Document and Entity DEI Information - shares	3 Months Ended
Document and Entity DEI Information - shares	May 05, 2018	Jun. 11, 2018
Document and Entity Information
Entity Registrant Name	DAVIDsTEA Inc.
Entity Central Index Key	0001627606
Document Type	10-Q
Document Period End Date	May 05, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false
Current Fiscal Year End Date	--02-02
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		25,935,377

CONSOLIDATED BALANCE SHEETS - CAD ($) $ in Thousands	May 05, 2018	Feb. 03, 2018
Current
Cash	$ 53,868	$ 63,484
Accounts and other receivables	3,697	3,131
Inventories	25,795	24,450
Income tax receivable	4,287	2,968
Prepaid expenses and deposits	9,076	7,712
Derivative financial instruments	917
Total current assets	97,640	101,745
Property and equipment	35,939	36,558
Intangible assets	5,843	4,439
Deferred income tax assets	3,881	5,194
Total assets	143,303	147,936
Current
Trade and other payables	12,363	14,392
Deferred revenue	4,727	5,186
Current portion of provisions	3,016	4,693
Derivative financial instruments		229
Total current liabilities	20,106	24,500
Deferred rent and lease inducements	8,567	8,608
Provisions	13,842	13,460
Total liabilities	42,515	46,568
Equity
Share capital	111,949	111,692
Contributed surplus	2,355	2,642
Deficit	(15,789)	(14,721)
Accumulated other comprehensive income	2,273	1,755
Total equity	100,788	101,368
Total liabilities and equity	$ 143,303	$ 147,936

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) - CAD ($) $ in Thousands	3 Months Ended
	May 05, 2018	Apr. 29, 2017
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
Sales	$ 45,786	$ 48,669
Cost of sales	23,094	24,487
Gross profit	22,692	24,182
Selling, general and administrative expense	24,396	24,153
Results from operating activities	(1,704)	29
Finance costs	79	131
Finance income	(237)	(136)
Income (loss) before income taxes	(1,546)	34
Provision for income tax (recovery)	(344)	396
Net loss	(1,202)	(362)
Items to be reclassified subsequently to income (loss):
Cumulative translation adjustment	(321)	722
Items not to be reclassified subsequently to income (loss):
Unrealized net gain on forward exchange contracts	707	1,200
Realized net (gain) loss on forward exchange contracts reclassified to inventory	438	(453)
Provision for income tax on forward exchange contracts	(306)	(199)
Other comprehensive income, net of tax	518	1,270
Total comprehensive income (loss)	$ (684)	$ 908
Net loss per share:
Basic (in CAD per share)	$ (0.05)	$ (0.01)
Fully diluted (in CAD per share)	$ (0.05)	$ (0.01)
Weighted average number of shares outstanding
Weighted average number of shares outstanding - basic	25,893,327	25,402,543
Weighted average number of shares outstanding - fully diluted	25,893,327	25,402,543

CONSOLIDATED STATEMENTS OF CASH FLOWS - CAD ($) $ in Thousands	3 Months Ended
	May 05, 2018	Apr. 29, 2017
OPERATING ACTIVITIES
Net loss	$ (1,202)	$ (362)
Items not affecting cash:
Depreciation of property and equipment	1,686	2,064
Amortization of intangible assets	182	282
Loss on disposal of property and equipment		6
Deferred rent	(137)	3
Recovery for onerous contracts	(176)	(886)
Stock-based compensation expense	295	574
Amortization of financing fees	20	20
Accretion on provisions	59	112
Deferred income taxes	956	1,000
Cash flows related to operating activities before net change in working capital	1,683	2,813
Net change in other non-cash working capital balances related to operations	(8,789)	(9,474)
Cash flows related to operating activities	(7,106)	(6,661)
FINANCING ACTIVITIES
Proceeds from issuance of common shares pursuant to exercise of stock options		815
Cash flows related to financing activities		815
INVESTING ACTIVITIES
Additions to property and equipment	(928)	(1,821)
Additions to intangible assets	(1,582)	(425)
Cash flows related to investing activities	(2,510)	(2,246)
Decrease in cash during the period	(9,616)	(8,092)
Cash, beginning of period	63,484	64,440
Cash, end of period	53,868	56,348
Cash paid for:
Income taxes (classified as operating activity)		496
Cash received for:
Interest	$ 233	$ 160

