DAVIDsTEA held its 2nd Quarter Fiscal Year 2019 Earnings Conference Call on Sept. 17, which revealed a significant upswing in e-commerce sales. CEO Herschel Segal began the call by announcing he would review the quarter’s fiscal results and introduced Chief Operating Officer and CFO Frank Zitella.
Segal delved into the company’s recent success in its e-commerce and wholesale channels, which showed a combined growth of 53% over the last year. He also forecasted continued growth in these sectors, “Both channels have been identified as areas of future growth for DAVIDsTEA and benefited from recent initiatives led by our solid leadership team,” said Segal.
He added, sales of tea sachets, which debuted last year, have surpassed expectations and the company plans to expand its wholesale distribution of sachets south of the Canadian boarder.
DAVIDsTEA is on trend with its recent introduction of its Fall 2019 collection, which incorporates classic and new flavors, as well as an expanded wellness collection.
“Our progress in e-commerce and within the wholesale channel, coupled with our plans going forward, provide confidence that we are on the right path to return DAVIDsTEA to profitability and growth,” said Segal before turning the meeting over to Zitella.
Zitella noted positive changes, including DAVIDsTEA’s new focus on providing customers with an improved in-store experience, and adding that the company maintained a strong cash flow during a historically weak second quarter. “When compared to the second quarter last year, we generated positive cash flow from operations of $3.1 million compared to negative $12.4 million,” Zitella said. He attributed the monetary growth to optimized inventory levels and a reduction in administrative and other expenses.
Though sales decreased from $40.2 million to $39.2 million when compared to the same period from 2018 (a difference of by 2.5% and $1 million), sales in e-commerce and wholesale channels increased by $2.8 million or 52.8%, which is partially attributable to DAVIDsTEA’s grocery chain distribution in Canada. Conversely, retail sales declined by $3.8 million and same-store sales decreased by 9.4%, according to Zitella. Tea sales increased by 6.2% year over year “while accessories remain under pressure,” Zitella said.
Gross profit increased by 25.7% over the same period in 2018 to 21.8 million. Selling, General and Administrative Expenses decreased by 13.1% to $27.2 million from last year.
Earnings before interest, tax, depreciation and amortization showed marked improvement over this quarter in 2018, which had a negative $5.6 million as comparted to this year’s $0.4 million.
A new development is DAVIDsTEA’s creative partnership with organic Canadian brewery, Beau’s Brewing. Together they plan to launch the DAVIDsTEA London Fog beer, which is a blend of Organic Cream of Earl Grey tea and golden ale brewed with lactose and vanilla. It will be sold at grocery outlets in Ontario and Quebec.
Zitella added, “DAVIDsTEA entered into a secured loan agreement with Oink Oink Candy Inc., doing business as Squish, pursuant to which the company advanced $1.8 million as of August 3, 2019. The loan facility under this agreement is capped at $2 million… The loan is repayable no later than December 31, 2019.”
He closed by saying they are excited to expand their wholesale distribution in the near future, as well as launch several new tea collections. He then lauded the leadership team’s plan for the coming months. “While we continue to face some challenges, we’re taking tangible steps to reposition DAVIDsTEA as a growth company,” said Zitealla. “We remain focused on improving our financial performance, and we’re taking concrete steps for the DAVIDsTEA brand to better resonate with new and existing customers.”