• Sales of $13.0 million, reflecting a more cautious consumer environment
• Gross margin of 59.7%, holding Fiscal 2025 gains
• Adjusted EBITDA of $1.6 million, or 12.5% of sales, approximately 100 bps of margin expansion year-over-year
• Net income of $0.1 million, a $0.3 million improvement year-over-year
•  Cash of $11.2 million, up $0.8 million year-over-year

Montreal, Quebec--(Newsfile Corp. - May 27, 2026) - DAVIDsTEA Inc. (TSXV: DTEA) ("DAVIDsTEA" or the "Company"), a leading tea merchant in North America, announced today its results for the first quarter ended May 2, 2026 ("Q1 Fiscal 2026").

"Our store-led growth strategy is underway. Our new Oshawa Centre location opens in early June, followed shortly thereafter by Square One in Mississauga, and we expect to return to Edmonton's Southgate Centre and Burnaby's Metropolis at Metrotown this fall. Each is a high-traffic, high-profile location that we believe will serve as both a brand billboard and a demand driver across our online and wholesale channels. By year-end, we expect that our Canadian network will reach 25 stores. The first quarter of Fiscal 2026 demonstrates the resilience of the business model we rebuilt in Fiscal 2025. Against a softer top line shaped by U.S.-Canada trade frictions and a more cautious consumer environment on both sides of the border, we held gross margin at 59.7%, expanded Adjusted EBITDA margin by approximately 100 basis points to 12.5% of sales, and net income set a foundation we intend to build on as the new store base contributes through the balance of the year," said Sarah Segal, Chief Executive Officer and Chief Brand Officer of DAVIDsTEA.

"On the U.S. side, our new Chicago fulfillment partner is now fully operational and is expected to restore the fast, seamless delivery experience our American customers have always loved, bypassing the border delays that have slowed cross-border shipments since the move from de minimis to formal entry mid-way through last year. We expect this improved experience for our U.S. customers will support a return to growth in the channel through the balance of the year," concluded Mrs. Segal.

"Our Q1 results reflect the benefits of the cost structure we have built over the past two years. SG&A decreased by $0.7 million, or 10.7%, and as a percentage of sales declined to 48.2% from 51.2%. Gross margin held at 59.7%, consolidating the gains established in Fiscal 2025 through a quarter that included the transition of our U.S. fulfillment model. Together, these contributed to approximately 100 basis points of Adjusted EBITDA margin expansion despite a 5.2% decline in sales. We ended the quarter with $11.2 million in cash, compared to $10.4 million at the same point last year, and working capital of $18.0 million. The outstanding balance under our revenue-linked financing has been reduced to $0.4 million and is expected to be repaid in the normal course this year. The consolidation of our Montreal operations into a single facility, effective July 1, is expected to further support operational efficiency as we execute the Fiscal 2026 store opening program," said Frank Zitella, President and Chief Financial and Operating Officer of DAVIDsTEA.

Operating Results for the First Quarter of Fiscal 2026

Three Months Ended May 2, 2026 compared to Three Months Ended May 3, 2025

Sales. Sales for the first quarter of Fiscal 2026 decreased $0.7 million, or 5.2%, to $13.0 million compared to the prior year quarter. The decline was broad-based across all three channels - online sales decreased $0.4 million, wholesale sales decreased $0.3 million, and brick-and-mortar sales decreased $0.1 million - each reflecting a distinct dynamic discussed further below.

Sales in Canada of $11.7 million, representing 89.6% of total revenue, decreased $0.2 million or 1.6% compared to the same quarter last year. The modest decline reflects a more cautious Canadian consumer in light of macroeconomic uncertainty, partially offset by the contribution of the new Laurier, Québec City store opened in December 2025. Canadian results in the quarter remain consistent with the broader consumer backdrop, and provide a constructive base from which to layer the impact of the four new store openings scheduled for the balance of Fiscal 2026.