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY) - CAD ($)	Share Capital	Contributed Surplus	Deficit	Accumulated Other Comprehensive Income	Accumulated Derivative Financial Instrument Adjustment	Accumulated Foreign Currency Translation Adjustment	Total
Balance, beginning of period at Jan. 28, 2017	$ 263,828,000	$ 8,833,000	$ (142,398,000)	$ 3,187,000	$ 333,000	$ 2,854,000	$ 133,450,000
Change in equity
Net loss for the period			(362,000)				(362,000)
Other comprehensive income (loss)				1,270,000	548,000	722,000	1,270,000
Total comprehensive income (loss)			(362,000)	1,270,000	548,000	722,000	908,000
Issuance of common shares	1,468,000	(653,000)					815,000
Common shares issued on vesting of restricted stock units	268,000	(554,000)	14,000				(272,000)
Stock-based compensation expense		574,000					574,000
Balance, end of period at Apr. 29, 2017	265,564,000	8,200,000	(142,746,000)	4,457,000	881,000	3,576,000	135,475,000
Balance, beginning of period at Feb. 03, 2018	111,692,000	2,642,000	(14,721,000)	1,755,000	(167,000)	1,922,000	101,368,000
Change in equity
Net loss for the period			(1,202,000)				(1,202,000)
Other comprehensive income (loss)				518,000	839,000	(321,000)	518,000
Total comprehensive income (loss)			(1,202,000)	518,000	839,000	(321,000)	(684,000)
Common shares issued on vesting of restricted stock units	257,000	(593,000)	134,000				(202,000)
Stock-based compensation expense		295,000					295,000
Income tax impact associated with stock options		11,000					11,000
Balance, end of period at May. 05, 2018	$ 111,949,000	$ 2,355,000	$ (15,789,000)	$ 2,273,000	$ 672,000	$ 1,601,000	$ 100,788,000

- Definition

The amount of residual interest in the assets of the entity after deducting all its liabilities.

+ References + Details

CORPORATE INFORMATION	3 Months Ended
CORPORATE INFORMATION	May 05, 2018
CORPORATE INFORMATION
CORPORATE INFORMATION	1. CORPORATE INFORMATION The unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary (collectively, the “Company”) for the three-month period ended May 5, 2018 were authorized for issue in accordance with a resolution of the Board of Directors on June 13, 2018. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the NASDAQ Global Market under the symbol “DTEA”. The registered office is located at 5430, Ferrier St., Town of Mount-Royal, Quebec, Canada, H4P 1M2. The Company is engaged in the retail and online sale of tea, tea accessories and food and beverages in Canada and the United States. The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. Sales fluctuate from quarter to quarter. Sales are traditionally higher in the fourth fiscal quarter due to the year-end holiday season, and tend to be lowest in the second and third fiscal quarter because of lower customer traffic during the summer months.

STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION	3 Months Ended
STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION	May 05, 2018
STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION
STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION	2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). Accordingly, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended February 3, 2018, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. In management’s opinion, the unaudited condensed interim consolidated financial statements reflect all the adjustments that are necessary for a fair presentation of the results for the interim period presented. These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in note 3 of the consolidated financial statements for the year ended February 3, 2018.

CHANGES IN ACCOUNTING POLICIES

3 Months Ended

May 05, 2018

CHANGES IN ACCOUNTING POLICIES

CHANGES IN ACCOUNTING POLICIES

3. CHANGES IN ACCOUNTING POLICIES

During the three-month period ended May 5, 2018, the Company adopted IFRS 9, “Financial Instruments” (“IFRS 9”). IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

With the exception of hedge accounting, which the Company applied prospectively, the Company has applied IFRS 9 retrospectively, with the initial application date of February 4, 2018.

