David’s Tea to brew up a $75-million US IPO
Specialty chain aims to build 100 stores in Canada and 300 in the U.S.
Montreal-based David’s Tea will file for an initial public offering of its shares in the United States with an aim to raise $75 million US to fuel its North American expansion plans.
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 looseleaf tea blends, 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, with 76 per cent of the population drinking the beverage hot or iced, 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 per cent to 35 per cent 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, executives have said.
Anticipating expansion, David’s Tea brought in industry veteran Sylvain Toutant last year as its chief executive officer, 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 same-store sales growth to the end of that period.
The company has reported double-digit annual same-store 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 per cent, rising to $141.9-million US last year from $41.9 million US in fiscal 2011.
Adjusted operating earnings grew to $21.9 million in fiscal 2014 from $7.7 million in fiscal 2012, a 68 per cent compound annual growth rate.
Underwriters on the offering include: Goldman, Sachs & Co., J.P. Morgan, BofA Merrill Lynch, BMO Capital Markets, and William Blair.