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 1, 2021. All dollar amounts are
expressed in Canadian dollars.
“We expect to emerge from CCAA a transformed and
radically different organization with a digital-first strategy that
required changes to every aspect of our business. Over the past
year, we have focused our efforts to find new ways to engage with
tea lovers and to replicate our in-store tea discovery experience
across multiple digital platforms. But while the way we connect
with our customers has evolved, our purpose remains the same. As a
leading tea merchant with a strong brand, we seek to share our
passion and love for tea, and our unique and innovative blends,
with new audiences. We have now laid the foundation to scale and
expand our business in a borderless environment both in North
America and around the world, and we are excited about the future,”
stated Sarah Segal, Chief Executive Officer and Chief Brand
Officer.
“Our transformation journey continues as we post
another quarter of positive Adjusted EBITDA with continued sales
momentum in e-commerce and wholesale channels. Last week, the Plan
of Arrangement under CCAA was approved by creditors, which we
expect will be approved by the courts imminently. We are thankful
for the support that we have received from our employees, landlords
and other creditors. We believe that when the CCAA process is
behind us, we can expect to fully dedicate our time and efforts to
unleash the full value and potential of the DAVIDsTEA brand as a
digital-first company. We believe that our financial position
allows us to support continued innovation, meet our working capital
needs and make the right strategic investments to grow our business
as we drive toward sustained profitable growth,” emphasised Frank
Zitella, President, Chief Financial and Operating Officer.
Operating Results for the First Quarter
of Fiscal 2021
Three-months ended May 1, 2021 compared to
three-months ended May 2, 2020
Sales. Sales for the three-months ended May 1,
2021 decreased 27.9%, or $9.0 million, to $23.2 million from $32.2
million in the prior year quarter. On March 17, 2020, in response
to the COVID-19 pandemic, the Company temporarily closed all its
retail stores in Canada and the United States, and subsequently in
second quarter of fiscal 2020 as part of its formal Restructuring
Plan, exited all of its brick-and-mortar stores except for 18
Canadian stores which were reopened on August 21, 2020.
Accordingly, brick and mortar sales for the quarter declined when
compared to the prior year quarter by $11.9 million or 78.3% to
$3.3 million. Sales from e-commerce and wholesale channels
increased by $2.9 million or 17.2% to $19.9 million, from $17.0
million in the prior year quarter. E-commerce and wholesale sales
represented 85.9% of sales compared to 52.9% of sales in the prior
year quarter.
Gross Profit. Gross profit of $10.8 million for
the three-months ended May 1, 2021 decreased by $3.9 million or
26.6% from the prior year quarter due primarily to a decline in
sales during the period. Gross profit as a percentage of sales
increased slightly to 46.3% for the three-month period ended May 1,
2021 from 45.5% in the prior year quarter.
Selling, General and Administration Expenses.
Selling, general and administration expenses (“SG&A”) decreased
by $12.4 million or 57.5%, to $9.2 million in the three-months
ended May 1, 2021 from 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, the impact of
software implementation and configuration costs, and the impact of
the wage subsidy received under the Canadian government COVID-19
Economic Response Plan, Adjusted SG&A decreased by $10.5
million or 52.8% to $9.4 million during the three-month period
ended May 1, 2021. In connection with our Restructuring Plan, we
terminated the leases for all of our stores in North America except
for 18 Canadian stores which reopened on August 21, 2020. As a
result, wages, salaries and employee benefits were reduced by $5.1
million, other store related expenses decreased by $1.4 million and
we realized a reduction of $2.9 million in amortization expenses
due to a lower right-of-use asset value at the beginning of the
period. Adjusted SG&A as a percentage of sales in the quarter
decreased to 40.4% from 61.8% in the prior year quarter.
Results from Operating Activities. Earnings from
operating activities was $3.2 million compared to a loss of $44.4
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, the impact of the
Restructuring Plan announced on July 8, 2020, and the wage subsidy
received from the Canadian government under the COVID-19 Economic
Response Plan, , and the implementation and configuration of
software solutions, Adjusted operating income amounted to $1.4
million in the three-month period ended May 1, 2021 compared to a
loss of $5.2 million in the prior year quarter. The improvement in
operating results is partially explained by the reduced SG&A
required to support approximately 86% of sales generated from
e-commerce and wholesale and a slightly better gross profit
margin.