Overall, there was not a material impact on the Company’s consolidated financial statements.

Classification and measurement. The Company did not identify any material impact on its consolidated financial statements in applying the classification and measurement requirements of IFRS 9. The following table presents the carrying amount of financial assets held by the Company at February 3, 2018 and their measurement category under IAS 39 and the new model under IFRS 9.


	February 3, 2018		February 3, 2018
	IAS 39		IFRS 9
	Measurement	Carrying	Measurement	Carrying
	category	Value	category	Value
		$		$
Cash	FVTPL	63,484	FVTPL	63,484
Credit card cash clearing receivables	Amortized cost	1,291	Amortized cost	1,291
Other receivables	Amortized cost	1,840	Amortized cost	1,840
Derivative financial instruments	FVTPL	229	FVTPL	229

There has been no significant impact caused by the new classification of financial assets under IFRS 9. The classification of all financial liabilities as financial liabilities at amortized cost remains unchanged as well as their measurement resulting from their classification.

Impairment. IFRS 9 requires the Company to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Company applied the simplified approach and records lifetime expected losses on all trade receivables. The Company performed a detailed analysis that considered all reasonable and supportable information, including forward-looking elements to determine the extent of the impact. The Company’s IFRS 9 expected credit loss model did not have a material impact on its consolidated financial statements.

Hedge accounting. The Company believes that all existing hedge relationships that are currently designated in effective hedging relationships still qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, the adoption of IFRS 9 did not have a material impact on the Company’s hedge accounting.

During the three-month period ended May 5, 2018, the Company adopted IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”). IFRS 15 replaces IAS 11, “Construction Contracts”, and IAS 18, “Revenue”, as well as various interpretations regarding revenue. This standard introduces a single model for recognizing revenue that applies to all contracts with customers, except for contracts that are within the scope of standards on leases, insurance and financial instruments. This standard also requires enhanced disclosures. Adoption of IFRS 15 is mandatory and is effective for annual periods beginning on or after January 1, 2018. The implementation of IFRS 15 impacts the allocation of revenue that is deferred in relation to its customer loyalty award programs. Prior to adoption, revenue was allocated to the customer loyalty awards using the residual fair value method. Under IFRS 15, consideration is allocated between the loyalty program awards and the goods on which the awards were earned, based on their relative stand-alone selling prices. The change in allocation of revenue that is deferred in relation to its customer loyalty program does not have a material impact on retained earnings as at February 4, 2018. Overall, there was not a material impact on the Company’s consolidated financial statements.

During the three-month period ended May 5, 2018, the Company adopted IFRIC 22, “Foreign Currency Transactions and Advance Consideration” (“IFRIC 22”). In December 2016, the IASB issued IFRIC 22, which addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) and on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018. There was no material impact on the Company’s consolidated financial statements.

Information on significant new accounting standards and amendments issued but not yet adopted is described below.

IFRS 16, “Leases” (“IFRS 16”) replaces IAS 17, “Leases”. This standard provides a single model for leases abolishing the current distinction between finance and operating leases, with most leases being recognized on the balance sheet. Certain exemptions will apply for short-term leases and leases of low value assets. The new standard will be effective for annual periods beginning on or after January 1, 2019 with early application permitted. The Company has performed a preliminary assessment of the potential impact of the adoption of IFRS 16 on its consolidated financial statements. The Company expects the adoption of IFRS 16 will have a significant impact as the Company will recognize new assets and liabilities for its operating leases of retail stores. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. The Company has not yet determined which transition method it will apply or whether it will use the optional exemptions or practical expedients under the standard. The Company expects to disclose additional detailed information, including its transition method, any practical expedients elected and estimated quantitative financial effects, before the adoption of IFRS 16.

