DAVIDsTEA Inc. Announces Second Quarter Fiscal 2017 Financial Results
MONTREAL, QUEBEC -- (Marketwired) -- 09/07/17 -- DAVIDsTEA Inc. (NASDAQ: DTEA) today announced financial results for the three and six months ended July 29, 2017.
For the three months ended July 29, 2017:
-- Sales increased by 11.2% to C$45.7 million from C$41.1 million in the
second quarter of fiscal 2016. Comparable sales decreased by 0.9%.
-- Same store sales improved over the first quarter to negative 0.9% from
negative 5.7%.
-- Gross profit increased by 1.5% to C$20.2 million from C$19.9 million,
while gross profit as a percent of sales decreased to 44.2% from 48.5%.
The decrease in gross profit as a percent of sales was primarily due to
the planned clearance of seasonal products and deleveraging of fixed
costs due to the negative 0.9% comparative sales this quarter.
-- Adjusted EBITDA, a non-IFRS measure, was C$ (2.2) million compared to
C$0.2 million.
-- Impairment charge of C$2.3 million incurred in the second quarter due to
underperforming U.S. stores.
-- Net loss was C$ (5.6) million compared to a net loss of C$(2.3) million.
Adjusted net loss, a non-IFRS measure, was C$ (4.2) million compared to
C$(2.3) million.
-- Fully diluted loss per common share was C$(0.22) compared to C$(0.09).
Adjusted fully diluted loss per common share, a non-IFRS measure, was
C$(0.16) per share compared to C$(0.09).
DAVIDsTEA President and Chief Executive Officer, Joel Silver, stated, "During the second quarter, we made progress towards our short-term goals of improving product assortment, in-store experience, e-commerce penetration and better understanding our customers on both sides of the border. The negative Adjusted EBITDA of $2.2 million is explained by the impact of planned promotional activity on gross profit and higher SG&A costs, primarily related to the higher store count. Our financial results were in-line with our expectations, with an improvement in same store sales and our inventory position, both top priorities for us.
"While Canadian store operating results declined over last year, we look forward to an improved performance in Canada in the second half of fiscal 2017. It is clear that the U.S. store network remains a challenge, and we are in the process of identifying and implementing certain measures to better tailor the DAVIDsTEA concept to U.S. consumers.
"We are seeing results from our e-commerce platform, both in Canada and the U.S., and the continuing reduction and improvement of our product assortment is expected to provide a better in-store shopping experience. Consumer research conducted recently indicates very strong brand awareness of DAVIDsTEA in Canada with further upside potential, while in the U.S. the brand remains in its infancy but resonates among those who are aware of the brand. The study is providing important data to target core customers and to better understand the different characteristics of Canadian and U.S. beverage consumers. As we have stated, our overriding objective is to make the tea core experience better for our customers and ensure that the DAVIDsTEA brand can realize its full potential."
Outlook:
"As we have previously stated, 2017 is a reset year for DAVIDsTEA as we are solidifying and implementing key strategic initiatives to positively impact our results. We are focused on improving the profitability of the Canadian network, which represents approximately 80% of our sales. We have a sound plan that encompasses e-commerce investments and various marketing initiatives. The U.S. business remains a work-in-progress. We will consider closing non-performing stores and will continue considering selective growth opportunities with proven DAVIDsTEA concepts. We have recently solidified the team with strong tea development and merchandising expertise, which we believe will help attain our objectives. We are encouraged with the initial progress we are making to improve DAVIDsTEA's performance, with a goal to continue to set the bar as leaders in the tea industry," stated Mr. Silver.
DAVIDsTEA modified prior 2017 outlook commentary including:
-- DAVIDsTEA plans to open 10-12 new stores in Canada (from 10-15 in Q1)
and up to 5 in the U.S.
-- Capex for the year will be approximately C$15 to $18 million (from C$16
to $20 million in Q1).
-- Company currently expects to be free cash flow positive for the full
year.
