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For the three months ended
- Sales increased by 11.2% to
C$45.7 million fromC$41.1 million in the second quarter of fiscal 2016. Comparable sales decreased by 0.9%. - Same store sales improved over the first quarter to negative 0.9% from negative 5.7%.
- Gross profit increased by 1.5% to
C$20.2 million fromC$19.9 million , while gross profit as a percent of sales decreased to 44.2% from 48.5%. The decrease in gross profit as a percent of sales was primarily due to the planned clearance of seasonal products and deleveraging of fixed costs due to the negative 0.9% comparative sales this quarter. - Adjusted EBITDA, a non-IFRS measure, was
C$ (2.2) million compared toC$0.2 million . - Impairment charge of
C$2.3 million incurred in the second quarter due to underperforming U.S. stores. - Net loss was
C$ (5.6) million compared to a net loss ofC$(2.3) million . Adjusted net loss, a non-IFRS measure, wasC$ (4.2) million compared toC$(2.3) million . - Fully diluted loss per common share was
C$(0.22) compared toC$(0.09) . Adjusted fully diluted loss per common share, a non-IFRS measure, wasC$(0.16) per share compared toC$(0.09) .
"While Canadian store operating results declined over last year, we look forward to an improved performance in
"We are seeing results from our e-commerce platform, both in
Outlook:
"As we have previously stated, 2017 is a reset year for
DAVIDsTEA plans to open 10-12 new stores inCanada (from 10-15 in Q1) and up to 5 in the U.S.Capex for the year will be approximatelyC$15 to $18 million (fromC$16 to $20 million in Q1).- Company currently expects to be free cash flow positive for the full year.
Other financial metrics for the three months ended
- Selling, general and administration expenses ("SG&A") increased to
C$27.8 million fromC$22.8 million . As a percent of sales, SG&A increased to 60.9% from 55.5%. Adjusted SG&A, a non-IFRS measure, increased toC$25.9 million fromC$22.8 , due primarily to the hiring of additional staff to support the growth of the Company, including new stores, and higher store operating expenses considering 28 additional stores. As a percent of sales, adjusted SG&A increased to 56.6% from 55.5% - Results from operating activities were
C$ (7.6) million as compared toC$(2.9) million . Adjusted results from operating activities, a non-IFRS measure, decreased toC$ (5.7) million fromC$(2.9) million .
For the six months ended
- Sales increased by 10.4% to
$94.4 million fromC$85.5 million in the comparable period in fiscal 2016. Comparable sales decreased by 3.4%. - Gross profit increased by 3.0% to
C$44.4 million fromC$43.1 million , while gross profit as a percent of sales decreased to 47.0% from 50.3%. The decrease in gross profit as a percent of sales was primarily due to the planned clearance of seasonal products and deleveraging of fixed costs due to the negative 3.4% comparative sales for the year to date. - Net loss was
C$ (5.9) million compared to a net loss ofC$ (0.8) million . Adjusted net loss, a non-IFRS measure, wasC$ (5.3) million compared toC$ (0.8) million . - Fully diluted loss per common share was
C$ (0.23) compared toC$ (0.03) . Adjusted fully diluted loss per common share, a non-IFRS measure, wasC$ (0.21) per share compared toC$ (0.03) .
Other financial metrics for the six months ended
- Selling, general and administration expenses ("SG&A") increased to
C$52.0 million fromC$43.9 million . As a percent of sales, SG&A increased to 55.1% from 51.4%. Adjusted SG&A, a non-IFRS measure, increased toC$51.5 million fromC$43.9 , due primarily to the hiring of additional staff to support the growth of the Company, including new stores, and higher store operating expenses to support the operations of 236 stores as ofJuly 29, 2017 as compared to 208 stores as ofJuly 30, 2016 . As a percent of sales, adjusted SG&A increased to 54.6% from 51.4%. - Results from operating activities were
C$ (7.6) million as compared toC$(0.9) million . Adjusted results from operating activities, a non-IFRS measure, decreased toC$ (7.1) million fromC$ (0.9) .
