Enraged by management and execution at DavidsTea, the Montreal retailer’s second-largest shareholder believes the company should be put up for sale.
“It seems that the nepotism project to run DavidsTea is failing”, launches to The Press American investor Justin Dopierala, portfolio manager at Wisconsin-based firm Domo Capital.
With a stake of just over 10%, Domo Capital is DavidsTea’s second largest shareholder behind Placements Mauvais Jours, the private holding company of DavidsTea co-founder Herschel Segal.
The latter’s daughter, Sarah Segal, became CEO of the tea merchant exactly two years ago. Sarah’s mother, Jane Silversone, is the chairman of the company’s board.
DavidsTea’s market value has shrunk in recent years and is now only around twenty million US dollars, while Justin Dopierala claims that the DavidsTea brand is worth “hundreds of millions”.
Unfortunately, he says, financial results and customer feedback show that the execution just isn’t there.
“The continued increase in general and administrative costs while sales are in free fall is disconcerting”, adds the disappointed shareholder.
“Customer feedback indicates that while they love the product, they are also very frustrated with the company’s inability to deliver the right product on time,” he says.
At this point, it would make sense for the board to consider an immediate sale of the business to an entity that will capitalize on the quality of the brand.
Justin Dopierala, portfolio manager at Domo Capital
He points out that, since the Segal family controls almost 50% of the outstanding shares, it stands to reason that the Segals have the most to gain from a quick sale of the company while the brand is still enjoying a “strong notoriety”.
Called to react to these comments, the management of DavidsTea declined to comment.
PHOTO ALAIN ROBERGE, THE PRESS
Sarah Segal took over as CEO of DavidsTea at the start of the pandemic.
Last summer, Sarah Segal told The Press that the recovery of sales was a priority. This challenge remains significant in the current economic context, which is affecting consumer confidence and discretionary spending.
Published on Tuesday evening, sales for August, September and October show a double-digit drop compared to the previous year. They fell by 27% to 16 million from 22 million a year ago.
General and administrative expenses for the quarter increased by 7% to 11 million while the net loss widened to 4.7 million. It was 1.9 million a year earlier.
Profitability was notably negatively affected by investments made this year in order processing operations and in technological infrastructure.
Sales had fallen by 15% for the whole of fiscal year 2021, after having already fallen by 38% in the previous financial year.
Founded in 2008 and listed on NASDAQ seven years later, DavidsTea grew rapidly in its early years. The retailer operated more than 230 stores before the pandemic. There are only 18 left today.
The business model transition continues. The company now relies heavily on online sales and a network of wholesale customers that include some 3,800 grocery stores and pharmacies.
After hovering around US$30 in 2015, DavidsTea’s stock fell as low as US65 cents last month. The stock closed Wednesday’s session down 3% at 75 cents US.