Executive Summary

DAVIDsTEA’s Q1 2023 showed sharp top-line pressure: revenue fell 29.4% year over year to $14.3M as online demand normalized and macro headwinds persisted; gross margin held at 40.3% despite lower volume, and net loss was $2.0M . Versus the prior quarter (Q4 2022), revenue declined from $31.4M as seasonality and promotions faded, but gross margin improved from 27.4% to 40.3% due to lower freight, shipping and fulfillment costs per unit .
Channel dynamics: e-commerce fell 40.6% to $7.6M, wholesale declined 11.1% to $2.4M, and brick-and-mortar decreased 8.5% to $4.3M; Canada sales were $12.2M and U.S. $2.1M .
Management reiterated cost containment (targeting $8–$10M annual SG&A savings) and operational fixes (bringing order fulfillment in-house) to support a profitability path while advancing U.S. wholesale expansion; liquidity remained solid with $19.6M cash and no debt at quarter-end .
No formal quantitative guidance or consensus estimate comparisons were available; S&P Global consensus for Q1 2023 was unavailable at time of analysis, limiting beat/miss assessment [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

Gross margin resilience: Despite lower sales, gross profit margin was 40.3% (vs. 40.5% LY), supported by lower per-unit freight, shipping and fulfillment costs .
Cost discipline: SG&A fell 21.9% YoY to $7.9M as early cost-containment actions flowed through; management is targeting “between $8 million to $10 million in annual cost savings” from the plan announced in February .
Strategic focus areas remain intact: “We are encouraged by the early results of our cost containment plan... Aligning our cost structure with a lower revenue run rate... narrows our strategic focus on value creation initiatives that will drive sales growth,” including U.S. wholesale rollout, digital improvements, and selective store refreshes .

What Went Wrong

Demand softness across channels: Sales fell 29.4% YoY to $14.3M, with e-commerce down 40.6% ($7.6M), wholesale down 11.1% ($2.4M), and brick-and-mortar down 8.5% ($4.3M), reflecting inflationary pressure, higher rates, and lingering fourth-quarter fulfillment issues .
Operating deleverage: SG&A as a percentage of sales rose to 54.9% (from 49.5% LY) due to fixed cost absorption on lower revenue, pressuring adjusted EBITDA to -$0.9M (vs. $0.1M LY) .
Macro/operational headwinds persisted into the quarter: Management cited “inflationary pressure and higher interest rates” undermining consumer sentiment and noted fallout from Q4 order fulfillment challenges that impacted online demand .

Financial Results

Metric (CAD)	Q1 2022	Q3 2022	Q4 2022	Q1 2023
Revenue ($M)	$20.435	$16.176	$31.4	$14.3
Gross Profit ($M)	$8.964	$6.282	$8.6	$5.8
Gross Margin (%)	43.9%	38.8%	27.4%	40.3%
SG&A ($M)	$10.806	$10.925	$11.9	$7.9
SG&A (% of Sales)	52.9%	67.5%	38.0%	54.9%
Adjusted EBITDA ($M)	$0.089	-$2.004	-$0.9	-$0.9
Net (Loss) Income ($M)	-$1.974	-$4.717	-$3.3	-$2.0
Diluted EPS ($)	-$0.07	-$0.18	N/A (not disclosed)	N/A (not disclosed)
Cash, End of Period ($M)	$22.680	$16.131	$22.4	$19.6

Channel and Geography

Breakdown	Q1 2022	Q3 2022	Q4 2022	Q1 2023
E-commerce ($M)	N/A	$10.2	N/A	$7.6
Wholesale ($M)	N/A	$1.6	N/A	$2.4
E-comm + Wholesale Combined ($M)	$15.7	N/A	$23.3	N/A
Brick-and-Mortar ($M)	$4.7	$4.4	$8.0	$4.3
Canada Sales ($M)	$16.8	$12.9	N/A	$12.2
U.S. Sales ($M)	$3.7	$3.3	N/A	$2.1

KPIs and Other Metrics

KPI	Q1 2022	Q3 2022	Q4 2022	Q1 2023
Gross Margin bps change YoY	—	Flat at 38.8%	-1,110 bps to 27.4%	-20 bps to 40.3%
Adjusted EBITDA ($M)	$0.089	-$2.004	-$0.9	-$0.9
Net Loss ($M)	-$1.974	-$4.717	-$3.3	-$2.0

Notes: Adjusted EBITDA and related non-IFRS measures as defined by the company; see “Use of Non-IFRS Financial Measures” in press releases .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
SG&A cost structure (annualized savings)	FY 2023	None	$8–$10M annual savings target	New initiative
Preliminary Q4 2022 Sales (context)	Q4 2022	None	$29.0–$31.0M preliminary range	New disclosure (pre-results)

