Q3 2021 DAVIDsTEA Inc Earnings Call
[music] good afternoon, ladies and gentlemen, welcome to David's keys third quarter fiscal year 2020 earnings webcast for.
Today's webcast is being recorded and is in the listen only mode.
Before we get started I would like to remind you of the company's the safe Harbor language. This presentation includes forward looking statements about our expectations for the performance of our business in the coming quarter and year.
Each forward looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.
Additional information regarding these factors appears under the heading risk factors in our form 10-K, which was filed with the Securities and Exchange Commission on June 16th Twentytwenty of.
And is available at Www Dot F., DC Dot Geo B and on David's keys website.
The forward looking statements in this discussion and speak only as of today's date and we undertake no obligation to update or revise any of the statement.
If any non I FRS financial measure is used on this call a reconciliation for the most directly comparable I FRS financial measure will be detailed in our form 10-Q, which was filed with the securities and Exchange Commission earlier today.
As a reminder, all dollar amounts refer to are in Canadian dollars unless otherwise indicated.
Now I would like to turn the call over to Mr., Herschel Segal founder executive Chairman and interim CEO of Davidstea.
Thank you operator.
Good afternoon, everyone and thank you all for joining us and we review our results for the third quarter of fiscal two and each Whitney and provide an update on the business.
I am pleased with our financial results or did you go for strategy and the reason is resonating with consumers as we head into the busiest season and pave the path for sustainable profitability.
The support the evolution of our strategy and as part of our succession plan there as the Eagle a drag the detail I have been appointed CEO and president respectively.
There has been involved the davidstea since its founding and the has held various role of since 2000 and.
Most recently as Chief brand Officer.
Frank joined US as she asked low two years ago and quickly became the key members of the management team that's true.
The taking on the COO of responsibilities.
[laughter].
Most of the demonstrated strong leadership attributes of the requisite experience and the capacity to quickly adapt and confidently addressed the headwinds we are facing as we transform the company and do a leaner more resilient organization.
I want to highlight their contribution to our strategic vision and for successfully leading and ex security and our ongoing transformation into a digital first organization as we adapt to evolving consumer behavior.
On behalf of the board I congratulate them on their appointment.
We are no doubt embarking on a new and very exciting chapter for Davidstea.
For my part I will remain chairman of the board and as required we will continue to support share and Frank as they pursue the company's transformation for the benefit of all shareholders.
And so joining me today of Steris ego, Davidstea, Chief Executive Officer, and Chief brand Officer, and Frank did Tele President and Chief operating Officer.
Ill now turn the call over to share.
Sarah over to you.
Thank you Harris and good afternoon, everyone.
I'd like to day take a moment the thank the board for the opportunity to lead such an incredible company and ready for the challenges ahead and I believe that we have the right team and plate navigate the future.
The cold and 19 pandemic has created incredible pressure on retailers worldwide to adapt by focusing on our strength and a product that remains and demand we were able to focus our attention to our online customers. Our plan to stabilize the company from unfavorable headwinds and double down on E Commerce and wholesale as we adopted.
Our support organization with significantly accelerated by the pandemic.
The ongoing cc double a protest a difficult but necessary Avenue has made it possible for David T. to execute and strategy and a matter of months not years.
I have no doubt the when we look back a few years from now 2021 standard the critical turning point for David Tea, and with our digital for strategy, becoming front and center.
The habit of Canadian consumers have been altered by cold and 19.
And home tea consumption has become the norm and our brand and selection of Ti has provided a moment of comfort and relaxation for many of these uncertain times.
As part of our digital for strategy and to further cement our position with new and existing customers, we are making a significant push and digital first innovation.
We are pursuing our quest to enhance and personalize the online and while finding new ways for our customers to explore discover and chase the teeth. They love.
Our brand was forged over the years by the individual emotional connections made with consumers.
Directly Kate this valued and personalized davids tea and store experience.
In August we launched virtual T. Guide service and online chat functionality that enabled the same of human connection traditionally experienced and store.
Customers have the ability to talk to a passionate and of knowledgeable tea guide as they navigate our new and existing T collection.
And t. accessories the.
Completely new experience allows our consumers to connect and interact with our key experts to help determine the best tea blends and she is for their specific tape.
The on case, many current customers are now looking for specific wellness benefits from our teeth and the result of the ongoing demand. We've added many organic and innovative wellness line, but the focus on de talk sleep and relaxing benefits are.
Our vitriol to guide educate and help consumers explore our various while the cheese within our online educational material.
We're also very pleased to and launch our first ever seasonal subscription box, providing tea lovers with a wide variety of seasonal newness and exclusive cheese.
We called it subscription model, the tea taste and club.
A computer for box with up to 80 blends that will be delivered four times, a year and customers will be able to buy and or gift. It.
The subscription will provide access to curated educational content and to an exclusive members only Facebook community.
The intention of these innovations, including the subscription box and the virtual of T Guide it to recreate part of the in store discovery and interactive sampling experience Davidstea best known for.
Supported by continued innovation, we will leverage our online platforms and key community to connect and a more human personalized and response of manner with our customers.