Other financial metrics for the three months ended July 29, 2017:
-- Selling, general and administration expenses ("SG&A") increased to
C$27.8 million from C$22.8 million. As a percent of sales, SG&A
increased to 60.9% from 55.5%. Adjusted SG&A, a non-IFRS measure,
increased to C$25.9 million from C$22.8, due primarily to the hiring of
additional staff to support the growth of the Company, including new
stores, and higher store operating expenses considering 28 additional
stores. As a percent of sales, adjusted SG&A increased to 56.6% from
55.5%
-- Results from operating activities were C$ (7.6) million as compared to
C$(2.9) million. Adjusted results from operating activities, a non-IFRS
measure, decreased to C$ (5.7) million from C$(2.9) million.
For the six months ended July 29, 2017:
-- Sales increased by 10.4% to $94.4 million from C$85.5 million in the
comparable period in fiscal 2016. Comparable sales decreased by 3.4%.
-- Gross profit increased by 3.0% to C$44.4 million from C$43.1 million,
while gross profit as a percent of sales decreased to 47.0% from 50.3%.
The decrease in gross profit as a percent of sales was primarily due to
the planned clearance of seasonal products and deleveraging of fixed
costs due to the negative 3.4% comparative sales for the year to date.
-- Net loss was C$ (5.9) million compared to a net loss of C$ (0.8)
million. Adjusted net loss, a non-IFRS measure, was C$ (5.3) million
compared to C$ (0.8) million.
-- Fully diluted loss per common share was C$ (0.23) compared to C$ (0.03).
Adjusted fully diluted loss per common share, a non-IFRS measure, was C$
(0.21) per share compared to C$ (0.03).
Other financial metrics for the six months ended July 29, 2017:
-- Selling, general and administration expenses ("SG&A") increased to
C$52.0 million from C$43.9 million. As a percent of sales, SG&A
increased to 55.1% from 51.4%. Adjusted SG&A, a non-IFRS measure,
increased to C$51.5 million from C$43.9, due primarily to the hiring of
additional staff to support the growth of the Company, including new
stores, and higher store operating expenses to support the operations of
236 stores as of July 29, 2017 as compared to 208 stores as of July 30,
2016. As a percent of sales, adjusted SG&A increased to 54.6% from
51.4%.
-- Results from operating activities were C$ (7.6) million as compared to
C$(0.9) million. Adjusted results from operating activities, a non-IFRS
measure, decreased to C$ (7.1) million from C$ (0.9).
Conference Call Information:
A conference call to discuss the second quarter of Fiscal 2017 financial results is scheduled for today, September 7, 2017, at 4:30 p.m. Eastern Time. The conference call will be webcast and may be accessed via the Company's Investor Relations section of its website at www.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.
Non-IFRS Information:
This press release includes non-IFRS measures including Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share. Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share are not presentations made in accordance with IFRS, and the use of the terms Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share may differ from similar measures reported by other companies. We believe that Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share provide investors with useful information with respect to our historical operations. We present Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share 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. Specifically, Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share allow for an assessment of our operating performance, including new store costs, without the effect of non-cash charges of the period or other one-time charges, such as depreciation, amortization, finance costs, deferred rent, non-cash compensation expense, costs related to onerous contracts or contracts where we expect the costs of the obligations to exceed the economic benefit, gain (loss) on derivative financial instruments, loss on disposal of property and equipment, impairment of property and equipment, and certain non-recurring expenses.
These measures also function as benchmarks to evaluate our operating performance. Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share are not measurements of our financial performance under IFRS and should not be considered in isolation or as alternatives to net income, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with IFRS. We understand that although Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under IFRS. Some of these limitations are:
-- Adjusted selling, general and administration expenses, Adjusted results
from operating activities, Adjusted EBITDA, Adjusted net income (loss),
and Adjusted fully diluted income (loss) per share do not reflect
changes in, or cash requirements for, our working capital needs; and
-- Although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and Adjusted EBITDA does not reflect any cash requirements for
such replacements.
Because of these limitations, Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share should not be considered as discretionary cash available to us to reinvest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.
