MONTREAL, Sept. 17, 2024 (GLOBE NEWSWIRE) -- DAVIDsTEA Inc. (TSX-Venture: DTEA) (“DAVIDsTEA” or the “Company”), a leading tea merchant in North America, announced today its second quarter results for the period ended August 3, 2024.
“We are pleased to report that DAVIDsTEA reached a key inflection point in the second quarter of 2024 with sales increasing by 12.8% year-over-year,” said Sarah Segal, Chief Executive Officer and Chief Brand Officer, DAVIDsTEA. “We are grateful for the trust of our loyal consumers who seek out the best flavour profiles available on the market as we continue to innovate and introduce new and incredible tasting tea blends for consumers to enjoy.”
“Sales momentum continues into the early third quarter with revenues up more than 18% compared to the same period in 2023. We are excited to mark our renewed focus on brick-and-mortar retail with the opening of a new location in the Royalmount Mall in Mount Royal, Quebec, and look forward to launching a new store in downtown Montreal in early November, raising the total number of flagship stores to 20. As we prepare for the revenue-intensive third and fourth quarters, our focus remains on delivering excellent value, service and innovation to our consumers,” added Ms. Segal.
“Our financial results are moving in the right direction as we continue to execute our operational strategy,” said Frank Zitella, President, Chief Financial and Operating Officer, DavidsTea. “Revenues are up and costs are down, both year-over-year and sequentially, across all categories. We also have significant leverage in our business model, which positions us well for the second half of the year as we stabilize the business against unfavourable headwinds and double down on investments in both our brick-and-mortar and online operations.”
DAVIDsTEA’s focus has been on delivering a value proposition that resonates with consumers supported by a memorable experience, both in person and online in order to generate sales as the Company deals with macro-economic headwinds.
Tea and variety box assortment sales increased by13.7% or $1.2 million to $9.9 million over the prior year quarter. Tea accessories sales decreased by 14.0% or $0.1 million, to $0.8 million over the prior year quarter.
Online sales of $5.5 million increased by $0.6 million or 12.5% from $4.9 million from the prior year quarter. E-commerce sales represented 49.4% of sales compared to 49.7% of sales in the prior year quarter.
Sales from the wholesale channel of $1.4 million were the same as in the prior year quarter. Wholesale sales represented 12.8% of sales compared to 14.3% of sales in the prior year quarter.
Brick-and-mortar sales of $4.2 million increased by $0.7 million or 17.8%, from $3.5 million for the same period in the prior year. Brick-and-mortar sales represented 37.8% of sales compared to 35.9% of sales in the prior year quarter.
Gross profit. Gross profit increased by 44.6% to $5.3 million from the prior year quarter due to higher sales and a decrease in unitized freight, shipping and fulfillment costs. Gross profit as a percentage of sales increased to 47.3% for the quarter compared to 36.9% in the prior year quarter. At a segment level, Gross profit as a percentage of sales reached 45.5% and 59.3% in the quarter compared to 36.2% and 41.3% in the prior year quarter in Canada and in the U.S., respectively.
Selling, general and administration expenses. Selling, general and administration expenses (“SG&A”) of $6.7 million decreased by $1.2 million, or 15.2% compared to the prior year quarter. A decrease in costs related to internalizing fulfillment services of $0.8 million, marketing expenses of $0.4 million and depreciation and amortization of $0.3 million was partially offset by an increase in the impairment of property and equipment of $0.3 million and other selling, general and administration costs of $0.3 million. As a percentage of sales, SG&A expenses decreased to 60.5% in the second quarter from 80.6% in the prior year quarter.
EBITDA1 and Adjusted EBITDA1. EBITDA was negative $0.8 million in the quarter compared to negative $3.4 million in the prior year quarter. Adjusted EBITDA was negative $0.3 million compared to negative $2.6 million for the same period in the prior year. The increase in Adjusted EBITDA of $2.3 million reflects the impact of higher Sales and Gross profit and a decline in SG&A expenses.
Net loss. Net loss totaled $1.5 million in the quarter compared to a net loss of $4.3 million in the prior year quarter. Adjusted net loss was $1.0 million in the second quarter compared to Adjusted net loss of $3.6 million in the prior year quarter.
Fully diluted net loss per share. Fully diluted net loss per common share amounted to $0.06 in the second quarter compared to a fully diluted net loss per common share of $0.16 in the prior year quarter. Adjusted fully diluted net loss per common share1, which is Adjusted net loss on a fully diluted weighted average shares outstanding basis, was $0.04 compared to an Adjusted fully diluted net loss of $0.14 in the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
As at August 3, 2024, the Company had $6.7 million of cash held by major Canadian financial institutions.
Working capital was $15.5 million as at August 3, 2024 compared to $19.7 million as at February 3, 2024. The decrease in working capital can be attributed to a decrease in cash, accounts receivable and prepaid expenses and deposits, partially offset by a decline in accounts payable and deferred revenue.
