David`s Tea Inc. (DTEA)

This was a Canadian success story that expanded too quickly into markets they didn’t understand. There was a proxy battle as the company has tried to stabilize itself. Competitors like Starbucks are eating their lunch. They rose sharply today on a rumour that they might be considering the cannabis business; however, they have not confirmed those plans. He sees a tough haul for the company ahead, and expects them to close down unprofitable locations. DavidsTea needs to regroup and find itself again, rather than expanding in a new direction.

They have been experimenting to find something that will work. Their model has not been able to prove itself. There is a lot more downside ahead.

His experience is that their Toronto stores have very few customers. They are all corporate owned stores. This was a growth story that was predicated upon being able to grow in the US, which they haven’t been able to do. The last quarter was disastrous for them. The founder resigned last summer, which is never a good sign. The CEO resigned ahead of the Q3 numbers, which was an obvious sign of terrible quarterly results. The e-business may be growing at a much faster pace than their bricks and mortars business, and they don’t separate the 2, so the one maybe masking the other.

(Top Pick Jun 15/15, Down 49.03%) It was an IPO. It is always risky, buying an IPO. He only bought a 1% position. Post- IPO the growth rate did not live up to expectations, then management changed. He sold.

The fastest growing retailer in Canada. There is always a risk that they IPO with their results at a peak. The stock came off as guidance was lowered. Based on forecasts, the stock is probably reasonably priced. If they get to their 500 store target, the stock will probably go up. SBUX-Q (Teavana) is a service provider, but DTEA-Q is a retailer and that is the big difference between the two.

136 stores in Canada and 25 in the US and they are the fastest growing retailer in Canada. New stores have a 2 years pay back in Canada and 3 years in the US. The business model can expand at a rapid rate. Thinks they can get to 1000 stores.