Conference Call Information:
A conference call to discuss the second quarter of Fiscal 2017 financial results is scheduled for today,
Non-IFRS Information:
This press release includes non-IFRS measures including Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share. Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share are not presentations made in accordance with IFRS, and the use of the terms Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share may differ from similar measures reported by other companies. We believe that Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share provide investors with useful information with respect to our historical operations. We present Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that vary from period-to-period. Specifically, Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss) and Adjusted fully diluted income (loss) per share allow for an assessment of our operating performance, including new store costs, without the effect of non-cash charges of the period or other one-time charges, such as depreciation, amortization, finance costs, deferred rent, non-cash compensation expense, costs related to onerous contracts or contracts where we expect the costs of the obligations to exceed the economic benefit, gain (loss) on derivative financial instruments, loss on disposal of property and equipment, impairment of property and equipment, and certain non-recurring expenses.
These measures also function as benchmarks to evaluate our operating performance. Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share are not measurements of our financial performance under IFRS and should not be considered in isolation or as alternatives to net income, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with IFRS. We understand that although Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under IFRS. Some of these limitations are:
- Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share do not reflect changes in, or cash requirements for, our working capital needs; and
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
Because of these limitations, Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted EBITDA, Adjusted net income (loss), and Adjusted fully diluted income (loss) per share should not be considered as discretionary cash available to us to reinvest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.
Forward-Looking Statements:
This press release includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as "anticipate," "expect," "plan," "could," "may," "will," "believe," "estimate," "forecast," "goal," "project," and other words of similar meaning. These forward-looking statements address various matters including management's beliefs about the Company's growth prospects, store openings, product offerings and financial guidance for the coming fiscal quarter and fiscal year. The Company cannot assure investors that future developments affecting the Company will be those that it has anticipated. Actual results may differ materially from these expectations due to risks and uncertainties including: the Company's ability to maintain and enhance its brand image, particularly in new markets; the Company's ability to compete in the specialty tea and beverage category; the Company's ability to expand and improve its operations; changes in the Company's executive management team; levels of foot traffic in locations in which the Company's stores are located; changes in consumer trends and preferences; fluctuations in foreign currency exchange rates; general economic conditions and consumer confidence; minimum wage laws; the importance of the Company's first fiscal quarter to results of operations for the entire fiscal year; and other risks set forth in the Company's Annual Report on Form 10-K dated
About
INTERIM CONSOLIDATED BALANCE SHEETS | ||||||
[Unaudited and in thousands of Canadian dollars] | ||||||
As at | As at | |||||
July 29, | January 28, | |||||
2017 | 2017 | |||||
$ | $ | |||||
ASSETS | ||||||
Current | ||||||
Cash | 56,407 | 64,440 | ||||
Accounts and other receivables | 2,864 | 3,485 | ||||
Inventories | 28,629 | 31,264 | ||||
Income tax receivable | 3,301 | 539 | ||||
