David’s Tea dips into U.S. with IPO
• Montreal-based David’s Tea has lined up Wall Street titans to underwrite an initial public offering of its shares in the United States with an aim to raise US$75 million to fuel its North American expansion plans — including Goldman Sachs, J.P. Morgan, Bank of America, and Merrill Lynch, as well as BMO Capital Markets and William Blair.
The specialty tea chain with a distinctive teal and white logo was founded in 2008 by entrepreneur David Segal and his cousin Herschel Segal, founder of the fashion chain Le Chateau.
It has 158 stores across Canada and the U.S. and is known for a creative lineup of 150 loose-leaf tea bleneds, many of them rotating on a seasonal basis.
“We believe there is a highly attractive, long-term growth opportunity for our store base in North America with a potential for up to an additional 100 stores in Canada and up to an additional 300 stores in the United States, based on management estimates,” the company said in an April 2 filing with the U.S. Securities and Exchange Commission.
“We believe that the large size and outsized growth of the tea category combined with the relatively low percentage of tea value sales in North America make our market opportunity highly attractive, especially as we expect consumer awareness of tea in Canada and the United States to increase.”
Tea is the second-most consumed beverage in the world behind water and in Canada it ranks fifth, according to market research firm NPD Group Canada.
Currently, David’s Tea has 134 locations in Canada and 24 in the United States, and it expects to open 25 to 30 stores in Canada and 10 to 15 stores in the U.S. this year, with an eye to open 30 to 40 stores annually. The company plans to list on the Nasdaq under the ticker DTEA and aims to have U.S. outlets account for about 25% to 35% of its store base within five years.
Doing so will pit it directly against burgeoning tea giant Teavana, a U.S. specialty chain acquired by Starbucks in 2012 as the Seattle coffee giant eyed the growing market for exotic tea flavours. In Canada, Teavana has 59 outlets, but is sold largely within Starbucks’ 1,400 locations. Tim Hortons, which is test marketing new blends of coffees this year, is also keen to expand its portfolio of tea drinks in coming years.
Anticipating expansion, David’s Tea brought in industry veteran Sylvain Toutant last year as its chief executive, a former president of coffee distributor Keurig Canada and one-time COO of coffee distributor Van Houtte.
According to company filings, David’s Tea had grown to 154 stores in fiscal 2014 from 70 stores in fiscal 2011 and has had 22 consecutive quarters of positive samestore sales growth to the end of that period.
The company has reported double-digit annual samestore sales growth, a critical retail metric that strips out the effects of square-footage growth on sales, since 2011.
Sales have grown at an annual compound rate of about 50%, rising to US$141.9-million last year from US$41.9 million in fiscal 2011.