DavidsTea Inc. may pursue formal restructure, hasn't paid rent in three months

MONTREAL — DavidsTea Inc. says it may pursue a formal restructuring that partly depends on landlord negotiations as the company looks to close some of its unprofitable locations.

"Our challenge is to execute on our strategy to restructure our North American retail footprint in order to decrease the ongoing losses caused by unprofitable stores," said Herschel Segal, interim chief executive, during a conference call Monday after the company released its fourth-quarter and full-year financial results.

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"If we are not successful in negotiations with our landlords to optimize our retail footprint to reflect the new circumstances, we may need to pursue a formal restructuring in order to do so."

The company has not paid rent at any of its stores for April, May or June. All its stores have been closed since March 17 due to the COVID-19 pandemic, and it cannot yet predict when, if and how many of its retail locations will open.

Subsequent to year-end, DavidsTea did not renew three store leases in Canada and exited one store early in the U.S. It is negotiating to exit eight more stores.

As of Feb. 1, the company had 231 stores, according to its financial documents.

The commentary came as the retailer announced a net loss of $5.7 million or 21 cents per fully diluted common share for the quarter ended Feb. 1, compared with a $13.3 million net loss or 51 cents per share in the same quarter of last year.

Adjusted net income for the quarter was $1.9 million or 12 cents per share, down from $6.4 million or 25 cents per share in the fourth quarter of the previous year.

Sales for the quarter totalled $73.5 million, down 11.6 per cent from $83.1 million.

DavidsTea noted e-commerce and wholesales sales grew by $2.8 million or 18.5 per cent for the quarter, while retail sales declined $12.4 million.

Comparable same-store sales, a key retail metric, fell 17.3 per cent.

DavidsTea also released preliminary financial information for the 17 weeks following its fourth quarter, ending May 30.

During that time, sales totalled $41.2 million, down 27.4 per cent compared to the same 17 weeks the year prior thanks to all stores being closed due to the pandemic starting March 17. That is somewhat offset by e-commerce and wholesale sales growth of 170.5 per cent and 82.9 per cent respectively during the period compared to last year.

After the company closed its stores, between March 18 to May 30, e-commerce sales grew 268.2 per cent and wholesale sales increased 81.1 per cent compared to the same time last year.

For the full-year, DavidsTea lost $31.2 million or $1.20 per diluted share, down from a loss of $33.5 million or $1.29 per share in 2019. Its adjusted loss more than doubled to $15.2 million or 58 cents per share, compared with a loss of $6.8 million or 26 cents per share in the prior year.

Revenues decreased 7.6 per cent to $196.5 million from $212.7 million a year earlier.

This report by The Canadian Press was first published June 15, 2020.

Note to readers: This is a corrected story. An earlier version had incorrect net loss numbers.

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