Earnings Call: Q4 2021

May 3, 2021

Welcome to DAVIDsTEA's 4th Quarter and Full Year Fiscal 2021 Earnings Webcast. Today's webcast is being recorded and is in a listen only mode. Before we get started, I would like to remind you of the company's Safe Harbor language. Recorded. This presentation includes forward looking statements about our expectations for the performance of our business in the coming quarter year. Recorded. 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 appears under the heading Risk factored in our Form 10 ks, which was filed with the Securities and Exchange Commission this morning and is available at www.sec .gov with the Aetortie des Marches Financiere and on DAVIDsTEA's website. Recorded. 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. Recorded. If any non IFRS financial measure is used on the call, a reconciliation to the most directly comparable IFRS measure will be detailed in our Form 10 ks. As a reminder, all dollar amounts referred to are in Canadian dollars unless otherwise indicated. At this point, I would like to turn the call over to Sarah Siegel, Chief Executive Officer and Chief Brand Officer of DAVIDsTEAG. Recorded. Hello, everyone, and thank you for joining us. With me today is Frank Sotella, DAVIDsTEA's recorded. Fiscal 2021 reflected that we stayed the course recorded on our long term growth strategy. We adapted to a change in consumer habits related to the COVID-nineteen pandemic recorded by focusing on our digital platform as well as supporting and growing our other channels. Recorded. We emerged from a formal restructuring process as a more efficient and more invigorated organization, and we managed through surging inflationary pressure, recorded. Given this challenging environment, we delivered annual sales of $104,000,000 and a second consecutive year of positive adjusted recorded. Lejuez Marketing's Wow! Digital index confirmed DAVIDsTE's enhanced digital presence in 2021 by ranking the company 4th overall recorded for best online customer experience in Canada. We're continuing to provide T levers with the same high quality products and service, recorded through more cost efficient and scalable distribution channels. As a result, we're looking to the future with optimism tempered by a short term macroeconomic headwind. Our actions are driven by a vision to become the world's most innovative and purpose driven tea company, one that inspires greater wellness and sustainability. Recorded. All our actions based upon our digital first strategy are designed to respond to growing demand, meeting consumers wherever they are and building loyalty with the ability to scale the business without borders. We are focused on creating a winning culture that is fueled by connecting with consumers and driven to overcome challenging operational and market conditions. Our vision is centered on sustainable and profitable revenue growth with an unwavering sense of passion, purpose and commitment. More specifically, in my role as Chief Brand Officer, I am focused on product innovation and key excellence to drive revenue recorded. During the past year, we innovated on several fronts, including launching our most extensive fall tea collection, featured unique pumpkin spice inspired blends. We introduced pumpkin white tea, pumpkin Earl Grey and pumpkin matcha to complement our best selling pumpkin chai. We also released our biggest holiday countdown calendar collection with 24 days of tea. Recorded. We offered 3 DAVIDsTEA holiday calendars in 2021, including a matcha countdown and a caffeine free countdown. These iconic calendars were major contributors to increasing our gifting assortment sales 30% year over year to almost $19,000,000 in the 4th quarter. We continued our partnership by marketing with brands such as the Glenlivet. Recorded. During the holidays, specially packaged bottles of the Glenlivet 12 year old were sold with a sachet of David's Tea Pumpkin Creme Brulee, recorded in the Q1 of 2019. In addition, we partnered with the Better Sleep app recorded to strengthen the connection between tea and healthy sleep. This partnership involves pairing specific wellness tea blends with Better Sleep's curated collection recorded in the Q1 of 2019. On the health and wellness side, we expanded our powdered tea mixes to include a superfood, tea infused hot chocolate powder with 3 organically certified vegan friendly flavors. Recorded. These unique tea mixtures consist of powdered tea, rich cocoa and energizing superfoods like wakuma and reishi mushroom. Recorded. We increased our assortment in the garden to cup collection, demonstrating excellence in tea sourcing and a desire to work with creative gardens around the world. Recorded. Focusing