Forward-Looking Statements:
This press release includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as "anticipate," "expect," "plan," "could," "may," "will," "believe," "estimate," "forecast," "goal," "project," and other words of similar meaning. These forward-looking statements address various matters including management's beliefs about the Company's growth prospects, store openings, product offerings and financial guidance for the coming fiscal quarter and fiscal year. The Company cannot assure investors that future developments affecting the Company will be those that it has anticipated. Actual results may differ materially from these expectations due to risks and uncertainties including: the Company's ability to maintain and enhance its brand image, particularly in new markets; the Company's ability to compete in the specialty tea and beverage category; the Company's ability to expand and improve its operations; changes in the Company's executive management team; levels of foot traffic in locations in which the Company's stores are located; changes in consumer trends and preferences; fluctuations in foreign currency exchange rates; general economic conditions and consumer confidence; minimum wage laws; the importance of the Company's first fiscal quarter to results of operations for the entire fiscal year; and other risks set forth in the Company's Annual Report on Form 10-K dated April 12, 2017 and filed with the Securities and Exchange Commission on April 13, 2017. If one or more of these risks or uncertainties materialize, or if any of the Company's assumptions prove incorrect, the Company's actual results may vary in material respects from those projected in these forward-looking statements. Any forward-looking statement made by the Company in this release speaks only as of the date on which the Company makes it. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.
About DAVIDsTEA:
DAVIDsTEA is a retailer of specialty tea, offering a differentiated selection of proprietary loose-leaf teas, pre-packaged teas, tea sachets and tea-related gifts, accessories and food and beverages, primarily through 236 company-operated DAVIDsTEA stores throughout Canada and the United States as of July 29, 2017, and its website, davidstea.com. The Company is headquartered in Montreal, Canada.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands of Canadian dollars)
As at As at
July 29, January 28,
2017 2017
$ $
------------ -------------
ASSETS
Current
Cash 56,407 64,440
Accounts and other receivables 2,864 3,485
Inventories 28,629 31,264
Income tax receivable 3,301 539
Prepaid expenses and deposits 6,706 5,659
Derivative financial instruments - 454
------------ -------------
Total current assets 97,907 105,841
Property and equipment 48,741 51,160
Intangible assets 3,264 2,958
Deferred income tax assets 14,108 14,375
------------ -------------
Total assets 164,020 174,334
------------ -------------
------------ -------------
LIABILITIES AND EQUITY
Current
Trade and other payables 16,934 19,681
Deferred revenue 4,333 4,885
Current portion of provisions 1,524 2,562
Derivative financial instruments 2,068 -
------------ -------------
Total current liabilities 24,859 27,128
Deferred rent and lease inducements 7,737 7,824
Provisions 4,142 5,932
------------ -------------
Total liabilities 36,738 40,884
------------ -------------
Equity
Share capital 111,019 263,828
Contributed surplus 8,080 8,833
Retained earnings (deficit) 7,742 (142,398)
Accumulated other comprehensive income 441 3,187
------------ -------------
Total equity 127,282 133,450
------------ -------------
164,020 174,334
------------ -------------
------------ -------------
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited and in thousands of Canadian dollars, except share information)
For the three months For the six months
ended ended
----------------------- -----------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
$ $ $ $
----------- ----------- ----------- -----------
Sales 45,687 41,079 94,356 85,548
Cost of sales 25,482 21,171 49,969 42,485
----------- ----------- ----------- -----------
Gross profit 20,205 19,908 44,387 43,063
Selling, general and
administration expenses 27,816 22,810 51,969 43,929
----------- ----------- ----------- -----------
Results from operating
activities (7,611) (2,902) (7,582) (866)
Finance costs 157 19 288 36
Finance income (135) (148) (271) (269)
----------- ----------- ----------- -----------
Loss before income taxes (7,633) (2,773) (7,599) (633)
Provision for income tax
(recovery) (2,070) (506) (1,674) 120
----------- ----------- ----------- -----------
Net loss (5,563) (2,267) (5,925) (753)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Other comprehensive income
