Q3 2024 DAVIDsTEA Inc Earnings Call

Good morning, ladies and gentlemen, welcome to David T's 3rd quarter earning webcast for fiscal 2020.

First Speaker: Good morning, ladies and gentlemen, welcome to Davids Ts third quarter earnings webcast for fiscal 2023.

Today's webcast is being recorded and is in a listen-only mode.

Today's webcast is being recorded and is in a listen only mode.

Before we get started I would like to remind you of the company's safe Harbor language.

Before we get started, I would like to remind you of the company's safe harbor.

This presentation includes forward-looking statements about expectations for the performance of the business in the coming quarter and year.

First Speaker: This presentation includes forward looking statements about expectations for the performance of the business in the coming quarter and year.

First Speaker: 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.

First Speaker: Additional information regarding these factors appears under the heading risk factors and uncertainties in the management's discussion and analysis of financial condition and results of operations. The M. D N a.

First Speaker: <unk> was filed with the Canadian regulatory authorities and is available on www Dot SEDAR plus don't see a as well as in the Investor Relations section of the company's website at Davids tea Dot com.

First Speaker: The forward looking statements in this discussion speak only as of today's date and the company undertakes no obligation to update or revise any of these statements.

The forward-looking statements in this discussion speak only as of today's date, and the company undertakes no obligation to update or revise any of these statements.

First Speaker: If any non <unk> financial measure is.

used on this call, a reconciliation to the most directly comparable IFRS financial measure will be detailed in the MD&A.

First Speaker: Used on this call a reconciliation to the most directly comparable <unk> financial measure will be detailed in the M. D N a.

First Speaker: As a reminder, all dollar amounts referred to are in Canadian dollars unless otherwise indicated.

<unk> Segal: Now I would like to turn the call over to <unk> Segal, Chief Executive Officer, and Chief brand Officer of Davids tea.

Thank you operator.

Good morning, everyone.

The economic environment remains uncertain, particularly in Canada, but we are taking proactive steps to stimulate demand creation drive innovation and elevate our brand to position the company for long term profitable growth.

<unk> Segal: As expected sales remained muted in the third quarter of 2023 due to a persistent challenging economic environment in order fulfillment issues experienced in the fourth quarter of last year that contributed to lower online sales. Accordingly, total sales amounted to $12 1 million in the third quarter of 2023 compared.

As expected, sales remained muted in the third quarter of 2023 due to a persistent challenging economic environment and order fulfillment issues experienced in the fourth quarter last year that contributed to lower online sales. Accordingly, total sales amounted to $12.1 million in the third quarter of 2023 compared to $16.2 million in the third quarter of 2020.

<unk> Segal: To $16 2 million in the third quarter of 2022.

<unk> Segal: As shared with you during our last webcast, we internalized fulfillment services to both Canadian and U S consumers during the summer months and have observed tangible improvements in the overall customer experience as.

As shared with you during our last webcast, we internalized fulfillment services to both Canadian and U.S. consumers during the summer months and have observed tangible improvements in the overall customer experience. As a result, we are confident about meeting an expected increase in consumer demand during the revenue-intensive fourth quarter, including the holiday season.

<unk> Segal: As a result, we are confident about meeting an expected increase in consumer demand during the revenue intensive fourth quarter, including the holiday season.

On the sales front, we have launched a series of go-to-market initiatives and announced key marketing hires to help drive growth.

<unk> Segal: On the sales front, we have launched a series of go to market initiatives and announced key marketing hires to help drive growth.

Key initiatives aligned with our growth strategy include

<unk> Segal: The initiatives aligned with our growth strategy include.

Firstly, we started penetrating the U.S. wholesale market during the third quarter with the release of four flavors of premium tea sachets at 150 stop-and-shop supermarkets of the 400-plus locations in the northeastern United States.

<unk> Segal: Firstly, we started penetrating the U S wholesale market during the third quarter with the release of four flavors of premium tea, such as 150 stop and shop supermarket of the 400 plus locations in the northeastern United States.

This regional chain of grocery stores operates throughout Massachusetts, Connecticut, Rhode Island, New York, and New Jersey.

<unk> Segal: This regional chain of grocery stores operates throw about juices, Connecticut, Rhode Island, New York and New Jersey.

On a smaller scale, we introduced five tea flavors at Roche Brothers Supermarket.

<unk> Segal: On a smaller scale, we introduced five key flavors that Roche brothers supermarkets.

This family owned business operates in 20 locations across Massachusetts.

<unk> Segal: This family owned business operates in 20 locations across Massachusetts.

Our strategy involves step-by-step launches along the U.S. East Coast to gauge customer

Speaker Change #3: Our strategy involves step by step launches across along the U S East coast to gauge customer.

taste and gradually replicate the success we have enjoyed in Canada.

Speaker Change #3: Taste and gradually replicate the success, we have enjoyed in Canada.

Secondly, we expanded our footprint in the Canadian wholesale market to more than 4,000 doors by growing our presence with existing partners and adding new accounts. Davis Tea recently introduced 6 tea sachet flavors at 220 Staples Canada stores. The company also brought 8 popular tea flavors to 47 Farm Boy grocery stores in Ontario.

