BMO Capital Starts DAVIDsTEA (DTEA) at Market Perform

BMO Capital initiates coverage on DAVIDsTEA (NASDAQ: DTEA) with a Market Perform rating and a price target of $21.00.

Analyst Kelly Bania commented, "DAVIDsTEA (or “DAVIDs”) is a fast-growing Canadian retailer of branded teas with sales of $142 million in 2014 (F2015 ending January). The company offers a wide variety of loose leaf teas and tea-related gifts (68% of sales), tea accessories (22% of sales), and in-store beverages (10% of sales), primarily through its network of 161 retail stores in Canada (91% of sales) as well as the U.S. (9% of sales), following the company’s entry into the U.S. in 2011. DAVIDs has also operated an e-commerce site since the company’s founding in 2008; this accounts for 8% of sales. We believe DAVIDs’ modern in-store experience, innovative culture (~20% of teas new each year), attractive market positioning, and track record of strong new-store returns in Canada (typical pay-back period of ~two years) position the company well to achieve its long-term, new-store growth target of ~550 and EPS growth target of 25%. However, with DTEA shares up 18% since the company's early June 2015 IPO and now trading above our group of early-stage, high-growth consumer companies, both at the time of their respective IPOs and currently, and above Teavana (TEA) when it IPO’d and when it was subsequently acquired by Starbucks (SBUX), we rate DTEA shares Market Perform. Key fundamental risks include a less-proven U.S. store economic model, significant C$/US$ risk, slowing customer traffic trends (-0.8% in F1Q16), given cannibalization in Canada and low barriers to entry."

For an analyst ratings summary and ratings history on DAVIDsTEA click here. For more ratings news on DAVIDsTEA click here.

Shares of DAVIDsTEA closed at $22.48 yesterday.

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