No formal quantitative revenue, margin, or EPS guidance was issued for Q1 2023 or FY 2023 in the materials reviewed .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2022 and Q4 2022)	Current Period (Q1 2023)	Trend
Macro/consumer	“Fears of a recession, exacerbated by inflation and rising interest rates” pressured demand (Q3) . Q4 reinforced inflation and interest-rate impacts .	Inflation and higher rates “continue to undermine consumer sentiment” across channels .	Persistent headwind.
Fulfillment/supply chain	Q4: Operational delays with 3PL hurt Q4 online margins and customer experience .	Decision to bring order fulfillment in-house to restore brand experience .	Remediation underway (improving operations).
Wholesale expansion (Canada/US)	Q3: Transition to new sachet format; 3,800 doors in Canada . Q4: U.S. distribution agreement and 400+ Northeastern U.S. doors targeted for fall .	U.S. rollout reiterated for fall with signed distributor; growth expected thereafter .	Advancing rollout.
Digital/online	Q4: Online demand normalization and promotions pressured margins .	Online sales fell 40.6%; plans to improve PDPs and launch mobile app .	Rebuild experience and demand.
Brick-and-mortar	2022 B&M up ~4%; store remodels to elevate experience (Q4) .	Q1 2023 B&M down 8.5% to $4.3M amid macro softness .	Mixed; near-term softer.
Cost discipline	Q3: SG&A elevated on transformation; plan to optimize . Q4: Announced cost-containment to reduce SG&A $8–$10M .	SG&A down 21.9% YoY; adj. EBITDA -$0.9M .	Savings beginning to show.
Capital/liquidity	Q3 cash $16.1M; new C$15M revolver (BoNS) .	Cash $19.6M; no debt at Q1-end .	Adequate liquidity.

Management Commentary

“We are encouraged by the early results of our cost containment plan that should deliver between $8 million to $10 million in annual cost savings.” — Sarah Segal, CEO .
“Sales decreased 29.4% year-over-year to $14.3 million... E-commerce sales declined 40.6%... Wholesale channel sales... dropped 11.1%... Brick-and-mortar sales decreased 8.5%...” — Frank Zitella, President, CFO & COO .
“Internalizing our order fulfillment process will help us create that elevated brand experience consumers have come to expect... Beginning next month, the company staff will take great pride in fulfilling customer orders...” — Frank Zitella .
“We aim to expand our wholesale footprint into the U.S. this fall... we signed a distribution agreement with a large wholesale distributor of health and specialty foods in the U.S.” — Sarah Segal .

Q&A Highlights

The Q1 2023 call consisted of prepared remarks; management directed investors to contact IR for additional color, and no Q&A exchange was provided in the transcript .

Estimates Context

Wall Street consensus (S&P Global) for Q1 2023 EPS, revenue, and EBITDA was unavailable at time of analysis; therefore, we cannot assess beats/misses versus consensus. Values retrieved from S&P Global were unavailable due to access limits (no estimates returned) [GetEstimates error].

Key Takeaways for Investors

Revenue reset continued in Q1 2023 with broad-based channel softness; however, gross margin held at ~40% due to lower logistics costs, suggesting underlying unit economics can support margin recovery as volume stabilizes .
Cost containment is the principal near-term lever: SG&A fell 22% YoY and management targets $8–$10M annualized savings; continued execution is critical to offset deleverage on a smaller top line .
Operational pivot to in-house fulfillment directly addresses Q4/Q1 customer experience issues and could support online conversion and loyalty into peak seasons if executed smoothly .
U.S. wholesale entry (with a signed distributor) and expanded Canadian wholesale doors offer medium-term growth vectors; sell-in cadence will be “lumpy,” but scale benefits could aid fixed-cost absorption .
Liquidity is adequate (cash $19.6M; no debt) to fund working capital and targeted initiatives, but sustained cash burn risks remain if revenue softness persists .
No formal guidance or consensus comparison reduces near-term visibility; investors should monitor: online order experience metrics, wholesale door additions and reorders, B&M traffic/ticket trends, and realized SG&A savings cadence .
Corporate actions (Nasdaq delisting/TSXV trading) do not alter fundamentals but may affect investor access/liquidity; ensure trading venue alignment for position sizing .

Supporting documents reviewed: Q1 FY2022 8-K/press release (for prior-year comps) , Q3 FY2022 8-K/press release , Q4 FY2022 earnings call transcript , Q1 2023 earnings call transcript , Feb 2, 2023 cost-structure press release , and April 13, 2023 delisting press release .

DAVIDsTEA Inc. (DTEAF)·Q1 2023 Earnings Summary