By Daniel Webster, dWeb.News Publisher
- Revenues of $18.7 million, Adjusted EBITDA of negative $0.6 million
- Expands omnichannel presence with launch of innovative store-in-store concept as it continues transformation to a digital first e-tailer
- Confirms completion of CCAA proceedings
- Herschel Segal retires from Board of Directors; Jane Silverstone Segal appointed as director and Chair of the Board
MONTREAL, Sept. 14, 2021 (GLOBE NEWSWIRE) — DAVIDsTEA Inc. (Nasdaq: DTEA) (“DAVIDsTEA” or the “Company”), a leading tea merchant in North America, today announced its second quarter results for the period ended July 31, 2021 (all amounts are expressed in Canadian dollars). We are moving forward with several initiatives that lay the foundation for an omnichannel presence that maintains key retail outlets, a strong online business and places our products on shelves at well-placed retailers. We want to keep our loyal customers and attract new tea drinkers. After a successful trial starting in March, we are expanding our “store-within-a-store” concept with Rexall pharmacies to 115 stores this fall, further extending our presence in the grocery and pharmacy retail channel. DAVIDsTEA’s latest partnership gives us another way to reach our tea-loving community in new and more accessible ways. We will also be bringing more of our products to the shelves,” said Sarah Segal Chief Executive Officer and Chief Marketing Officer. On the product innovation front we just launched our largest Fall tea collection yet. It features unique blends inspired by pumpkin spices. We also have our biggest holiday countdown collection featuring three of our most iconic holiday calendars. We are focused on delighting customers in all that we do with innovative blends and exciting accessories, while offering a distinctive DAVIDsTEA customer experience that contributes to greater wellness and sustainability–whether online, in our 18 flagship stores or through other retailers who proudly carry our brand,” Ms. Segal added. The decline in sales for the second quarter is due to last year’s pandemic-driven surge in online sales. We will be returning to omnichannel sales next year. Our results have been affected by the necessary investments we made in our operations to accelerate our transition to a digital-first business. Frank Zitella, President and Chief Financial Officer, stated that the brand has been exceptional because of its unique in-store experience. We now want to duplicate that success in digital with best-in class technology.
We have now officially left the CCAA, and we are in a strong financial position. Our focus is on making tea enjoyable and affordable for all. We are pursuing profitable growth by making strategic investments to increase demand for our products, establishing world-class fulfillment, and continuing to delight our customers with quality innovations that we bring to market. Zitella.
Herschel Segal Retires from Board of Directors; Jane Silverstone Segal Appointed as Director and Chair
DAVIDsTEA also announced today that Herschel Segal, a founder and principal shareholder of DAVIDsTEA, has retired as a director and Chair of the Board of DAVIDsTEA. Jane Silverstone Segal, Herschel Segal’s spouse, has been appointed as the Chair and director of the Board. DAVIDsTEA will continue to have Mr. Segal as a strategic advisor.
“We have just celebrated the 13th anniversary of DAVIDsTEA and we are successfully transitioning to a digital-first company. With full confidence in our business strategy, strong management team, and a dedicated Board, the time has come for me to transition to advisory. Herschel Segal stated that he remains committed to DAVIDsTEA, and is excited for its future.
” “On behalf of the Board, shareholders, and myself, I want to express my appreciation to Herschel Segal’s valuable contribution to DAVIDsTEA ever since its inception,” said Pat De Marco (DAVIDsTEA’s chief director). “Herschel Segal was a visionary and a great leader in the creation and growth of DAVIDsTEA. “I know that we will benefit from his strategy counsel going forward .”
We welcome Jane Silverstone Segal as Chair of DAVIDsTEA’s Corporate Governance and Nominating committee. “With her knowledge of the tea industry and vast business experience, we are confident that she will be an effective Chair to the benefit of all our stakeholders.”
Rainy Day Investments Ltd., a company controlled by Herschel Segal, owns approximately 46% of DAVIDsTEA’s issued and outstanding shares.
