DavidsTea expects sales to increase as Teavana shuts down

Sylvain Toutant, President and CEO of DavidsTea, at the company's IPO on June 5, 2015. (AP / Mark Lennihan)

MONTREAL -- DavidsTea is looking to get a sales jolt from rival retailer Teavana's demise as competition shrinks.

"Overall this is a definite positive for the business," CEO Joel Silver said Thursday during a conference call about its second-quarter results.

He said DavidsTea will particularly benefit at the 38 malls in Canada and 19 in the U.S. where it competes directly with Teavana.

Starbucks announced in July that it would shutter all 379 Teavana stores, including its 54 locations in Canada, by next spring as it seeks to improve sales at its namesake coffee stores.

Asked if Teavana's closure says anything about the viability of tea retailing, Silver said it merely gives DavidsTea more room to operate since tea wasn't owner Starbucks area of focus.

There should be no competition in Canada during the holiday season since all stores are expected to be closed by then, he said.

The lessened competition comes as DavidsTea tries to get back on track by delivering what customers want from the company.

It conducted a market survey and plans to launch a new website early next year that will have enhanced capability to handle online orders, ease shopping and accelerate e-commerce. The investment will cost about $4 million.

The Montreal-based company took a $2.3 million writedown on its U.S. operations as its net losses more than doubled in the second quarter despite increased sales.

It lost $5.6 million or 22 cents for the period ended July 29. That compared to a loss of $2.3 million or nine cents per share a year earlier.

Excluding one time items, adjusted losses were $4.2 million 16 cents per share, compared to a 2.3 million, nine cents per share loss a year ago.

Sales increased 11.2 per cent to $45.7 million as it cleared seasonal products. Same-store sales decreased 0.9 per cent, an improvement from a 5.7 per cent decline in the first quarter.

The company said its Canadian results -- which account for 80 per cent of its sales -- declined.

DavidsTea added that it will consider closing weak U.S. stores and be selective in opening new ones as its American business remains a "work-in-progress."

"Overall, DavidsTea results for the second quarter were disappointing but were in line with our expectations given that we are still in the early days of our improvement plan," Silver told analysts.

DavidsTea operates 236 stores in Canada and the United States.