DAVIDsTEA Inc. (Nasdaq:DTEA) (DAVIDsTEA or “the Company”), the
leading tea merchant in North America, announces its first quarter
results for the period ended May 4, 2019 (“Fiscal 2019”). Unless
otherwise indicated, the Company's results for the first quarter of
Fiscal 2019 reflect the adoption of IFRS 16, as described below
under “Adoption of IFRS 16 - Leases”. All numbers are expressed in
Canadian dollars.
“Our first quarter results reflect the lead
times required for the implementation and consumer uptake of our
new corporate wide initiatives. Our core tea business remains
stable and healthy, while tea accessory sales were impacted by the
seasonal transition period leading up to the fall,” stated Herschel
Segal, Executive Chairman and Interim Chief Executive Officer. “We
are confident that our ongoing initiatives will lead to a return to
positive sales in the near future. We look forward to launching our
previously announced expanded wholesale agreement with Loblaw
Companies Limited to sell our teas in over 1,500 of their locations
this fall as we continue to expand our wholesale business,” stated
Herschel Segal, Executive Chairman and Interim Chief Executive
Officer.
“As previously indicated, the benefits of lower
procurement costs will improve margins as older inventory is
reduced and replenished with a lower cost of goods. Our balance
sheet remains strong with a net cash position of $35.5 million or
approximately $1.36 per share. We have a strong and motivated
leadership team working diligently to unlock the tremendous brand
value and recognition of DAVIDsTEA and to stimulate sales,” stated
Frank Zitella, Chief Operating Officer and Chief Financial
Officer.
Operating Results for the First Quarter
of Fiscal 2019
Sales for the three months ended May 4, 2019,
decreased 3.3%, or $1.5 million, to $44.3 million from $45.8
million in the prior year quarter. Sales from our e-commerce and
wholesale channels increased $0.6 million, or by 9.3%, driven
primarily by greater online adoption as well as by increased demand
in our grocery distribution channel. Offsetting this was a decline
in retail sales of $2.5 million and a decline of $2.3 million, or
6.1%, in comparable store sales.
Gross profit increased by 16.1%, or $3.6
million, to $26.3 million for the three months ended May 4, 2019,
from the prior year quarter. IFRS 16 replaces the straight-line
operating lease expense with a depreciation charge for right-of-use
assets and interest expense on lease liabilities. Accordingly,
straight-line operating lease expense is no longer included in cost
of sales in arriving at gross profit. Prior to the adoption of IFRS
16, straight-line operating lease expense amounting to $5.8 million
would have been included in arriving at gross profit. Excluding the
impact of IFRS 16, gross profit decreased by $2.2 million to $20.5
million, representing a gross profit of 46.3% for the three months
ended May 4, 2019, a decrease of 3.3% from the prior year quarter
resulting from a shift in product sales mix and the deleveraging of
fixed costs due to negative comparable store sales.
Selling, general and administration expenses
(“SG&A”) increased by 17.7%, or $4.3 million, to $28.7 million
in the three months ended May 4, 2019, from the prior year quarter.
Under IFRS 16, SG&A includes $3.8 million of depreciation in
connection with our right-of-use assets. Excluding the impact of
IFRS 16, SG&A would have amounted to $24.9 million, an increase
of $0.5 million, or 2%, from the prior year quarter and as a
percentage of sales would have amounted to 56.3% representing an
increase of 3.0% over the prior year quarter. Excluding the impact
of IFRS 16 for the three months ended May 4, 2019, and the impact
of onerous contracts and costs related to the strategic review and
proxy contest for the three months ended May 5, 2018, adjusted
SG&A1 decreased by $0.2 million for the three months ended May
4, 2019. As a percentage of sales, adjusted SG&A1 increased to
56.3% from 54.9% due to the deleveraging of fixed costs as a result
of negative comparable store sales.
Loss from operating activities was $2.4 million
as compared to a loss of $1.7 million in the prior year quarter.
