Executive Summary

Q3 2023 sales were $12.1M, down 24.9% year over year; gross margin improved to 37.9% (vs 35.1% in Q3 2022) as the company internalized fulfillment and reduced per-unit costs .
SG&A fell 19.3% to $8.3M; management reiterated its $8M–$10M FY cost-cut target and cited progress from elimination of software implementation expenses and lower compensation, impairment, and professional fees .
Net loss narrowed to $3.7M; adjusted EBITDA was -$2.5M, reflecting lower sales offset by SG&A savings; cash was $11.7M with $20.1M working capital and no interest-bearing debt .
Strategic catalysts: U.S. wholesale entry (150 Stop & Shop), Canadian wholesale footprint >4,000 doors, and senior marketing/digital hires to drive demand and elevate online experience .

What Went Well and What Went Wrong

What Went Well

Wholesale channel grew 56.3% to $2.5M and reached 21% of total sales, supported by new partners and expanded placements in Canada and initial U.S. rollout .
Gross margin improved to 37.9% (from 35.1% YoY) primarily due to lower unit fulfillment costs after internalizing operations: “we are pleased to report we have delivered Black Friday orders… now back to regular order processing” .
Cost discipline: SG&A down $2.0M YoY to $8.3M; management remains on track for $8–$10M annual cuts, “encouraged by the positive impact of our cost containment plan” .

What Went Wrong

Online sales declined 45.1% to $5.6M, reflecting post-pandemic normalization and lingering Q4 order fulfillment issues; online mix fell to 46% from 63% .
Total sales fell 24.9% YoY as macro headwinds in Canada and U.S. demand softness weighed; Canada -$2.3M, U.S. -$1.7M YoY .
Adjusted EBITDA deteriorated to -$2.5M (from -$2.0M), with lower revenue and gross profit only partially offset by SG&A reductions; management flagged continued work needed to reach profitability .

Financial Results

Key Metrics vs Prior Periods

Metric	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Revenue ($CAD Millions)	$16.176	$14.3	$9.8	$12.145
Gross Profit Margin %	35.1%	40.3%	36.9%	37.9%
SG&A ($CAD Millions)	$10.313	$7.9	$7.9	$8.325
Adjusted EBITDA ($CAD Millions)	-$2.004	-$0.9	-$2.6	-$2.467

EPS YoY comparison (Q3)

Metric	Q3 2022	Q3 2023
Fully diluted EPS ($CAD)	-$0.18	-$0.14

Channel/Segment Mix (Q3)

Channel	Q3 2022 Mix	Q3 2023 Sales ($CAD)	Q3 2023 Mix
Online	63.0%	$5.6M	46.3%
Wholesale	9.9%	$2.5M	20.7%
Brick-and-Mortar	27.0%	$4.0M	33.0%

Liquidity KPIs

Metric	Q1 2023	Q2 2023	Q3 2023
Cash ($CAD Millions)	$19.6	$14.2	$11.7
Working Capital ($CAD Millions)	—	$24.5	$20.1
Total Debt ($CAD Millions)	$0	$0	$0

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
SG&A Cost Reduction Target	FY 2023	$8M–$10M savings (announced earlier in FY)	“On track” to achieve $8M–$10M savings	Maintained
Revenue/Margins/Tax/Opex/Dividends	FY/Q4	Not provided	Not provided	—

Management focused guidance on operational execution (internal fulfillment, wholesale expansion, digital upgrades). No explicit revenue, margin, tax rate, or dividend guidance ranges were issued in Q3 materials .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q3 2023)	Trend
Order Fulfillment/Internalization	Decision to bring fulfillment in-house; Q2 noted termination of 3P provider and immediate improvements	Internalized fulfillment; back to regular processing; lower unit costs supported margin	Improving execution; margin tailwind
Macro/Demand in Canada/U.S.	Q1 and Q2 cited cautious consumer behavior and economic headwinds; online normalization	“Economic environment remains uncertain, particularly in Canada”; muted sales	Persistent headwind
Wholesale Expansion (Canada/U.S.)	Q1 planned U.S. entry and Canadian network; distributor signed	U.S. launch at 150 Stop & Shop; Canadian doors >4,000; added Staples, Farm Boy, pharmacies	Scaling across channels
Digital/Marketing Investments	Q1: mobile app, website upgrades ; Q2: ongoing site improvements	Hired VP Marketing & Chief Digital Officer; focus on omnichannel and frictionless UX	Accelerating
Retail/Tea Bar Concept	Q2 expanded Tea Bars to Eaton Centre; planned new locations	Continued brand elevation; store-in-store expansion at pharmacy partners	Enhancing in-store experience

