DAVIDsTEA Inc. (DTEAF) Earnings Call Transcript & Summary

Welcome to DAVIDsTEA's 2026 Annual Meeting. The meeting will come to order. I am Pat DeMarco, Lead Director of DAVIDsTEA. Again, this year, DAVIDsTEA asked all shareholders to vote by proxy prior to the meeting, which many of you have done and to participate in this meeting by audio webcast. Thank you for joining us. We will now start the meeting. With the consent of the meeting, I will act as Chairman. Also with the consent of the meeting, I will ask Neil Wiener of Baskin to act as Secretary of the meeting and Isabel Vexxel and Cassandra VieraLopes of TSX Trust Company to active scrutineers -- to report on the shareholders present in person and the number of shares represented in person or by proxy at this meeting, to compute the votes on any ballot taken at this meeting and to report thereon to me as Chairman. We will first conduct the official business of this meeting, after which Sarah Segal, Chief Executive Officer and Chief Brand Officer of DAVIDsTEA, will provide an update on the company. There are several routine matters to be dealt with at this meeting. To expedite matters, I have arranged for certain persons to make and second the various motions. The election of directors and the special resolution to amend articles will be by ballot. Unless a ballot is requested by a registered shareholder or a proxy holder, all other votes at this meeting will be conducted by voice vote. Based on proxy forms and voting information form submitted prior to the meeting, I can report that all matters to be considered today will be adopted. I now ask the scrutineers to present their report, and I direct that the report be annexed to the minutes of this meeting as a schedule.

Mr. Chairman, we, the undersigned engineers from TSX Trust Company, thereby record that there are at least 58 shareholders and/or proxy holders present at this meeting, representing in person or by proxy 19,585,594 common share being 64.0% of the total 30,566,01 common shares issued and outstanding of David T Inc. in Isabella and Cassandra. .

Thank you. The scrutineers' report shows a quorum to be present. I declare the meeting to be regularly constituted. The notice calling this meeting together with the proxy form, management information secular and related documents have been mailed or made available to the company's shareholders and mailed to the company's auditor. With the consent of the meeting, we will dispense with the reading of the notice and with the reading of the minutes of the last meeting of shareholders held on July 9, 2025, and I direct that the minutes be taken as read and approved and that they be signed as being correct. The first item of business is the presentation of the annual report and financial statements and the auditor's report thereon. I now present to the meeting the annual report and consolidated financial statements of the company for the fiscal year ended January 31, 2026, and the auditor's report. Copies of such documents have been made available to shareholders. We will now proceed with the election of directors. I declared a meeting open for nominations and ask Frank Zitella to present his nominations.

I nominate [indiscernible] , Susan Burkman, at Samarco and Peter Robinson as Directors of the company, hold office until the next Annual Meeting of Shareholders.

I declare the nominations closed. We will vote by ballot in order for to be accurately compiled. Frank Zitella has already signed and submitted a ballot tides capacity as proxy holder as did other proxy holders. As all ballots have been submitted and tabulated, I now call upon the scrutineer to present the results of the vote on the election of directors.

Chairman, I report that each of the 5 nominees have received a vote of at least 97% of all shares voted.

Thank you. Based on those results, I declare that the 5 nominees have been elected as Directors of DAVIDsTEA Inc. to hold office until the next Annual Meeting of Shareholders or until their successors are like or appointed. David, Steve will issue a press release announcing the results shortly after this meeting. The next item of business is the appointment of an auditor. I ask Frank Zitella to present this motion.

It resolved at Victor LLP, Chartered Professional accounts be and they are hereby appointed auditor of the company to hold office until the next Annual Meeting of Shareholders at such remuneration as may be fixed by the directors and the directors be they are hereby authorized to fix such remuneration.

I second that motion.

All those against, please say no. [Voting]

I declare the motion carried and director LLP charter professional accountants have been due appointed auditor of the company. The next item of business is a special resolution authorizing an amendment to the articles of DAVIDsTEA -- in order for DAVIDsTEA to obtain B-Corp certification is deemed advisable by the Board of Directors of Bitt. I ask Frank Zitella to present his motion.

At a special resolution in the form Schedule A to the management information circular at DAVIDsTEA 2026 authorizing an amendment to the articles of DAVIDsTEA in order for DAVIDsTEA obtain B-Corp certification is deemed advisable by the Board of Directors of DAVIDsTEA B, and it is hereby adopted.