U.S. sales of $1.4 million decreased $0.5 million or 27.7% compared to the prior year quarter, driven primarily by U.S.-Canada trade tensions and tariff-related headwinds on our cross-border e-commerce channel. In response, and in light of the elimination of the U.S. de minimis import rule, the Company commenced fulfillment of U.S. orders from a third-party logistics partner in Chicago on March 26, 2026, with just over five weeks remaining in the thirteen-week quarter. The first quarter therefore reflects a partial transition period during which a portion of U.S. demand continued to be fulfilled under the legacy cross-border model and remained exposed to tariff and de minimis-related friction. With the new fulfillment model now operational, shipping from within the United States is expected to meaningfully improve the customer experience and support a sequential recovery in U.S. sales through the balance of Fiscal 2026.

Online sales of $6.0 million decreased $0.4 million or 6.0% from $6.4 million in the prior year quarter, representing 46.3% of total sales compared to 46.7% in Q1 Fiscal 2025. The decline was driven primarily by reduced U.S. cross-border volumes resulting from tariff headwinds and the partial-quarter transition to U.S. domestic fulfillment, with Canadian online demand softening modestly against a more cautious consumer backdrop.

Brick-and-mortar sales of $5.2 million decreased $0.1 million or 1.5% from $5.3 million in the prior year quarter, representing 39.8% of sales compared to 38.3% in Q1 Fiscal 2025. The modest channel-level decline includes the positive contribution of the Laurier, Québec City store opened in December 2025, which performed in line with the unit economics underpinning the Company's broader store-led growth strategy, offset by comparable store sales softness. Comparable store sales decreased 3.1% to $4.8 million from $5.0 million in the prior year quarter, reflecting a more cautious consumer in light of macroeconomic uncertainty. With four new stores scheduled to open in Fiscal 2026, beginning with Oshawa Centre in early June and Square One Shopping Centre shortly thereafter, followed by Southgate Centre in Edmonton and Metropolis at Metrotown in Burnaby later this fall, management expects the brick-and-mortar channel to return to growth as the new store base contributes.

Sales from the wholesale channel of $1.8 million decreased $0.3 million or 12.1% from $2.1 million in the prior year quarter, representing 13.8% of sales compared to 14.9% in Q1 Fiscal 2025. The decline reflects the timing of replenishment orders across the Company's grocery and convenience store partners. The underlying wholesale distribution footprint remains intact and continues to provide a meaningful platform for replenishment-driven revenue through the balance of the year.

Gross profit. Gross profit decreased 4.8% to $7.8 million from $8.2 million in the prior year quarter, broadly in line with the top-line decline. Gross profit as a percentage of sales expanded modestly to 59.7% from 59.5% in Q1 Fiscal 2025, reflecting the durability of the gross margin gains established in Fiscal 2025, resulting from lower unitized freight and inbound shipping costs, and the continued benefit of the Company's internalized fulfillment model. The ability to hold and modestly expand gross margin in a quarter that included a mid-period U.S. fulfillment transition, tariff-related cost pressure, and a softer top line is a direct reflection of the structural improvements achieved over the past two years.

Selling, general and administration expenses. SG&A of $6.3 million decreased $0.7 million or 10.7% compared to the prior year quarter, and as a percentage of sales declined to 48.2% from 51.2%, demonstrating the operating leverage embedded in the Company's rebuilt cost structure. The reduction was primarily driven by a $0.6 million decrease in marketing expenses, reflecting a more disciplined and targeted approach to customer acquisition spend, and a $0.2 million decrease in other SG&A expenses. Partially offsetting these savings was an increase in wages, salaries and employee benefits of $0.2 million, reflecting the staffing requirements of an expanded retail footprint, including the Laurier store.

EBITDA, Adjusted EBITDA and Adjusted EBITDAR (1). EBITDA was $1.5 million in the quarter compared to $1.1 million in the prior year quarter, an improvement of $0.4 million or 31.6%, reflecting the flow-through of gross margin expansion and SG&A discipline. Adjusted EBITDA held flat at $1.6 million, and 12.5% of sales, versus 11.5% on the higher prior-quarter revenue base, approximately 100 basis points of margin expansion on a 5.2% decline in sales. Adjusted EBITDAR was $0.4 million, or 3.3% of sales, compared to $0.4 million, or 2.6% of sales, in the prior year quarter, approximately 70 basis points of margin expansion. The first quarter result demonstrates the operating leverage in the rebuilt cost base.