IFRIC 23, “Uncertainty over Income Tax Treatments”, was issued by the IASB in June 2017. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted. The Interpretation requires an entity to:

Contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;

Reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or recover) an amount for the uncertainty; and

Measure a tax uncertainty based on the most likely amount or expected value depending on whichever method better predicts the amount payable (recoverable).

The Company does not expect a material impact from the adoption of IFRIC 23 on its consolidated financial statements.

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS	3 Months Ended
	May 05, 2018
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS	4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of condensed interim consolidated financial statements requires management to make estimates and assumptions using judgment that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense during the reporting period. Estimates and other judgments are continually evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates. In preparing these unaudited condensed interim consolidated financial statements, critical judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in note 5 of the consolidated financial statements for the year ended February 3, 2018.

INVENTORIES

3 Months Ended

May 05, 2018

INVENTORIES

INVENTORIES

5. INVENTORIES


	May 5,	February 3,
	2018	2018
	$	$
Finished goods	23,388	17,600
Goods in transit	1,362	4,608
Packaging	1,045	2,242
	25,795	24,450

PROVISIONS

3 Months Ended

May 05, 2018

PROVISIONS

PROVISIONS

6. PROVISIONS


		For the
		three months ended
		May 5,
		2018
		$
Opening balance		18,153
Utilization		(1,340)
Reversals		(176)
Settlements		(439)
Accretion expense		59
Cumulative translation adjustment		601
Ending balance		16,858
Less: Current portion		(3,016)
Long-term portion of provisions		13,842

Provisions for onerous contracts have been recognized in respect of store leases where the unavoidable costs of meeting the obligations under the lease agreements exceed the economic benefits expected to be received from the contract. The unavoidable costs reflect the present value of the lower of the expected cost of terminating the contract and the expected net cost of operating under the contract.

REVOLVING FACILITY	3 Months Ended
REVOLVING FACILITY	May 05, 2018
REVOLVING FACILITY
REVOLVING FACILITY	7. REVOLVING FACILITY On June 11, 2018, the Company amended its existing Credit Agreement with BMO (“Amended Credit Agreement”). The Amended Credit Agreement provides for a two-year revolving facility (“Amended Revolving Facility”) in the principal amount of $15.0 million or the equivalent in U.S. dollars, repayable at any time, two years from June 11, 2018, with no accordion feature. Borrowings under the Amended Revolving Facility may not exceed the lesser of the total commitment for the New Revolving Facility and the borrowing base, calculated as 75% of the face value of all eligible receivables plus 50% of the estimated value of all eligible inventory, less any priority payables. The Amended Credit Agreement subjects the Company to certain financial covenants entered into between the Company and BMO. Without the prior written consent of BMO, the Company’s fixed charge coverage ratio may not be less than 1.10:1.00 and the Company’s leverage ratio may not exceed 3.00:1:00. In addition, the Company’s net tangible worth may not be less than $65,000 and the Company’s minimum excess availability must not be less than $15.0 million. The Amended Revolving Facility bears interest based on the Company’s adjusted leverage ratio, at the bank’s prime rate, U.S. bank rate and LIBOR plus a range from 0.5% to 2.5% per annum. A standby fee range of 0.3% to 0.5% will be paid on the daily principal amount of the unused portion of the Amended Revolving Facility. Prior to the amendment of the credit agreement on June 11, 2018, the Company was in breach of one of its financial covenants as at May 5, 2018, which also constituted an event of default under the derivative contracts. The credit facility also contains non-financial covenants that, among other things and subject to certain exceptions, restrict the Company’s ability to become guarantor or endorser or otherwise become liable upon any note or other obligation other than in the normal course of business. The Company also cannot make any dividend payments. As at May 5, 2018 and February 3, 2018, the Company did not have any borrowings on the Revolving Facility.

