Q4 Preview*Looking forward to the upcoming release of fiscal year results, especially to see how co-founder and principal owner Herschel Segal and the new executive team faired during their first Q4 in comparison with the corporate team he sacked upon winning last year’s proxy fight.
*In keeping with DTEA’s apparent standard of minimal disclosure, filings on SEDAR do not break out the “golden quarter” results explicitly (or at least I didn’t find it via an admittedly quick search), so by doing the simple math of subtracting last year’s YTD Q3 results from the full fiscal year, last year’s Q4 produced 38.7% of full year sales, 41.5% of gross profit and 127.9% of full year adjusted EBITDA, which represented 18.9% of Q4 sales. How much cash flow the company squeezed out of this year’s Q4 in comparison to last year’s $16.4M of adjusted EBITDA will indicate both how the company is now being managed as well as how much time the company has to fix its problems before running out of cash. Furthermore, the year-over-year and quarterly change in actual cash balance, quite apart from adjustments to EBITDA for subjective things such as “onerous contracts”( which will exist until renegotiated), from last year’s level of $63.5M and Q3 level of $18.7M will be telling.
*Also of great interest is further disclosure on the e-commerce and wholesale segment, which given the stable shelf life, retail-enhanced branding, light shipping weight and distinctive sachets/packaging of DAVIDsTEA products, represents a true opportunity for this company in comparison with many other retailers and food service companies who are more at the mercy of their real estate portfolio quality. Again by some simple arithmetic it appears that this segment did $7.7M of sales in Q3 and $18.5M in YTD Q3, let’s see how they did in Q4.
*Recent price declines of DTEA and FRII make them look like they may have joined the unfortunate likes of SCU as Canadian retail concepts that went public while briefly showing great promise, then got slaughtered when not living up to that promise in subsequent quarters and years. Unlike SCU however both DTEA and FRII still have relatively fresh brands that via fast action by entrepreneurial owners may still be recoverable, pity for them they must attempt their recoveries in full view as public companies