DavidsTea evaluating options, including sale, just two years after going public

MONTREAL — Canadian beverage retailer DavidsTea is evaluating strategic options, including a possible sale, and eyeing store closures after a weaker-than-expected third quarter.

“We are disappointed with our third quarter results, which came in below anticipated sales and profitability,” said CEO Joel Silver in a conference call with analysts Thursday.

The company’s board of directors decided to explore strategic alternatives, like refinancing, restructuring or a merger, in order to enhance shareholder value, DavidsTea said. Executives declined to answer further questions, saying it’s early in the process.

The Montreal-based company made the announcement as it reported its losses for the quarter ending Oct. 28 surged 30 per cent to $6.5 million from $5 million a year ago. That equals 25 cents per share compared to 20 cents in the prior year.

Excluding one-time items, the loss nearly doubled to $4.5 million or 17 cents per share, compared to a loss of $2.4 million or 10 cents per share in the third quarter of 2016.

Revenues decreased 2.5 per cent to $43 million as same-store sales — a key retail metric for sales of existing stores — fell 6.8 per cent.

The drop came as product offerings in accessories and kits did not excite customers, Silver said.

“Unfortunately, we are still living with some of the past decisions and our new product team will be able to have greater influence on our business with each passing season,” he said. “We know we must do better and we can.”

The company also faced headwinds with unseasonably warm weather in some key markets, he added, and competitor Teavana exiting the Canadian and U.S. markets with aggressive promotional activities. Starbucks closed its Teavana stores in July.

The tea business was positive, he said, while e-commerce sales continued to grow.

DavidsTea is gearing up to launch a new online shopping platform during its next financial year, Silver said, which is a multi-million dollar investment for the company.

Meanwhile, the company doesn’t have a specific objective for store closures, but it will continue to prune it’s Canadian portfolio, as well as look for opportunities to exit stores in the U.S. that don’t make sense anymore for the retailer, he said.

DavidsTea, which went public more than two years ago, said in 2016 it planned to grow to 550 stores, spanning 320 American locations and 230 in Canada.

As of Oct. 28, the company operated 236 stores.

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