In conclusion and.
Look for it to continuing the work closely with our talented team as we build the stronger and more focused davids tea.
Centered on growing both our online and wholesale channels.
We are all working extremely hard to solidify our position as the digital current industry, leading provider of on trend high quality loose leaf tea.
The accessories and yes, I will now pass the call the Frank.
Yes.
Thank you Sarah and good afternoon, everyone for.
First the.
The C.C. the believe proceedings continue to follow the of course today, the Quebec Superior Court extended the stay of proceedings currently with the until March 19 2021.
We are focused on preparing and presenting the plan of arrangements where creditors.
Our goal of the exit seasonably by the end of the first quarter of calendar 2021 and.
And we will continue to provide updates as appropriate.
We look forward to completing this process. So the davidstea can move forward with its clear vision and strategies and.
And that we're able to focus for all of our attention and energy and running the business.
Looking now at our Q3 results.
We are pleased to report that we made for the progress at implementing our strategy supported by solid results for the quarter. It's important the highlights that adjusted EBITDA was positive for a second consecutive quarter and reached 3.3 million the.
This reflects solid momentum and our E commerce and wholesale channels combined with the benefits of our restructuring activities.
Well, the Canadian stores and operation for part of the third quarter sales decreased 33.6% the 26.2 million from 39.5 million in the part of your quarter.
For the same period ecommerce and wholesale channels recorded and crystal growth the 145.5% and.
Represented 84.3% of our total sales compared to 22.8% last year.
Our Canadian stores, we opened on August 21st 2020, and accounted for $4.1 million and sales.
For the quarter gross profit was 10.8 million down 49.3% from the prior year.
Primarily due to a decline in sales.
As a percentage of sales gross profit declined to 41.3% for the quarter from 54.1% last year.
As we pursue our digital of course strategy the cost of product delivery and distribution impacting gross profit will compare unfavorably for prior periods that were predominantly focused on retail sales distribution.
Underlying this delivery and distribution costs increased by $4.2 million over last year.
However, these incremental costs are more than offset by lower selling expenses related to the stores and are accounted for and our SGN and.
For the quarter as DNA decreased by $23.6 million or 76.8% the 7.1 million, while adjusted EPS to you in a decreased by $20.1 million for.
The decrease of explained by the closure of all stores, except for 18 Canadian outlets and the corresponding impact on wages salaries and employee benefits amounting to 12.2 million and.
As low as the 3.8 million reduction in amortization expense due to lower growth of use asset values.
As a percentage of sales adjusted EPS DNA decreased the 32.7% from 72.5 percentage due to lower selling expenses related to our store closures.
Third quarter, EBITDA was $15.3 million compared to a negative 4.5 million last year and.
Adjusted EBITDA, which excludes the impact of stock based compensation expense, the Canadian government wage subsidy and the impairment of property and equipment and what of use assets amounted to $3.3 million compared to negative 2.2 million last year.
As that a true over 31st 2020, we had a cash position of 21.9 million.
You too historically higher Q4 sales and to mitigate any potential supply chain issues and the context of the pandemic.
We are maintaining the higher than normal inventory low which impacted working capital.
And the going forward.
We are laser focused on executing against our transformation strategy, the stabilized strength and restructure davidstea and a very challenging environment.
On an accelerated timeline let.
Let me take a few minutes to review our progress across the three pillars for.
Regarding our efforts and stabilize the business from unfavorable headwinds, we remain focused on improving the digital customer experience and on sales delivery excellence.
Our dedicated and passionate the team is focused on ensuring the lubricants customer promises daily.
Among other things, we built of inventory levels to ensure our customers get the tees and accessories. They want when they want them.
Moving onto our second pillar, we are fully committed to our digital for strategy. We're delighted over the recent launch of our subscription offerings, which will allow consumers to not only purchase for themselves, but also gives the subscriptions the friends and family.
We've launched our virtual see got experience and improve the navigation the messaging of our online store.
Complementing our digital for his focus we are committed to expanding our wholesale presence and continue the strengthened davidstea to create a more sustainable future.
Depending of the accelerated our transformation and the push towards continued innovation and become an even more important part of our DNA.
The touched on some of our recent and exciting innovations and there is more to come the whole team is quite excited about this.
Finally, our restructuring efforts have been focused and optimizing our real estate footprint and maintaining a select and profitable brick and mortar presence.
In support of our digital for strategy.
The performance of our recently reopened stores have been in line with expectations and Weve right sized organization to reflect our new strategies.
And today I am proud to say Davidstea with his entrepreneurial culture continues the quickly for.
React and innovate the proactively address changing market trends and consumer behavior.
In closing.
We have made substantial progress the stabilized strength and when we structured day, let's see.
We can now look to our future with confidence and optimism.
This has made this has been made possible by the exceptional dedication commitment and hard work of our team they fully deserve our sincere space and gratitude.
Operator, this concludes our remarks.
We want to wish everyone happy holidays, and thank you for joining us today.
Ladies and gentlemen. This concludes today's webcast. Thank you for your participation you may now disconnect.
Yeah.