DAVIDsTEA Inc. (Nasdaq:DTEA) (DAVIDsTEA or “the Company”), a
leading tea merchant in North America, announces its first quarter
results for the period ended May 2, 2020. All dollar amounts
are expressed in Canadian dollars.
“Our first quarter results reflect the closure
of all our stores for about half of the quarter and the exceptional
performance of our e-commerce and wholesale channels as our
customers shifted their buying habits. Yesterday, we announced that
our Canadian network will be comprised of 18 stores going forward
for which we are finalizing terms and conditions with respective
landlords. These stores will complement our focus on e-commerce and
wholesale channels and position DAVIDsTEA as a leaner and more
resilient company. We look forward to continuing to offer an
unrivalled selection of health and wellness teas, and virtual
access to our tea experts, as we transition our business to focus
primarily on being an online retailer and wholesaler of
high-quality tea, adapting to evolving consumer expectations,”
stated Herschel Segal, Founder, Chairman and Interim CEO of
DAVIDsTEA.
“With first quarter sales growth of over 120%
year-over-year, we are extremely pleased that our loyal tea-loving
customers have shifted to buying our teas online, and in
supermarkets and drugstores. The strong performance of these sales
channels provided us with the confidence that we are on the right
path for the future. We are moving forward with our business plan
at an accelerated pace and our sales channels are now well balanced
to fully leverage the DAVIDsTEA beloved brand across North America
and return to profitability,” said Frank Zitella, COO and CFO.
Mr. Segal added: “I sincerely regret the
impact of closing stores and restructuring of our business will
have on some of our exceptional and passionate employees. This has
been an incredibly difficult decision to take, but a necessary one
to ensure the long-term viability of DAVIDsTEA. I would like to
sincerely thank our impacted employees for their contributions and
for their passion for our brand through the years.”
Operating Results for the First Quarter
of Fiscal 2020 Compared to the First Quarter of Fiscal
2019
Sales. Sales for the three months ended May 2,
2020 decreased 27.3%, or $12.1 million, to $32.2 million from $44.3
million in the prior year quarter. On March 17, 2020, we shuttered
all of our stores resulting in a decline in retail sales and a
migration to our online and wholesale channels. Sales from our
e-commerce and wholesale channels increased $9.3 million or 120.7%
to $17.0 million, resulting primarily from the closure of our
stores along with naturally occurring organic growth in these
channels. The decline in retail sales of $21.5 million resulted
from the temporary closure of all of our stores during the period
March 17, 2020 to May 2, 2020. In the quarter ended May
2, 2020, e-commerce and wholesale sales represented 52.9% of total
sales as opposed to 17.5% in the prior year quarter.
Gross Profit. Gross profit of $14.7 million for
the three months ended May 2, 2020 decreased by $11.7 million or
44.3% from the prior year quarter due primarily to a decline in
sales during the period. Gross profit as a percentage of sales
declined to 45.6% for the three-month period ended May 2, 2020 from
59.5% in the prior year quarter. Gross profit was also impacted by
the significant increase in e-commerce sales during the period
ended May 2, 2020 and resulted in an increase of $2.1 million in
delivery and distribution costs and the shift from loose-leaf tea
sold in our retail stores to pre-packed tea assortment sold in our
e-commerce and wholesale channels. Further impacting our margins in
the quarter was an increase in inventory obsolescence of $0.6
million reflecting spring merchandise stranded in our closed retail
stores.
Selling, General and Administration Expenses.
Selling, general and administration expenses (“SG&A”) increased
by $31.0 million or 110.6%, to $59.0 million in the three
months ended May 2, 2020 from the prior year quarter. Excluding the
impact of the impairment of property, equipment and right-of-use
assets for the three-month period ended May 2, 2020 which amounted
to $40.0 million, Adjusted SG&A decreased by $8.1 million for
the three months ended May 2, 2020. This is explained by the
temporary closure of our stores effective March 17, 2020 and the
corresponding impact on wages, salaries and employee benefits
amounting to $6.8 million and a $1.0 million reduction in
amortization expense due to a lower right-of-use asset value at the
beginning of the period. As a percentage of sales, Adjusted
SG&A decreased to 59.2% from 63.3% due to lower selling
expenses resulting from the temporary closure of our stores
effective March 17, 2020.
