Q4 2024 DAVIDsTEA Inc Earnings Call
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Operator: Good morning, ladies and gentlemen. Welcome to DAVIDsTEA's fourth quarter and full year results webcast for fiscal 2023. Today's webcast is being recorded and is in a listen-only mode.
Good morning, ladies and gentlemen.
Welcome to Davids, Ts fourth quarter and full year results webcast for fiscal 2023.
Today's webcast is being recorded and is in a listen only mode.
Operator: Before we get started, I would like to remind you of the company's Safe Harbor link. This presentation includes forward-looking statements about expectations for the performance of the 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 and Uncertainties in the Managements, Discussion and Analysis of Financial Condition and Results of Operations, the MD&A, which was filed with the Canadian Regulatory Authorities and is available on www.cedarplus.ca as well as in the Investor Relations section of the company's website at www.davidstea.com, 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.
Before we get started I would like to remind you of the Companys Safe Harbor language. This presentation includes forward looking statements about expectations for the performance of the 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.
As projected in such statements.
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. DNA, which was filed with the Canadian regulatory authorities and is available on www Dot SEDAR plus dossier as.
Well as in the Investor Relations section of the Companys website at Www Dot Davids tea Dot com.
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.
Operator: 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 the MD&A. 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 Segal, Chief Executive Officer and Chief Brand Officer of DAVIDsTEA.
If any non <unk> financial measure is used on this call a reconciliation to the most directly comparable <unk> financial measure will be detailed in the M. D N a.
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.
Sarah Segal: Thank you, operator. Good morning, everyone.
Sarah Segal: Thank you operator, good morning, everyone.
Sarah Segal: Fiscal 2023 was a challenging year as our online business didn't perform as well as other channels.
Sarah Segal: Fiscal 2023 was a challenging year as our online business didn't perform as well as other channels. Our results proved to be lower than expected overall, caused primarily by a slower drive to online consumption by consumers as challenging economic conditions negatively impacted spending for the better part of. All together, we reported negative adjusted EBITDA of $5.4 million on sales of $60.6 million for the fiscal year ended February 3, 2024. Frank Zitella, our President, Chief Financial, and Chief Operating Officer, will provide you with more details in his overview.
Sarah Segal: Our results proved to be lower than expected overall caused primarily by a slower drive to online consumption by consumers as challenging economic conditions negatively impacted spending for the better part of the year.
Sarah Segal: Altogether, we reported negative adjusted EBITDA of $5 4 million on sales of $60 6 million for the fiscal year ended February three 2024.
Sarah Segal: Prior to tell our president Chief financial and Chief operating Officer will provide you with more details in his overview.
Sarah Segal: Being a seasonal business, I look forward to encouraging results in our fourth quarter that point to tangible signs of a turnaround, and I am highly encouraged by mid-single-digit growth in brick-and-mortar sales in the fourth quarter and in the first 12 weeks of fiscal 2024 compared to the same periods in the prior year. The drive for customers wanting an in-store retail shopping trend witnessed at DAVIDsTEA was validated with focus groups, and the message was resoundingly clear.
Sarah Segal: Being a seasonal business I look towards encouraging results in our fourth quarter that point towards tangible signs of a turnaround and I am highly encouraged by mid single digit growth in brick and mortar sales in the fourth quarter.
Sarah Segal: And in the first 12 weeks of fiscal 2024 compared to the same periods in the prior year.
Sarah Segal: The drive for customers wanting an in store retail shopping trend witnessed that Davids tea was validated with focus groups and the message was resoundingly clear consumers want to touch smell and taste, our premium specialty teas in store as part of the discovery and purchase experience.
Sarah Segal: Consumers want to touch, smell, and taste our premium specialty teas in-store as part of the discovery and purchase experience. Our strength in experiential retail and the desire for our customers to return to stores are aligned with our growth strategy, involving the opening of three new stores in the province of Quebec in the fall of 2024, including locations in Mount Royal, downtown Montreal, and Quebec City, and more than doubling our Canadian store footprint over the next three years. On the wholesale front, sales decreased 10% in 2023. However, excluding decisions we made to sever relationships with unprofitable accounts, sales improved 10.8% year over year.
Sarah Segal: Our strength in experiential retail and the desire for our customers to return to stores are aligned with our growth strategy involving the opening of three new stores in the province of Quebec in the fall of 2024.
Sarah Segal: Including locations in Mount Royal Downtown Montreal, and Quebec City.
Sarah Segal: And more than doubling our Canadian store footprint in the next three years.
Sarah Segal: On the wholesale front sales decreased 10% in 2023, however, excluding decisions we made to suffer relationships with unprofitable accounts sales improved 10, 8% year over year.
