David­sTea share­hold­ers elect founder’s slate of di­rec­tors

The Globe and Mail (BC Edition) - - REPORT ON BUSINESS - NICOLAS VAN PRAET

Her­schel Se­gal aims to re­vive com­pany’s for­tunes as in­terim CEO

Cana­dian re­tail in­dus­try mag­nate Her­schel Se­gal has won a proxy con­test giv­ing him con­trol of David­sTea Inc., set­ting one of the coun­try’s lead­ing re­tail brands on a new course amid an­nual losses and wan­ing same­store sales growth.

The Mon­treal-based founder of cloth­ing chain Le Château, who started David­sTea a decade ago with his cousin David Se­gal, con­vinced a ma­jor­ity of share­hold­ers to elect his seven-di­rec­tor slate and vote out the in­cum­bent board. At 87, he will now try to re­vive the com­pany’s for­tunes as ex­ec­u­tive chair­man and in­terim chief ex­ec­u­tive.

David­sTea shares jumped 5 per cent to $4.15 in af­ter­noon trad­ing on the Nas­daq ex­change. They’ve lost 35 per cent of their value this year.

The shift in lead­er­ship raises ques­tions about the com­pany’s abil­ity to steer through yet more man­age­ment turnover at a crit­i­cal junc­ture. This will mark the fourth time David­sTea changes CEOs in the three years since go­ing pub­lic in 2015.

“I would like to thank David­sTea’s in­di­vid­ual share­hold­ers for their sup­port,” Mr. Se­gal said in a state­ment on Thursday con­firm­ing the re­sult. “Now it’s time for the new board of di­rec­tors to get to work.”

The re­tail vet­eran’s vic­tory comes af­ter a par­tic­u­larly ac­ri­mo­nious proxy bat­tle with the com­pany’s pre­vi­ous bosses, who were backed by a block of in­sti­tu­tional share­hold­ers. While the for­mer man­age­ment and di­rec­tors of David­sTea said they made ev­ery ef­fort to strike a com­pro­mise with Mr. Se­gal, share­holder TDM As­set Man­age­ment at­tacked the founder’s “er­ratic be­hav­iour” and his al­leged in­abil­ity to lead em­ploy­ees as well as his spotty track record with Le Château.

A lin­ger­ing lack of sup­port for Mr. Se­gal could lead to an ex­o­dus of ex­ec­u­tive ta­lent at David­sTea, which would make the early days of the new board’s man­date even more dif­fi­cult. CEO Joel Sil­ver was also elected as an eighth board mem­ber Wednesday, but quit in­stead of work­ing with Mr. Se­gal, ac­cord­ing to a state­ment. Other ex­ec­u­tives could also leave the com­pany, in­sid­ers have said pri­vately.

Reached by phone, Mr. Sil­ver de­clined to com­ment. A search for can­di­dates to re­place him as CEO has be­gun.

Mr. Se­gal’s Rainy Day In­vest­ments hold­ing owns a roughly 46-per-cent stake in Davids. He was a di­rec­tor of the re­tailer un­til this past March, when he stepped down in dis­agree­ment about its fu­ture di­rec­tion. Among his crit­i­cisms of for­mer man­age­ment, he cited its fail­ure to fo­cus on the in-store ex­pe­ri­ence.

Mon­treal-based David­sTea is com­ing off losses in four of its past five fis­cal years, a pe­riod dur­ing which it nev­er­the­less man­aged to dou­ble an­nual sales to $224-mil­lion as of Feb. 3. Al­though the com­pany’s Cana­dian stores have fared well, a push into the United States has proved costly as David­sTea strug­gled to adapt its of­fer­ings to Amer­i­can tastes.

Same-store sales growth for its en­tire 240-store net­work has de­clined in each of the past three years.

Mr. Se­gal has vowed to sta­bi­lize the com­pany’s U.S. oper­a­tions, cut costs he says have spi­ralled out of con­trol and re­fo­cus on the Cana­dian mar­ket.

Mr. Sil­ver dis­missed the plan as a step back for the com­pany, a re­treat to its tra­di­tional Cana­dian street-and-shop­ping-mall foot­print at a time when it needs to look for­ward and build out new sales and dis­tri­bu­tion chan­nels. DAVID­STEA (DTEA) CLOSE: US$4.15, UP 20 US CENTS

FRED LUM/THE GLOBE AND MAIL

A cus­tomer walks into a Toronto David­sTea shop in 2017. Same-store sales growth for the chain’s en­tire 240-store net­work has de­clined in each of the past three years.

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