Results from Operating Activities. Loss from
operating activities was $44.4 million as compared to a loss of
$1.7 million in the prior year quarter. Excluding the impact of the
impairment of property and equipment and right-of-use assets for
the three month period ended May 2, 2020 amounting to $40.0
million, Adjusted results from operating activities was a loss of
$4.4 million compared to a loss of $1.7 million in the prior year
quarter, a difference of $2.7 million. The decrease is explained by
the reduction of gross profit of $11.7 million partially offset by
a reduction in wages, salaries and employee benefits amounting to
$6.8 million and $1.0 million reduction in amortization expense due
to a lower right-of-use asset value at the beginning of the period,
as previously noted.
Finance Costs. Finance costs amounted to $1.7
million in the three months ended May 2, 2020, an increase of $0.1
million from the prior year quarter. The interest expense relates
to lease liabilities and has increased slightly from prior year
quarter.
Finance Income. Finance income of $0.2 million
is derived mainly from interest on cash on hand and has increased
slightly from prior year quarter.
EBITDA. EBITDA, which excludes non-cash and
other items in the current and prior periods, was negative $40.4
million in the quarter ended May 2, 2020 compared to $3.1 million
in the prior year quarter, representing a decrease of $43.5 million
over the prior year quarter. Adjusted EBITDA for the quarter ended
May 2, 2020, which excludes the impact of stock-based compensation
expense and the impairment of property and equipment and
right-of-use assets, amounted to negative $0.1 million compared to
$3.3 million in the prior year quarter. The decline in Adjusted
EBITDA is an outcome of the decline in sales and gross profit that
was partially offset by a reduction in SG&A.
Net Loss. Net loss was $45.8 million in the
quarter ended May 2, 2020 compared to a net loss of $3.3 million in
the prior year quarter. Adjusted net loss, which excludes the
impact from the impairment of property and equipment and
right-of-use assets was $5.8 million compared to $3.3 million in
the prior year quarter.
Fully diluted loss per common share. Fully
diluted loss per common share was negative $1.76 compared to
negative $0.13 in the first quarter of Fiscal 2019. Adjusted fully
diluted loss per common share, which is adjusted net loss on a
fully diluted weighted average shares outstanding basis, was
negative $0.22 per share compared to negative $0.13 per share.
Liquidity and Capital
Resources
As at May 2, 2020 we had $39.3 million of cash
primarily held by major Canadian financial institutions. Total
current assets less the sum of Trade and other payables and
Deferred revenue was $48.3 million and $52.9 million, for the
periods ended May 2, 2020 and February 1, 2020, respectively.
Our primary source of liquidity is cash on hand.
Our primary cash needs are to finance working capital and capital
expenditures in connection with enhancing the functions and
features of our online store. Our working capital requirements are
for the purchase of inventory and payment of payroll, rent and
other operating costs. Furthermore, in light of implementing the
Restructuring Plan, the Company expects to use cash on hand to pay
for professional fees and dividend resulting from the plan of
arrangement that will be presented to creditors.
Our working capital requirements fluctuate
during the year, rising in the second and third fiscal quarters as
we take title to increasing quantities of inventory in anticipation
of our peak selling season in the fourth fiscal quarter. We funded
our capital expenditures and working capital requirements from cash
on hand and net cash provided by our operating activities.