Finance Costs. Finance costs amounted to almost
nil in the three-months ended May 1, 2021, a decrease of $1.6
million from the prior year quarter. The interest expense relates
to the accounting for lease liabilities with variable lease
arrangements and has decreased from the prior year quarter.
Finance Income. Finance income of $55.0 thousand
is derived mainly from interest on cash on hand and has decreased
slightly from prior year quarter.
Net income (loss). Net income was $3.2 million
in the quarter ended May 1, 2021 compared to a Net loss of $45.8
million in the prior year quarter. Adjusted net income (loss),
which excludes the Restructuring plan activities, the subsidy
received from the Canadian Government under the COVID-19 Economic
Response Plan, the impairment of property and equipment and
right-of-use assets, and the costs related to the implementation
and configuration of software solutions amounted to $1.4 million
compared to a net loss of $6.7 million in the prior year quarter.
This $8.1 million improvement is driven by the same reasons
mentioned above in “Results from operating activities”.
Fully diluted earnings (loss) per common share.
Fully diluted earnings per common share was $0.12 in the first
quarter ended May 1, 2021 compared to a loss per common share of
$1.76 in the prior year first quarter. Adjusted fully diluted
earnings per common share, which is adjusted net income on a fully
diluted weighted average shares outstanding basis, was $0.05,
compared to negative $0.26 in the same quarter of the prior
year.
EBITDA and Adjusted EBITDA. EBITDA, which
excludes non-cash and other items in the current and prior periods,
was $4.1 million in the quarter ended May 1, 2021 compared to a
negative $40.4 million in the prior year quarter representing an
improvement of $44.5 million over the prior year quarter. Adjusted
EBITDA for the quarter ended May 1, 2021, which excludes the impact
of stock-based compensation expense, the impairment of property and
equipment and right-of-use assets, the Restructuring Plan
activities, net, the wage subsidy received from the Canadian
government under the COVID-19 Economic Response Plan, and costs
related to the implementation and configuration of software
solutions, amounted to $2.5 million compared to negative $0.9
million for the same period in the prior year. The increase in
Adjusted EBITDA of $3.4 million is an outcome of the restructuring
efforts resulting in the realignment of the business model to
primarily an e-commerce and wholesale distribution model.
Liquidity and Capital Resources
As at May 1, 2021, we had $31.3 million of cash,
primarily held by major Canadian financial institutions.
Working capital, excluding liabilities subject
to compromise of $98.4 million, was $65.6 million as at May 1,
2021, compared to $62.7 million as at January 30, 2021. In light of
implementing the Restructuring Plan, the Company expects to use
cash on hand to pay for the settlement of obligations, which as a
result of creditors accepting the Plan of Arrangement on June 11,
2021, is expected to approximate $18.0 million and be paid soon
thereafter to our Monitor, for ultimate distribution to
creditors.
Our working capital requirements are for the
purchase of inventory and payment of payroll and other operating
costs. 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 fund our capital
expenditures and working capital requirements from a combination of
cash on hand and cash provided by operating activities.
As at May 1, 2021, the Company has financial commitments in
connection with the purchase of goods or services that are
enforceable and legally binding on the Company, exclusive of
additional amounts based on sales, taxes and other costs. Purchase
obligations, net of $7.2 million of advances, amounting to $13.0
million are expected to be discharged within 12 months.