Net income (loss) and Adjusted net income (loss). Net income was $0.1 million in the quarter compared to a net loss of $0.2 million in the prior year quarter, an improvement of $0.3 million. Adjusted net income was $0.1 million compared to Adjusted net income of $0.2 million in Q1 Fiscal 2025, with the year-over-year movement reflecting the combination of gross margin expansion and SG&A discipline, partially offset by finance costs associated primarily with the revenue-linked financing arrangement established late in Fiscal 2025.

Fully diluted net income (loss) per share. Fully diluted net income per common share was $0.00 in the quarter compared to a fully diluted net loss per common share of $0.01 in the prior year quarter. Adjusted fully diluted net income per common share¹ was $0.00 compared to $0.01 in the prior year quarter, reflecting the higher weighted average share count following the November 2025 private placement completed to help fund the Company's store-led growth strategy.

Cash on hand. The Company ended the first quarter of Fiscal 2026 with cash of $11.2 million, compared to $16.5 million at the end of Fiscal 2025. The seasonal reduction in cash is consistent with the Company's working capital cycle, in which cash is typically drawn down in the first three quarters as inventory is built ahead of the fourth quarter peak selling season and substantially restored in the fourth quarter.

LIQUIDITY AND CAPITAL RESOURCES

As at May 2, 2026, the Company held cash of $11.2 million, all on deposit with major Canadian financial institutions, compared to $16.5 million at January 31, 2026 and $10.4 million at the end of Q1 Fiscal 2025. The $5.3 million sequential decrease reflects the normal seasonal pattern of the business, in which the first quarter is a lighter period for revenue and the Company begins building inventory for the peak selling season later in the year. The year-over-year improvement of $0.8 million is the more meaningful comparison, and reflects the combined impact of the November 2025 private placement of $3.0 million, advances under the revenue-linked financing, cash generated from operations following the Company's return to profitability in Fiscal 2025, and disciplined working capital management. This was partially offset by capital expenditures in connection with the Fiscal 2026 store opening program.

Working capital was $18.0 million as at May 2, 2026, compared to $17.7 million as at January 31, 2026 and $12.7 million at the end of Q1 Fiscal 2025 - a year-over-year improvement of $5.3 million, or 42%. The sequential composition of working capital shifted during the quarter as cash was deployed into inventory, accounts and other receivables, and prepaid expenses and deposits ahead of the seasonal build, while trade and other payables declined sharply by $2.2 million. The year-over-year improvement reflects the strengthening of the underlying business, the proceeds of the November 2025 private placement, the net amount under the revenue-linked financing facility and the continued discipline applied to working capital management.

The Company's primary sources of liquidity are cash on hand and cash flow generated from operations. Working capital requirements are driven by the purchase of inventory, payment of payroll, ongoing technology expenditures, and other operating costs, and fluctuate over the course of the year - rising in the second and third fiscal quarters as the Company takes title to increasing quantities of inventory in anticipation of the peak fourth-quarter selling season, and unwinding as that inventory is converted to revenue and cash. Management expects cash to reach its seasonal low point in the third quarter before rebuilding through the fourth quarter, consistent with the historical seasonal pattern of the business.

Capital expenditures amounted to $0.4 million in the first quarter of Fiscal 2026 (Q1 Fiscal 2025 - $34 thousand), substantially all of which related to leasehold improvements and furniture and equipment for new stores under the Company's store-led growth plan. Capital expenditures are expected to increase through the balance of Fiscal 2026 as the Company progresses against its plan to open four additional stores during the year.

As at May 2, 2026, the Company had purchase obligations in connection with the procurement of goods and services of $8.5 million, net of $0.4 million of advances included in prepaid expenses and deposits (January 31, 2026 - $6.5 million, net of $0.4 million of advances). The $2.0 million sequential increase reflects the placement of inventory orders for the latter half of the year and is consistent with the seasonal cadence of the business. All purchase obligations are expected to be discharged within twelve months. In addition, certain IT service contracts include variable payments based on sales, with minimum committed amounts of $0.1 million payable in Fiscal 2027.

