DAVIDsTEA (DTEA): Turnaround, Big YoY Improvements in Q3, Q4 Here is why DTEA at $0.40 per share is insanely cheap and could go up by more than 100% by early 2025.
In Q2 2024, DTEA said that revenue in Q3 2024 are up by more than 18% so far.
Additionally, the new store in the Royalmount Mall in Mount Royal, Quebec that opened in September will contribute to Q3, so its Q3 2024 revenue will be about $15 million, because revenue in Q3 2023 were $12.1 million:
"Sales momentum continues into the early third quarter with revenues up more than 18% compared to the same period in 2023. We are excited to mark our renewed focus on brick-and-mortar retail with the opening of a new location in the Royalmount Mall......” added Ms. Segal.
Gross profit margin went up significantly in Q2 2024 compared to Q3 2024 reaching 47.3%, because DTEA reduced significantly its costs.
Additionally, SG&A dropped significantly in Q2 2024 being only $6.7 million, down 15.2% versus prior year period.
Assuming that gross margin in Q3 2024 will remain at or above 45% and SG&A will remain at or below $7 million,
DTEA will be breakeven or slightly profitable in Q3 2024, which is a huge improvement compared to prior year period, because DTEA lost $3.7 million and burned $2.5 million in cash in Q3 2023, check below:
https://www.globenewswire.com/news-release/2023/12/12/2794590/0/en/DAVIDsTEA-Reports-Financial-Results-for-Third-Quarter-of-Fiscal-2023.html
Its Q4 revenue usually double compared to Q3 because tea consumption traditionally rises a lot during the winter and holiday season helps too.
The two newly-created stores will also contribute to the top line, so Q4 2024 revenue will be about $30 million.
Assuming that gross margin in Q4 2024 will remain at or above 45% and SG&A will remain at or below $7 million, DTEA will be solidly profitable in Q4 2024 while also generating strong positive operating cash flow and strong positive free cash flow, so its cash will go up significantly.
To sum it up, 2024 revenue with the two recently-created stores will be about $70 million, up from $60.6 million in 2023.
DTEA is also expected to remain debt-free with its cash exceeding $10 million at the end of Q4 2024 (January 2025).
So DTEA at $0.40 is insanely cheap, because its market cap at $0.40 is about $10.7 million and its Enterprise Value will be either zero or negative at the end of Q4 2024.