Excluding the impact of IFRS 16, loss from operating activities
would have amounted to $4.4 million, an increase of $2.7 million
from the prior year quarter. This is explained by a decline in
gross profit of $2.2 million resulting from a decline in sales of $
1.5 million and an increase in cost of sales of $0.7 million, as
well as an increase in SG&A of $0.5 million. Adjusted loss from
operating activities1, which excludes any impact from onerous
contracts and costs related to the strategic review and proxy
contest, was $4.4 million compared to $2.4 million in the prior
year quarter.
Finance costs amounted to $1.8 million in the
three months ended May 4, 2019, an increase of $1.7 million from
the prior year quarter. Finance costs under IFRS 16 includes
interest expense from lease liabilities measured at the present
value of lease payments to be made over the lease term. The Company
recognized a lease liability of $102.2 million on initial
application of IFRS 16. Excluding the impact of IFRS 16, interest
expense would have been $nil in the current year quarter.
EBITDA, which excludes non-cash and other items
in the current and prior periods, was $3.1 million in the quarter
ended May 4, 2019 compared to $0.2 million in the prior year
quarter. Excluding the impact of IFRS 16, EBITDA would have
amounted to a negative $2.7 million, representing a decrease of
$2.9 million over the prior year quarter. Adjusted EBITDA1 for the
quarter amounted to $3.3 million compared to a negative $0.4
million in the prior year quarter. Excluding the impact of IFRS 16
and stock-based compensation for the three months ended May 4, 2019
and the impact of stock-based compensation, onerous contracts,
deferred rent and costs related to the strategic review and proxy
contest for the three months ended May 5, 2018, Adjusted EBITDA1
decreased $2.2 million from the prior year quarter.
Net loss was $4.0 million in the quarter ended
May 4, 2019 compared to a net loss of $1.2 million in the prior
year quarter. Excluding the impact of IFRS 16, net loss would have
amounted to $4.2 million, representing an increase of $3.0 million
in net loss over the prior year quarter. Adjusted net loss1, which
excludes the impact from onerous contracts and costs related to
strategic review and proxy contest, was $4.0 million compared to
$1.9 million in the prior year quarter.
Fully diluted loss per common share was $0.15
compared to $0.05 in the first quarter of Fiscal 2018. Adjusted
fully diluted loss per common share1, which is Adjusted net loss1
on a fully diluted weighted average shares outstanding basis, was
$0.15 per share compared to $0.07 per share.
Adoption of IFRS 16 - LeasesThe
Company adopted IFRS 16 - Leases, replacing IAS 17
- Leases and Related interpretations, using the modified
retrospective approach, effective for the annual reporting period
beginning on February 3, 2019. As a result, the Company's results
for the first quarter of Fiscal 2019 reflect lease accounting under
IFRS 16. Comparative figures for the first quarter of Fiscal 2018
have not been restated and continue to be reported under IAS 17,
Leases. Refer to Note 3 of the unaudited condensed consolidated
interim financial statements for the first quarter of 2019 for
additional details on the implementation of IFRS 16.
NoteThis 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.
Use of Non-IFRS Financial
MeasuresThis press release includes “non-IFRS financial
measures” defined as including: 1) Adjusted EBITDA, 2) Adjusted
operating loss, 3) Adjusted selling, general and administration
expenses, 4) Adjusted net loss, 5) Operating loss, and 6) Adjusted
fully diluted loss per share. 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.
Please refer to the non-IFRS financial measures
section in Management’s Discussion and Analysis section of our Form
10-Q.