The Company also maintains a revenue-linked financing arrangement under which it remits 7% of revenues generated through its retail and e-commerce channels until a fixed repayment amount is satisfied. During the first quarter, the Company repaid $0.7 million under this arrangement, reducing the outstanding balance from $1.1 million at January 31, 2026 to $0.4 million at May 2, 2026. The remaining balance is expected to be repaid in the normal course during Fiscal 2026.

Based on cash on hand of $11.2 million, anticipated cash flow from operations and the availability of the revenue-linked financing facility, management believes the Company has sufficient liquidity to fund its operations, meet its near-term contractual obligations, and execute the Fiscal 2026 store opening program.

The Company continues to operate in a challenging environment characterized by the imposition of tariffs by the United States, ongoing geopolitical instability, evolving consumer behavior, and persistent inflationary pressures affecting consumer confidence, and management remains focused on disciplined execution of the strategic plan while preserving balance sheet flexibility.

Condensed Consolidated Financial Data
(Canadian dollars, in thousands, except per share information)

Use of Non-IFRS Financial Measures and Ratios
This press release includes "non-IFRS financial measures" defined as including: 1) EBITDA, Adjusted EBITDA, and Adjusted EBITDAR, 2) Adjusted net income (loss), 3) Adjusted fully diluted income (loss) per common share, 4) Comparable store sales growth, and 5) Comparable retail sales per square foot. These non-IFRS financial measures are not defined by or in accordance with IFRS and may differ from similar measures reported by other companies. DAVIDsTEA believes that these non-IFRS financial measures provide knowledgeable investors with useful information with respect to historical operations. These non-IFRS financial measures are presented as supplemental performance measures because the Company believes they facilitate a comparative assessment of its operating performance relative to its performance based on IFRS results, while isolating the effects of some items that vary from period-to-period but not in substitution to IFRS financial measures.

Please refer to the non-IFRS financial measures and ratios section in the Company's Management Discussion and Analysis for a reconciliation to IFRS financial measures.

Note
This release should be read in conjunction with the Company's Management Discussion and Analysis, which is filed by the Company with the Canadian securities regulatory authorities on SEDAR+ at https://www.sedarplus.ca and will also be available in the Investor Relations section of the Company's website at www.davidstea.com.

Caution Regarding Forward-Looking Statements
This press release includes statements that express our opinions, expectations, beliefs, plans or assumptions regarding future events or future results and there are, or may be deemed to be, "forward-looking statements" within the meaning of applicable Canadian securities law. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes", "expects", "may", "will", "should", "approximately", "intends", "plans", "estimates" or "anticipates" or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts and include statements regarding our intentions, beliefs and current expectations concerning, among other things, our store-led growth strategy, and our results of operations, financial condition, liquidity and prospects.

While we believe these opinions and expectations are based on reasonable assumptions, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including the risk factors discussed in Management Discussion and Analysis of Financial Condition and Results of Operations for our fiscal year ended January 31, 2026, filed with the Autorité des marchés financiers on April 29, 2026.

Conference Call Information
A conference call to discuss the first quarter Fiscal 2026 financial results is scheduled for May 27, 2026, at 8:30 am Eastern Time. The conference call will be webcast and may be accessed via the Investor Relations section of the Company's website at ir.davidstea.com. An online archive of the webcast will be available within two hours of the conclusion of the call and will remain available for one year.

About DAVIDsTEA
DAVIDsTEA offers a specialty branded selection of high-quality proprietary loose-leaf teas, pre-packaged teas, tea sachets, tea-related accessories and gifts through its e-commerce platform at www.davidstea.com  and the Amazon Marketplace, its wholesale customers which include over 4,000 grocery stores and pharmacies, over 1,500 convenience stores in Canada and over 900 grocery stores in the United States, as well as 21 company-owned stores across Canada. It offers primarily proprietary tea blends that are exclusive to the Company, as well as traditional single-origin teas and herbs. The team's passion for and knowledge of tea permeates the Company's culture and is rooted in an excitement to explore the taste, health and lifestyle elements of tea. With a focus on innovative flavours, wellness-driven ingredients and organic tea, the Company launches seasonally driven "collections" with a mission of making tea fun and accessible to all. The Company is headquartered in Montréal, Canada.

(1) Please refer to "Use of Non-IFRS Financial Measures and Ratios" in this press release.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/298978

Source: DavidsTea Inc.