David’s Tea Initiatives Support Slight Growth

Growing online sales and renovating stores are part of David’s Tea’s fiscal 2018 plans, which were outlined April 19 in its fourth quarter fiscal 2017 financial results and earnings call.

“Our leadership team is committed to improving the performance of our Canadian and U.S. network of stores, realizing the value of our brand and charting the best path forward for all of our David’s Tea stakeholders,” said Joel Silver, president and CEO of David’s Tea.

In the fourth quarter, David’s Tea earnings before interest, taxes, depreciation and amortization (a non-IFRS measure) were 16.4 million Canadian dollars, compared to CA$18.1 million during the same quarter of fiscal 2016. The recent quarter demonstrated a slower rate of decline in earnings than that of previous quarters.

Sales also increased 0.4 percent to CA$86.7 million from CA$86.3 million one year ago. Comparable sales decreased by 8.1 percent. The core tea business continues to grow and online sales figures have shown double-digit growth. E-commerce sales penetration increased to 12.2 percent of total sales, which is an increase over 2016’s fourth-quarter sales figure of 10.6 percent.

However, the company experienced challenges in the sales of tea accessories and kits during the holiday season. Silver said they continue to optimize and improve David’s Tea’s assortment mix.

David’s Tea is focused on creating positive business momentum through several key initiatives. The company took cost reduction measures and invested in new I.T. systems, particularly its new e-commerce platform, as well as new marketing and merchandising staff. The goal is for selling, general and administration expenses to remain stable year over year.

The new e-commerce website launched last week, which is part of the company’s initiative to grow online sales. It handles significantly more traffic and offers a better mobile experience, stated Silver. Enhancements will be launched throughout 2018, including additional marketing features, further improving the mobile experience and providing a solid platform to start selling on Amazon.com, which Silver anticipates will happen before the 2018 holiday season.

Teavana completed the closure of its stores during the first quarter of 2018, with the Canadian stores closing earlier, during September and October of 2017. In shopping malls in which David’s Tea was collocated with Teavana, David’s Tea experienced a positive impact on its sales.

David’s Tea also has a new concept store with a new format Silver refers to as David’s Tea 2.0; the first of which is at Square One Mall outside of Toronto. Following the renovation, the store experienced a nearly 10 percent improvement in sales. The renovation focused on improving the service model and the customer experience. The new store format could become the blueprint for the company’s future renovation program. Five additional stores will be renovated in the David’s Tea 2.0 format this fall.

“We remain in a solid financial position with a cash balance of CA$63.5 million at the end of fiscal 2017,” said Silver. He predicts the company’s cash position will remain at a similar level throughout fiscal 2018. He also anticipates the remainder of the first half of fiscal year 2018 to remain challenging, followed by a stronger second half as the company’s initiatives gain traction.

CFO Howard Tafler said David’s Tea entered the quarter with a net total of 240 stores, an increase of nine new stores over last year. During the quarter, there were four new store openings in Canada.

Fourth quarter comparable sales decreased by 8.1 percent, but gross profits decreased to CA$44.5 million from CA$44.8 million last year. Gross profit as a percentage of sales decreased to 51.3 percent from 51.9 percent one year ago, said Tafler.

Silver concluded the by saying, “We begin fiscal 2018 with a strong, focused [management] team, a more stable business and a clear go-forward plan, focused on our store network, reinvestments in merchandising and marketing, advancing e-commerce and expanding distribution channels. In conclusion, David’s Tea management is focused on improving the business and maximizing the potential of our strong brand.”