Prepaid expenses and deposits | 6,706 | 5,659 | ||||
Derivative financial instruments | - | 454 | ||||
Total current assets | 97,907 | 105,841 | ||||
Property and equipment | 48,741 | 51,160 | ||||
Intangible assets | 3,264 | 2,958 | ||||
Deferred income tax assets | 14,108 | 14,375 | ||||
Total assets | 164,020 | 174,334 | ||||
LIABILITIES AND EQUITY | ||||||
Current | ||||||
Trade and other payables | 16,934 | 19,681 | ||||
Deferred revenue | 4,333 | 4,885 | ||||
Current portion of provisions | 1,524 | 2,562 | ||||
Derivative financial instruments | 2,068 | - | ||||
Total current liabilities | 24,859 | 27,128 | ||||
Deferred rent and lease inducements | 7,737 | 7,824 | ||||
Provisions | 4,142 | 5,932 | ||||
Total liabilities | 36,738 | 40,884 | ||||
Equity | ||||||
Share capital | 111,019 | 263,828 | ||||
Contributed surplus | 8,080 | 8,833 | ||||
Retained earnings (deficit) | 7,742 | (142,398 | ) | |||
Accumulated other comprehensive income | 441 | 3,187 | ||||
Total equity | 127,282 | 133,450 | ||||
164,020 | 174,334 | |||||
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) | |||||||||||
[Unaudited and in thousands of Canadian dollars, except share information] | |||||||||||
For the three months ended | For the six months ended | ||||||||||
July 29, | July 30, | July 29, | July 30, | ||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
$ | $ | $ | $ | ||||||||
Sales | 45,687 | 41,079 | 94,356 | 85,548 | |||||||
Cost of sales | 25,482 | 21,171 | 49,969 | 42,485 | |||||||
Gross profit | 20,205 | 19,908 | 44,387 | 43,063 | |||||||
Selling, general and administration expenses | 27,816 | 22,810 | 51,969 | 43,929 | |||||||
Results from operating activities | (7,611 | ) | (2,902 | ) | (7,582 | ) | (866 | ) | |||
Finance costs | 157 | 19 | 288 | 36 | |||||||
Finance income | (135 | ) | (148 | ) | (271 | ) | (269 | ) | |||
Loss before income taxes | (7,633 | ) | (2,773 | ) | (7,599 | ) | (633 | ) | |||
Provision for income tax (recovery) | (2,070 | ) | (506 | ) | (1,674 | ) | 120 | ||||
Net loss | (5,563 | ) | (2,267 | ) | (5,925 | ) | (753 | ) | |||
Other comprehensive income (loss) | |||||||||||
Items to be reclassified subsequently to income: | |||||||||||
Unrealized net gain (loss) on forward exchange contracts | (2,977 | ) | 1,678 | (1,777 | ) | (2,519 | ) | ||||
Realized net (gain) loss on forward exchange contracts reclassified to inventory | (292 | ) | 598 | (745 | ) | (370 | ) | ||||
Provision for income tax recovery (income tax) on comprehensive income | 867 | (604 | ) | 668 | 767 | ||||||
Cumulative translation adjustment | (1,614 | ) | 853 | (892 | ) | (1,469 | ) | ||||
Other comprehensive income (loss), net of tax | (4,016 | ) | 2,525 | (2,746 | ) | (3,591 | ) | ||||
Total comprehensive income (loss) | (9,579 | ) | 258 | (8,671 | ) | (4,344 | ) | ||||
Net loss per share: | |||||||||||
Basic | (0.22 | ) | (0.09 | ) | (0.23 | ) | (0.03 | ) | |||
Fully diluted | (0.22 | ) | (0.09 | ) | (0.23 | ) | (0.03 | ) | |||
Weighted average number of shares outstanding | |||||||||||
- basic | 25,745,221 | 24,625,414 | 25,573,894 | 24,380,306 | |||||||
- fully diluted | 25,745,221 | 24,625,414 | 25,573,894 | 24,380,306 |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
[Unaudited and in thousands of Canadian dollars] | ||||||||||||
For the three months ended | For the six months ended | |||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
$ | $ | $ | $ | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Net loss | (5,563 | ) | (2,267 | ) | (5,925 | ) | (753 | ) | ||||
Items not affecting cash: | ||||||||||||
Depreciation of property and equipment | 2,114 | 1,921 | 4,178 | 3,708 | ||||||||
Amortization of intangible assets | 472 | 169 | 754 | 329 | ||||||||
Loss on disposal of property and equipment | 24 | - | 30 | - | ||||||||
Impairment of property and equipment | 2,313 | - | 2,313 | - | ||||||||
Deferred rent | 200 | 366 | 203 | 646 | ||||||||
Recovery for onerous contracts | (641 | ) | - | (1,527 | ) | - | ||||||
Stock-based compensation expense | 802 | 614 | 1,376 | 930 | ||||||||
Amortization of financing fees | 20 | 18 | 40 | 36 | ||||||||
Accretion on provisions | 139 | - | 251 | - | ||||||||