Jane Silverstone Segal, BA, LLLL, Director and Chair of the Board.
Ms. Silverstone is a seasoned retail industry executive with over four decades of experience, having held senior leadership positions with the Canadian clothing retailer Le Chateau Inc., including as Chair of the Board and Chief Executive Officer from 2008 to 2020. Ms. Silverstone founded and is the owner of Oink Oink, a successful children’s shop in Westmount. Passionate about the environment and nature, Ms. Silverstone worked for five years as a park naturalist in Canada’s national parks. She is also a long-standing patron of David Suzuki Foundation. Ms. Silverstone has a Bachelor in Arts degree from McGill University, Montreal (Quebec) and a Civil Law degree from Universite Montreal, Montreal (Quebec).
Operating Results for the Second Quarter of Fiscal 2021
Three months ended July 31, 2021 compared to three months ended August 1, 2020
Sales. Sales for the three months ended July 31, 2021 decreased 18.6% or $4.3 million to $18.7 million from $23.0 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 the second quarter of fiscal 2020 as part of its formal restructuring plan (“Restructuring Plan”) pursuant to the Companies’ Creditors Arrangement Act (“CCAA”), exited all of its brick-and-mortar stores except for 18 Canadian stores which reopened on August 21, 2020. Brick and mortar sales in the quarter were up by $3.1 million compared to the previous year quarter. Sales from e-commerce and wholesale channels decreased by $7.4 million or 32.2% to $15.6 million from $23.0 million in the prior year quarter with the transition from last year’s pandemic-fueled surge of online sales to serving consumers throughout our omni-channel capabilities. E-commerce and wholesale sales represented 83.4% of sales compared to 100% of sales in the prior year quarter.
Gross Profit. Gross profit of $8.0 million for the three months ended July 31, 2021 decreased by $0.3 million or 4.1% from the prior year quarter due to a decline in sales during the period, partially offset by lower delivery and distribution costs and lower retail lease expense compared to the prior year quarter. Gross profit as a percentage of sales increased to 42.7% for the quarter compared to 36.2% in the prior year quarter.
Selling, General and Administration Expenses. Selling, general and administration expenses (“SG&A”) increased by $1.7 million or 22.6% to $9.1 million in the quarter compared to the prior year quarter. Excluding the impact of software implementation and configuration costs and the impact of the wage and rent subsidy received under the Canadian government COVID-19 Economic Response Plan, Adjusted SG&A increased by $1.5 million or 17.0% to $10.0 million in the quarter primarily due to increases in online marketing expenses, software costs and staffing as we continue the transformation to a digital first organization. Adjusted SG&A as a percentage of sales in the quarter increased to 53.5% from 37.2% in the prior year quarter.
Restructuring plan activities, net. Restructuring plan activities, net, amounting to a gain of $75.6 million for the quarter compares favorably to a gain of $3.2 million recorded in the prior year quarter. Included in this quarter’s gain is the impact of the Sanction Order that was granted on June 16, 2021 by the Quebec Superior Court under the Company’s Restructuring Plan. Net liabilities subject to compromise amounting to $95.3 million were settled according to the Sanction Order by payment of $17.6 million through PricewaterhouseCoopers (“PwC”), the Court-appointed Monitor, to creditors who had duly proven their claims as part of the claims process. The resulting gain of $77.7 million was reduced by $1.2 million of professional fees in connection with the CCAA proceedings and presented in the interim consolidated statements of income (loss) and comprehensive income (loss) and in the condensed statement of income (loss) in management’s discussion and analysis of financial condition and results of operations under Restructuring plan activities, net and Recovery of income taxes.
Results from Operating Activities. Earnings from operating activities during the quarter were $74.5 million compared to earnings of $4.1 million in the prior year quarter. Excluding the impact of the Restructuring Plan, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, and software implementation costs, Adjusted operating loss amounted to $2.0 million in the quarter compared to a loss of $0.2 million in the prior year quarter. In pursuit of our ongoing digital transformation, the decrease in operating results can be explained by the lower Gross Profit and the higher SG&A.
