Q4 2018 Financial and Operational
Highlights:
DAVIDsTEA Inc. (Nasdaq:DTEA) (DAVIDsTEA or “the Company”), a
leading tea merchant in North America, announces its fourth quarter
and full-year results for the period ended February 2, 2019
(“Fiscal 2018”). All numbers are expressed in Canadian dollars. The
Company also announced a further expansion into the wholesale sales
channel with an agreement for DAVIDsTEA to sell its teas beginning
this fall in over 1500 locations, within the Loblaw Companies
Limited network of stores across Canada.
“While current financial results are not yet on
par with our expectations, we are pleased that the DAVIDsTEA brand
continues to resonate strongly with customers through a broad range
of channels. Since the end of last summer, the availability of our
teas in the largest grocery chain in Canada generated solid sales
traction and we are excited about our latest arrangement with
Loblaw, Canada’s largest retail network. This, combined with the
success of our e-commerce platform, affirms that our brand is
relevant no matter where it is available: whether in store, online
or through alternative sales channels,” stated Herschel Segal,
Executive Chairman and Interim Chief Executive Officer.
“Our e-commerce platform is expected to fuel
future growth and in Q4, this channel accounted for 16.9% of total
sales. We continue to make significant investments to elevate the
overall user experience and we see our online store playing a
crucial role in the omnichannel shopping experience that begins
online and ends in store. We are adding features such as
ratings and reviews of our teas as well as enhanced search and
navigation features that ultimately will increase conversion. We
now have the leadership team in place to execute our strategy and
create value for our shareholders,” concluded Mr. Segal.
“In recent months, we have embarked on several
initiatives to reduce operating expenses and procurement costs, and
we anticipate reaping the benefits in upcoming quarters. We ended
the year with a solid cash position which will allow us to invest
in our e-commerce platform and in our store network in order to
stimulate revenue growth, as we spare no efforts to turn the
company around and bring it back to profitability. We have a strong
and motivated leadership team and the means to execute our
strategy, and to create value for our shareholders for the long
term,” stated Frank Zitella, Chief Operating Officer and Chief
Financial Officer.
Operating Results for the Fourth
Quarter of 2018
Sales decreased 4.1% to $83.1 million from $86.7
million in the fourth quarter of Fiscal 2017. E-commerce and
wholesale distribution sales increased $2.5 million, or 20.2%,
driven primarily by greater online adoption in both Canada and the
U,S., as well as our entry into the grocery channel earlier this
year. Offsetting this was a decline in retail sales of
$5.9 million, partially explained by $3.1 million from one
less week in our Fiscal 2018 calendar year and a decline of $3.2
million and 1.6% in comparable sales.
Gross profit decreased by $4.9 million to $39.6
million and decreased as a percentage of sales to 47.6% from 51.3%,
resulting from a shift in product sales mix and the deleveraging of
fixed costs due to negative comparable sales.
Selling, general and administration expenses
(“SG&A”) decreased by $12.1 million to $40.9 million compared
to the prior year quarter. As a percentage of sales, SG&A
decreased to 49.1% from 61.1%. Adjusted SG&A1, which excludes
any impact from executive separation costs, impairment of property
and equipment and intangibles, onerous contracts, costs related to
strategic review and proxy contest and ERP project termination
costs, increased by $0.2 million to $31.1 million. As a percentage
of sales, Adjusted SG&A1 increased to 37.4% from 35.7%, due to
the deleveraging of fixed costs as a result of negative comparable
sales.
Loss from operating activities was $1.3 million
compared to $8.4 million in the fourth quarter of Fiscal 2017.
Adjusted results1 from operating activities, which excludes any
impact from executive separation costs, impairment of property and
equipment and intangibles, onerous contracts, costs related to the
strategic review and proxy contest and ERP project termination
costs was $8.4 million compared to $13.6 million in the prior year
quarter.
Adjusted EBITDA1, which excludes non-cash or
other items in the current and prior periods, was $10.9 million
compared to $16.4 million in the fourth quarter of fiscal 2017.
Net loss was $13.3 million compared to a net
loss of $16.1 million in the fourth quarter of Fiscal 2017.
Adjusted net income1, which excludes any impact from executive
separation costs, impairment of property and equipment and
intangibles, onerous contracts, costs related to the strategic
review and proxy contest, ERP project termination costs, and
provision for uncertain tax positions, was $6.4 million compared to
$9.7 million.
Fully diluted loss per common share was $0.51
compared to $0.62 in the fourth quarter of Fiscal 2017. Adjusted
fully diluted income1 per common share, which is adjusted net
income on a fully diluted weighted average shares outstanding
basis, was $0.25 per share compared to $0.37 per share.
At the end of the quarter, the Company had cash
amounting to $42.1 million. Our strong cash position enables us to
execute on our strategy, invest further in our e-commerce platform
and in our store network to stimulate revenue growth.