I second the motion.

We will vote by ballot in order for the votes to be accurately compiled. Frank Zitella has already signed a ballot in his capacity as proxy holder as have other proxy holders. As all ballots have been submitted and tabulated, I now call upon the scrutineer to present the results of the vote on the special resolution to amendment of the articles of DAVIDsTEA.

Mr. Chairman, we report that 17,977,716 shares were voted for the resolution, representing 99.47% of all shares voted and [indiscernible] shares were voted against the resolution, representing 0.7% of all shares voted.

I declare special resolution adopted -- we've reached the end of the official business. We'll now turn to an update from Sarah Segal, Chief Executive Officer and Chief Brand Officer of DAVIDsTEA.

Thank you, Pat and good morning, everyone. I am Sarah Segal, CEO and Chief Brand Officer, DAVIDsTEA. Now that the formal part of the meeting is over, we will move on to our management presentation. The slides for this presentation were posted this morning on our website under Investor Relations. Before I begin, I will direct you to our customary disclaimer regarding forward-looking statements on Slide #3. Please note that the forward-looking statements in our presentation speak only as of today's date, and we undertake no obligation to update or revise any of these statements unless required by law. If any non-IFRS financial measure is used in this presentation, a reconciliation to the most directly comparable IFRS financial measure will be detailed in our MD&A, which has been filed with Canadian regulatory authorities and is available on sedar.ca as well as in the Investor Relations section of the company's website. As a reminder, all dollar amounts in this presentation are in Canadian dollars unless otherwise indicated. Fiscal 2025 reflects a fundamental reset in our business with a return to profitability on an IFRS basis, driven by disciplined execution, leaner cost structure, stronger margins and a retail store led omnichannel model. Net income reached $2.9 million on consolidated revenue of $61 million in 2025. Alongside IFRS profitability, sales increased 10.4% year-over-year, while comparable store sales improved 6.8%. For their part, online sales and wholesale channel revenues declined from last year, more on segmented channel sales later in my presentation. In terms of cash and cash equivalents, we closed the fiscal year in a solid position. We held cash of $16.5 million at year-end supported by a private placement of $3 million and revenue-linked financing of $2.7 million to invest in growth. Turning to our revenue breakdown on Slide #5. Brick-and-mortar sales grew 10.4% in fiscal 2025, driven by the continued pickup of in-store shopping behavior and the addition of 3 new stores in the province of Quebec during the past 2 years. Online sales meanwhile eroded during the past year due to the trade conflict between the United States and Canada. Accordingly, online sales decreased 7.6% in 2025 as trade tensions and tariff-related headwinds adversely affected cross-border volumes throughout the year. Following the U.S. government's decision to eliminate the de minimis trade exemption, which allowed goods under USD 800 to enter the country without paying duties or taxes shipping orders from Canada into the United States became more complex and costly. The resulting customs friction created significant delays and a diminished consumer experience that contributed to a decline in U.S. sales to align ourselves with new trade realities and build for growth in the United States market. We established a distribution platform in Chicago through a third-party logistics partner in March 2026. This fulfillment platform in Chicago, which complements our warehouse and logistics operations in Montreal brings inventory closer to U.S. customers, improved service levels and strengthens the company's ability to grow profitably south of the border. As a result, we anticipate U.S. sales will recover in fiscal 2026. In terms of wholesale channel sales, revenues decreased 8.4% in 2025, primarily reflecting the timing of replenishment orders across Kousta convenience stores and DAVIDsTEA's grocery store partners. The underlying wholesale distribution footprint remains intact, and we're evaluating opportunities to expand our wholesale presence at strategic locations. In terms of geographic revenue mix on Slide 6, sales in Canada, which accounted for 88% of total sales in 2025 improved by $0.8 million year-over-year on revenues from 3 new stores during the past 2 years and a higher comparable stores sales growth. These factors were partially offset by lower online and wholesale channel sales. In the United States, sales decreased by $1.6 million or 18.4% year-over-year, weighed down by the elimination of the de minimis rule exemption that adversely affected cross-border volume to the U.S. Looking ahead to fiscal 2026 on Slide #7, our plan is clear, retail is the growth engine of our omnichannel strategy. We believe the Canadian market can support a meaningfully larger DAVIDsTEA store footprint. If you recall, we operated more than 190 stores across Canada prior to the pandemic and the