SHARE CAPITAL

3 Months Ended

May 05, 2018

SHARE CAPITAL

SHARE CAPITAL

8. SHARE CAPITAL

Authorized

An unlimited number of Common shares.

Issued and outstanding


	May 5,	February 3,
	2018	2018
	$	$
25,915,157 Common shares [February 3, 2018 - 25,885,372 shares]	111,949	111,692
	111,949	111,692

During the three-month period ended May 5, 2018, no stock options were exercised for common shares [April 29, 2017 — 217,000 stock options for cash proceeds of $815]. During the three-month period ended April 29, 2017, the carrying value of common shares included $653, which corresponds to a reduction in contributed surplus associated to options exercised during the period.

In addition, during the three-month period ended May 5, 2018, 29,785 common shares [April 29, 2017 – 28,105 common shares] were issued in relation to the vesting of restricted stock units (“RSU”), resulting in an increase in share capital of $257, net of tax [April 29, 2017 — $268] and a reduction in contributed surplus of $593 [April 29, 2017 — $554].

Stock-based compensation

As at May 5, 2018, 402,532 common shares remain available for issuance under the 2015 Omnibus Plan.

No stock options were granted during the three-month period ended May 5, 2018. For the three-month period ended April 29, 2017, the weighted average fair value of options granted of $2.39 was estimated using the Black Scholes option pricing model, using the following assumptions:


		For the three months ended
	April 29,
	2017
Risk-free interest rate		1.79	%
Expected volatility		27.4	%
Expected option life		4.0	years
Expected dividend yield		0	%
Exercise price	$	9.76

Expected volatility was estimated using historical volatility of similar companies whose share prices were publicly available.

A summary of the status of the Company’s stock option plan and changes during the three-month period is presented below.


	For the three months ended
	May 5,		April 29,
	2018		2017
		Weighted		Weighted
		average		average
	Options	exercise	Options	exercise
	outstanding	price	outstanding	price
	#	$	#	$
Outstanding, beginning of period	447,779	7.18	933,195	5.63
Issued	—	—	161,980	9.76
Exercised	—	—	(217,000)	3.76
Forfeitures	(55,342)	5.34	(30,040)	7.64
Outstanding, end of period	392,437	7.44	848,135	6.83
Exercisable, end of period	260,604	6.01	491,165	4.96

No stock options were exercised during the three-month period ended May 5, 2018. For the three-month period ended April 29, 2017, the weighted average share price at the date of exercise for stock options exercised was $9.47.

A summary of the status of the Company’s RSU plan and changes during the three-month period is presented below.


	For the three months ended
	May 5,		April 29,
	2018		2017
		Weighted		Weighted
		average		average
	RSUs	fair value	RSUs	fair value
	outstanding	per unit (1)	outstanding	per unit (1)
	#	$	#	$
Outstanding, beginning of period	289,416	9.70	252,233	12.42
Granted	416,450	4.35	204,437	8.96
Forfeitures	(10,880)	(9.49)	(18,548)	9.79
Vested	(29,785)	(8.61)	(28,105)	10.05
Vested, withheld for tax	(31,694)	(8.58)	(30,119)	10.09
Outstanding, end of period	633,507	6.29	379,898	6.53

(1)

Weighted average fair value per unit as at date of grant.

During the three-month period ended May 5, 2018, the Company recognized a stock-based compensation expense of $295 [April 29, 2017 — $574].

INCOME TAXES

3 Months Ended

May 05, 2018

INCOME TAXES

INCOME TAXES

9. INCOME TAXES

Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full fiscal year.