(loss)
Items to be reclassified
subsequently to income:
Unrealized net gain (loss) on
forward exchange contracts (2,977) 1,678 (1,777) (2,519)
Realized net (gain) loss on
forward exchange contracts
reclassified to inventory (292) 598 (745) (370)
Provision for income tax
recovery (income tax) on
comprehensive income 867 (604) 668 767
Cumulative translation
adjustment (1,614) 853 (892) (1,469)
----------- ----------- ----------- -----------
Other comprehensive income
(loss), net of tax (4,016) 2,525 (2,746) (3,591)
----------- ----------- ----------- -----------
Total comprehensive income
(loss) (9,579) 258 (8,671) (4,344)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share:
Basic (0.22) (0.09) (0.23) (0.03)
Fully diluted (0.22) (0.09) (0.23) (0.03)
Weighted average number of
shares outstanding
- basic 25,745,221 24,625,414 25,573,894 24,380,306
- fully diluted 25,745,221 24,625,414 25,573,894 24,380,306
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands of Canadian dollars)
For the three months For the six months
ended ended
----------------------- -----------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
$ $ $ $
----------- ----------- ----------- -----------
OPERATING ACTIVITIES
Net loss (5,563) (2,267) (5,925) (753)
Items not affecting cash:
Depreciation of property
and equipment 2,114 1,921 4,178 3,708
Amortization of intangible
assets 472 169 754 329
Loss on disposal of
property and equipment 24 - 30 -
Impairment of property and
equipment 2,313 - 2,313 -
Deferred rent 200 366 203 646
Recovery for onerous
contracts (641) - (1,527) -
Stock-based compensation
expense 802 614 1,376 930
Amortization of financing
fees 20 18 40 36
Accretion on provisions 139 - 251 -
Deferred income taxes
(recovered) (570) 189 430 22
----------- ----------- ----------- -----------
(690) 1,010 2,123 4,918
Net change in other non-cash
working capital balances
related to operations 3,509 (2,793) (5,965) (7,489)
----------- ----------- ----------- -----------
Cash flows related to
operating activities 2,819 (1,783) (3,842) (2,571)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of
common shares pursuant to
exercise of stock options 791 500 1,606 844
----------- ----------- ----------- -----------
Cash flows related to
financing activities 791 500 1,606 844
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Additions to property and
equipment (2,910) (6,876) (4,731) (9,722)
Additions to intangible
assets (641) (305) (1,066) (461)
----------- ----------- ----------- -----------
Cash flows related to
investing activities (3,551) (7,181) (5,797) (10,183)
----------- ----------- ----------- -----------
Increase (decrease) in cash
during the period 59 (8,464) (8,033) (11,910)
Cash, beginning of period 56,348 69,068 64,440 72,514
----------- ----------- ----------- -----------
Cash, end of period 56,407 60,604 56,407 60,604
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Reconciliation of Adjusted EBITDA
(Unaudited and in thousands of Canadian dollars)
For the three months For the six months
ended ended
--------------------- ---------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
---------- ---------- ---------- ----------
Net loss $ (5,563) $ (2,267) $ (5,925) $ (753)
Finance costs 157 19 288 36
Finance income (135) (148) (271) (269)
Depreciation and amortization 2,586 2,090 4,932 4,037
Loss on disposal of property and
equipment 24 - 30 -
Provision for income tax
(recovery) (2,070) (506) (1,674) 120
---------- ---------- ---------- ----------
EBITDA $ (5,001) $ (812) $ (2,620) $ 3,171
---------- ---------- ---------- ----------
Additional adjustments :
Stock-based compensation expense
(a) 802 614 1,376 930
Executive separation costs
related to salary (b) 812 - 812 -
Impairment of property and
equipment (c) 2,313 - 2,313 -
Impact of onerous contracts (d) (1,360) - (2,775) -
Deferred rent (e) 200 366 203 646
---------- ---------- ---------- ----------
Adjusted EBITDA $ (2,234) $ 168 $ (691) $ 4,747
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(a) Represents non-cash stock-based compensation expense.
(b) Executive separation costs related to salary represent salary owed to
the former Chief Financial Officer as part of his separation agreement.
(c) Represents costs related to impairment of property and equipment for
stores.
(d) Represents provision, non-cash reversals, and utilization related to
certain stores where the unavoidable costs of meeting the obligations
under the lease agreements are expected to exceed the economic benefits
expected to be received from the contract.
(e) Represents the extent to which our rent expense has been above or below
our cash rent.
