DavidsTea losses more than triple in first quarter ahead of proxy battle

By Ross Marowits, The Canadian Press

MONTREAL – Embattled beverage retailer DavidsTea says its net loss more than tripled on weaker sales in the first quarter of its fiscal year just days before a proxy battle comes to a head.

The Montreal-based company lost $1.2 million for the period ended May 5, compared with a loss of $362,000 a year earlier.

That translated into a loss of five cents per diluted share, versus a loss of one cent in the first quarter of 2017.

“Our overall performance in the first quarter of 2018 is clearly not where it needs to be,” CEO Joel Silver said in a conference call in which it didn’t take any questions from analysts or investors.

Silver said management has been focusing on its plan to turn the company around, saying there was positive momentum as e-commerce sales increased by double digits.

Excluding costs of “onerous contracts” and those related to a strategic review and proxy contest, the adjusted net loss was $1.7 million or seven cents per diluted share. A year earlier, it lost $1.1 million or four cents per share.

Revenues fell six per cent to $45.8 million from $48.7 million.

Same-store sales — a key retail measure of sales for stores open at least a year — decreased seven per cent, compared with a decrease of 8.1 per cent a year ago.

Challenges will persist in the second quarter but “notable improvements” are expected in the second half of the year as its plan takes full effect heading into the Christmas holidays, Silver added.

“We have work to do to get this business back on track but I am confident that we’ll get there. I expect DavidsTea will end 2018 in a very different position than it began it.”

The results were released ahead of its annual meeting Thursday when investors will decide on a slate of director nominees proposed by the company and another put forward by the co-founder and largest shareholder Herschel Segal.

Proxy advisory firms Glass, Lewis & Co. and ISS said they are backing the management board nominees in the fight at DavidsTea, saying Segal’s Rainy Day Investments Ltd., failed to make a compelling case to replace directors with dissidents.

The firm, which holds a 46.4 per cent stake in DavidsTea, says management is not focused on the right priorities and is seeking changes at the company.

However, DavidsTea said Segal is trying to gain control of the board without paying a premium.

“A proxy contest of this nature is distracting and can be harmful to a brand and the performance of the business,” Silver said, adding that its attempts to assemble a compromise slate were rejected.

“We are pleased that it will be coming to an end as of this week.”

Companies in this story: (TSX:DTEA)

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