Speaker Change #3: Secondly, we expanded our footprint in the Canadian wholesale market to more than 4000 doors by growing our presence with existing partners and adding new accounts.

Speaker Change #3: <unk> recently introduced <unk>, such a flavors at 220 Staples, Canada stores.

Speaker Change #3: The company also brought eight popular tea flavors to 47, Farmboy grocery stores in Ontario.

In Quebec, we entered the Jean Coutu and Brunet Pharmacy accounts through the release of 12 holiday teas and 12 winter classic tea discoveries.

Speaker Change #4: In Quebec, we entered the junket too and Brunel pharmacy accounts through the release of 12 holiday teas, and 12 Winter Classic T discovery kit.

These seasonal products are available at select pharmacies during the holiday season with the potential for an expanded offering in upcoming.

Speaker Change #4: These seasonal products are available at select pharmacies during the holiday season with the potential for an expanded offering in upcoming months.

In terms of existing customers we launched our best-selling matcha variety packs at over 800 shopper drug mart and pharma pre-locations and introduced four additional flavors including matcha varieties at Sobeys stores across Canada.

Speaker Change #4: In terms of existing customers, we launched our best selling macho variety pack that over 800, shoppers drug Mart and pharma relocation and introduce four additional flavors, including much of varieties adobe's stores across Canada.

In addition, we increased our store-to-store count by expanding within 40 neighborly pharmacy locations last month.

Speaker Change #4: In addition, we increased our store in store count by expanding within 40, Neighborly pharmacy locations last month.

We also are adding 15 store-in-store concepts within the Rexall Pharmacy Group throughout December to raise David's total of similar configurations to 382 locations in Canada.

Speaker Change #4: We also are adding 15 store in store concepts within the Rexall pharmacy group throughout December to raise David total a similar configuration to 382 locations in Canada.

Speaker Change #4: Finally, we have also appointed Adriana Jimmy Lee as Vice President of marketing and David Sloan as Chief Digital officer to further elevate our brand and optimize a frictionless customer experience.

Finally, we have also appointed Adriana Jermili as Vice President of Marketing and Damon Sloan as Chief Digital Officer to further elevate our brand and optimize a frictionless customer experience.

Adriana is a seasoned brand marketer with over 17 years of experience in strategic communications and branding, including a distinct expertise in international brand experience.

Speaker Change #4: Adriana as it seasons brand marketer with over 17 years of experience in strategic communications and branding, including the distinct expertise and international brand expansion.

You will be leading new product line go-to-market strategies at David's Tea as well as the application and build of customer-centric content for loyalty members.

Speaker Change #4: He will be leading new product like go to market strategy that David T as well as the amplification and build a customer centric content for loyalty members.

Speaker Change #4: Damian has more than 18 years of experience growing companies through digital transformation, and omni channel marketing initiatives, including retail wholesale and e-commerce.

Damon has more than 18 years of experience growing companies through digital transformation and omni-channel marketing initiatives including retail, wholesale, and e-commerce.

His focus on data-driven decision-making represents a key strategic asset for companies adopting digital-first growth strategies.

Speaker Change #4: His focus on data driven decision, making represents a key strategic asset for companies adopting digital first growth strategy.

Damon will be spearheading digital innovation at David P. while acting as an agent of change throughout the organization to better serve our online customers.

Speaker Change #5: Damien will be spearheading digital innovation that David T. While acting as an agent of change throughout the organization to better serve our online customers.

All these value creation activities are designed to accelerate revenue growth at Davidson.

Speaker Change #4: All of these value creation activities are designed to accelerate revenue growth at David's team.

In closing, we are grateful to our shareholders for their continued support on our journey to profitability.

Speaker Change #6: In closing we are grateful to our shareholders for their continued support on our journey to profitability.

I will now turn the webcast over to Frank Satella, President, as well as Chief Financial and Chief Operating Officer of David's Team.

Speaker Change #6: I will now turn the webcast over to Frank to tell our president as well as Chief financial and Chief Operating Officer, David <unk>.

Frank: Thank you Sarah and good morning, everyone.

As previously mentioned, third quarter sales were negatively impacted by the current economic landscape and the ill effects of border fulfillment issues experienced last year.

Frank: As previously mentioned third quarter sales were negatively impacted for the current economic landscape and the illustrates the order fulfillment issues experienced last year.

after an exhaustive search for capable and proven third parties to fulfill online consumer orders.

Frank: After an exhaustive search for capable improving third parties to fulfill online consumer orders.

In June , we concluded that no other organization can match the entrepreneurial spirit and innovation required to ensure we improve the overall brand experience for our consumers than our own staff.

Frank: In June we concluded that no other organization could match the entrepreneurial spirit and innovation required to ensure we improve the overall brand experience for our consumers and our own staff.

Frank: And we internalized delivery services with a first order going out in August.

And we internalize delivery services with the first order going out in August .

We are pleased to report we have delivered Black Friday orders, and we are now back to regular order processing.

Frank: We are pleased to report we have delivered Black Friday orders and we are now back to regular order processing.

Turning to financial results.

Total sales decreased 24.9% year-over-year to $12.1 million in the third quarter of 2020.

