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-commerceand wholesale channels, which showed a combined growth of 53% over the lastyear. He also forecasted continued growth in these sectors, “Both channels havebeen identified as areas of future growth for DAVIDsTEA and benefited fromrecent initiatives led by our solid leadership team,” said Segal.
He added, sales of tea sachets, whichdebuted last year, have surpassed expectations and the company plans to expand itswholesale distribution of sachets south of the Canadian boarder.
DAVIDsTEA is on trend with its recentintroduction of its Fall 2019 collection, which incorporates classic and newflavors, as well as an expanded wellness collection.
“Our progress in e-commerce andwithin the wholesale channel, coupled with our plans going forward, provideconfidence that we are on the right path to return DAVIDsTEA to profitabilityand growth,” said Segal before turning the meeting over to Zitella.
Zitella noted positive changes, includingDAVIDsTEA’s new focus on providing customers with an improved in-storeexperience, and adding that the company maintained a strong cash flow during a historicallyweak second quarter. “When compared to the second quarter last year, wegenerated positive cash flow from operations of $3.1 million compared tonegative $12.4 million,” Zitella said. He attributed the monetary growth tooptimized inventory levels and a reduction in administrative and otherexpenses.
Though sales decreased from $40.2million to $39.2 million when compared to the same period from 2018 (adifference of by 2.5% and $1 million), sales in e-commerce and wholesalechannels increased by $2.8 million or 52.8%, which is partially attributable toDAVIDsTEA’s grocery chain distribution in Canada. Conversely, retail salesdeclined by $3.8 million and same-store sales decreased by 9.4%, according toZitella. Tea sales increased by 6.2% year over year “while accessories remainunder pressure,” Zitella said.
Gross profit increased by 25.7% overthe same period in 2018 to 21.8 million. Selling, General and AdministrativeExpenses decreased by 13.1% to $27.2 million from last year.
Earnings before interest, tax,depreciation and amortization showed marked improvement over this quarterin 2018, which had a negative $5.6 million as comparted to this year’s $0.4million.
A new development is DAVIDsTEA’s creativepartnership with organic Canadian brewery, Beau’s Brewing. Together they planto launch the DAVIDsTEA London Fog beer, which is a blend of Organic Cream ofEarl Grey tea and golden ale brewed with lactose and vanilla. It will be soldat grocery outlets in Ontario and Quebec.
Zitella added, “DAVIDsTEA enteredinto a secured loan agreement with Oink Oink Candy Inc., doing business asSquish, 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 loanis repayable no later than December 31, 2019.”
He closed by saying they are excited toexpand their wholesale distribution in the near future, as well as launchseveral new tea collections. He then lauded the leadership team’s plan for thecoming months. “While we continue to face some challenges, we’re takingtangible steps to reposition DAVIDsTEA as a growth company,” said Zitealla. “Weremain focused on improving our financial performance, and we’re takingconcrete steps for the DAVIDsTEA brand to better resonate with new and existingcustomers.”