DAVIDsTEA Inc. (Nasdaq:DTEA) (DAVIDsTEA or “the Company”), the
leading tea merchant in North America, announces its third quarter
results for the period ended November 2, 2019 (“Fiscal 2019”).
Unless otherwise indicated, the Company’s results for the third
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.
“The recent introduction of our new and exciting
tea collection has been well received by consumers and our tea
sachets are now available in an expanded network of grocery stores
across Canada. In addition to driving sales, this will create even
more visibility for the DAVIDsTEA brand in markets across Canada,”
stated Herschel Segal, Founder, Executive Chairman and Interim
Chief Executive Officer.
“We continue to actively manage our working
capital and remain in a solid financial position, with a cash
position of $28.0 million at quarter end. Our product assortment
and in-store customer experience continue to resonate with
consumers and we were pleased with the accolades received from
recognized, independent third parties,” said Frank Zitella, Chief
Financial and Operating Officer.
During the third quarter of 2019 DAVIDsTEA’s
products and brand earned three recognitions by independent
publications. Newsweek, a premier U.S. weekly news magazine and
website, recognized DAVIDsTEA as one of the best U.S. online shops
in the food category. Leger, a recognized Canadian marketing
research and polling firm, ranked DAVIDsTEA the #1 Canadian
specialty store amongst millennials and Gen Z, and second in
overall customer experience in the retail category in Ontario.
Operating Results for the Third Quarter
of Fiscal 2019
Sales for the three months ended November 2,
2019 decreased by 9.5%, or $4.2 million, to $39.5 million from
$43.7 million in the prior year quarter. Sales from our e-commerce
and wholesale channels increased $1.1 million, or 14.1%, driven by
the increased demand in our grocery distribution channel and by
greater online adoption. Offsetting this was a decline in retail
sales of $5.3 million and a decline of $5.0 million, or 14.1%, in
comparable same store sales.
Operating loss decreased by $1.4 million to $9.3
million. Excluding the impact of IFRS 16, loss from operating
activities would have amounted to $12.1 million, an increase of
$1.4 million from the prior year quarter. The increase loss is
mainly due to the deleveraging of fixed costs due to negative
comparable store sales and the impairment of right-of-use assets
offset partially by the absence of Adjusted Items1 incurred in the
comparable quarter of Fiscal 2018.
Selling, general and administration expenses
(“SG&A”) increased by $1.6 million to $30.7 million in the
three months ended November 2, 2019 from the prior year quarter.
Excluding the impact of IFRS 16 and the impairment of property,
equipment and right-of-use assets for the three months ended
November 2, 2019, and Adjusted Items incurred in the third quarter
of 2018, Adjusted SG&A1 decreased by $1.3 million to $25.7
million for the three months ended November 2, 2019, mainly due to
lower variable cost related to the decrease in sales.
EBITDA, which excludes non-cash and other items
in the current and prior periods, was negative $4.5 million in the
quarter ended November 2, 2019, compared to negative $8.6 million
in the prior year quarter. Excluding the impact of IFRS 16, EBITDA
would have amounted to negative $10.3 million. Adjusted EBITDA1 for
the quarter, excluding the impact of IFRS 16, amounted to negative
$8.0 million compared to negative $6.2 million in the prior year
quarter.
Fully diluted loss per common share was $0.42
compared to $0.35 in the third 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
$0.34 per share compared to $0.33 per share for the same quarter in
2018.
As at November 2, 2019, the Company had a cash
balance of $28.0 million, and a working capital of $31.1 million.
Decrease in cash during the three and nine month periods was $1.7
million and $14.0 million, an improvement of $19.2 million and
$30.7 million over the prior year three and nine month periods,
respectively. 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 $4.8 million for the three months ended November 2,
2019, from net cash used of $18.0 million for the three months
ended November 3, 2018. Excluding the impact of IFRS 16, net cash
used in operating activities amounted to $0.9 million, an
improvement of $17.1 million from the prior year quarter. Net
change in other non-cash working capital balances related to
operations improved primarily from a reduction in cash used for
inventories, the decrease in prepaid and deposits, the collection
of accounts receivables, collection of income tax receivables and
the increase in accounts payable and accrued liabilities.