Condensed Consolidated Financial Data(Canadian
dollars, in thousands, except per share information)
|
|
|
|
|
|
|
For the three-months ended |
|
|
|
|
|
|
|
May
1, |
|
May
2, |
|
2021 |
|
2020 |
|
|
|
|
|
|
Sales |
$ |
23,249 |
|
|
$ |
32,242 |
|
Cost of
sales |
|
12,481 |
|
|
|
17,569 |
|
Gross
profit |
|
10,768 |
|
|
|
14,673 |
|
SG&A
expenses |
|
9,194 |
|
|
|
21,634 |
|
Restructuring plan activities, net |
|
(1,602 |
) |
|
|
37,400 |
|
Operating
income (loss) |
|
3,176 |
|
|
|
(44,361 |
) |
Finance
costs |
|
10 |
|
|
|
1,667 |
|
Finance
income |
|
(55 |
) |
|
|
(240 |
) |
Net income
(loss) |
$ |
3,221 |
|
|
$ |
(45,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA1 |
$ |
4,126 |
|
|
$ |
(40,367 |
) |
Adjusted
EBITDA1 |
|
2,505 |
|
|
|
(937 |
) |
Adjusted
SG&A expenses 1 |
|
9,395 |
|
|
|
19,917 |
|
Adjusted
operating income (loss) 1 |
|
1,373 |
|
|
|
(5,244 |
) |
Adjusted net
income (loss) 1 |
$ |
1,418 |
|
|
$ |
(6,671 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
fully diluted income (loss) per common share |
$ |
0.12 |
|
|
$ |
(1.76) |
|
Adjusted
fully diluted income (loss) per common share1 |
$ |
0.05 |
|
|
$ |
(0.26) |
|
Gross profit
as a percentage of sales |
|
46.3% |
|
|
|
45.5% |
|
SG&A as
a percentage of sales |
|
39.5% |
|
|
|
67.1% |
|
Adjusted
SG&A as a percentage of sales |
|
40.4% |
|
|
|
61.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) operating activities |
$ |
1,307 |
|
|
$ |
(4,056 |
) |
Cash used in
financing activities |
|
(183 |
) |
|
|
(4,376 |
) |
Cash
provided by investing activities |
|
— |
|
|
|
1,437 |
|
Increase
(decrease) in cash during the period |
|
1,124 |
|
|
|
(6,995 |
) |
Cash, end of
period |
$ |
31,321 |
|
|
$ |
39,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
1, |
|
January
30, |
As
at |
2021 |
|
2021 |
Cash |
$ |
31,321 |
|
|
$ |
30,197 |
|
Accounts and
other receivables |
|
6,570 |
|
|
|
6,157 |
|
Prepaid
expenses and deposits |
|
11,578 |
|
|
|
14,470 |
|
Inventories |
|
29,258 |
|
|
|
23,468 |
|
Trade and
other payables |
$ |
6,154 |
|
|
$ |
4,152 |
|
|
|
|
|
|
|
________________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 income (loss), 3) Adjusted SG&A expenses, 4)
Adjusted net income (loss), and 5) Adjusted fully diluted income
(loss) per common share. These non-IFRS financial measures are not
defined by or 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, 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 discussed in Part
I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for
our fiscal year ended January 30, 2021, filed with both the United
States Securities and Exchange Commission and with the Autorité des
marchés financiers, and in our Quarterly Report on Form 10-Q, filed
with both the United States Securities and Exchange Commission and
with the Autorité des marchés financiers on June 15, 2021, which
could materially affect our business, financial condition or future
results.
Conference Call Information
A conference call to discuss the first quarter
Fiscal 2021 financial results is scheduled for June 15, 2021, 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 ir.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 DAVIDsTEADAVIDsTEA offers
a specialty branded selection of high-quality proprietary
loose-leaf teas, pre-packaged teas, tea sachets, tea-related
accessories and gifts through its e-commerce platform at
www.davidstea.com and the Amazon Marketplace, its wholesale
customers which include over 2,500 grocery stores and pharmacies,
and 18 company-owned stores across Canada. We offer primarily
proprietary tea blends that are exclusive to the Company, as well
as traditional single-origin teas and herbs. Our passion for and
knowledge of tea permeates our culture and is rooted in an
excitement to explore the taste, health and lifestyle elements of
tea. With a focus on innovative flavours, wellness-driven
ingredients and organic tea, the Company launches seasonally driven
“collections” with a mission of making tea fun and accessible to
all. The Company is headquartered in Montréal, Canada.
Investor Contact |
Media Contact |
Maison Brison Communications |
PELICAN PR |
Pierre Boucher |
Lyla Radmanovich |
514-731-0000 |
514-845-8763 |
investors@davidstea.com |
media@rppelican.ca |
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