The Company’s primary source of liquidity is cash on hand and cash flow generated from operations. Working capital requirements are driven by the purchase of inventory, payment of payroll, ongoing technology expenditures and other operating costs.
Working capital requirements fluctuate during the year, rising in the second and third fiscal quarters as DAVIDsTEA takes title to increasing quantities of inventory in anticipation of the peak selling season in the fourth fiscal quarter. Capital expenditures of $312 thousand in the second quarter of fiscal 2024 includes the purchase of furniture and equipment of $29 thousand, store leasehold improvements of $270 thousand and computer hardware purchases of $13 thousand. Capital expenditures in the second quarter of fiscal 2023 amounted to $321 thousand comprised of furniture and equipment of $153 thousand, store leasehold improvements of $70 thousand, computer hardware of $21 thousand and intangible assets of $77 thousand.
As at August 3, 2024, the Company had financial commitments in connection with the purchase of goods and services that are enforceable and legally binding, amounting to $10.2 million, net of $0.5 million of advances (February 3, 2024 - $9.9 million, net of $0.4 million of advances) which are expected to be discharged within 12 months.
Cash Flow
A summary of our cash flows used in operating, investing, and financing activities is presented in the following table (amounts in thousands of Canadian dollars):
| | | | | | | | | | | | | | | | | |
| | | For the three-months ended | | For the six-months ended |
| | | August 3, | | July 29, | | | | | | August 3, | | July 29, | | | | |
| | | 2024 | | 2023 | | | | | | 2024 | | 2023 | | | | |
| | | $ | | $ | | $ Change | | | % Change | | $ | | $ | | $ Change | | | % Change |
| Cash flows provided by (used in): | | | | | | | | | | | | | | | | |
| Operating activities | | (970 | ) | | (4,297 | ) | | 3,327 | | | 77.4 | % | | (3,557 | ) | | (5,762 | ) | | 2,205 | | | 38.3 | % |
| Financing activities | | (780 | ) | | (772 | ) | | (8 | ) | | (1.0 | )% | | (1,560 | ) | | (1,542 | ) | | (18 | ) | | (1.2 | )% |
| Investing activities | | (312 | ) | | (321 | ) | | 9 | | | 2.8 | % | | (773 | ) | | (943 | ) | | 170 | | | 18.0 | % |
| Decrease in cash | | (2,062 | ) | | (5,390 | ) | | 3,328 | | | 61.7 | % | | (5,890 | ) | | (8,247 | ) | | 2,357 | | | 28.6 | % |
Three-months ended August 3, 2024 compared to three-months ended July 29, 2023
Cash flows used in operating activities. Net cash used in operating activities amounted to $1.0 million for the quarter ended August 3, 2024, representing an improvement of $3.3 million versus the amount used in the prior year quarter. The Company is seeing the benefit of actively managing working capital and improving financial performance in the quarter.
Cash flows used in financing activities. Net cash flows used in financing activities of $780 thousand during the quarter ended August 3, 2024, represents an increase in lease payments of $8 thousand compared to the prior year quarter.
Cash flows used in investing activities. Net cash flows used in investing activities are comprised of capital expenditures primarily related to store openings and renovations. Capital expenditures of $312 thousand includes furniture and equipment of $29 thousand, store leasehold improvements of $270 thousand and computer hardware of $13 thousand in the second quarter compared to furniture and equipment of $153 thousand, store leasehold improvements of $70 thousand, computer hardware of $21 thousand and intangible assets of $77 thousand in prior year quarter.