Cash flow used in financing activities was $5.7
million for the three months ended November 2, 2019, compared to
nil for the three months ended November 3, 2018. Excluding the
impact of IFRS 16, net cash used in financing activities was nil in
the three months ended November 2, 2019.
Cash flow used in investing activities was $0.8
million for the three months ended November 2, 2019, compared to
$2.9 million for the three months ended November 3, 2018. The
decrease in net cash used in investing activities was due to a
decrease in capital expenditures partially offset by an additional
advance of $0.2 million.
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 three quarters of Fiscal 2019
reflect lease accounting under IFRS 16. Comparative figures for the
first three quarters 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 three quarters of 2019 for additional details on the
implementation of IFRS 16.
Filing of Financial Statements
The Company is filing today with the Canadian
securities regulatory authorities (www.sedar.com) and with the U.S.
Securities and Exchange Commission (www.sec.gov) (i) an amendment
to its Quarterly Report on Form 10-Q for the period ended May 4,
2019 to restate its unaudited condensed consolidated financial
statements and related financial information at May 4, 2019 and to
amend certain other items within that report, (ii) an amendment to
its Quarterly Report on Form 10-Q for the period ended August 3,
2019 to similarly restate its unaudited condensed consolidated
financial statements and related financial information at August 3,
2019 and (iii) its Quarterly Report on Form 10-Q for the period
ended November 2, 2019.
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.
Condensed Consolidated Financial
Data(Canadian dollars, in thousands, except per share
information)
|
For the three months ended |
|
For the nine months ended |
|
|
|
|
November 2, 2019 |
|
|
|
|
|
|
|
November 2, 2019 |
|
|
|
|
November
2, |
|
Excluding
impact |
|
November
3, |
|
November
2, |
|
Excluding
impact |
|
November
3, |
|
2019 |
|
of IFRS 16 (1) |
|
2018 |
|
|
2019 |
|
of IFRS 16 (1) |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
39,493 |
|
|
$ |
39,493 |
|
|
$ |
43,656 |
|
|
$ |
122,925 |
|
|
$ |
122,925 |
|
|
$ |
129,609 |
|
Cost of sales |
|
18,139 |
|
|
|
23,859 |
|
|
|
25,275 |
|
|
|
53,430 |
|
|
|
70,772 |
|
|
|
71,193 |
|
Gross profit |
|
21,354 |
|
|
|
15,634 |
|
|
|
18,381 |
|
|
|
69,495 |
|
|
|
52,153 |
|
|
|
58,416 |
|
SG&A expenses |
|
30,670 |
|
|
|
27,733 |
|
|
|
29,119 |
|
|
|
90,254 |
|
|
|
81,101 |
|
|
|
84,865 |
|
Operating loss |
|
(9,316 |
) |
|
|
(12,099 |
) |
|
|
(10,738 |
) |
|
|
(20,759 |
) |
|
|
(28,948 |
) |
|
|
(26,449 |
) |
Finance costs |
|
1,699 |
|
|
|
— |
|
|
|
80 |
|
|
|
5,305 |
|
|
|
— |
|
|
|
237 |
|
Finance income |
|
(185 |
) |
|
|
(185 |
) |
|
|
(122 |
) |
|
|
(570 |
) |
|
|
(570 |
) |
|
|
(574 |
) |
Recovery of income tax |
|
— |
|
|
|
— |
|
|
|
(1,635 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,851 |
) |
Net loss |
$ |
(10,830 |
) |
|
$ |
(11,914 |
) |
|
$ |
(9,061 |
) |
|
$ |
(25,494 |
) |
|
$ |
(28,378 |
) |
|
$ |
(20,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA1 |
$ |
(4,548 |
) |
|
$ |
(10,269 |