A reconciliation of the statutory income tax rate to the effective tax rate is as follows:


	For the three months ended
	May 5,		April 29,
	2018		2017
	%	$	%	$
Income tax recovery — statutory rate	26.9	(416)	26.5	9
Increase (decrease) in provision for income tax (recovery) resulting from:
Non-deductible items	(4.6)	71	364.7	124
Other	(0.1)	1	773.5	263
Income tax provision (recovery) — effective tax rate	22.2	(344)	1,164.7	396

A breakdown of the income tax provision (recovery) on the interim consolidated statement of income (loss) is as follows:


	For the three months ended
	May 5,	April 29,
	2018	2017
	$	$
Income tax provision (recovery)
Current	(1,300)	(604)
Deferred	956	1,000
	(344)	396

SELLING, GENERAL AND ADMINISTRATION EXPENSES

3 Months Ended

May 05, 2018

SELLING, GENERAL AND ADMINISTRATION EXPENSES

SELLING, GENERAL AND ADMINISTRATION EXPENSES

10. SELLING, GENERAL AND ADMINISTRATION EXPENSES


	For the three months ended
	May 5,	April 29,
	2018	2017
	$	$
Wages, salaries and employee benefits	16,480	16,221
Depreciation of property and equipment	1,686	2,064
Amortization of intangible assets	182	282
Loss on disposal of property and equipment	—	6
Utilization for onerous contracts	(1,340)	(529)
Recovery for onerous contracts	(176)	(886)
Stock-based compensation	295	574
Other selling, general and administration	7,269	6,421
	24,396	24,153

EARNINGS PER SHARE

3 Months Ended

May 05, 2018

EARNINGS PER SHARE

EARNINGS PER SHARE

11. EARNINGS PER SHARE

Basic earnings per share (“EPS”) amounts are calculated by dividing the net income (loss) for the period attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS amounts are calculated by dividing the net income (loss) attributable to ordinary equity holders (after adjusting for dividends) by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares, unless these would be anti‑dilutive.

The following reflects the income and share data used in the basic and diluted EPS computations:


	For the three months ended
	May 5,	April 29,
	2018	2017
	$	$
Net loss for basic EPS	(1,202)	(362)

Weighted average number of shares outstanding — basic and fully diluted	25,893,327	25,402,543

As a result of the net loss during the three-month period ended May 5, 2018 and April 29, 2017, the stock options and restricted stock units disclosed in Note 8 are anti-dilutive.

RELATED PARTY DISCLOSURES	3 Months Ended
RELATED PARTY DISCLOSURES	May 05, 2018
RELATED PARTY DISCLOSURES
RELATED PARTY DISCLOSURES	12. RELATED PARTY DISCLOSURES There have been no significant changes in related party transactions from those disclosed in the Company’s audited annual consolidated financial statements for the year ended February 3, 2018. During the three-month period ended May 5, 2018, the Company purchased merchandise from a company controlled by one of its executive employees amounting to $64 [April 29, 2017 — nil].

SEGMENT INFORMATION

3 Months Ended

May 05, 2018

SEGMENT INFORMATION

SEGMENT INFORMATION

13. SEGMENT INFORMATION

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. The Company has reviewed its operations and determined that each of its retail stores represents an operating segment. However, because its retail stores have similar economic characteristics, sell similar products, have similar types of customers, and use similar distribution channels, the Company has determined that these operating segments can be aggregated at a geographic level. As a result, the Company has concluded that it has two reportable segments, Canada and the U.S., that derive their revenues from the retail and online sale of tea, tea accessories and food and beverages. The Company’s Chief Executive Officer (the chief operating decision maker or “CODM”) makes decisions about resources allocation and assesses performance at the country level, and for which discrete financial information is available.

The Company derives revenue from the following products:


	For the three months ended
	May 5,	April 29,
	2018	2017
	$	$
Tea	33,230	33,873
Tea accessories	8,714	10,509
Food and beverages	3,842	4,287
	45,786	48,669

Property and equipment and intangible assets by country are as follows:


	May 5,	February 3,
	2018	2018
	$	$
Canada	37,917	37,234
US	3,865	3,763
Total	41,782	40,997

During the fourth quarter of fiscal 2017, the Company changed the measure of profit used by the CODM in measuring performance. Management believes that the new measure, being results from operating activities before corporate expenses by country, excluding intercompany profit, is the most relevant in evaluating results. The Company has retroactively revised the results by segment for the three-month period ended April 29, 2017. Results from operating activities before corporate expenses per country are as follows:


	For the three months ended
	May 5, 2018
	Canada	US	Consolidated
	$	$	$
Sales	36,532	9,254	45,786
Cost of sales	17,816	5,278	23,094
Gross profit	18,716	3,976	22,692
Selling, general and administration expenses (allocated)	13,384	4,158	17,542
Impact of onerous contracts	(192)	(1,324)	(1,516)
Results from operating activities before corporate expenses	5,524	1,142	6,666
Selling, general and administration expenses (non-allocated)			8,370
Results from operating activities			(1,704)
Finance costs			79
Finance income			(237)
Loss before income taxes			(1,546)


	For the three months ended
	April 29, 2017
	Canada	US	Consolidated
	$	$	$
Sales	39,952	8,717	48,669
Cost of sales	19,317	5,170	24,487
Gross profit	20,635	3,547	24,182
Selling, general and administration expenses (allocated)	12,609	4,293	16,902
Impact of onerous contracts	(27)	(1,388)	(1,415)
Results from operating activities before corporate expenses	8,053	642	8,695
Selling, general and administration expenses (non-allocated)			8,666
Results from operating activities			29
Finance costs			131
Finance income			(136)
Income before income taxes			34

FINANCIAL RISK MANAGEMENT

3 Months Ended

May 05, 2018

FINANCIAL RISK MANAGEMENT

FINANCIAL RISK MANAGEMENT

14. FINANCIAL RISK MANAGEMENT

The Company’s activities expose it to a variety of financial risks, including risks related to foreign exchange, interest rate, liquidity and credit.

Currency risk — foreign exchange risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Given that some of its purchases are denominated in U.S. dollars, the Company is exposed to foreign exchange risk. The Company’s foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars. The Company is exposed to currency risk through its cash, accounts receivable and accounts payable denominated in U.S. dollars.

Assuming that all other variables remain constant, a revaluation of these monetary assets and liabilities due to a 5% rise or fall in the Canadian dollar against the U.S. dollar would have resulted in an increase or decrease to net income (loss) in the amount of $76.

The Company’s foreign exchange exposure is as follows:


	May 5,	February 3,
	2018	2018
	US$	US$
Cash	2,714	5,686
Accounts receivable	1,243	882
Accounts payable	2,440	2,555

The Company’s U.S. subsidiary’s transactions are denominated in U.S. dollars.

In order to protect itself from the risk of losses should the value of the Canadian dollar decline in relation to the U.S. dollar, the Company has entered into forward contracts to fix the exchange rate of 80% to 90% of its expected U.S. dollar inventory purchasing requirements, through September 2018. A forward foreign exchange contract is a contractual agreement to buy a specific currency at a specific price and date in the future. The Company designated the forward contracts as cash flow hedging instruments under IFRS 9. This has resulted in mark-to-market foreign exchange adjustments, for qualifying hedged instruments, being recorded as a component of other comprehensive income (loss) for the three-month period ended May 5, 2018. As at May 5, 2018, the designated portion of these hedges was considered effective.

The nominal and contract values of foreign exchange contracts outstanding as at May 5, 2018 are as follows:


		Nominal	Nominal		Unrealized
	Contractual	value	value		gain
	exchange rate	US$	C$	Term	C$
Purchase contracts
U.S. dollar	1.2221	15,200	18,575	June 2018 to September 2018	917

The nominal and contract values of foreign exchange contracts outstanding as at April 29, 2017 are as follows:


		Nominal	Nominal		Unrealized
	Contractual	value	value		gain
	exchange rate	US$	C$	Term	C$
Purchase contracts
U.S. dollar	1.3098	22,100	28,947	May 2017 to October 2017	1,200

Market risk — interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial instruments that potentially subject the Company to cash flow interest rate risk include financial assets with variable interest rates and consists of cash. The Company is exposed to cash flow risk on its Revolving Facility which bears interest at variable interest rates (Note 7). As at May 5, 2018, the Company did not have any borrowings on the Revolving Facility.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s approach to managing liquidity risk is to ensure, to the extent possible, that it will always have sufficient liquidity to meet liabilities when due. The Company’s liquidity follows a seasonal pattern based on the timing of inventory purchases and capital expenditures. The Company is exposed to this risk mainly in respect of its trade and other payables.