Deferred income taxes (recovered) | (570 | ) | 189 | 430 | 22 | |||||||
(690 | ) | 1,010 | 2,123 | 4,918 | ||||||||
Net change in other non-cash working capital balances related to operations | 3,509 | (2,793 | ) | (5,965 | ) | (7,489 | ) | |||||
Cash flows related to operating activities | 2,819 | (1,783 | ) | (3,842 | ) | (2,571 | ) | |||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of common shares pursuant to exercise of stock options | 791 | 500 | 1,606 | 844 | ||||||||
Cash flows related to financing activities | 791 | 500 | 1,606 | 844 | ||||||||
INVESTING ACTIVITIES | ||||||||||||
Additions to property and equipment | (2,910 | ) | (6,876 | ) | (4,731 | ) | (9,722 | ) | ||||
Additions to intangible assets | (641 | ) | (305 | ) | (1,066 | ) | (461 | ) | ||||
Cash flows related to investing activities | (3,551 | ) | (7,181 | ) | (5,797 | ) | (10,183 | ) | ||||
Increase (decrease) in cash during the period | 59 | (8,464 | ) | (8,033 | ) | (11,910 | ) | |||||
Cash, beginning of period | 56,348 | 69,068 | 64,440 | 72,514 | ||||||||
Cash, end of period | 56,407 | 60,604 | 56,407 | 60,604 | ||||||||
Reconciliation of Adjusted EBITDA | |||||||||||||||
[Unaudited and in thousands of Canadian dollars] | |||||||||||||||
For the three months ended | For the six months ended | ||||||||||||||
July 29, | July 30, | July 29, | July 30, | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss | $ | (5,563 | ) | $ | (2,267 | ) | $ | (5,925 | ) | $ | (753 | ) | |||
Finance costs | 157 | 19 | 288 | 36 | |||||||||||
Finance income | (135 | ) | (148 | ) | (271 | ) | (269 | ) | |||||||
Depreciation and amortization | 2,586 | 2,090 | 4,932 | 4,037 | |||||||||||
Loss on disposal of property and equipment | 24 | - | 30 | - | |||||||||||
Provision for income tax (recovery) | (2,070 | ) | (506 | ) | (1,674 | ) | 120 | ||||||||
EBITDA | $ | (5,001 | ) | $ | (812 | ) | $ | (2,620 | ) | $ | 3,171 | ||||
Additional adjustments : | |||||||||||||||
Stock-based compensation expense (a) | 802 | 614 | 1,376 | 930 | |||||||||||
Executive separation costs related to salary (b) | 812 | - | 812 | - | |||||||||||
Impairment of property and equipment (c) | 2,313 | - | 2,313 | - | |||||||||||
Impact of onerous contracts (d) | (1,360 | ) | - | (2,775 | ) | - | |||||||||
Deferred rent (e) | 200 | 366 | 203 | 646 | |||||||||||
Adjusted EBITDA | $ | (2,234 | ) | $ | 168 | $ | (691 | ) | $ | 4,747 |
(a) | Represents non-cash stock-based compensation expense. |
(b) | Executive separation costs related to salary represent salary owed to the former Chief Financial Officer as part of his separation agreement. |
(c) | Represents costs related to impairment of property and equipment for stores. |
(d) | Represents provision, non-cash reversals, and utilization related to certain stores where the unavoidable costs of meeting the obligations under the lease agreements are expected to exceed the economic benefits expected to be received from the contract. |
(e) | Represents the extent to which our rent expense has been above or below our cash rent. |
Reconciliation of IFRS basis to Adjusted net income (loss) | ||||||||||||||||
[Unaudited and in thousands of Canadian dollars] | ||||||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net loss | $ | (5,563 | ) | $ | (2,267 | ) | $ | (5,925 | ) | $ | (753 | ) | ||||
Executive separation costs (a) | 962 | - | 962 | - | ||||||||||||
Impairment of property and equipment (b) | 2,313 | - | 2,313 | - | ||||||||||||
Impact of onerous contracts (c) | (1,221 | ) | - | (2,524 | ) | - | ||||||||||
Income tax expense adjustment (d) | (698 | ) | - | (175 | ) | - | ||||||||||
Adjusted net income (loss) | $ | (4,207 | ) | $ | (2,267 | ) | $ | (5,349 | ) | $ | (753 | ) | ||||
(a) | Executive separation costs represent salary owed to the former Chief Financial Officer of $812 for the three and six months ended July 29, 2017 as part of his separation agreement and stock-based compensation of $150 for the three and six months ended July 29, 2017 relating to the vesting of equity awards pursuant to the separation agreement. |
(b) | Represents costs related to impairment of property and equipment for stores. |
