DAVIDsTEA Inc.
Q1 2018 Earnings Call Transcript

Published: 12 Jun 2018

[Operator:]

Good afternoon. My name is Gabriel and I will be your conference operator today. At this time, I would like to welcome everyone to DAVIDs TEA’s First Quarter 2018 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you. Mr. Howard Tafler, Chief Financial Officer of DAVIDs TEA, you may begin your conference.

[Howard Tafler:]

Thank you. Good afternoon, everyone. With me on the call is Joel Silver, President and Chief Executive Officer. Before we get started, I would like to remind you of the company’s Safe Harbor language which I'm sure you are all familiar with. This presentation includes forward-looking statements about our expectations for the performance of our business in the coming quarter and year. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appear under the heading Risk Factors in our 10-Q, that will be filed with the SEC subsequent to this call and will be available at www.sec.gov and on our website. The forward-looking statements in this discussion speak only as of today's date and we undertake no obligation to update or revise any of these statements. If any non-IFRS financial measure is used in this call, a presentation of the most directly comparable IFRS financial measure to this non-IFRS financial measure will be provided as a supplement financial information in our press release. In the interest of time and given that we are hosting our annual general meeting later this week, we will not be holding a Q&A session at the end of this call. We will connect with analysts and investors with questions on an individual basis. Now, I'd like to turn the call over to Joel Silver, President and Chief Executive Officer of DAVIDs TEA.

[Joel Silver:]

Thank you, Howard. Good afternoon everyone, and thank you for joining us today. First, before I address the Q1 results, I'd like to thank those shareholders who’ve voted in advance of our annual general meeting, which will be held this Thursday, 9

[Howard Tafler:]

Thank you, Joel. I'll begin my remarks with a review of our fiscal 2018 first quarter results. As a reminder, the dollar amounts referred to when reviewing our results are in Canadian dollars. Sales decreased by 6% to 45.8 million in the first quarter of 2018 from 48.7 million from the same quarter in 2017. We ended the quarter with a total of 240 stores, an increase of 8 net new stores versus 232 stores at the end of Q1 2017. First quarter comparable sales decreased by 7% as we continued to face challenges with the decrease in mall traffic and with our accessory and kit product assortment. This is compared to an 8.1 comp decrease in Q4 last year. Gross profit decreased 6.2% to 22.7 million from 24.2 million in the first quarter of 2017. Gross profit, as a percentage of sales was stable at 49.6 year-over-year. The product margin increased over last year driven by less promotional activity and a shift in product mix. This was offset by de-leveraging of fixed costs associated with the negative comparable sales. Adjusted SG&A in the first quarter decreased to 25.1 million from 25.6 million in Q1 2017, which includes the impact of significant legislative minimum wage increases. As a percentage of sales, adjusted SG&A increased to 54.8% from 52.6% last year to the de-leveraging of fixed costs due to the negative comparable sales. Adjusted results from operating activities for Q1 2018 were recorded as a loss of 2.4 million relative to a loss of 1.4 million in the first quarter of 2017. In Q1 2018, the company reported an adjusted net loss of 1.7 million or $0.07 per fully diluted share. This is compared to a net loss of 1.1 million or $0.04 per fully diluted shares a year ago. Adjusted EBITDA was negative 4 -- 0.4 million [ph] in the first quarter compared to positive adjusted EBITDA of 1.5 million in Q1 2017. At the end of the first quarter, our ending inventory was 25.8 million as compared to 28.6 million at the end of Q1 2017. On a per store basis, inventory decreased by 13% due to the planned seasonal clearance, which occurred mainly in Q2 2017 and Q3 2017 and a more focused buying enabled us to return to a more normal level of inventories including carryover. In terms of liquidity, we ended the first quarter with 53.9 million in cash. We are continuing to prudently manage our cash position and balance sheet. With that, I'll turn the call back over to Joel for some final remarks.

[Joel Silver:]

Thank you, Howard. We are moving forward with a strong management team and a clear go-forward plan focused on our store network, reinvestments in merchandising and marketing, advancing e-commerce, and expanding distribution channels. We are focused on improving the business and maximizing the potential of the DAVIDs TEA. On behalf of management, I would like to thank our shareholders for your patience and for all of our employees for their great work and dedication. As I mentioned a few minutes ago, we took -- we have work to do to get this business back on track, but I’m confident we will get there. I expect DAVIDs TEA will end 2018 in a very different position than it began it. Thank you for joining this afternoon. For those who are attending the annual general meeting, I look forward to seeing you on Thursday. Thanks again for your support.

[Operator:]

This concludes today’s conference call. You may now disconnect.