Q4 2023 DAVIDsTEA Inc Earnings Call
Speaker 1: Good morning, ladies and gentlemen. Welcome to David T.S. Fourth Quarter and full year earnings webcast for fiscal 2022.
Speaker 1: Today's webcast is being recorded and is in the listen only mode.
Speaker 1: Before we get started, I would like to remind you of the company's safe harbor language. 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.
Speaker 1: and is available on cdr.com as well as in the investor relations section of the company's website at davids.com.
Speaker 1: The forward-looking statements in this discussion speak only of today's state, and we undertake no obligation to update or revise any of these statements.
Speaker 1: If any non-IFRS financial measure is used on this call, a reconciliation to the most directly comparable IFRS financial measure will be detailed in our MDNA.
Speaker 1: 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 David's team.
Speaker 2: Thank you, operator. Good morning, everyone.
Speaker 2: The increase in the risk of rising inflation and higher interest rates significantly reduced consumer demand. Total sales have climbed 20 percent year over year to 83 million in 2022, while that loss and adjusted EBITDA amounts into 14.9 million.
Speaker 2: and a negative $5 million respectively.
Speaker 2: Clearly, we've endured unfavorable economic conditions in the second half of the year, which prompted us to implement a cost containment plan in early February that is expected to reduce our cost paid by $8 million to $10 million annually.
Speaker 2: Aligned with our growth strategy, we recently signed a distribution agreement with the largest publicly traded wholesale distributor of health and specialty foods in the US, supplying national and regional growth rich ends.
Speaker 2: We will be launching six cues of flavorful sachet packs that more than 400 grocery stores in the Northeast or US this fall to further expand our wholesale footprint.
Speaker 2: US will sale market. We anticipate it will take two to three years to penetrate the US market and leverage the expected high-volume sales it will generate.
Speaker 2: Earlier in 2022, we introduced our individually wrapped, fully-compostable Sachet format that elevated the brand and convenience of David's T's product throughout our wholesale channel in Canada.
Speaker 2: This new sashay format is widely available across grocery chains, drug stores, and safe box locations, totaling 3,800 doors. For example, we are currently selling a signature exclusive bag of 50 sashays in the Sorted Flavors Coast to Coast at Costco stores in Canada. We are also obtaining positive results from our store and store concept with more than 300 Lakhs.
Speaker 2: sales were up almost 4% in 2022. So that's another strategic area where we intend to build upon and optimize the brand experience.
Speaker 2: We fully renovated our store and legalities in our capital in Quebec City with a focus on new beverage offerings and a heightened interactive shopping experience.
Speaker 2: Consumers are welcomed with an open table concept, providing them with self-exploration and self-educational opportunities through the assistance of enhanced digital experience.
Speaker 2: While un favorable economic conditions have slowed down our ambitious long-term growth plans, and we made the hard decision to align our cost structure with our current revenue run rate, we remain focused and optimistic on our competitive advantages. The strength of our innovation, new collections, much of lens, and broad demographic appeal of our brand.
Speaker 2: Thank you for your attention today. I will now turn the call over to Frank.
Speaker 3: Thank you Sarah and good morning everyone.
Speaker 3: Sales decreased 21.4% year-over-year to $31.4 million in the fourth quarter of 2022, slightly above the range that we provided in our preliminary results announcement in early February .
Speaker 3: The sales decrease was anticipated as continuous inflationary pressure and higher interest rates negatively impacted consumer confidence.
Speaker 3: The Koch with macroeconomic headwinds we proactively implement this a cost-continent plan.
Speaker 3: that will be reflected in our upcoming results.
Speaker 3: More on this subject later in my prepared remarks.
Speaker 3: Sales from e-commerce and wholesale channels declined 24% or 7.4 million to 23.3 million in the fourth quarter as previous two years of pandemic fueled online sales continue to level out.
Speaker 3: Brick and mortar sails meanwhile dropped 12.5%.
Speaker 3: or 1.2 million to 8 million in the fourth quarter of 22.
Speaker 3: In terms of brevenue breakdown, e-commerce and wholesale channels account for 74% of sales in the fourth quarter, while brick and mortar sales represent a 26%. Reduced sales combined with a highly promotional environment and operational delays and fulfilling consumer orders online.
Speaker 3: Lower our margins and profitability in the fourth quarter of 2022.
Speaker 3: We're working closely with our third party logistics partner to help address these known operational issues as we implement permanent solutions to address spikes in the man.
Speaker 3: that we experienced in the latter part of the year. Gross profit reached 8.6 million in the fourth quarter compared to 15.3 million in the fourth quarter of 2021.
Speaker 3: The year-over-year decrease was mainly due to lower sales, a greater emphasis on promotion, as well as increased freight, shipping and fulfillment costs.
Speaker 3: The percentage of sales gross profit decreased to 27.4% from 38.5% in the same period in 2021.
Speaker 3: SG&A expenses declined 14.4% year over year to $11.9 million in the fourth quarter of 2022. This improvement can be attributed to reduced online marketing expenses, compensation-related savings, net of separation costs, lower amortization costs, and lower online marketing expenses.
Speaker 3: reduced professional consulting fees, as well as lower insurance costs.
Speaker 3: These IDs are partially offset by a provision for legal claims and another provision against supplies inventory. As a percentage of sales, SGNA expenses amounted to 38% in the fourth quarter of 2022 compared to 35% in the fourth quarter of 2021.
Speaker 3: It does been if it died in the fourth quarter of 22 with negative 0.9 million compared to 3.7 million in choose four of 21.
Speaker 3: The decrease in the definitely but does reflect the uro-rear impact that reduced sales and gross profit partially offset by lower STN expenses.
Speaker 3: Net loss totaled $3.3 million in the fourth quarter compared to net income of $1.3 million in the fourth quarter of 2021.
Speaker 3: At the end of fiscal 22, we had a cash position of 22.4 million and no debt.
Speaker 3: Now turning to our cost containment plan.
Speaker 3: We implemented several cost-cutting measures in early February , including the layoff of 50% of head office staff and the elimination of $4 million of IT investments related to the launch of our ERP system in fiscal 22.
Speaker 3: We implemented several cost-cutting measures in early February , including the layoff of 15% of head office staff and the elimination of $4 million of IT investments related to the launch of our ERP system in Fiscal 22 that will now be in maintenance mode in 2023.
Speaker 3: As Sarah mentioned earlier, we anticipate annual cost savings of between $8 million from this plan, which should place us on a patch towards profitability.
Speaker 3: Finally, a quick word about our transition to the TSX Venture Exchange from the NASDAQ global market earlier this month.
Speaker 3: Given that our common shares had traded below $1 for 30 consecutive business days, we had received a notice from the NASDAQ global market that our shares were non-compliance with their bid price rule.
Speaker 3: After careful consideration, the board of directors determined it was in the best interest of the company to do list the chairs from the NASDAQ
Speaker 3: Listing on a Canadian stock exchange makes 20 cents for data's peak. We have significant brand awareness in Canada. All our retail stores are located north of the border and the majority of our revenues are generated in Canada. In addition, a TSX venture exchange listing creates opportunities to reduce administrative and compliance costs without compromising investor confidence. Shareholders and investors in the United States can trade our shares through the facilities of the TSX venture exchange.
Speaker 3: It's a win-win proposition for David P and investors alike.
Speaker 3: Despite a challenging environment, we remain focused on creating sure what our value for all.
Speaker 3: With a motivated and entrepreneurial team that is market driven, we will continue to anticipate and react to changing market conditions with speed and agility.
Speaker 3: with a mission to make T for an accessible doll.
Speaker 3: This concludes our remarks for Q4 2022. We encourage investors wishing to obtain additional color on the quarter to contact investor relations at investors at davidst.com.
Speaker 3: It will coordinate access to management.
Speaker 3: On behalf of the entire David's team.
Speaker 3: On behalf of the entire David's T.P., we thank you for joining us today.