(c) | Represents provision, non-cash reversals, utilization, and accretion expense related to certain stores where the unavoidable costs of meeting the obligations under the lease agreement are expected to exceed the economic benefits expected to be received from the contract. The accretion expense on provisions for onerous contracts is included in Finance costs on the Consolidated Statement of Comprehensive Income (Loss) for the three and six months ended July 29, 2017. |
(d) | Removes the income tax impact of the executive separation costs, impairment of property and equipment, and the impact of onerous contracts referenced in note (a), (b) and (c). |
Reconciliation of IFRS basis to Adjusted results from operating activities | ||||||||||||||||
[Unaudited and in thousands of Canadian dollars] | ||||||||||||||||
For the three months ended | For the six months ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Results from operating activities | (7,611 | ) | (2,902 | ) | (7,582 | ) | (866 | ) | ||||||||
Executive separation costs (a) | 962 | - | 962 | - | ||||||||||||
Impairment of property and equipment (b) | 2,313 | - | 2,313 | - | ||||||||||||
Impact of onerous contracts (c) | (1,360 | ) | - | (2,775 | ) | - | ||||||||||
Adjusted results from operating activities | $ | (5,696 | ) | $ | (2,902 | ) | $ | (7,082 | ) | $ | (866 | ) | ||||
(a) | Executive separation costs represent salary owed to the former Chief Financial Officer of $812 for the three and six months ended July 29, 2017 as part of his separation agreement and stock-based compensation of $150 for the three and six months ended July 29, 2017 relating to the vesting of equity awards pursuant to the separation agreement. |
(b) | Represents costs related to impairment of property and equipment for stores. |
(c) | Represents provision, non-cash reversals, and utilization related to certain stores where the unavoidable costs of meeting the obligations under the lease agreement are expected to exceed the economic benefits expected to be received from the contract. |
Reconciliation of IFRS basis to Adjusted selling, general and administration expenses | ||||||||||
[Unaudited and in thousands of Canadian dollars] | ||||||||||
For the three months ended | For the six months ended | |||||||||
July 29, | July 30, | July 29, | July 30, | |||||||
2017 | 2016 | 2017 | 2016 | |||||||
$ | $ | $ | $ | |||||||
Selling, general and administration expenses | 27,816 | 22,810 | 51,969 | 43,929 | ||||||
Executive separation costs (a) | (962 | ) | - | (962 | ) | - | ||||
Impairment of property and equipment (b) | (2,313 | ) | - | (2,313 | ) | - | ||||
Impact of onerous contracts (c) | 1,360 | - | 2,775 | - | ||||||
Adjusted selling, general and administration expenses | 25,901 | 22,810 | 51,469 | 43,929 | ||||||
(a) | Executive separation costs represent salary owed to the former Chief Financial Officer of $812 for the three and six months ended July 29, 2017 as part of his separation agreement and stock-based compensation of $150 for the three and six months ended July 29, 2017 relating to the vesting of equity awards pursuant to the separation agreement. |
(b) | Represents costs related to impairment of property and equipment for stores. |
(c) | Represents provision, non-cash reversals, and utilization related to certain stores where the unavoidable costs of meeting the obligations under the lease agreement are expected to exceed the economic benefits expected to be received from the contract. |
Reconciliation of fully diluted weighted average common shares outstanding, as reported, to adjusted fully diluted weighted average common shares outstanding | |||||||||||||
[Unaudited and in thousands of Canadian dollars, except per share] | |||||||||||||
For the three months ended | For the six months ended | ||||||||||||
July 29, | July 30, | July 29, | July 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Weighted average number of shares outstanding, fully diluted | 25,745,221 | 24,625,414 | 25,573,894 | 24,380,306 | |||||||||
Net loss per share, fully diluted | (0.22 | ) | (0.09 | ) | (0.23 | ) | (0.03 | ) | |||||
Adjusted net loss per share, fully diluted | (0.16 | ) | (0.09 | ) | (0.21 | ) | (0.03 | ) |
Investor Contact
514.207.0000
investors@davidstea.com
Source: