A successful public offering separates the wheat from the chaff of supposition clarifying for the entire industry bankable benchmarks.
The 2011 New York Stock Exchange filing for an IPO by rival Teavana, which was founded in 1997, revealed extensive detail about operations, margins, salaries, strategy and risk factors. Teavana’s retail sales, for example, averaged $1,000 per square foot at the time of the filing establishing a benchmark for tea retail storefronts in Tier 1 malls. The Security and Exchange Commission SEC F-1 filing by DAVIDsTEA is less detailed due to the fact that “emerging growth” companies are not required to present as much detail. The Teavana S-1 filing numbered 504 pages, the DAVIDsTEA filing numbers 254.
Here is the one-two-three for Montreal-based DAVIDsTEA:
- The company is profitable. Sales grew 31% from $108 million in FY2014 to $142 million for the period ending January 31, 2015. Approximately 68% of revenue was from the sale of loose-leaf tea with 22% from accessories. In-store food and beverage sales account for 10%. Comparable sales at stores operating at least a year varies widely from a high of 31% in the fourth quarter of FY2012 to 8% in the fourth quarter of FY2014. Margins on earnings before taxes (EBITDA) have risen from 10.6% in FY2012 to 15.4% in FY2014. Gross profit was $78 million in FY2015 which is up from $41 million in FY2013. The company lost $4.4 million in FY2013, showed a $400,000 loss in FY2014 and $11.4 million in net income for the period ending Jan. 31, 2015. Earnings were $1.52 per share in FY2014.
- The company is growing. Store count as of March was 158 with 134 in Canada and 24 in the U.S. The company previously announced plans to add 25 to 30 stores in Canada and 10 to 15 in the U.S. during fiscal 2015. Store count was 70 in 2011, rose to 105 in FY2012 and grew by 19 in FY2013. The firm cited a potential of 100 additional Canadian stores and 300 news stores in the U.S. The U.S. stores will comprise 25% to 35% of total store count within five years. U.S. sales account for 8% of total sales. The company plans capital expenditures of up to $19 million in FY2015 with 85% to 95% used to construct new stores. Rival Teavana is currently operating 392 stores mainly in the U.S. and Canada with 16 in Mexico and 7 overseas.
- The IPO target is $75 million. The money raised will primarily be used to build new stores, which have a return on investment of two years. No price per share has been set nor has DAVIDsTEA announced the total number of available shares. The ticker DTEA is pending on the Nasdaq Global Market.
DAVIDsTEA hired some big name book runners to promote their IPO. The list includes Goldman Sachs, J.P. Morgan and Bank of America Merrill Lynch. A look at their sales pitch provides additional insights.
“We are building a brand that seeks to expand the definition of tea with innovative products that consumers can explore in an open and inviting retail environment,” reads the IPO. DAVIDsTEA describes itself as a “fast-growing branded beverage company, offering a differentiated selection of proprietary loose-leaf tea, pre-packaged teas, tea sachets and tea-related gifts and accessories.”
The firm, which features 150 selections, many herbal, emphasized its product development, citing an average of 30 new blends a year. “By continually offering new products and refining our blending techniques to enhance existing teas, we believe we bring new customers into the category and drive the frequency of visits to our stores and website,” reads the filing.
Sales from e-commerce transactions increased from 2.7% in 2010 to 7.9% in FY2015 with a target of 15% following the introduction of a new website in 2015. “Approximately 80% of our sales have come from a loyalty program called “Frequent Steepers,” according to the filing.
Our stores have been successful in a variety of geographic regions, population densities and real estate venues. The success of our stores with consumers is underscored, in part, by our comparable sales growth, which has been positive for the past 22 consecutive quarters, reads the IPO.
“We have proven our concept across Canada, where we believe there remains significant growth opportunity,” according to the filing.
Risk factors include” the impact from real or perceived quality or safety issues with our teas” and “Significant competition within our industry.”
Source: DAVIDsTEA (SEC F-1)