance income |
|
(136 |
) |
|
(121 |
) |
Income
before income taxes |
|
34 |
|
|
2,140 |
|
Provision for income
tax |
|
396 |
|
|
626 |
|
Net
income (loss) |
|
(362 |
) |
|
1,514 |
|
Other
comprehensive income (loss) |
|
|
|
|
Items to be
reclassified subsequently to income: |
|
|
|
|
Unrealized net gain
(loss) on forward exchange contracts |
|
1,200 |
|
|
(4,197 |
) |
Realized net gain on
forward exchange contracts reclassified to inventory |
|
(453 |
) |
|
(968 |
) |
Provision for income
tax recovery (income tax) on comprehensive income |
|
(199 |
) |
|
1,371 |
|
Cumulative translation
adjustment |
|
722 |
|
|
(2,322 |
) |
Other
comprehensive income (loss), net of tax |
|
1,270 |
|
|
(6,116 |
) |
Total
comprehensive income (loss) |
|
908 |
|
|
(4,602 |
) |
Net
income (loss) per share: |
|
|
|
|
Basic |
|
(0.01 |
) |
|
0.06 |
|
Fully diluted |
|
(0.01 |
) |
|
0.06 |
|
Weighted average number of shares
outstanding |
|
|
|
|
—
basic |
|
25,402,543 |
|
|
24,134,285 |
|
— fully
diluted |
|
25,402,543 |
|
|
25,892,598 |
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
[Unaudited and in thousands of Canadian
dollars] |
|
|
|
For the three months
ended |
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
$ |
|
$ |
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
Net income (loss) |
|
(362 |
) |
|
1,514 |
|
Items not affecting
cash: |
|
|
|
|
Depreciation of property and equipment |
|
2,064 |
|
|
1,787 |
|
Amortization of intangible assets |
|
282 |
|
|
161 |
|
Loss on
disposal of property and equipment |
|
6 |
|
|
— |
|
Deferred
rent |
|
3 |
|
|
280 |
|
Recovery
for onerous contracts |
|
(886 |
) |
|
— |
|
Stock-based compensation expense |
|
574 |
|
|
316 |
|
Amortization of financing fees |
|
20 |
|
|
18 |
|
Accretion
on provisions |
|
112 |
|
|
— |
|
Deferred
income taxes (recovered) |
|
1,000 |
|
|
(30 |
) |
|
|
2,813 |
|
|
4,046 |
|
Net change in other
non-cash working capital balances related to operations |
|
(9,474 |
) |
|
(4,834 |
) |
Cash
flows related to operating activities |
|
(6,661 |
) |
|
(788 |
) |
FINANCING ACTIVITIES |
|
|
|
|
Proceeds from issuance
of common shares pursuant to exercise of stock options |
|
815 |
|
|
344 |
|
Cash
flows related to financing activities |
|
815 |
|
|
344 |
|
INVESTING ACTIVITIES |
|
|
|
|
Additions to property
and equipment |
|
(1,821 |
) |
|
(2,846 |
) |
Additions to intangible
assets |
|
(425 |
) |
|
(156 |
) |
Cash
flows related to investing activities |
|
(2,246 |
) |
|
(3,002 |
) |
Decrease in cash during
the period |
|
(8,092 |
) |
|
(3,446 |
) |
Cash,
beginning of period |
|
64,440 |
|
|
72,514 |
|
Cash,
end of period |
|
56,348 |
|
|
69,068 |
|
Reconciliation of Adjusted EBITDA |
|
[Unaudited and in thousands of Canadian
dollars] |
|
|
|
For the three months
ended |
|
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(362 |
) |
|
$ |
1,514 |
|
Finance
costs |
|
|
131 |
|
|
|
17 |
|
Finance
income |
|
|
(136 |
) |
|
|
(121 |
) |
Depreciation and amortization |
|
|
2,346 |
|
|
|
1,948 |
|
Loss on
disposal of property and equipment |
|
|
6 |
|
|
|
— |
|
Provision
for income tax |
|
|
396 |
|
|
|
626 |
|
EBITDA |
|
$ |
2,381 |
|
|
$ |
3,984 |
|
Additional adjustments
: |
|
|
|
|
|
|
Stock-based compensation expense (a) |
|
|
574 |
|
|
|
316 |
|
Impact of
onerous contracts (b) |
|
|
(1,415 |
) |
|
|
— |
|
Deferred
rent (c) |
|
|
3 |
|
|
|
280 |
|
Adjusted EBITDA |
|
$ |
1,543 |
|
|
$ |
4,580 |
|
|
_____________________(a) Represents non-cash stock-based
compensation expense.(b) Represents utilization and non-cash
reversals of provisions related to certain stores where the
unavoidable costs of meeting the obligations under the lease
agreements are expected to exceed the economic benefits expected to
be received from the contract.(c) Represents the extent to
which our annual rent expense has been above or below our cash rent
payments.