Operating Results for Fiscal
2018
Sales decreased by 5.0% to $212.8 million from
$224.0 million in Fiscal 2017. E-commerce and wholesale
distribution sales increased $6.0 million, or 20.6%, from the prior
year driven primarily by greater online adoption in both Canada and
the US, as well as our entry into the grocery channel. Comparable
sales decreased by $16.4 million, or 6.1%.
Gross profit decreased by 8.6% to $98.0 million
from $107.2 million in the comparable period in Fiscal 2017, while
gross profit as a percentage of sales decreased to 46.1% from 47.9%
in Fiscal 2017.
SG&A decreased to $125.7 million from $131.9
million in Fiscal 2017. As a percentage of sales, SG&A
increased to 59.1% from 58.9%. Adjusted SG&A1, which excludes
any impact from executive separation costs, impairment of property
and equipment and intangibles, onerous contracts, costs related to
the strategic review and proxy contest and costs of our terminated
ERP project, increased to $107.8 million from $106.8 million. As a
percentage of sales, Adjusted SG&A1 increased to 50.7% from
47.7% due to the deleveraging of fixed costs as a result of
negative comparable sales.
Loss from operating activities was $27.7 million
as compared to a loss of $24.7 million in Fiscal 2017. Adjusted
loss1 from operating activities, which excludes any impact from
executive separation costs, impairment of property and equipment
and intangibles, onerous contracts, costs related to the strategic
review and proxy contest, and costs of our terminated ERP project
increased to a loss of $9.9 million from income of $0.5
million.
Adjusted EBITDA1, which excludes non-cash or
other items in the current and prior year periods, was negative
$1.3 million compared to $12.8 million for Fiscal 2017.
Net loss was $33.5 million compared to a net
loss of $28.5 million in the comparable period in Fiscal 2017.
Adjusted net loss1, which excludes any impact from executive
separation costs, impairment of property and equipment and
intangibles, onerous contracts, costs related to the strategic
review and proxy contest, ERP project termination costs and
provision for uncertain tax positions, was $6.8 million compared to
an adjusted net loss of $0.1 million in Fiscal 2017.Fully
diluted loss per common share was $1.29 compared to a fully diluted
loss of $1.11 per share in the comparable period in Fiscal 2017.
Adjusted fully diluted loss per common share1, which is adjusted
net loss on a fully diluted weighted average shares outstanding
basis, was $0.26 per share compared to $0.00 per share.
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
(the “SEC”) on www.sec.gov and will also be available in the
Investor Relations section of the Company’s website at
www.davidstea.com.
Condensed Consolidated Financial
Data(Canadian dollars, in thousands, except per
share information)
|
For the three months ended |
|
|
For the twelve months ended |
|
|
February 2, |
|
|
February 3, |
|
|
February 2, |
|
|
February 3, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Sales |
$ |
83,144 |
|
|
$ |
86,662 |
|
|
$ |
212,753 |
|
|
$ |
224,015 |
|
Gross profit |
|
39,563 |
|
|
|
44,484 |
|
|
|
97,979 |
|
|
|
107,243 |
|
SG&A expenses |
|
40,857 |
|
|
|
52,926 |
|
|
|
125,722 |
|
|
|
131,930 |
|
Operating
loss1 |
|
(1,294 |
) |
|
|
(8,442 |
) |
|
|
(27,743 |
) |
|
|
(24,687 |
) |
Net
loss |
$ |
(13,278 |
) |
|
$ |
(16,091 |
) |
|
$ |
(33,539 |
) |
|
$ |
(28,501 |
) |
Adjusted SG&A1 |
$ |
31,125 |
|
|
$ |
30,910 |
|
|
$ |
107,841 |
|
|
$ |
106,782 |
|
Adjusted operating
income (loss)1 |
|
8,438 |
|
|
|
13,574 |
|
|
|
(9,862 |
) |
|
|
461 |
|
Adjusted EBITDA1 |
|
10,940 |
|
|
|
16,397 |
|
|
|
(1,272 |
) |
|
|
12,819 |
|
Adjusted
net income (loss)1 |
$ |
6,401 |
|
|
$ |
9,741 |
|
|
$ |
(6,773 |
) |
|
$ |
(110 |
) |
Fully diluted loss per
common share |
$ |
(0.51 |
) |
|
$ |
(0.62 |
) |
|
$ |
(1.29 |
) |
|
$ |
(1.11 |
) |
Adjusted
fully diluted income (loss) per common share1 |
$ |
0.25 |
|
|
$ |
0.37 |
|
|
$ |
(0.26 |
) |
|
$ |
(0.00 |
) |
Gross profit as a
percentage of sales |
|
47.6 |
% |
|
|
51.3 |
% |
|
|
46.1 |
% |
|
|
47.9 |
% |
SG&A as a
percentage of sales |
|
49.1 |
% |
|
|
61.1 |
% |
|
|
59.1 |
% |
|
|
58.9 |
% |
Adjusted SG&A as a
percentage of sales |
|
37.4 |
% |
|
|
35.7 |
% |
|
|
50.7 |
% |
|
|
47.7 |
% |
Number of stores at end
of period |
|
237 |
|
|
|
240 |
|
|
|
237 |
|
|
|
240 |
|
Comparable sales decline for the period |
|
(1.6 |
%) |
|
|
(6.0 |
%) |
|
|
(6.1 |
%) |
|
|
(6.0 |
%) |
Cash from (used) in
operating activities |
$ |
24,353 |
|
|
$ |
29,834 |
|
|
$ |
(13,228 |
) |
|
$ |
9,858 |
|
Cash used in investing
activities |
|
(993 |
) |
|
|
(3,301 |
) |
|
|
(8,264 |
) |
|
|
(12,596 |
) |
Cash, end
of period |
$ |
42,074 |
|
|
$ |
63,484 |
|
|
$ |
42,074 |
|
|
$ |
63,484 |
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
February 3, |
|
As at |
|
|
|
|
|
|
|
|
|
2019 |
|
|
|
2018 |
|
Inventories |
|
|
|
|
|
|
|
|
$ |
34,353 |
|
|
$ |
24,450 |
|
Accounts
receivable |
|
|
|
|
|
|
|
|
$ |
3,681 |
|
|
$ |
3,131 |
|
Conference Call InformationA
conference call to discuss the fourth quarter and full year Fiscal
2018 financial results is scheduled for today, May 2, 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.
