Executive Summary

Q4 2023 (fiscal quarter ended January 28, 2023) reflected normal seasonal uplift but weaker year-over-year demand; management preliminarily guided Q4 sales to $29.0–$31.0M and later disclosed actual Q4 sales of $31.4M, with gross margin compression driven by promotions, freight and fulfillment costs .
The company launched a cost-containment plan expected to reduce SG&A by $8–$10M in fiscal 2023, including eliminating $4M in ERP-related IT investments and a 15% head-office reduction, aiming to realign costs with the current run rate and restore profitability .
Channel mix remained omni-channel: e-commerce/wholesale comprised 74% of Q4 sales; brick-and-mortar 26%, with brick-and-mortar up 4% for FY22 and store upgrades continuing, though operational issues with a 3PL affected online fulfillment during peak demand .
Strategic progress included signing a U.S. distribution agreement with the largest publicly traded health/specialty foods distributor, targeting a gradual 2–3 year wholesale build-out; shares transitioned from Nasdaq to the TSX Venture Exchange in April 2023, reducing compliance costs .
Street consensus (S&P Global) for Q4 2023 EPS and revenue was unavailable, limiting beat/miss assessment; we expect estimates to be revised lower given disclosed demand pressure and margin headwinds (values unavailable from S&P Global due to access limitations).

What Went Well and What Went Wrong

What Went Well

Signed U.S. wholesale distribution agreement and planned launch of 6 SKUs in >400 Northeastern grocery stores, supporting a 2–3 year market penetration plan: “we recently signed a distribution agreement with the largest publicly traded wholesale distributor of health and specialty foods in the U.S.” .
Wholesale channel expansion in Canada (3,800 doors), with compostable sachet format and Costco Canada placement; brick-and-mortar upgrades and store-in-store concept (>300 locations) continue to build brand experience .
Annualized SG&A cost savings of $8–$10M expected from the February plan, improving path to profitability as macro normalizes .

What Went Wrong

Q4 profitability and margins compressed due to promotions, higher freight/shipping, and fulfillment delays; gross margin fell to 27.4% and adjusted EBITDA was -$0.9M in Q4 .
Online demand decelerated from pandemic highs; e-commerce and wholesale combined sales declined 24% YoY in Q4 to $23.3M; net loss in Q4 was $3.3M .
Operational issues with third-party logistics created delays during demand spikes, negatively impacting online customer experience; management is implementing permanent solutions .

Financial Results

Consolidated performance vs prior quarters (CAD)

Metric	Q2 2022	Q3 2022	Q4 2022
Revenue ($CAD Millions)	$15.2	$16.2	$31.4
Gross Profit ($CAD Millions)	$6.5	$6.3	$8.6
Gross Margin (%)	42.5%	38.8%	27.4%
SG&A ($CAD Millions)	$11.2	$10.9	$11.9
Adjusted EBITDA ($CAD Millions)	-$2.1	-$2.0	-$0.9
Net Income (Loss) ($CAD Millions)	-$4.8	-$4.7	-$3.3
Diluted EPS ($CAD)	-$0.18	-$0.18	N/A – not disclosed in transcript

Notes: Q4 period above corresponds to fiscal quarter ended January 28, 2023.

Channel and segment detail

Channel Metric	Q2 2022	Q3 2022	Q4 2022
E-commerce Sales ($CAD Millions)	$8.3	$10.2	N/A
Wholesale Sales ($CAD Millions)	$2.7	$1.6	N/A
E-comm + Wholesale Combined ($CAD Millions)	N/A	N/A	$23.3
Brick-and-Mortar Sales ($CAD Millions)	$4.2	$4.4	$8.0
Channel Mix (% e-comm + wholesale / % brick)	54.6% / 27.6%	62.9% / 27.3%	74% / 26%

KPIs and liquidity

KPI	Q2 2022	Q3 2022	Q4 2022 (FY End)
Cash End of Period ($CAD Millions)	$19.0	$16.1	$22.4
Doors (Wholesale Canada)	~3,800	~3,800	~3,800
Company-owned Stores (Canada)	18	18	18
Store-in-Store Locations	N/A	N/A	>300, +35 planned by Q2

Comparison vs estimates: S&P Global consensus for Q4 2023 revenue/EPS was unavailable; therefore beat/miss assessment cannot be quantified (S&P Global data unavailable).