Sarah Segal: We are optimistic about growing this business in 2024 based on our recently announced partnership with Couchetard Circle K, which will offer hot tea to go in more than 1,500 convenience stores across Canada. If you recall, we announced in mid-March that DAVIDsTEA will provide a curated assortment of eight best-selling flavors available in a convenient sachet format to consumers on the move at Couchetard and Circle K stores. The tea collection selected for customers includes organic flavors such as cream of earl grey, silk dragon jasmine, David's breakfast blend, cold 9-1-1, and cinnamon rooibos chai, as well as herbal caffeine-free varieties like forever nuts and just peachy and a popular coffee replacement black tea, vanilla cappuccino.
Sarah Segal: We are optimistic about growing this business in 2024 based on our recently announced partnership with Couche Tard Circle, K, which will offer hot tea to go at more than 1500 convenience stores across Canada.
Sarah Segal: If you recall, we announced in mid March that Davids tea will provide a curated assortment of eight best selling flavors available and at convenience sachet formats to consumers on the move with Couche Tard and circle K stores did.
Sarah Segal: The T collection selection for customers includes organic flavors, such as cream of Earl Grey Silk Dragon, Jasmine and David's breakfast blend called 911, and citizens who are those Chinese herbal caffeine free varieties like forever nuts, and just peachy and a popular coffee replacement block T vanilla cappuccino.
Sarah Segal: In addition, as an extension of our partnership, DAVIDsTEA will open seven full tea bar concepts at select Couchetard stores to offer a wide variety of hot and iced teas in a dedicated section and wider offering. The expansion of our wholesale offering of teas into the Northeast United States in the second half of 2023 continued with the release of four flavors of premium tea sachets at Stop and Shop supermarket stores and Roche Brothers supermarkets.
Sarah Segal: In addition, as an extension of our partnership Davids Tea will open seven full T bar concepts at select Couche tard stores to offer a wide variety of hot and iced teas with a dedicated section and wider offering.
Sarah Segal: The expansion of our wholesale offering of teas into the northeast United States in the second half of 2023 continued with the release of four flavors of premium tea Sachet is at stop <unk> shop supermarket stores and Roche brothers supermarkets.
Sarah Segal: We have since continued our U.S. expansion by offering our premium loose-leaf tea, matcha, and premium plastic-free tea sachets into additional accounts. As a result, our optimism for revenue growth in our wholesale channel is supported by concrete strategic action.
Sarah Segal: Since continued our U S expansion, but <unk>.
Sarah Segal: <unk> offering our premium loose leaf tea, Marsha and premium plastic free tea sachet it into additional accounts.
Sarah Segal: As a result, our optimism for revenue growth in our wholesale channel is supported by concrete strategic actions.
Sarah Segal: In the next month, DAVIDsTEA will enter the ready-to-drink market with a trial launch of sparkling cans of cold brew tea in three flavors: a smooth black tea with rich notes of vanilla and citrus bergamot. CREAM OF EARL GREY, a natural berry-free caffeine-free flavor called magic potion, and an energy-giving guayusa blend with hibiscus featuring our queen of tarts. Two of the flavors are sweetened with natural cane sugar, while one will be sugar-free and unsweetened.
Sarah Segal: In the next months Davids tea will enter the ready to drink market with a trial launch of sparkling cans of cold brew tea in three flavors.
Sarah Segal: A smooth black tea with rich nodes of vanilla and citrus bergamot cream.
Sarah Segal: Cream of Earl Grey.
Sarah Segal: Our natural Barry free caffeine.
Sarah Segal: Caffeine free flavor called Magic potion, and an energy, giving why use of blood with hibiscus featuring our Queen of charts team.
Sarah Segal: Two of the flavors are sweetened with natural cane sugar, while one will be sugar free and unsweetened colder.
Sarah Segal: Cold brew teas feature best-selling DAVIDsTEA blends and are the first effort by the company to recreate the flavors that customers love in an authentic and premium format. The new, ready-to-drink wine is on the cusp of being launched at DAVIDsTEA stores and online. The Ready to Drink is part of a larger strategy of building our in-store availability of iced tea, hot tea, and specialty beverages. And the company continues to develop and test new ways to make premium tea easy to consume in many formats to address a sizable market space that is looking for convenience and healthy benefit-driven beverages that are better for you.
Sarah Segal: Cold Brew tedious feature best selling Davids tea blends and are the first effort by the company to recreate the flavors that customers love and an authentic and premium formats.
Sarah Segal: The new ready to drink line is on the cusp of being launched at Davids tea stores and online.
Sarah Segal: Ready to drink as part of a larger strategy of building our in store availability of ice tea.
Sarah Segal: Todd T and specialty beverages, and the company continues to develop and test new ways to make premium tea easy to consume and many formats to address the sizable market space that is looking for convenience and healthy benefit driven beverages that are better for you.