majority were profitable. Following the opening of a new store at Laurie, Quebec Mall in December 2025, 4 additional stores were planned across Canada in 2026. One store already held its grand opening at the Ashua Center in early June, while another store is scheduled for next month at the Square One Shopping Center in Mississauga. In the second half, the intent to expand at the Southgate center in Edmonton and Metropolis and Metrotown in the Vancouver area. These high-profile, high-traffic locations are expected to generate strong unit level returns. Our typical store is approximately 750 square feet with budgeted capital expenditures of $400,000 to $475,000. Based on the performance of our existing store portfolio, we are targeting annual sales of $1.2 million to $1.4 million per location with a 4-wall contribution margin of approximately 25%. These projections imply a payback period of 15 to 18 months. Each new store also reinforces our omnichannel growth model, serving as a brand, billboard and a demand driver across all channels. Once completed, they will raise our store count to 25 locations by the end of the fiscal year. Ultimately, with increased scale, our objective is to deliver sustained quarterly profitability. Last month, we reported our financial results for Q1 2026. On Slide 8, we provide a summary of our performance. These latest results demonstrate the resilience of the business model that we built over the last 2 years. Despite a soft top line affected by U.S.-Canada trade tensions and a more cautious consumer on both sides of the border. We held our gross margin at 59.7% and expanded adjusted EBITDA margin by approximately 100 basis points to 12.5%. Overall, DAVIDsTEA generated adjusted EBITDA of $1.6 million on revenue of $13 million in the first quarter of 2026. Net income reached $0.1 million, a $0.3 million increase over the same period in 2025. Finally, as mentioned earlier, we established a U.S. fulfillment center with a third-party logistics partner in the first quarter, and we announced the consolidation of our Canadian operations at our Mount Royal facility next month to strengthen overall operational efficiency. Turning to our financial position on Slide 9. We exited the first quarter with $11.2 million in cash and cash equivalents, working capital of $18 million and our revenue-linked financing balance was reduced to $0.4 million. We also benefited from the private placement secured last November to begin funding our store-led omnichannel growth strategy [indiscernible] in 2026. Moving on to our sustainability efforts on Slide #10, we proposed a special resolution at our annual meeting to seek certification for DAVIDsTEA. This certification process, which requires an amendment to the articles of the company involves a rigorous third-party verification of social, environmental, and governance practices. It compels company to balance purpose with profit. DAVIDsTEA is currently a member of the Ethical Tea partnership, a global organization, initiating systemic change for everyone involved in the tea industry but we want to take the next step to build on years of sustainability efforts across our organization. By amplifying our sustainability commitment to our customers, we are driving a better understanding of our values. It's a win-win proposition and core to the brand's mission. Let's conclude with our key takeaways on Slide #11. We returned to profitability in fiscal 2025 with net income of $2.9 million, and we intend to sustain that momentum in upcoming years with a disciplined profitable growth strategy. The opening of 4 new stores across Canada in 2026 is underway with the recent launch at the Oshawa Center that will raise our store count to 2025 by the end of the fiscal year. These new stores will continue to serve as brand billboards and demand drivers for our online and wholesale channels in their respective communities. We have taken decisive action to counter the erosion of online sales in the U.S. through the establishment of a fulfillment center in Chicago, which should initiate a gradual recovery in 2026 and we're encouraged by our adjusted EBITDA margin of 12.5% in the seasonally weak first quarter of 2026. This bodes well for delivering profitable growth for the rest of the fiscal year. Before opening the discussion for questions, I want to take this opportunity to give a heartfelt thanks to our employees returning DAVIDsTEA to profitability in 2025. I would also like to thank our Board members for their counsel and support during the past year. Finally, many thanks to our shareholders for believing in our management team and store-led omni-channel growth strategy. We would now be happy to take your questions. Over to you, Pat.

Okay. So we now come to the question period. Are there any questions from shareholders or proxy holders either present at the meeting or through the webcast platform. All right. If there is no further business, I will ask Frank Zitella to present his motion.

The meeting be terminated.

I second the motion.

All those in favor, please say aye. All those against, please say no. [Voting]

I declare the motion carried and that this meeting is terminated. Thank you for your support of DAVIDsTEA.