DAVIDsTEA Inc. (Nasdaq:DTEA) (DAVIDsTEA or “the Company”), the
leading tea merchant in North America, announced its second quarter
results for the period ended August 3, 2019 (“Fiscal 2019”). Unless
otherwise indicated, the Company’s results for the second 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 second quarter results highlight the solid
performance of our e-commerce and wholesale channels with a
combined growth of 53% over last year, reflecting the benefits of
recent initiatives. Nearly a year into the launch of our tea
sachets in major Canadian grocery chains, sales continue to surpass
our expectations and reflect high demand for our brand wherever
available. In addition, e-commerce continues to be our fastest
growing channel as we continue to improve customer engagement,”
stated Herschel Segal, Founder, Executive Chairman and Interim
Chief Executive Officer.
“In the first half of 2019, we concentrated our
efforts on delivering the best fine tea on the market across all of
our distribution channels. We also streamlined our product
portfolio to simplify and improve the customer experience. While
the second quarter is generally most impacted by seasonality, we
nonetheless maintained a strong cash position driven by positive
cash flow from operations, optimized inventory levels and a
reduction in selling, general and administrative expenses,” said
Frank Zitella, Chief Financial and Operating Officer.
“We look forward to significantly expanding our
wholesale distribution capabilities in the coming months with the
availability of DAVIDsTEA tea sachets in over 2,500 third-party
retail locations across Canada. We are also launching several
exciting tea collections including a new and expanded wellness
offering. I am thrilled by what the leadership team has been able
to achieve, and I am confident that we are in a good position ahead
of the holiday season. While we continue to face challenges, we are
taking tangible steps towards a return to growth and
profitability,” concluded Mr. Zitella.
Operating Results for the Second Quarter
of Fiscal 2019
The Company reported a net loss of $7.0 million
for the quarter, a decrease of $3 million or 29.8% from a loss of
$10.0 million for the comparable quarter in the prior year.
Sales for the three months ended August 3, 2019
decreased by 2.5%, or $1.0 million, to $39.2 million from $40.2
million in the prior year quarter. Sales from our e-commerce and
wholesale channels increased $2.8 million, or 52.8%, 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 $3.8 million and a decline of $2.9 million, or
9.4%, in comparable same store sales.
Operating loss decreased by $8.6 million to $5.4
million. Excluding the impact of IFRS 16, loss from operating
activities would have amounted to $7.4 million, a decrease of $6.6
million from the prior year quarter. This decrease is explained
mainly by the absence of Adjusted Items2 incurred in the comparable
quarter of 2018.
Selling, general and administration expenses
(“SG&A”) decreased by 13.1%, or $4.1 million, to $27.2 million
in the three months ended August 3, 2019 from the prior year
quarter. Excluding the impact of IFRS 16 for the three months ended
August 3, 2019, and Adjusted Items incurred in the second quarter
of 2018, Adjusted SG&A1 decreased by $1.2 million for the three
months ended August 3, 2019, mainly due to lower selling
expenses.
EBITDA, which excludes non-cash and other items
in the current and prior periods, was $0.2 million in the quarter
ended August 3, 2019, compared to negative $11.9 million in the
prior year quarter. Excluding the impact of IFRS 16, EBITDA would
have amounted to negative $5.6 million, representing an improvement
of $6.3 million over the prior year quarter. Adjusted EBITDA1 for
the quarter amounted to $0.4 million compared to negative $5.6
million in the prior year quarter. Excluding the impact of IFRS 16
and the Adjusting Items, Adjusted EBITDA increased by $0.1
million.
Fully diluted loss per common share was $0.27
compared to $0.39 in the second 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
$0.27 per share compared to $0.24 per share for the same quarter in
2018.
As at August 3, 2019, the Company had a cash
balance of $29.7 million, and a working capital of $39.4 million.
Decrease in cash during the three- and six-month periods was $5.8
million and $12.3 million, an improvement of $8.4 million and $11.5
million over the prior year quarter and six-month period,
respectfully. The improvement reflects a focus on optimizing
working capital, selective capital investments and the avoidance of
employee separation, and other one-time non-recurring disbursements
incurred in fiscal 2018.
Net cash provided by operating activities
amounted to $3.1 million for the three months ended August 3, 2019,
from net cash used of $12.4 million for the three months ended
August 4, 2018. Excluding the impact of IFRS 16, net cash used in
operating activities amounted to $2.7 million, an improvement of
$9.7 million from the prior year quarter. Net change in other
non-cash working capital balances related to operations improved by
$9.1 million primarily from a reduction in cash used for
inventories and the collection of account receivables partially
offset by a decrease in accounts payable and accrued liabilities,
and an increase in prepaids.