on traditional unflavored teas allows us to balance our assortment of flavorful and creative blends to attract customers and give our existing customers new teas to explore and discover. We further innovated in 2021 by expanding the DAVIDs experience beyond our stores through a virtual community. We continued building our virtual subscription based community called The Tea Tasting Club. Recorded. We also launched our own podcast called Steeping Together, which is entirely dedicated to the world of tea. It provides tea lovers with recorded. As a leading tea merchant with a strong brand, we seek to share our passion and love for tea by implementing excellence and innovation across the tea space recorded from iced tea, matcha, powders to traditional and specialty loose leaf tea. Accordingly, the unmatched breadth, recorded. In closing, I would like to thank our team members for their dedication and resiliency during the past fiscal year. Recorded. I have full confidence the entire DAVIDsTEA team is up to the challenge for 2022 and beyond. Recorded. Despite inflationary pressure and supply chain constraints, we are ready to face new challenges and opportunities with an ongoing desire At this point, I will now turn the call over to Frank, who will discuss our financial results in greater detail. Thank you, Sarah, and hello, everyone. Recorded. We're pleased with our sales performance in the seasonally strong 4th quarter with revenue of 39,900,000 Our gifting assortment delivered strong results with sales increasing $4,300,000 year over year or 30%. Recorded. Sales from our e commerce and wholesale channels decreased by $4,400,000 or 14.3 percent as we transition from the previous year's pandemic fueled surge of online sales to serving customers through our omnichannel capabilities. Brick and mortar sales in Q4 2021 improved by $4,000,000 from the prior year's Q4 due to an increase in same store sales and introduction of pop up reshaped in strategic locations during the holiday season. Altogether, sales from e commerce and wholesale represented 77 percent of total sales in the Q4 of 2021, while brick and mortar sales accounted for 23%. Recorded. In Q4 2021, gross profit totaled $15,800,000 up 1.1% from last year's 4th quarter. Recorded. The increase in gross profit can be attributed to improved product margins and lower delivery and distribution costs. Recorded. These items were partially offset by higher retail lease expenses year over year. And as a percentage of sales, gross profit reached 39.7% in the Q4 of 2021 compared to 38.9% for the same period in 2020. Recorded. In the Q4 of 2021, SG and A expenses increased $3,800,000 year over year to $14,100,000 recorded, while adjusted SG and A expenses were up $2,300,000 to $13,900,000 during the same period. Recorded. These higher SG and A expenses are mainly due to increases in online marketing expenses, additional staff to support our flagship retail stores recorded as well as incremental professional and recurring software related costs. As a percentage of sales, adjusted SG and A amounted to 34.8% in the 4th in the Q4 of 2021 compared to 28.9 percent in the Q4 of 2020. In the Q4 of 2021, recorded. Adjusted EBITDA, which excludes the impact of stock based compensation, impairment of property and equipment and right of use assets, restructuring plant activities, recorded. Wage and rent subsidies from the Canadian government and nonrecurring software implementation costs reached $3,700,000 compared to 5 point $4,000,000 in Q4 of 2020. The decrease in adjusted EBITDA in the Q4 of 2021 reflects higher adjusted SG and A expenses of $2,000,000 to accelerate the transition of our business to primarily an e commerce and wholesale distribution model. Recorded. This increase in SG and A cost was partially offset by improved gross profit. As of January 29, 2022, recorded. We had a healthy cash position of $25,100,000 and working capital of $43,400,000 to support our growth strategy. Recorded. As we look ahead, some of our value creation initiatives include continuing to fuel our digital first strategy by meeting customers wherever they are, increasing the marketing and geographic reach of our Amazon platform, entering the wholesale channel in the U. S. To support online sales in this market, in line with our successful omni channel strategy in Canada Ultimately, we intend to build the path towards sustainable value creation by focusing on demand creation and product innovation, supported by winning culture with a focus on operational delivery excellence. This concludes our prepared remarks. Recorded. Thank you for joining us today. We look forward to speaking with you all following the release of our Q1 results in 2022.