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Q4 Sales ($CAD Millions)	Q4 FY2022 (ended Jan 28, 2023)	Not previously provided	$29.0–$31.0 preliminary; actual disclosed $31.4	New preliminary range; actual at high end
Full-Year Revenue ($CAD Millions)	FY2022	Not previously provided	$80.0–$82.0 preliminary	New preliminary range
SG&A Cost Structure Reduction ($CAD Millions)	FY2023	N/A	$8.0–$10.0 reduction expected	New; cost savings plan
IT Transformation Spend	FY2023	ERP launch investment in FY2022	Eliminate $4.0M; ERP in maintenance mode	Lowered spend

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 2022)	Previous Mentions (Q3 2022)	Current Period (Q4 2022)	Trend
Macro headwinds (inflation, rates, demand)	Slowing e-comm demand; recession fears noted	Broad channel weakness; macro deterioration persisted into Black Friday	“Rising inflation and higher interest rates significantly reduced consumer demand”	Persistent headwind
Channel mix & demand normalization	E-comm down; wholesale +238% YoY; brick up	E-comm/wholesale down; brick down; promotions increased	E-comm/wholesale 74% of Q4 sales; brick 26%; brick-and-mortar +4% in FY22	Mix skewed to online/wholesale; retail recovering
Supply chain & fulfillment	Tech/ERP investments; working capital build	Systems coming online; optimization ongoing	3PL operational delays during spikes; permanent solutions underway	Stabilization in progress
Technology/ERP investment	Ongoing IT expenses; transformation to omni-channel	Significant investments; systems online early Sept	ERP costs cut; maintenance mode; $4M elimination in FY23	De-scaling spend
Wholesale strategy & U.S. entry	New sachet format; wholesale expansion to ~3,800 doors	Wholesale weakened due to format transition discounts	U.S. distribution agreement; 2–3 year penetration plan	U.S. buildout initiated
Listing/delisting, compliance costs	N/A	N/A	Voluntary Nasdaq delisting; move to TSXV, reduce admin/compliance costs	Cost focus

Management Commentary

“Total sales declined 20% year-over-year to $83 million in 2022, while net loss and adjusted EBITDA amounted to $14.9 million and a negative $5 million, respectively… we implemented a cost-containment plan… expected to reduce our cost base by $8 million to $10 million annually.” – Sarah Segal, CEO .
“We recently signed a distribution agreement with the largest publicly traded wholesale distributor of health and specialty foods in the U.S… launch 6 SKUs… >400 grocery stores in the Northeastern U.S. this fall… anticipate it will take 2 to 3 years to penetrate the U.S. market.” – Sarah Segal .
“Sales decreased 21.4% year-over-year to $31.4 million in the fourth quarter… highly promotional environment and operational delays… lowered our margins and profitability.” – Frank Zitella, President, CFO & COO .
“As Sarah mentioned… we anticipate annual cost savings of between $8 million and $10 million… which should place us on a path towards profitability.” – Frank Zitella .
“We determined it was in the best interest of the company to delist its shares from the NASDAQ and list on the TSX Venture Exchange… opportunities to reduce administrative and compliance costs.” – Frank Zitella .

Q&A Highlights

The published transcript contains prepared remarks and closing statements; no distinct Q&A section was included in the available document, limiting visibility into analyst questions or guidance clarifications .

Estimates Context

S&P Global consensus estimates for Q4 2023 (fiscal Q4 ended Jan 28, 2023) EPS and revenue were unavailable due to access limitations; as a result, we cannot quantify beats/misses versus Street expectations (S&P Global data unavailable).
Given disclosed macro-driven demand pressure and margin compression, we expect consensus models to reflect lower near-term e-commerce growth, higher fulfillment/freight costs, and incremental cost-savings benefits from SG&A actions once realized .

Key Takeaways for Investors

Near-term focus is cost discipline: the $8–$10M SG&A reduction and $4M IT spend elimination are key to restoring EBITDA as demand normalizes; monitor quarterly realization versus plan .
Wholesale expansion is a medium-term growth lever: U.S. distribution agreement and phased penetration should diversify revenue; watch initial 6 SKUs sell-through and door ramp .
Operational execution matters: resolving 3PL delays and optimizing ERP/fulfillment should support margin recovery and customer experience during peak season .
Channel mix remains concentrated in e-comm/wholesale; brick-and-mortar showed resilience (+4% FY22); store upgrades and store-in-store strategy can provide incremental stability .
Liquidity remains available (cash $22.4M FY-end; revolving credit facility established in 2022); balance sheet supports transition while investments are scaled back .
Listing shift to TSXV should lower compliance costs; U.S. investors can continue to trade via TSXV facilities; watch any impact on liquidity/coverage .
Without Street estimates, trading may center on execution milestones (cost savings delivery, wholesale door additions, margin trajectory) and macro indicators impacting discretionary spend .

DAVIDsTEA Inc. (DTEAF)·Q4 2023 Earnings Summary