Sarah Segal: Trends that continue to drive innovation in the beverage space for the company include flavors that can be sold as alcohol replacement options, as well as the emerging demand for bubble tea, milk tea, and other novelty tea beverages. I will now turn the webcast over to you.
Sarah Segal: Trends that continue to drive innovation in the beverage space for the company include flavors that can be sold as alcohol replacement options as well as the emerging demand for bubble tea milk tea and other novelty tea beverages.
Sarah Segal: I will now turn the webcast over to Frank.
Sarah Segal: Yes.
Frank Zitella: Thank you, Sarah, and good morning, everyone. We made the bold decision of internalizing order fulfillment midway into fiscal 2023 to address the inadequate service customers had been receiving in recent years. Not only did this decision significantly improve the overall customer experience, but it allowed us to fundamentally lower the cost structure of our business. This significant change midyear is a testament to the agility, creativity, and resilience of our associates.
Frank: Thank you Sarah and good morning, everyone.
Frank: Davidson.
Frank: Bold decision of internalizing order fulfillment midway into fiscal 2023 to address the inadequate service customers had been receiving in recent years.
Frank: Not only did this decision significantly improve the overall customer experience.
Frank: But it allowed us to fundamentally lower the cost structure of our business.
Frank: This significant change mid year is a testament to the agility creativity and resilience of our associates.
Frank Zitella: During 2023, we also added important members to our management group, including a vice president of marketing and a chief digital officer, to strengthen our operational capabilities and fully execute our mission of making tea accessible to all, wherever and whenever. Given the observed shift in consumer behavior towards in-store retail shopping, we are bullish about our plans to reenter brick and mortar in the right location, and with the right partners, and with the right products to address an evolving consumer requirement.
Frank: During 2023, we also added important members of our management group, including a vice president of marketing and achieved digital officer.
Frank: To strengthen our operational capabilities and fully execute our mission of making tea accessible to all.
Frank: Ever and whenever.
Frank: Given the observed shift in consumer behavior towards in store retail shopping.
Frank: We are bullish about our plans to reenter brick and mortar and the right locations and with the right partners with.
Frank: With the right products to address evolving consumer requirement.
Frank Zitella: As of today, we have 18 DAVIDsTEA stores throughout Canada, with the objective of more than doubling that number by the end of 2027. And, as Sarah has mentioned, we continue addressing consumer requirements with an upcoming ready-to-drink offering, brimming with healthy, all-natural flavors, that will fulfill an unmet need in a very sizable, convenience-driven and wellness market.
Frank: As of today, we have 18 Davids tea stores throughout Canada with the objective of more than doubling that number by the end of 2027.
Frank: And as Sarah has mentioned, we continue addressing consumer requirements with an upcoming ready to drink offering brimming with healthy <unk> natural flavors.
Frank: That will fulfill unmet needs in a very sizable convenience driven and wellness market.
Frank Zitella: Suffice to say that we have high hopes for our RTD offering, and we expect it will delight consumers. Turning to our financial results, total sales decreased 27% to $60.6 million in fiscal 2023 as unfavorable economic conditions and the market trend away from online consumption negatively impacted our revenues. In Canada, which represented 86% of total revenues, sales were down 15.9 million year over year, while US sales declined 6.5 million from 2022. Online sales dropped by 20.3 million in 2023, or 39.3% year over year, as we continue to observe a leveling out of pandemic-driven online sales.
Frank: Suffice to say that we have high hopes for our TV offering.
Frank: And we expect it will delight consumers.
Frank Zitella: Online sales represented 52% of total revenues in 2023 compared to 62% in the prior year. Wholesale channel sales decreased 10% to $9 million in 2023, representing 15% of total revenues compared to 12% a year ago.
Frank: Turning to our financial results total sales decreased 27% to $60 6 million in fiscal 2023.
Frank: As unfavorable economic conditions and the market trend away from online consumption negatively impacted our revenues.
Frank: In Canada, which represented 86% of total revenues sales were down $15 $9 million year over year, while U S sales declined $6 5 million from 2022.
Frank: Online sales dropped by $23 million in 2023, or 39, 3% year over year as we continue to observe a leveling out of pandemic driven online sales.
Frank: Online sales represented 52% of total revenues in 2023 compared to 62% in the.
Frank: The prior year.
Frank: Wholesale channel sales decreased 10% to $9 million in 2023, representing 15% of the total revenues compared to 12% a year ago.
Frank Zitella: For their part, Brick and Mortar sales declined 5.1% to $20.3 million in 2023, accounting for one third of total revenues compared to 26% in the previous year. However, as Sarah indicated, we also reported mid-single-digit growth for in-store sales in the fourth quarter of 2023 and in the first 12 weeks of fiscal 2024. Although forecasting a lower revenue level in 2023, DAVIDsTEA significantly improved operating efficiencies and streamlined its operations during the past year.