Management Commentary

“We are taking proactive steps to stimulate demand creation, drive innovation and elevate our brand… As expected, sales remained muted… due to a persistent challenging economic environment and order fulfillment issues” — Sarah Segal .
“Gross profit as a percentage of sales improved to 37.9%… primarily due to lower cost per unit to fulfill online orders as a result of internal fulfillment” — Frank Zitella .
“We started penetrating the U.S. wholesale market… release of 4 flavors… at 150 Stop & Shop… expanded our footprint in the Canadian wholesale market to more than 4,000 doors” — Sarah Segal .
“We remain on track to achieve our cost-cutting target of between $8 million to $10 million for the fiscal year” — Frank Zitella .

Q&A Highlights

Clarification on fulfillment: Management emphasized successful Black Friday processing and return to normal operations, supporting customer experience and margins .
Cost reduction trajectory: Reiterated confidence in achieving $8M–$10M SG&A savings; highlighted specific cost buckets reduced (software, compensation, impairments, professional fees) .
Channel strategy: Discussed step-by-step U.S. wholesale rollout and breadth of Canadian placements, aiming to diversify revenue mix away from normalized online demand .
Demand outlook: Expressed confidence in meeting expected higher Q4 demand post-internalization and marketing/digital initiatives .

Estimates Context

Wall Street consensus (S&P Global) for Q3 2023 EPS and revenue was unavailable in our retrieval; coverage appears limited with few/no active analyst estimates during the period .
Given the absence of published consensus, estimate comparisons are not provided; investors should focus on sequential margin progression, SG&A execution, and channel-mix normalization .

Key Takeaways for Investors

Margin stabilization amid revenue pressure: Internalized fulfillment drove GP% improvement (37.9% vs 35.1% YoY), offering a lever for profitability as volumes recover .
Cost discipline is tangible: SG&A down 19.3% YoY; the team is tracking toward $8M–$10M FY savings, which should materially improve operating leverage when growth reaccelerates .
Channel diversification progressing: Wholesale share rose to 21% (from 10%); U.S. entry provides incremental growth vectors beyond normalized e-commerce .
Execution focus in Q4: With fulfillment fixes and marketing/digital hires, management expects improved peak-season performance; monitor holiday sell-through and online NPS/order cycle times as near-term trading indicators .
Liquidity adequate: $11.7M cash and $20.1M working capital with no interest-bearing debt supports continued go-to-market initiatives; watch inventory turns and payables management through Q4 .
Medium-term thesis: If wholesale scaling and digital upgrades restore top-line momentum, combined with SG&A discipline and improved fulfillment costs, path to reduced losses and eventual profitability is feasible; execution against U.S. grocer/pharmacy footprint is the key swing factor .

Additional Relevant Q3 2023 Press Releases

Hires Vice-President of Marketing (Nov 22, 2023) .
Appoints Chief Digital Officer to Drive Online Sales (Dec 6, 2023) .

Prior Two Quarters (Trend Context)

Q2 2023: Sales $9.8M; GP% 36.9%; SG&A $7.9M; adjusted EBITDA -$2.6M; cash $14.2M; working capital $24.5M .
Q1 2023: Sales $14.3M; GP% 40.3%; SG&A $7.9M; adjusted EBITDA -$0.9M; net loss $2.0M; cash $19.6M; no debt .

Notes:

Q3 2023 earnings were communicated via GlobeNewswire and webcast; an SEC 8-K 2.02 filing was not located in our document catalog for the period, consistent with the company’s TSX-V listing status .

DAVIDsTEA Inc. (DTEAF)·Q3 2023 Earnings Summary