Conference Call InformationA
conference call to discuss the first quarter Fiscal 2019 financial
results is scheduled for today, June 18, 2019, at 4:30 pm Eastern
Time. The conference call will be webcast and may be accessed via
the Investor Relations section of the Company’s 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.
|
|
Condensed Consolidated Financial Data |
|
(Canadian dollars, in thousands, except per share information) |
|
|
|
|
For the three months ended |
|
|
|
|
May 4, 2019 |
|
|
|
|
May 4, |
|
Excluding impact |
|
May 5, |
|
|
2019 |
|
of IFRS 16 (1) |
|
2018 |
|
|
|
|
|
|
|
|
Sales |
$ |
44,265 |
|
$ |
44,265 |
|
$ |
45,786 |
|
Cost of sales |
|
17,929 |
|
|
23,752 |
|
|
23,094 |
|
Gross profit |
|
26,336 |
|
|
20,513 |
|
|
22,692 |
|
SG&A expenses |
|
28,709 |
|
|
24,918 |
|
|
24,396 |
|
Operating loss1 |
|
(2,373 |
) |
|
(4,405 |
) |
|
(1,704 |
) |
Finance costs |
|
1,827 |
|
|
- |
|
|
79 |
|
Finance income |
|
(191 |
) |
|
(191 |
) |
|
(237 |
) |
Recovery of income tax |
|
- |
|
|
- |
|
|
(344 |
) |
Net loss |
$ |
(4,009 |
) |
$ |
(4,214 |
) |
$ |
(1,202 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted SG&A1 |
$ |
28,709 |
|
$ |
24,918 |
|
$ |
25,118 |
|
Adjusted operating loss1 |
|
(2,373 |
) |
|
(4,405 |
) |
|
(2,426 |
) |
Adjusted EBITDA1 |
|
3,269 |
|
|
(2,554 |
) |
|
(400 |
) |
Adjusted net loss1 |
$ |
(4,009 |
) |
$ |
(4,214 |
) |
$ |
(1,924 |
) |
|
|
|
|
|
|
|
|
|
|
Fully diluted loss per common share |
$ |
(0.15 |
) |
$ |
(0.16 |
) |
$ |
(0.05 |
) |
Adjusted fully diluted loss per common share1 |
$ |
(0.15 |
) |
$ |
(0.16 |
) |
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
Gross profit as a percentage of sales |
|
59.5 |
% |
|
46.3 |
% |
|
49.6 |
% |
SG&A as a percentage of sales |
|
64.9 |
% |
|
56.3 |
% |
|
53.3 |
% |
Adjusted SG&A as a percentage of sales1 |
|
64.9 |
% |
|
56.3 |
% |
|
54.9 |
% |
Number of stores at end of period |
|
234 |
|
|
234 |
|
|
240 |
|
Comparable sales decline for the period |
(6.1 |
%) |
(6.1 |
%) |
(10.6 |
%) |
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities |
$ |
360 |
|
$ |
(5,463 |
) |
$ |
(7,106 |
) |
Cash used in financing activities |
|
(5,823 |
) |
|
- |
|
|
- |
|
Cash used in investing activities |
|
(1,120 |
) |
|
(1,120 |
) |
|
(2,510 |
) |
Cash, end of period |
$ |
35,491 |
|
$ |
35,491 |
|
$ |
53,868 |
|
|
|
|
|
|
|
|
|
|
|
|
May 4, |
|
Feb 2, |
|
May 5, |
|
As at |
2019 |
|
2019 |
|
2018 |
|
Inventories |
$ |
31,642 |
|
$ |
34,353 |
|
$ |
25,795 |
|
Accounts receivable |
$ |
2,909 |
|
$ |
3,681 |
|
$ |
3,697 |
|
|
|
|
|
|
|
|
|
|
|
__________________ 1 Please refer to “Use of
Non-IFRS financial measures” in this press release.
Cautionary Forward-Looking
StatementsCertain material presented in this press release
includes forward-looking statements intended to qualify for the
safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. 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
prospects, management’s turn-around strategy, plans for investment
in marketing initiatives, changes to product offerings and
assortment, and strategic plans. 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 implement its strategy, 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 . 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 DAVIDsTEADAVIDsTEA is a
leading 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
through over 230 company-owned and operated DAVIDsTEA retail stores
in Canada and the United States, as well as through its e-commerce
platform at davidstea.com. A selection of DAVIDsTEA products are
also available in grocery stores across Canada through its growing
wholesale distribution channel. 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 |
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