Condensed Consolidated Financial Data |
|
|
|
|
|
|
|
|
|
(Canadian dollars,
in thousands, except per share information) |
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, |
|
|
May 4, |
|
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
32,242 |
|
|
$ |
44,265 |
|
|
Cost of sales |
|
|
17,569 |
|
|
|
17,929 |
|
|
Gross profit |
|
|
14,673 |
|
|
|
26,336 |
|
|
SG&A expenses |
|
|
59,034 |
|
|
|
28,020 |
|
|
Operating loss |
|
|
(44,361 |
) |
|
|
(1,684 |
) |
|
Finance costs |
|
|
1,667 |
|
|
|
1,827 |
|
|
Finance income |
|
|
(240 |
) |
|
|
(191 |
) |
|
Net loss |
|
$ |
(45,788 |
) |
|
$ |
(3,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
EBITDA1 |
|
$ |
(40,367 |
) |
|
$ |
3,142 |
|
|
Adjusted SG&A1 |
|
|
19,074 |
|
|
|
28,020 |
|
|
Adjusted operating loss
1 |
|
|
(4,401 |
) |
|
|
(1,684 |
) |
|
Adjusted EBITDA1 |
|
|
(94 |
) |
|
|
3,269 |
|
|
Adjusted net loss 1 |
|
$ |
(5,828 |
) |
|
$ |
(3,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted loss
per common share |
|
$ |
(1.76 |
) |
|
$ |
(0.13 |
) |
|
Adjusted basic loss per common
share1 |
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percentage
of sales |
|
|
45.5 |
% |
|
|
59.5 |
% |
|
SG&A as a percentage of
sales |
|
|
183.1 |
% |
|
|
63.3 |
% |
|
Adjusted SG&A as a
percentage of sales1 |
|
|
59.2 |
% |
|
|
63.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by
operating activities |
|
$ |
(4,056 |
) |
|
$ |
360 |
|
|
Cash used in financing
activities |
|
|
(4,376 |
) |
|
|
(5,823 |
) |
|
Cash provided by (used in)
investing activities |
|
|
1,437 |
|
|
|
(1,120 |
) |
|
Decrease in cash during the
period |
|
|
(8,528 |
) |
|
|
(6,583 |
) |
|
Cash, end of period |
|
$ |
39,343 |
|
|
$ |
42,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, |
|
|
February 1, |
|
|
As at |
|
|
2020 |
|
|
|
2020 |
|
|
Cash |
|
$ |
39,343 |
|
|
$ |
46,338 |
|
|
Inventories |
|
|
23,450 |
|
|
|
22,363 |
|
|
Accounts receivable |
|
|
4,371 |
|
|
|
6,062 |
|
|
Trade and other payables |
|
$ |
18,000 |
|
|
$ |
20,794 |
|
|
________________1 Please refer to “Use of
Non-IFRS financial measures” in this press release.
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 the Management’s Discussion and Analysis section of our
Form 10-Q for a reconciliation to IFRS financial measures.
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.
Caution Regarding Forward-Looking
Statements
This press release includes statements that
express our opinions, expectations, beliefs, plans or assumptions
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 be identified by the use
of forward-looking terminology, including the terms “believes”,
“expects”, “may”, “will”, “should”, “approximately”, “intends”,
“plans”, “estimates” or “anticipates” or, in each case, their
negatives or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts and include statements regarding our intentions,
beliefs or current expectations concerning, among other things, our
Restructuring Plan, the COVID-19 pandemic, our strategy of
transitioning to e-commerce and wholesale sales, future sales
through our e-commerce and wholesale channels, the closing of
certain of our retail stores, future lease liabilities, our results
of operations, financial condition, liquidity and prospects, the
impact of the COVID-19 pandemic on the global macroeconomic
environment, and our ability to avoid the delisting of the
Company’s common stock by Nasdaq due to the restructuring or our
inability to maintain compliance with Nasdaq listing
requirements.
While we believe these opinions and expectations
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 our
annual report on Form 10-K for the fiscal year ended
February 1, 2020, and in our Form 10-Q for the three-month
period ended May, 2, 2020 filed with the United States Securities
and Exchange Commission and with the Autorité des marchés
financiers.
About DAVIDsTEA
DAVIDsTEA is a leading branded retailer and
growing mass wholesaler of specialty tea, offering a differentiated
selection of proprietary loose-leaf teas, pre-packaged teas, tea
sachets and tea-related gifts and accessories on our e-commerce
platform at www.davidstea.com and through 18 Company-owned and
operated retail stores in Canada. A selection of DAVIDsTEA products
is also available in more than 2,500 grocery stores and pharmacies
across Canada. 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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