DAVIDsTEA Considers Sale

MONTREAL, Quebec –

Photo credit: DAVIDsTEA Twitter

Disappointing earnings led DAVIDsTEA executives to admit during a call with investors last week that they are exploring strategic alternatives including a possible sale of the company. Shares have lost more than half their value in the past 12 months.

Alternatives include a joint-venture partner, the sale of assets, merger, divestiture, and possible restructuring and retrenchment from expansion into the U.S. as sales at the company’s mall-based locations slow. It is possible a private-equity firm would acquire or refinance the company. Two weeks ago, Unilever purchased Tazo tea from Starbucks for $384 million fueling speculation and driving stock prices. Management can only dream of a deal with JAB Holdings, which has spent $30 billion buying up coffee and tea companies the past few years.

Last April, DAVIDsTEA reported a 14 percent quarterly increase in sales to $67 (CAD$86.3) million but margins continue to fall, and same-store sales declined 6.8 percent year-to-year in the latest quarter. Revenue dropped 2.5 percent to $43 million. CEO Joel Silver, who took over in March, promised additional expansion (in the U.S. and Canada). He said fiscal 2017 will be a “reset year” two years after the company went public, pricing its stock at $18 per share. In the days that followed, the IPO shares rose 43 percent, but in the past year shares fell to a low of $3.75 per share. The company’s market capitalization is now $118 million, down from a high of $450 million.

Founder David Segal left the firm in 2016. He and his uncle, Hershel Segal, founder of Le Chateau clothing stores, made a handsome profit during the early years as the company built its first 100 stores across Canada. The company continues to open new stores, and currently operates 236 locations in the U.S. and Canada.

DAVIDsTEA competes with Teavana (a Starbucks brand) in many of these locations. In July, Starbucks announced it would close all 379 Teavana stores. In locations such as the Devonshire Mall in Windsor, Ontario, Starbucks’ decision to close the Teavana store leaves DAVIDsTEA as the only specialty tea provider.

In September, Silver told CP24 TV, “Overall this is a definite positive for the business.” DAVIDsTEA competes with Teavana in 38 Canadian malls and 19 in the U.S. Teavana is closing 54 Canadian locations. Canadian sales account for 80 percent of the company’s revenue.

During the earnings call, CEO Silver said e-commerce sales grew by double digits. Teavana closed its online store Dec. 1. He said DAVIDsTEA will redesign its website at a cost of $4 million and emphasize product development, getting back to the core mission of selling tea.

In the meantime, the company’s board of directors said it would seek advice from financial advisors.

EDITOR’S NOTE: The Teavana.com website remains live and continues to direct visitors to Teavana locations that stock tea and tea ware. The online store closed in December after exhausting its inventory. Starbucks continues to promote Teavana products on its store menus via mobile order applications. The company also announced the closure of the online store at Starbucks.com: “as of Oct. 1, 2017, 11:59 p.m. Pacific, Starbucks.com is no longer available for customers to purchase products online or by phone.” Click here to view a list of answers to frequently asked questions posted by Starbucks.

Source: Seeking Alpha, DAVIDsTEA, CP24 TV