Frank: For their part.
Frank: Rickard motor sales declined five 1% to $20 3 million in 2023 accounting for one third of total revenues compared to 26% in the previous year.
Frank: As Sarah indicated we also reported mid single digit growth for in store sales in the fourth quarter of 2023 and in the first 12 weeks of fiscal 2024.
Frank: Anticipating a lower revenue level in 2023, Davids tea significantly improved operating efficiencies and streamline its operations during the past year.
Frank Zitella: Gross profit as a percentage of sales increased more than 500 basis points to 39.9% in 2023 and reached 42.6% in the fourth quarter on the strength of internalizing our fulfillment operation. This decision allowed us to own the overall brand experience for our consumers and reduce the unit cost of servicing them. In terms of cost savings, we reduced our SG&A expenses by $8 million to $38.2 million in 2023, as promised, excluding the non-cash impairment of property and equipment, intangible assets, and right-of-use assets of $3.4 million.
Frank: Gross profit as a percentage of sales increased more than 500 basis points to 39, 9% in 2023 and.
Frank: And reached 42, 6% in the fourth quarter on the strength of internalizing, our fulfillment operations.
Frank: This decision allowed us to own the overall brand experience for consumers and reduce the unit cost of servicing them.
Frank: In terms of cost savings, we reduced our SG&A expenses by 8 million to $38 2 million in 2023 as promised.
Frank: Excluding the noncash impairment of property and equipment intangible assets and right of use assets of $3 4 million.
Frank Zitella: Turning to the bottom line, net loss amounted to $13.8 million in fiscal 2023 compared to a loss of $14.9 million in 2022. Adjusted EBIT in the Duffer 2023 was negative 5.4 million compared to negative 5 million in the prior year.
Frank: Turning to the bottom line net loss amounted to $13 8 million in fiscal 2023 compared to a loss of $14 9 million.
Frank: 2022.
Frank: Adjusted EBITDA for 2023 was negative $5 4 million compared to negative $5 million in the prior year.
Frank Zitella: Finally, we close the fiscal year with cash on hand of $12.6 million and working capital of $19.7 million, which will help strengthen our short-term cash position. We've entered into a non-binding term sheet with a commercial lender to provide up to $12 million in the form of a revolving line of credit secured by the assets of the company. The final terms and conditions of the revolving line of credit are subject to completion of business and legal due diligence, including final credit committee approval by the lender.
Frank: Finally.
Frank: We closed the fiscal year with cash on hand of $12 6 million and working capital of $19 7 million.
Frank: To help strengthen our short term cash position.
Frank: We've entered into a non binding term sheet with a commercial lender to provide up to $12 million in the form of a revolving line of credit secured by the assets of the company.
Frank: The final terms and conditions of the revolving line of credit or subject to completion of business and legal due diligence, including final credit committee approval by the lender.
Frank Zitella: As a result, we expect to have the requisite flexibility to continue implementing our go-to-market strategy and drive towards profitability. In summary, as we rebalance our multichannel sales composition, supported by better margins and a lower overall cost base, we continue to manage our business to withstand and proactively pivot to anticipate consumer consumption patterns and maximize our omnichannel presence and growth potential. On behalf of David's TEA management team, I'd like to thank our employees, suppliers, and other stakeholders for supporting us throughout this journey.
Frank: As a result, we expect to have the requisite flexibility to continue implementing our go to market strategy and drive towards profitability.
Frank: In summary.
Frank: As we rebalanced, our multichannel sales composition supported by better margins and lower overall cost base, we continue to manage our business to withstand and proactively pivots to anticipate consumer consumption patterns and.
Frank: And maximize our omnichannel presence and growth potential.
Frank Zitella: Likewise, many thanks to our shareholders for their patience and belief in our long-term growth strategy. We know that our share price does not reflect the company's value, nor what we're doing. But more than ever, we have a clear path towards profitability and a desire to create shareholder value for all. This concludes our review of the fourth quarter and fiscal 2023 results. We encourage investors wishing to obtain additional information about David'sTEA to contact Investor Relations, who coordinate access to management. Thank you for joining us today.
Speaker Change: On behalf of David's team management team I'd like to thank our employees suppliers and other stakeholders for supporting us throughout this journey.
Speaker Change: Likewise, many thanks to our shareholders for their patience and belief in our long term growth strategy.
Speaker Change: We know that our share price does not reflect the companys value nor what we're doing.
Speaker Change: But more than ever we have a we have a clear path towards profitability and desire to create shareholder value for all.
Speaker Change: This concludes our review of the fourth quarter and fiscal 2023 results. We encourage investors wishing to obtain additional color about David C. The contact Investor relations for.
Speaker Change: Coordinated access to management.
Speaker Change: Thank you for joining us today.
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