In an era when specialty tea is emerging in North America, DAVIDsTEA Inc(https://www.davidstea.com/ca_en/home/) has announced financial results for the three and six months ended August 4, 2018. This leading Canadian tea retailer’s financial status doesn’t seem so good compared to same periods in 2017.

For the three months ended August 4, 2018:

• Tea sales decreased by 12.0% to C$40.2 million from C$45.7 million in the second quarter of fiscal 2017. Comparable sales decreased by 14.8%. Comparable sales decreased as tea product offering did not resonate with customers, company was less promotional as it moved to reduce our dependency on discounting, and it had less product available for our semi-annual tea sale, as the company was in a better seasonal inventory position compared to the prior year quarter. They recently revised their merchandising strategy, which was not reflected in our second quarter assortment.
• Gross profit decreased by 14.4% to C$17.3 million from C$20.2 million in the second quarter of fiscal 2017, while gross profit as a percent of sales decreased slightly to 43.2% from 44.2% in the second quarter of fiscal 2017. Gross profit as a percent of sales was down from the prior year quarter as product margin increases, driven by less promotional activity and a shift in product sales mix, were offset by a deleveraging of fixed costs due to the negative comparable sales.
• Selling, general and administration expenses (“SG&A”) increased to C$31.4 million from C$27.8 million in the second quarter of fiscal 2017. As a percent of sales, SG&A increased to 78.0% from 60.9%. Adjusted SG&A, a non-IFRS measure, which excludes any impact from executive separation costs, impairment of property and equipment, onerous contracts and costs related to strategic review and proxy contest (see Reconciliation of IFRS basis to Adjusted selling, general and administration expenses), decreased to C$24.6 million from C$25.9 million, due to lower stock-based compensation and depreciation and amortization expenses. As a percent of sales, Adjusted SG&A increased to 61.2% from 56.7%, due to the deleveraging of fixed costs as a result of the negative comparable sales this quarter.
• Results from operating activities were C$(14.0) million as compared to C$(7.6) million in the second quarter of fiscal 2017. Adjusted results from operating activities, a non-IFRS measure, which excludes any impact from executive separation costs, impairment of property and equipment, onerous contracts and costs related to strategic review and proxy contest (see Reconciliation of IFRS basis to Adjusted results from operating activities), decreased to C$(7.3) million from C$(5.7) million.
• Adjusted EBITDA was C$(5.6) million compared to C$(2.2) million in the second quarter of fiscal 2017. Adjusted EBITDA, a non-IFRS measure, excludes non-cash or other items in the current and prior year periods (see Reconciliation of Adjusted EBITDA table).
• Cash of C$39.6 million.
• Net loss was C$(10.0) million compared to net loss of C$(5.6) million in the second quarter of fiscal 2017. Adjusted net income (loss), a non-IFRS measure, which excludes any impact from executive separation costs, impairment of property and equipment, onerous contracts and costs related to strategic review and proxy contest (see Reconciliation of IFRS basis to Adjusted net income (loss) table), was C$(5.0) million compared to C$(4.2) million.
• Fully diluted income (loss) per common share was C$(0.39) compared to C$(0.22) in the second quarter of fiscal 2017. Adjusted fully diluted income (loss) per common share, a non-IFRS measure, which is adjusted net income (loss) on an adjusted fully diluted weighted average shares outstanding basis (see Reconciliation of fully diluted weighted average common shares outstanding table), was C$(0.19) per share compared to C$(0.16) per share.

For the six months ended August 4, 2018:

• Tea sales decreased by 8.9% to C$86.0 million from C$94.4 million in the comparable period in fiscal 2017. Comparable sales decreased by 10.8%.
• Gross profit decreased by 9.9% to C$40.0 million from C$44.4 million in the comparable period in fiscal 2017, while gross profit as a percent of sales decreased slightly to 46.6% from 47.0% in the comparable period in fiscal 2017. Gross profit as a percent of tea sales was in line with the prior year period as product margin increased, driven by less promotional activity and a shift in product sales mix, which was offset by a deleveraging of fixed costs due to the negative comparable sales.
• Selling, general and administration expenses (“SG&A”) increased to C$55.7 million from C$52.0 million in the comparable period in fiscal 2017. As a percent of sales, SG&A increased to 64.9% from 55.1%. Adjusted SG&A, a non-IFRS measure, which excludes any impact from executive separation costs, impairment of property and equipment, onerous contracts and costs related to strategic review and proxy contest (see Reconciliation of IFRS basis to Adjusted selling, general and administration expenses), decreased to C$49.8 million from C$51.5 million, due to lower stock-based compensation and depreciation and amortization expenses. As a percent of sales, Adjusted SG&A increased to 57.9% from 54.6%, due to the deleveraging of fixed costs as a result of the negative comparable sales this quarter.
• Results from operating activities were C$(15.7) million as compared to C$(7.6) million in the comparable period in fiscal 2017. Adjusted results from operating activities, a non-IFRS measure, which excludes any impact from executive separation costs, impairment of property and equipment, onerous contracts and costs related to strategic review and proxy contest (see Reconciliation of IFRS basis to Adjusted results from operating activities), decreased to C$(9.7) million from C$(7.1) million.
• Adjusted EBITDA was C$(6.0) million compared to C$(0.7) million in the comparable period in fiscal 2017. Adjusted EBITDA, a non-IFRS measure, excludes non-cash or other items in the current and prior year periods (see Reconciliation of Adjusted EBITDA table).
• Net loss was C$(11.2) million compared to net loss of C$(5.9) million in the comparable period in fiscal 2017. Adjusted net income (loss), a non-IFRS measure, which excludes any impact from executive separation costs, impairment of property and equipment, onerous contracts and costs related to strategic review and proxy contest (see Reconciliation of IFRS basis to Adjusted net income (loss) table), was C$(6.7) million compared to C$(5.3) million.
• Fully diluted income (loss) per common share was C$(0.43) compared to C$(0.23) in the comparable period in fiscal 2017. Adjusted fully diluted income (loss) per common share, a non-IFRS measure, which is adjusted net income (loss) on an adjusted fully diluted weighted average shares outstanding basis (see Reconciliation of fully diluted weighted average common shares outstanding table), was C$(0.26) per share compared to C$(0.21) per share.

These results might be an evidence for the declining trend for Offline loose tea sales. By the mean time, the service sector is showing a positive trend which provides customers an opportunity to enjoy brewed tea.

References

1. Original Article + More Info: https://globenewswire.com/news-release/2018/09/13/1570847/0/en/DAVIDsTEA-Inc-Announces-Second-Quarter-Fiscal-2018-Financial-Results.html

2. https://porchlightequity.com/brand/davidstea/

3. https://www.davidstea.com/ca_en/home/