) |
|
$ |
(8,576 |
) |
|
$ |
(6,237 |
) |
|
$ |
(23,579 |
) |
|
$ |
(20,351 |
) |
Adjusted SG&A1 |
|
28,619 |
|
|
|
25,682 |
|
|
|
26,956 |
|
|
|
83,178 |
|
|
|
74,025 |
|
|
|
76,716 |
|
Adjusted operating loss1 |
|
(7,265 |
) |
|
|
(10,048 |
) |
|
|
(8,575 |
) |
|
|
(13,683 |
) |
|
|
(21,872 |
) |
|
|
(18,300 |
) |
Adjusted EBITDA1 |
|
(2,241 |
) |
|
|
(7,962 |
) |
|
|
(6,248 |
) |
|
|
1,387 |
|
|
|
(15,955 |
) |
|
|
(12,212 |
) |
Adjusted net loss1 |
$ |
(8,779 |
) |
|
$ |
(9,863 |
) |
|
$ |
(8,533 |
) |
|
$ |
(18,418 |
) |
|
$ |
(21,302 |
) |
|
$ |
(17,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted loss per common share |
$ |
(0.42 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.98 |
) |
|
$ |
(0.98 |
) |
|
$ |
(0.78 |
) |
Adjusted basic and fully diluted loss per common share1 |
$ |
(0.34 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.71 |
) |
|
$ |
(0.71 |
) |
|
$ |
(0.69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percentage of sales |
|
54.1 |
% |
|
|
39.6 |
% |
|
|
42.1 |
% |
|
|
56.5 |
% |
|
|
42.4 |
% |
|
|
45.1 |
% |
SG&A as a percentage of sales |
|
77.7 |
% |
|
|
70.2 |
% |
|
|
66.7 |
% |
|
|
73.4 |
% |
|
|
66.0 |
% |
|
|
65.5 |
% |
Adjusted SG&A as a percentage of sales1 |
|
72.5 |
% |
|
|
65.0 |
% |
|
|
61.7 |
% |
|
|
67.7 |
% |
|
|
60.2 |
% |
|
|
59.2 |
% |
Number of stores at end of period |
|
233 |
|
|
|
233 |
|
|
|
238 |
|
|
|
233 |
|
|
|
233 |
|
|
|
238 |
|
Comparable sales decline for the period |
|
(14.1 |
%) |
|
|
(14.1 |
%) |
|
|
(4.7 |
%) |
|
|
(10.0 |
%) |
|
|
(10.0 |
%) |
|
|
(8.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
$ |
4,786 |
|
|
$ |
(934 |
) |
|
$ |
(18,037 |
) |
|
$ |
8,229 |
|
|
$ |
(9,113 |
) |
|
$ |
(37,581 |
) |
Cash provided by (used in) financing activities |
|
(5,711 |
) |
|
|
9 |
|
|
|
8 |
|
|
|
(17,333 |
) |
|
|
9 |
|
|
|
82 |
|
Cash used in investing activities |
|
(756 |
) |
|
|
(756 |
) |
|
|
(2,880 |
) |
|
|
(4,926 |
) |
|
|
(4,926 |
) |
|
|
(7,271 |
) |
Decrease in cash during the period |
|
(1,681 |
) |
|
|
(1,681 |
) |
|
|
(20,909 |
) |
|
|
(14,030 |
) |
|
|
(14,030 |
) |
|
|
(44,770 |
) |
Cash, end of period |
$ |
28,044 |
|
|
$ |
28,044 |
|
|
$ |
18,714 |
|
|
$ |
28,044 |
|
|
$ |
28,044 |
|
|
$ |
18,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, |
|
February 2, |
|
November 3, |
As at |
|
|
|
|
|
|
|
|
|
2019 |
|
2019 |
|
2018 |
Cash |
|
|
|
|
|
|
|
|
|
$ |
28,044 |
|
|
$ |
42,074 |
|
|
$ |
18,714 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
32,638 |
|
|
|
34,353 |
|
|
|
44,408 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
3,430 |
|
|
|
3,680 |
|
|
|
4,007 |
|
Trade payables |
|
|
|
|
|
|
|
|
|
$ |
9,386 |
|
|
$ |
5,195 |
|
|
$ |
6,438 |
|
__________________1 Please refer to “Use of Non-IFRS
financial measures” in this press release.
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, second and third 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.
Conference Call InformationA
conference call to discuss the third quarter Fiscal 2019 financial
results is scheduled for today, December 20, 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.
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 |
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