Finance Costs. Finance costs amounted to $23 thousand in the three months ended July 31, 2021, a decrease of $1.5 million from the prior year quarter. Interest expense is related to accounting for lease liabilities. It has fallen from the previous year quarter.
Finance Income. Finance income of $34 thousand is derived mainly from interest on cash on hand and has decreased from the prior year quarter.
Net income (loss). Net income was $75.5 million in the quarter ended July 31, 2021 compared to a Net income of $2.6 million in the prior year quarter. Adjusted net loss, which excludes the impact of Restructuring plan activities, net, the wage and rent subsidies received from the Canadian Government under the COVID-19 Economic Response Plan, software implementation costs and Recovery of income taxes amounted to a net loss of $2.0 million compared to a net loss of $1.7 million in the prior year quarter.
Fully diluted loss per common share. The fully diluted earnings per common stock were $2. 75 in the quarter ended July 31, 2021 compared to fully diluted earnings per common share of $0. 10 in the prior year quarter. 62 in the previous year quarter. 07 compared to $0. 06 in the prior year quarter.
EBITDA and Adjusted EBITDA. EBITDA, which excludes non-cash and other items in the current and prior periods, was $75.5 million in the quarter ended July 31, 2021 compared to $5.4 million in the prior year quarter representing an improvement of $70.1 million over the prior year quarter. Adjusted EBITDA for the quarter ended July 31, 2021, which excludes the impact of stock-based compensation expense, the Restructuring plan activities, net, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, and software implementation costs was negative $0.6 million compared to $1.4 million for the same period in the prior year. The $2.0 million decrease in Adjusted EBITDA reflects the drop in sales due to last year’s pandemic-fueled spike in online sales. This was partially offset by planned increases in staffing and marketing costs. This is expected to be the result of ongoing transformation efforts that have led to the realignment and restructuring of the business model to primarily be e-commerce and wholesale distribution.
Liquidity and Capital Resources
As at July 31, 2021, we had $12.1 million of cash, primarily held by major Canadian financial institutions.
Working capital, excluding liabilities subject to compromise of $nil is $43.0 million as at July 31, 2021, compared to $62.7 million as at January 30, 2021. In light of implementing the Restructuring Plan, the Company used cash on hand to pay for the settlement of obligations according to the Sanction Order amounting to $17.6 million. Our working capital requirements cover the purchase of inventory, payroll payments, and other operating costs such as software purchases and implementation. The year’s working capital requirements change. They rise in the second and third quarters of the fiscal year as we acquire more inventory to prepare for our peak selling season in fiscal quarter 4. Our operating and working capital needs are funded from cash on hand as well as cash generated by operating activities.
As at July 31, 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 $0.8 million of advances, amounting to $10.3 million are expected to be discharged within 12 months.
Completion of CCAA Proceedings
DAVIDsTEA also announced that PwC, the Court-appointed Monitor in the Company’s proceedings under the CCAA, has filed a Termination Certificate with the Quebec Superior Court, certifying that all matters in connection with the CCAA proceedings have been completed. As a result, the CCAA proceedings and related Chapter 15 proceedings in the United States have ended and PwC has been discharged as Monitor.
All documents relating to the CCAA proceedings are available at http://www.pwc.com/ca/davidstea.
Condensed Consolidated Financial Data
(Canadian dollars, in thousands, except per share information)
|Condensed Consolidated Financial Data|
|(Canadian dollars, in thousands, except per share information)|
|For the three-months ended||For the six-months ended|
|July 31,||August 1,||July 31,||August 1,|
|Cost of sales||10,748||14,694||23,229||32,263|
|Restructuring plan activities, net||(75,557||)||(3,172||)||(77,159||)||34,228|
|Operating income (loss)||74,467||4,100||77,643||(40,260||)|
|Net income (loss) before income taxes||74,478||2,609||77,699||(43,178||)|
|Recovery of income taxes||(1,000||)||—||(1,000||)||—|
|Net income (loss)||$||75,478||$||2,609||$||78,699||$||(43,178||)|
|Adjusted SG&A expenses 1||10,025||8,565||19,421||28,480|
|Adjusted operating loss 1||(2,030||)||(228||)||(657||)||(5,470||)|
|Adjusted net loss 1||$||(2,019||)||$||(1,719||)||$||(602||)||$||(8,388||)|
|Basic and fully diluted income (loss) per common share||$||2. 75||$||0. 10||$||2. 87||$||(1. 65||)|
|Adjusted fully diluted loss per common share1||$||(0. 07||)||$||(0. 06||)||$||(0. 02||)||$||(0. 32||)|
|Gross profit as a percentage of sales||42.7||%||36.2||%||44.7||%||41.6||%|
|SG&A as a percentage of sales||48.5||%||32.2||%||43.5||%||52.5||%|
|Adjusted SG&A as a percentage of sales1||53.5||%||37.2||%||46.2||%||51.5||%|
|Cash used in operating activities||$||(19,079||)||$||(3,823||)||$||(17,772||)||$||(7,879||)|
|Cash used in financing activities||(139||)||(1,195||)||(322||)||(5,571||)|
|Cash provided by (used in) investing activities||(52||)||(40||)||(52||)||1,397|
|Decrease in cash during the period||(19,270||)||(5,058||)||(18,146||)||(12,053||)|
|Cash, end of period||$||12,051||$||34,285||$||12,051||$||34,285|
|July 31,||May 1,||January 30||October 31|
|Accounts and other receivables||6,986||6,570||6,157||7,669|
|Prepaid expenses and deposits||5,580||11,578||14,470||13,400|
|Trade and other payables||$||12,533||$||6,154||$||4,152||$||3,621|
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 measurements are not in line with IFRS. They may be different from comparable measures reported by other companies. These non-IFRS financial measurements provide investors with valuable information about our past operations. These non-IFRS measures are presented as supplementary performance measures. They allow for a comparison of our operating performance with IFRS results.
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.
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 Autorite des marches financiers on http://www.sedar.com and with the U.S. Securities and Exchange Commission on http://www.sec.gov and will also be available in the Investor Relations section of the Company’s website at http://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”). These cautionary statements have been made in accordance with the Act’s provisions and in order to obtain the benefits of the Act’s “safe harbor” provisions. These forward-looking statements are made pursuant to the Act and with the intention of obtaining the benefits of the “safe harbor” provisions. 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, 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, and the impact of the COVID-19 pandemic on the global macroeconomic environment. While we believe that these opinions and expectations are based upon reasonable assumptions, forward-looking statements can be subject to risks, uncertainties, and assumptions about us. These include the risk factors discussed under Part I “Item 1A” and our Quarterly Report on Form 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 Autorite des marches financiers, and in our Quarterly Report on Form 10-Q, filed with both the United States Securities and Exchange Commission and with the Autorite des marches 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 second quarter Fiscal 2021 financial results is scheduled for September 14, 2021, at 4: 30 pm Eastern Time. You can access the Investor Relations section on the Company’s website, http://www.ir.davidstea.com to view the conference call. The webcast archive will be available online within two hours after the call ends and will remain accessible for one year.
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 http://www.davidstea.com and the Amazon Marketplace, its wholesale customers which include over 3,300 grocery stores and pharmacies, and 18 company-owned stores across Canada. We offer tea blends exclusive to the Company as well as single-origin teas. Our culture is driven by a passion for tea and a deep understanding of the health and lifestyle aspects of tea. The Company’s focus is on organic tea, wellness-driven ingredients, and innovative flavours. It also launches seasonal “collections” that aim to make tea accessible and fun for everyone. Montreal, Canada is the headquarters of the Company.
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