As at May 5, 2018, the Company had $53,868 in cash. In addition, as outlined in Note 7, the Company has a Revolving Facility of $15,000, of which nil was drawn as at May 5, 2018.

The Company expects to finance its growth in store base, its store renovations and infrastructure investments through cash flows from operations, the Revolving Facility (Note 7) and cash on hand. The Company expects that its trade and other payables will be discharged within 90 days.

Credit risk

The Company is exposed to credit risk resulting from the possibility that counterparties may default on their financial obligations to the Company. The Company’s maximum exposure to credit risk at the reporting date is equal to the carrying value of accounts receivable and derivative financial instruments. Accounts receivable primarily consists of receivables from retail customers who pay by credit card, recoveries of credits from suppliers for returned or damaged products, and receivables from other companies for sales of products, gift cards and other services. Credit card payments have minimal credit risk and the limited number of corporate receivables is closely monitored. The terms of foreign currency forward contracts included in derivative financial instruments have been negotiated to match the terms of the forecasted inventory purchase transactions. Both contractual parties have fully cash-collateralized the foreign currency forward contracts, and therefore, effectively eliminated any credit risk associated with the contracts (both the counterparty’s and the Company’s own credit risk).

Fair values

Financial assets and financial liabilities are measured on an ongoing basis at fair value or amortized cost, based on the guidance provided in IFRS 9 and as disclosed in Note 3 “Changes in Accounting Policies” in these unaudited condensed interim consolidated financial statements for the three-month period ended May 5, 2018. The fair values of derivative financial instruments have been determined by reference to forward exchange rates at the end of the reporting period and classified in Level 2 of the fair value hierarchy.

The Company enters into its foreign currency forward contracts with financial institutions with investment grade credit ratings. Foreign currency forward contracts are valued using valuation techniques with market observable inputs. The most frequently applied valuation techniques include forward pricing, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying commodity. All foreign currency forward contracts are fully cash collateralized, thereby mitigating both the counterparty and the Company’s non-performance risk.

There were no transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy during the three-month periods ended May 5, 2018 and April 29, 2017.

CHANGES IN ACCOUNTING POLICIES (Tables)

3 Months Ended

May 05, 2018

CHANGES IN ACCOUNTING POLICIES

Carrying amount of financial assets


	February 3, 2018		February 3, 2018
	IAS 39		IFRS 9
	Measurement	Carrying	Measurement	Carrying
	category	Value	category	Value
		$		$
Cash	FVTPL	63,484	FVTPL	63,484
Credit card cash clearing receivables	Amortized cost	1,291	Amortized cost	1,291
Other receivables	Amortized cost	1,840	Amortized cost	1,840
Derivative financial instruments	FVTPL	229	FVTPL	229

INVENTORIES (Tables)

3 Months Ended

May 05, 2018

INVENTORIES

Schedule of Inventory


	May 5,	February 3,
	2018	2018
	$	$
Finished goods	23,388	17,600
Goods in transit	1,362	4,608
Packaging	1,045	2,242
	25,795	24,450

PROVISIONS (Tables)

3 Months Ended

May 05, 2018

PROVISIONS

Schedule of reconciliation of provisions


		For the
		three months ended
		May 5,
		2018
		$
Opening balance		18,153
Utilization		(1,340)
Reversals		(176)
Settlements		(439)
Accretion expense		59
Cumulative translation adjustment		601
Ending balance		16,858
Less: Current portion