Total sales decreased 24, 9% year over year to $12 1 million in the third quarter of 2023 in Canada, which represented 87% of total revenues.

in Canada, which represented 87% of total revenue.

Sales were down $2.3 million, while U.S. sales declined by $1.7 million compared to the same period in 2020.

Frank: Sales were down $2 3 million, while U S sales declined by $1 7 million compared to the same period in 2022.

Online sales dropped $4.6 million in the third quarter, or 45.1% year-over-year, as we continue to observe a leveling out of pandemic-driven online sales and dampen consumer demand following order fulfillment issues experienced last year.

Frank: Online sales dropped $4 6 million in the third quarter were 45, 1% year over year as we continue to observe a leveling out pandemic driven online sales and dampened consumer demand following order fulfillment issues experienced last year.

Online sales represented 46% of total revenues compared to 63% in the third quarter of 2022. Wholesale channel sales increased 56.3 percent.

Frank: Online sales represented 46% of total revenues compared to 63% in the third quarter of 2022.

Frank: Wholesale channel sales increased 56, 3%.

Frank: The $2 5 million in the third quarter of 2023.

Representing 21% of total revenues compared to 10% a year ago

Frank: Representing 21% of total revenues compared to 10% a year ago.

For their part, brick and mortar stores reported a 9.1 sales decline to 4 million in the third quarter, accounting for a 33% of total revenues compared to 27%.

Frank: So therefore brick and mortar stores reported a $9 one sales declined $4 million in the third quarter accounting for a 33% of total revenues compared to 27%.

Frank: The same periods last year.

Gross profit as a percentage of sales improved to 37.9% in the third quarter of 2023 from 35.1% in the third quarter of 2022, despite a lower revenue level and primarily due to lower cost per unit to fulfill online orders as a result of internalizing fulfillment.

Frank: Gross profit as a percentage of sales improved to 37, 9% in the third quarter of 2023.

Frank: From 35, 1% in the third quarter of 2022, despite a lower revenue level, primarily due to lower cost per unit to fulfill online orders as a result of internal audit and fulfillment.

Selling general and administrative expenses, meanwhile, decreased by 2 million, or 19.3% year-over-year, to 8.3 million in the third quarter of 2023, mainly driven by an ongoing cost containment.

Frank: Selling general and administrative expenses, Meanwhile, decreased by $2 million or 19, 3% year over year.

Frank: The $8 3 million in the third quarter of 2023, mainly driven by our ongoing cost containment plan.

Consequently, we benefited from the elimination of software implementation expenses, reduction in staff compensation costs, lower impairment of property, equipment, and right-of-use assets, along with reduced professional and consultant costs.

Consequently.

We benefited from the elimination of software implementation expenses reduction in staff compensation costs, lower impairment of property equipment and right of use assets, along with reduced professional and consulting fees.

These factors were partially offset by costs relating to internalized fulfillment services and ongoing IT.

Frank: These factors were partially offset by costs relating to internalize and fulfillment services and ongoing maintenance.

Clearly, we are encouraged by the positive impact of our cost containment plan, based on a $7 million reduction in SGD expenses here today.

Frank: Clearly we are encouraged by the positive impact of our cost containment plan.

Frank: Based on a $7 million reduction in SG&A expenses year to date we.

We remain on track to achieve our cost-cutting target of between $8 to $10 million for the fiscal year.

Frank: We remain on track to achieve our cost cutting targets of between $8 million to $10 million with fiscal year.

Turning to the bottom line, net losses amounted to $3.7 million in Q3 of 2023 compared to $4.7 million in the third quarter of 2022.

Frank: Turning to the bottom line net losses amounted to $3 7 million in Q3 of 2023 compared to $4 7 million in the third quarter of 2022.

Frank: Adjusted EBITDA for the quarter was negative $2 5 million compared to negative $2 million for Q3 of last year the.

Adjusted EBITDA for the quarter was negative $2.5 million compared to negative $2 million for Q3 of last year.

The decrease in adjusted EBITDA reflects the impact of lower sales and gross profit partially offset by reduced SG&E expenses.

Frank: The decrease in adjusted EBITDA reflects the impact of lower sales and gross profit, partially offset by reduced SG&A expenses.

Finally, we closed the third quarter with cash of $11.7 million, working capital of $20.1 million, and no interest bearing debt.

Frank: Finally, we closed the third quarter with cash of $11 7 million working capital of $20 1 million and no interest bearing debt.

As a result, we.

As a result, we are well-positioned to execute the multiple go-to-market initiatives that Sarah outlined earlier and ultimately increase revenue.

We are well positioned to execute the multiple go to market initiatives that Sarah outlined earlier, and ultimately increase revenue and profitability.

This concludes our review of the third quarter. We encourage investors wishing to obtain additional color about David's team to contact Investor Relations, who will coordinate access to manage.

Frank: This concludes our review of the third quarter, we encourage investors wishing to take an additional color about D to C to contact Investor Relations, who will coordinate.

As to management.

On behalf of the entire D with <unk>. Thank you for joining us today.

On behalf of the entire David C. team, thank you for joining us today.

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