Cash flows used in financing activities was $5.8
million for the three months ended August 3, 2019, compared to $0.1
million for the three months ended August 4, 2018. Excluding the
impact of IFRS 16, net cash used in financing activities was
nil.
Cash flows used in investing activities was $3.1
million for the three months ended August 3, 2019, compared to $1.9
million for the three months ended August 4, 2018. The increase in
net cash used in investing activities relates to the loan advance
made during the period, partially offset by a decrease in capital
expenditures.
Adoption of IFRS 16 -
Leases
The 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 half of Fiscal 2019 reflect lease
accounting under IFRS 16. Comparative figures for the first half 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 half of
2019 for additional details on the implementation of IFRS 16.
Loan Agreement
The Company also announces that it entered into
a secured loan agreement with Oink Oink Candy Inc., doing business
as “Squish”, as borrower, and Rainy Day Investments Ltd. (“RDI”),
as guarantor, pursuant to which the Company agreed to lend to
Squish an amount of up to $2.0 million. The loan bears
interest, payable monthly, at a rate of 1% over Bank of Montreal’s
prime rate, which currently stands at 3.95% and is repayable no
later than December 31, 2019. RDI has guaranteed all of
Squish’s obligations to DAVIDsTEA and, as security in full for the
guarantee, has given a movable hypothec (or lien) in favour of the
Company on its shares of DAVIDsTEA. Squish is a company
controlled by Sarah Segal, an officer of DAVIDsTEA. RDI, the
principal shareholder of DAVIDsTEA, is controlled by Herschel
Segal, Executive Chairman, Interim Chief Executive Officer and a
director of DAVIDsTEA. Ms. Segal is the daughter of Mr. Segal. The
Company and Squish previously entered into a Collaboration and
Shared Services Agreement pursuant to which they collaborate on and
share various services and infrastructure.
The Loan Agreement constitutes a related-party
transaction under Québec Regulation 61-101 Respecting Protection of
Minority Security Holders in Special Transactions but is exempt
from the formal valuation and minority approval requirements
thereof as neither the fair market value of the loan nor the fair
market value of the consideration for the loan exceeds 25% of
DAVIDsTEA’s market capitalization.
Board Resignation
The Company announces that Anne Darche has
resigned as a member of the Board of Directors due to time
constraints. The Board of Directors and management would like to
thank Ms. Darche for her valued contributions and wish her
well in her future endeavors.
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.
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 Management’s Discussion and Analysis section of our Form
10-Q for a reconciliation to IFRS financial measures.
Conference Call Information
A conference call to discuss the
second quarter Fiscal 2019 financial results is scheduled for
today, September 17, 2019, at 5:00 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 |
|
For the six months ended |
|
|
|
August 3, 2019 |
|
|
|
|
|
August 3, 2019 |
|
|
|
August
3, |
|
Excluding impact |
|
August
4, |
|
August
3, |
|
Excluding
impact |
|
August
4, |
|
2019 |
|
of IFRS 16 (1) |
|
2018 |
|
2019 |
|
of IFRS 16 (1) |
|
2018 |
|
|
|
(Unaudited) |
Sales |
$ |
39,167 |
|
|
$ |
39,167 |
|
|
$ |
40,167 |
|
|
$ |
83,432 |
|
|
$ |
83,432 |
|
|
$ |
85,953 |
|
Cost of sales |
|
17,362 |
|
|
|
23,161 |
|
|
|
22,824 |
|
|
|
35,291 |
|
|
|
46,913 |
|
|
|
45,918 |
|
Gross profit |
|
21,805 |
|
|
|
16,006 |
|
|
|
17,343 |
|
|
|
48,141 |
|
|
|
36,519 |
|
|
|
40,035 |
|
SG&A expenses |
|
27,237 |
|
|
|
23,424 |
|
|
|
31,350 |
|
|
|
55,946 |