Use of Non-IFRS Financial
InformationThis press release includes “non-IFRS
measures” defined as including: 1) Adjusted EBITDA, 2) Adjusted
operating income (loss), 3) Adjusted selling, general and
administration expenses, 4) Adjusted net income (loss), 5)
Operating loss, and 6) Adjusted fully diluted income (loss) per
share. These non-IFRS 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 measures provide
knowledgeable investors with useful information with respect to our
historical operations. We present these non-IFRS 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
Form10-K.
Cautionary Forward-Looking
StatementsThis press release includes statements
that express our opinions, expectations, beliefs, plans,
objectives, assumptions or projections 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 can be identified by the use of
forward-looking terminology, including the terms “believes,”
“expects,” “may,” “will,” “should,” “could,” “seeks,” “projects,”
“approximately,” “intends,” “plans,” “estimates,” or “anticipates,”
or, in each case, their negative or other variations or comparable
terminology. These forward-looking statements include all matters
that are not historical facts. They appear in a number of places
throughout this press release and include statements regarding our
intentions, beliefs or current expectations concerning, among other
things, the Company’s prospects, management’s turn-around strategy,
plans for investment in marketing initiatives, changes to product
offerings and assortment, and strategic plans.
While we believe these expectations and
projections 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 the Company’s Annual Report on Form 10-K.
Actual results may differ materially from those
in the forward-looking statements as a result of various factors,
including but not limited to, the following: our ability to manage
significant changes to our Board of Directors and leadership team;
our efforts to expand beyond retail stores; our ability to maintain
our brand image; significant competition within our industry; the
effect of a decrease in customer traffic to the shopping malls,
centers and street locations where our stores are located; the
results of our transfer pricing audit; our ability to attract and
retain employees that embody our culture, including Tea Guides and
store and district managers and regional directors; changes in
consumer preferences and economic conditions affecting disposable
income; our ability to source, develop and market new varieties of
teas, tea accessories, food and beverages; our reliance upon the
continued retention of key personnel; the impact from real or
perceived quality or safety issues with our teas, tea accessories,
food and beverages; our ability to obtain quality products from
third-party manufacturers and suppliers on a timely basis or in
sufficient quantities; the impact of weather conditions, natural
disasters and manmade disasters on the supply and price of tea;
actual or attempted breaches of data security; the costs of
protecting and enforcing our intellectual property rights and
defending against intellectual property claims brought by others;
adverse publicity as a result of public disagreements with our
shareholders; fluctuations in exchange rates; and the seasonality
of our business and other risks set forth in the Company’s
Form 10-K .
All forward-looking statements should be
evaluated with the understanding of their inherent uncertainty.
These statements are based upon information available to us as of
the date of this release, and while we believe such information
forms a reasonable basis for such statements, such information may
be limited or incomplete, and our statements should not be read to
indicate that we have conducted an exhaustive inquiry into, or
review of, all potentially-available relevant information. In light
of these risks, uncertainties and assumptions, the forward-looking
events discussed in this release might not occur, and investors are
cautioned not to unduly rely upon these statements.
Forward-looking statements speak only as of the
date of this release. Except as required under federal securities
laws and the rules and regulations of the SEC, we do not have any
intention to update any forward-looking statements to reflect
events or circumstances arising after the date of release, whether
as a result of new information, future events or otherwise. As a
result of these risks and uncertainties, readers are cautioned not
to place undue reliance on the forward-looking statements included
in this release or that may be made elsewhere from time to time by,
or on behalf of, us. All forward-looking statements attributable to
us are expressly qualified by these cautionary
statements.
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
www.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.
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