Q1 2021 DAVIDsTEA Inc Earnings Call
This webcast is being recorded and is in a listen only mode.
Before we get started I would like to remind you of the Companys 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 for our fiscal year ended January 32021 file both with the United States Securities and Exchange Commission and with the opening day day March <unk> and in our quarterly <unk>.
Port on form 10-Q filed today with both the United States Securities and Exchange Commission and with the <unk> the amount of <unk> and on David <unk> website.
The forward looking statements in this discussion speak only as of today's date and we undertake no obligation to update or revise any of these statements.
If any non <unk> measure is used on this call a reconciliation to the most directly comparable <unk> financial measure will be detailed in our form 10-Q.
As a reminder, all dollar amounts referred to are in Canadian dollars unless otherwise indicated.
Now I would like to turn the call over to Sarah Siegel, Chief Executive Officer, and Chief brand Officer of Davids tea.
Thank you operator.
Good afternoon, everyone and thank you all for joining us on.
Also joining me on strength of Tele, David <unk>, President and Chief operating and financial Officer.
I am pleased by our results for the first quarter with another fourth consecutive quarter of positive adjusted EBITDA.
Our sustained results are a clear validation of our digital first strategy and demonstrates what has been accomplished in a very short period of time.
Less than a year ago and after a careful review of available options. The company's management and board of directors determined that a formal restructuring plan under the <unk> was the best option in the context of an increasingly challenging retail environment for.
Further exacerbated by the COVID-19 pandemic.
From a business perspective, the choice was clear as it provided an opportunity to overcome the challenges we faced and ensure the long term viability of David.
Unfortunately, the decision to significantly reduce our retail footprint and the subsequent restructuring of our business negatively impacted a large number of our exceptional and passionate employees.
But as we look back we know that we took the right on the only decision possible then enabled for fresh start for David the teeth.
Last Friday creditor approval of our plan of arrangement marked an important milestone in this process.
On behalf of management and the board I want to thank our employees.
Landlords and other creditors for their support.
In the past year, we underwent a transformation that require changes to how we connect with our customers.
We found new ways to engage with tea lovers and to replicate our in store key discovery experience across multiple digital platforms.
While our operational efficiency and platforms have evolved our vision is the same we remain committed to being the best company in the world.
Today, David <unk> is also a more agile organization that can rapidly align its business strategies with evolving consumer preferences.
As a leading key merchant with a strong brand we seek to share our passion and love for tea, and our unique and innovative blends with existing and new audiences.
As interest and knowledge of key growth in North America. We are excited by the significant prospects to grow our presence as we use our scale reach and experience to connect with a wide range of T. Consumers were attracted by the desire to make the discovery ft on easy and approachable.
Our T ranges from single origin garden into concentrate <unk> loose leaf crafted for both signature blend our wellness plans are specialized in sleep and cold relief continue to innovate in this space.
Also has the largest and growing selection of organic loose leaf teas in North America.
Our margin line continues to grow with many innovative flavors.
Our strong brand positioning our focus on variety creativity and quality as well as the use of functional wellness ingredients allows us to meet and exceed the needs of consumers.
And we will help bolster our position in the growing <unk> market and in the growing health and wellness space.
We plan to complete our transition to a global tea company by leveraging the strength of our brand and reinventing the experience within and beyond our stores.
Our digital first strategy is complemented by a select number of our owned flagship stores and the availability of products through other retailers, including select products available in store in store retail model.
We continue to grow our wholesale business expanding our presence in other retail banners in Canada.
We will also continue to engage with consumers through various in person experiential learning Hastings pop up events and social media Activations among other initiatives to complement our digital strategy.
In closing we have now laid the foundation to scale and expand our business in a boarder lift environment, both in North America and around the world and we are excited about the future.
Our vision is to be recognized as the most innovative company in the world inspiring greater wellness and sustainability.
This call is for us to have the best blend and sustainable sourcing leadership and the most effective and creative ways of making loose leaf tea fund and accessible to all.
This approach involves conversations with our community education ingredients research and in house designed accessories.
Want to create a future where consumers appreciate and enjoy the health and wellness benefits of <unk>.
Our beverage, which may be 5000 years old, but it is more relevant than ever as consumers increasingly seek out healthy plant based products from brands. They can trust.