Condensed Consolidated Financial Data
(Canadian dollars, in thousands, except per share information)
| | | | | | | | | | | | | |
| | | For the three-months ended | | For the six-months ended |
| | | August 3, | | July 29, | | August 3, | | July 29, |
| | | 2024
| | 2023
| | 2024
| | 2023
|
| | | | | | | | | | | | | |
| Sales | | $ | 11,091 | | | $ | 9,834 | | | $ | 24,526 | | | $ | 24,147 | |
| Cost of sales | | | 5,840 | | | | 6,203 | | | | 13,455 | | | | 14,889 | |
| Gross profit | | | 5,251 | | | | 3,631 | | | | 11,071 | | | | 9,258 | |
| Selling, general and administration expenses | | | 6,714 | | | | 7,922 | | | | 15,161 | | | | 15,630 | |
| Results from operating activities | | | (1,463 | ) | | | (4,291 | ) | | | (4,090 | ) | | | (6,372 | ) |
| Finance costs | | | 119 | | | | 177 | | | | 265 | | | | 359 | |
| Finance income | | | (95 | ) | | | (216 | ) | | | (219 | ) | | | (496 | ) |
| Net loss | | $ | (1,487 | ) | | $ | (4,252 | ) | | $ | (4,136 | ) | | $ | (6,235 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Sales - by country | | | | | | | | | | | | |
| Canada | | $ | 9,630 | | | $ | 8,383 | | | $ | 21,359 | | | $ | 20,576 | |
| USA | | | 1,461 | | | | 1,451 | | | | 3,167 | | | | 3,571 | |
| | | | | | | | | | | | | |
| Sales - by channel | | | | | | | | | | | | |
| Online | | | 5,485 | | | | 4,874 | | | | 12,225 | | | | 12,521 | |
| Retail | | | 4,188 | | | | 3,555 | | | | 8,716 | | | | 7,820 | |
| Wholesale | | $ | 1,418 | | | $ | 1,405 | | | $ | 3,585 | | | $ | 3,806 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| EBITDA1 | | $ | (800 | ) | | $ | (3,400 | ) | | $ | (2,780 | ) | | $ | (4,629 | ) |
| Adjusted EBITDA1 | | | (308 | ) | | | (2,593 | ) | | | (1,128 | ) | | | (3,479 | ) |
| Adjusted net loss 1 | | | (1,033 | ) | | | (3,622 | ) | | | (2,610 | ) | | | (5,505 | ) |
| Adjusted fully diluted loss per common share1 | | $ | (0.04 | ) | | $ | (0.14 | ) | | $ | (0.10 | ) | | $ | (0.21 | ) |
| Gross profit as a percentage of sales | | | 47.3 | % | | | 36.9 | % | | | 45.1 | % | | | 38.3 | % |
| SG&A expenses as a percentage of sales | | | 60.5 | % | | | 80.6 | % | | | 61.8 | % | | | 64.7 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash flows used in operating activities | | $ | (970 | ) | | $ | (4,297 | ) | | $ | (3,557 | ) | | $ | (5,762 | ) |
| Cash flows used in financing activities | | | (780 | ) | | | (772 | ) | | | (1,560 | ) | | | (1,542 | ) |
| Cash used in investing activities | | | (312 | ) | | | (321 | ) | | | (773 | ) | | | (943 | ) |
| Decrease in cash during the period | | | (2,062 | ) | | | (5,390 | ) | | | (5,890 | ) | | | (8,247 | ) |
| Cash, end of period | | $ | 6,710 | | | $ | 14,193 | | | $ | 6,710 | | | $ | 14,193 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | August 3, | | | May 4, | | | February 3, | | | October 28, |
| As at | | | 2024 | | | 2024 | | | 2024 | | | 2023 |
| Cash | | $ | 6,710 | | | $ | 8,772 | | | $ | 12,600 | | | $ | 11,734 | |
| Accounts and other receivables | | | 1,523 | | | | 1,551 | | | | 1,800 | | | | 2,420 | |
| Prepaid expenses and deposits | | | 4,326 | | | | 5,687 | | | | 5,877 | | | | 6,042 | |
| Inventories | | | 16,024 | | | | 17,094 | | | | 15,658 | | | | 18,106 | |
| Trade and other payables | | $ | 6,553 | | | $ | 8,935 | | | $ | 8,662 | | | $ | 10,722 | |
________________
1 Please refer to “Use of Non-IFRS Financial Measures” in this press release.
Use of Non-IFRS Financial Measures and Ratios
This press release includes “non-IFRS financial measures” defined as including: 1) EBITDA and Adjusted EBITDA, 2) Adjusted net (loss) income, and 3) Adjusted fully diluted (loss) income 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 Company’s Management Discussion and Analysis for a reconciliation to IFRS financial measures.
Note
This release should be read in conjunction with the Company’s Management Discussion and Analysis, which is filed by the Company with the Canadian securities regulatory authorities on SEDAR+ at www.sedarplus.ca 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 applicable Canadian securities law. 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 strategy of transitioning to e-commerce and wholesale sales, future sales through our e-commerce and wholesale channels, and our results of operations, financial condition, liquidity and prospects. The Company can give no assurance that it will more than double its Canadian store footprint in the next three years.
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 Management Discussion and Analysis of Financial Condition and Results of Operations for our fiscal year ended February 3, 2024, filed with the Autorité des marchés financiers, on May 2, 2024 which could materially affect our business, financial condition or future results.
Conference Call Information
A conference call to discuss the second quarter Fiscal 2024 financial results is scheduled for September 17, 2024, at 8:30 am 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.
About DAVIDsTEA
DAVIDsTEA 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 4,000 grocery stores and pharmacies, over 1,500 convenience stores in Canada and 170 grocery stores in the United States, as well as 19 company-owned stores across Canada. The Company offers primarily proprietary tea blends that are exclusive to the Company, as well as traditional single-origin teas and herbs. The team’s passion for and knowledge of tea permeates the Company’s 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.
| Contact information | |
| MBC Capital Markets Advisors
Pierre Boucher
514-731-0000 | DAVIDsTEA Investor Relations
investors@davidstea.com |
1 Please refer to “Use of Non-IFRS Financial Measures” in this press release.