|
|
|
48,342 |
|
|
|
55,746 |
|
Operating loss |
|
(5,432 |
) |
|
|
(7,418 |
) |
|
|
(14,007 |
) |
|
|
(7,805 |
) |
|
|
(11,823 |
) |
|
|
(15,711 |
) |
Finance costs |
|
1,781 |
|
|
|
— |
|
|
|
78 |
|
|
|
3,608 |
|
|
|
— |
|
|
|
157 |
|
Finance income |
|
(195 |
) |
|
|
(195 |
) |
|
|
(215 |
) |
|
|
(386 |
) |
|
|
(386 |
) |
|
|
(452 |
) |
Recovery of income tax |
|
— |
|
|
|
— |
|
|
|
(3,872 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,216 |
) |
Net loss |
$ |
(7,018 |
) |
|
$ |
(7,223 |
) |
|
$ |
(9,998 |
) |
|
$ |
(11,027 |
) |
|
$ |
(11,437 |
) |
|
$ |
(11,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA1 |
$ |
196 |
|
|
$ |
(5,603 |
) |
|
$ |
(11,939 |
) |
|
$ |
3,338 |
|
|
$ |
(8,284 |
) |
|
$ |
(11,775 |
) |
Adjusted SG&A1 |
|
27,237 |
|
|
|
23,424 |
|
|
|
24,642 |
|
|
|
55,946 |
|
|
|
48,342 |
|
|
|
49,760 |
|
Adjusted operating loss1 |
|
(5,432 |
) |
|
|
(7,418 |
) |
|
|
(7,299 |
) |
|
|
(7,805 |
) |
|
|
(11,823 |
) |
|
|
(9,725 |
) |
Adjusted EBITDA1 |
|
361 |
|
|
|
(5,438 |
) |
|
|
(5,564 |
) |
|
|
3,630 |
|
|
|
(7,992 |
) |
|
|
(5,964 |
) |
Adjusted net loss1 |
|
(7,018 |
) |
|
|
(7,223 |
) |
|
|
(3,290 |
) |
|
|
(11,027 |
) |
|
|
(11,437 |
) |
|
|
(5,214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted loss per common share |
$ |
(0.27 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.39 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.43 |
) |
Adjusted fully diluted loss per common share1 |
$ |
(0.27 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percentage of sales |
|
55.7 |
% |
|
|
40.9 |
% |
|
|
43.2 |
% |
|
|
57.7 |
% |
|
|
43.8 |
% |
|
|
46.6 |
% |
SG&A as a percentage of sales |
|
69.5 |
% |
|
|
59.8 |
% |
|
|
78.0 |
% |
|
|
67.1 |
% |
|
|
57.9 |
% |
|
|
64.9 |
% |
Adjusted SG&A as a percentage of sales1 |
|
69.5 |
% |
|
|
59.8 |
% |
|
|
61.3 |
% |
|
|
67.1 |
% |
|
|
57.9 |
% |
|
|
57.9 |
% |
Number of stores at end of period |
|
233 |
|
|
|
233 |
|
|
|
239 |
|
|
|
233 |
|
|
|
233 |
|
|
|
239 |
|
Comparable sales decline for the period |
|
(9.4 |
%) |
|
|
(9.4 |
%) |
|
|
(14.8 |
%) |
|
|
(7.7 |
%) |
|
|
(7.7 |
%) |
|
|
(10.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
$ |
3,083 |
|
|
$ |
(2,716 |
) |
|
$ |
(12,438 |
) |
|
$ |
3,443 |
|
|
$ |
(8,179 |
) |
|
$ |
(19,544 |
) |
Cash provided by (used in) financing activities |
|
(5,799 |
) |
|
|
— |
|
|
|
74 |
|
|
|
(11,622 |
) |
|
|
— |
|
|
|
74 |
|
Cash used in investing activities |
|
(3,050 |
) |
|
|
(3,050 |
) |
|
|
(1,881 |
) |
|
|
(4,170 |
) |
|
|
(4,170 |
) |
|
|
(4,391 |
) |
Decrease in cash during the period |
|
(5,766 |
) |
|
|
(5,766 |
) |
|
|
(14,245 |
) |
|
|
(12,349 |
) |
|
|
(12,349 |
) |
|
|
(23,861 |
) |
Cash, end of period |
$ |
29,725 |
|
|
$ |
29,725 |
|
|
$ |
39,623 |
|
|
$ |
29,725 |
|
|
$ |
29,725 |
|
|
$ |
39,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
3, |
|
Feb
2, |
|
August
4, |
As at |
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
2019 |
|
2018 |
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,893 |
|
|
$ |
34,353 |
|
|
$ |
33,680 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,140 |
|
|
$ |
3,681 |
|
|
$ |
3,201 |
|
|
Cautionary Forward-Looking Statements
Certain 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 and second fiscal quarters 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 DAVIDsTEA
DAVIDsTEA 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 |
___________________1 Please refer to “Use of Non-IFRS financial
measures” in this press release.2 Adjusted Items related to
executive separation cost, impairment of property and equipment,
the impact of onerous contracts and costs related to the strategic
review and proxy contest incurred during the second quarter of
2018.
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