David T. We want to be the welcoming place for anyone on their key journey.
I will now turn the call over to Frank to discuss the status of our CCW proceedings and latest quarterly results in more detail.
Thank you Sarah and good afternoon, everyone.
As we move to put the <unk> process behind US we look forward for fully dedicating our time and effort toward on we assume a full value and potential of the David see Brian.
Last Friday, we reached a significant milestone in the <unk> process and in the company's transformational journey towards a digital first organization.
We are grateful that credit is accepted managements plan of arrangement.
The next step we expect that the plan will be approved by the courts in both Canada and the us within the week.
As required by the plan of arrangement and I was 1 of the final steps in the process. We expect to provide Pwc are court appointed monitor with approximately $18 million for.
Debuted on the creditors on David's team full and final settlement of the $94 million pre filing creditor claims effected by the plan of arrangement.
This critical step which is expected to occur later this week we.
We will complete the company's legal obligations under the plan of arrangement.
Thereafter, we expect to have sufficient liquidity to fund our working capital requirements and to continue investing in our business.
Looking ahead.
A satisfying and frictionless customer experience is a key differentiator that we expect will be enhanced by investments, we're making in both technology and distribution capabilities.
Breathing, a more meaningful and personal connection with consumers and improving the speed of purchase fulfillment. We expect we will continue the lighting, both on our existing and new customers.
Financially we are pleased with the trend on our earnings which reflect our digital transformation.
We posted another quarter of positive adjusted EBITDA with continued sales momentum in e-commerce and wholesale channels.
The transformational efforts today have been driven by a very engaged management team and a supportive board working together to share our passion and knowledge of tea with those wanting to explore the taste.
And lifestyle elements of teeth.
Thank everyone for their commitment to David's Ts transformation.
Now looking at our Q1 results.
Sales decreased almost 28% from the prior year quarter for $23.2 million.
As you will recall.
It is in this quarter last year about halfway through and to be exact on March 17, 2020, we closed on.
All of our 224 stores in North America in response to the COVID-19 pandemic and only subsequently reopened 18 stores in Canada in August of 2020 subsequent to the filing for <unk>.
So we are comparing the performance of these new stores in Q1.2021, with the performance of 224 stores or for half a quarter.
Sales for E Commerce, and wholesale channels posted solid results. They increased by $2.9 million or 17, 2% for $19.9 million and represented approximately 86% of sales in Q1 compared to 53% a year ago.
For the quarter gross profit was $10.8 million down 27% from the prior year period, due primarily to lower sales as.
As a percentage of sales gross profit increased slightly to 46, 3% for the quarter from 45, 5% last year.
For the quarter SG&A decreased by $12.4 million or <unk> 57, 5% for $9.2 million, while adjusted SG&A declined by $10.5 million.
The decrease was explained by the closure of all stores, except for 18th and eating locations contributing to a corresponding $5.1 million reduction in.
In wages salaries and employee benefits.
Other store related expenses, which decreased by $1.4 million as well as a $2.9 million reduction in amortization expense due to a lower right of use asset value.
As a percentage of sales adjusted SG&A decreased to 44% from 61, 8%.
The solid momentum in our e-commerce and wholesale channel combined with the benefits of our restructuring process generated positive adjusted EBITDA in the last 4 consecutive quarters.
In Q1, adjusted EBITDA, which excludes the impact of stock based compensation expense impairment of property and equipment and right of use assets.
Restructuring plan activities.
The wage subsidy received from the Canadian government.
And costs related to the implementation and configuration of software solutions reached.
We reached $2.5 million.
Year over year, adjusted EBITDA increased by $3.4 million due to the restructuring efforts, resulting in the realignment of our business model for primarily on ecommerce and wholesale distribution.
As of May 1.2021, we had cash of $31.3 million.
After providing pwc with the $18 million to distribute to pre filing creditors.
We expect to have sufficient liquidity to support continued innovation meet our working capital needs and to make the right strategic investments to grow our business to drive towards sustained profitable growth.
As we emerge from <unk> and.
And continue to focus on growing our business and our border listen environment, leveraging both in person and virtual experiences our vision to become the world's most innovative tech company firing greater wellness and sustainability.
And we couldnt be more thrilled about that on the future per day, we'd see this concludes our remarks. Thank you for joining us today.
Have a great day.