Reconciliation of IFRS basis to Adjusted net
income (loss) |
|
[Unaudited and in thousands of Canadian
dollars] |
|
|
|
For the three months
ended |
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
|
|
|
|
|
Net
Income (loss) |
|
$ |
(362 |
) |
|
$ |
1,514 |
Impact of
onerous contracts (a) |
|
|
(1,303 |
) |
|
|
— |
Income
tax expense adjustment (b) |
|
|
523 |
|
|
|
— |
Adjusted net income (loss) |
|
$ |
(1,142 |
) |
|
$ |
1,514 |
|
_____________________(a) Represents utilization and
non-cash reversals of, as well as the accretion expense on,
provisions related to certain stores where the unavoidable costs of
meeting the obligations under the lease agreements are expected to
exceed the economic benefits expected to be received from the
contract. The accretion expense on provisions for onerous contracts
is included in Finance costs on the Consolidated Statement of
Comprehensive Income (Loss) for the three months ended April 29,
2017.(b) Removes the income tax impact of the impact of
onerous contracts referenced in note (a).
Reconciliation of IFRS basis to Adjusted
results from operating activities |
|
[Unaudited and in thousands of Canadian
dollars] |
|
|
|
For the three months
ended |
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
|
|
|
Results
from operating activities |
|
|
29 |
|
|
|
2,036 |
Impact of
onerous contracts (a) |
|
|
(1,415 |
) |
|
|
— |
Adjusted results from operating
activities |
|
$ |
(1,386 |
) |
|
$ |
2,036 |
|
_____________________(a) Represents
utilization and non-cash reversals of provisions related to certain
stores where the unavoidable costs of meeting the obligations under
the lease agreements are expected to exceed the economic benefits
expected to be received from the contract.
Reconciliation of IFRS basis to Adjusted
selling, general and administration expenses |
|
[Unaudited and in thousands of Canadian
dollars] |
|
|
|
For the three months
ended |
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
|
|
|
Selling, general and administration
expenses |
|
|
24,153 |
|
|
21,119 |
Impact of
onerous contracts (a) |
|
|
1,415 |
|
|
— |
Adjusted selling, general and administration
expenses |
|
$ |
25,568 |
|
$ |
21,119 |
|
_____________________(a) Represents utilization and
non-cash reversals of provisions related to certain stores where
the unavoidable costs of meeting the obligations under the lease
agreements are expected to exceed the economic benefits expected to
be received from the contract.
Reconciliation of fully diluted weighted
average common shares outstanding, as reported, adjusted fully
diluted weighted average common shares outstanding |
|
[Unaudited and in thousands of Canadian
dollars, except per share] |
|
|
|
For the three months
ended |
|
|
April 29,
2017 |
|
April 30,
2016 |
|
|
|
|
|
Weighted average number of shares outstanding,
fully diluted |
|
25,402,543 |
|
|
25,892,598 |
|
|
|
|
|
Net
income (loss) per share, fully diluted |
|
(0.01 |
) |
|
0.06 |
|
|
|
|
|
Adjusted net income (loss) per share, fully
diluted |
|
(0.04 |
) |
|
0.06 |
Investor Contact
ICR Inc.
Rachel Schacter
(203) 682-8200
investors@davidstea.com
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