Reconciliation of IFRS basis to Adjusted net income (loss)
(Unaudited and in thousands of Canadian dollars)
For the three months For the six months
ended ended
--------------------- ---------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
---------- ---------- ---------- ----------
Net loss $ (5,563) $ (2,267) $ (5,925) $ (753)
Executive separation costs (a) 962 - 962 -
Impairment of property and
equipment (b) 2,313 - 2,313 -
Impact of onerous contracts (c) (1,221) - (2,524) -
Income tax expense adjustment
(d) (698) - (175) -
---------- ---------- ---------- ----------
Adjusted net income (loss) $ (4,207) $ (2,267) $ (5,349) $ (753)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(a) Executive separation costs represent salary owed to the former Chief
Financial Officer of $812 for the three and six months ended July 29,
2017 as part of his separation agreement and stock-based compensation of
$150 for the three and six months ended July 29, 2017 relating to the
vesting of equity awards pursuant to the separation agreement.
(b) Represents costs related to impairment of property and equipment for
stores.
(c) Represents provision, non-cash reversals, utilization, and accretion
expense related to certain stores where the unavoidable costs of meeting
the obligations under the lease agreement are expected to exceed the
economic benefits expected to be received from the contract. The
accretion expense on provisions for onerous contracts is included in
Finance costs on the Consolidated Statement of Comprehensive Income
(Loss) for the three and six months ended July 29, 2017.
(d) Removes the income tax impact of the executive separation costs,
impairment of property and equipment, and the impact of onerous
contracts referenced in note (a), (b) and (c).
Reconciliation of IFRS basis to Adjusted results from operating activities
(Unaudited and in thousands of Canadian dollars)
For the three months For the six months
ended ended
--------------------- ---------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
$ $ $ $
---------- ---------- ---------- ----------
Results from operating activities (7,611) (2,902) (7,582) (866)
Executive separation costs (a) 962 - 962 -
Impairment of property and
equipment (b) 2,313 - 2,313 -
Impact of onerous contracts (c) (1,360) - (2,775) -
---------- ---------- ---------- ----------
Adjusted results from operating
activities $ (5,696) $ (2,902) $ (7,082) $ (866)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(a) Executive separation costs represent salary owed to the former Chief
Financial Officer of $812 for the three and six months ended July 29,
2017 as part of his separation agreement and stock-based compensation of
$150 for the three and six months ended July 29, 2017 relating to the
vesting of equity awards pursuant to the separation agreement.
(b) Represents costs related to impairment of property and equipment for
stores.
(c) Represents provision, non-cash reversals, and utilization related to
certain stores where the unavoidable costs of meeting the obligations
under the lease agreement are expected to exceed the economic benefits
expected to be received from the contract.
Reconciliation of IFRS basis to Adjusted selling, general and administration
expenses
(Unaudited and in thousands of Canadian dollars)
For the three For the six months
months ended ended
------------------ ------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
$ $ $ $
--------- -------- --------- --------
Selling, general and administration
expenses 27,816 22,810 51,969 43,929
Executive separation costs (a) (962) - (962) -
Impairment of property and equipment
(b) (2,313) - (2,313) -
Impact of onerous contracts (c) 1,360 - 2,775 -
--------- -------- --------- --------
Adjusted selling, general and
administration expenses 25,901 22,810 51,469 43,929
--------- -------- --------- --------
--------- -------- --------- --------
(a) Executive separation costs represent salary owed to the former Chief
Financial Officer of $812 for the three and six months ended July 29,
2017 as part of his separation agreement and stock-based compensation of
$150 for the three and six months ended July 29, 2017 relating to the
vesting of equity awards pursuant to the separation agreement.
(b) Represents costs related to impairment of property and equipment for
stores.
(c) Represents provision, non-cash reversals, and utilization related to
certain stores where the unavoidable costs of meeting the obligations
under the lease agreement are expected to exceed the economic benefits
expected to be received from the contract.
Reconciliation of fully diluted weighted average common shares outstanding,
as reported, to adjusted fully diluted weighted average common shares
outstanding
(Unaudited and in thousands of Canadian dollars, except per share)
For the three months For the six months
ended ended
----------------------- -----------------------
July 29, July 30, July 29, July 30,
2017 2016 2017 2016
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding, fully
diluted 25,745,221 24,625,414 25,573,894 24,380,306
Net loss per share, fully
diluted (0.22) (0.09) (0.23) (0.03)
Adjusted net loss per
share, fully diluted (0.16) (0.09) (0.21) (0.03)
Contacts: Investor Contact MaisonBrison Communications Pierre Boucher 514.207.0000 [email protected]
Source: DAVIDsTEA Inc.