DavidsTea investors enjoy high-fired results of company's wrenching restructuring

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      A Montreal-based tea merchant looks like it's returned from the dead.

      This week, DavidsTea shares shot up by 56 percent, closing on Friday (December 18) at US$2.75 on the NASDAQ exchange.

      It's an astonishing turnaround, considering where the company was just five months ago.

      Back in July, it sought court protection from its creditors, who were owed $17.3 million.

      Landlords across the country were demanding monumental amounts of back rent after the pandemic savaged DavidsTea sales at 220 retail outlets.

      Moreover, the share price fell as low as US$0.70 as investors dump their holdings.

      But management soldiered on. It came up with a restructuring plan to transform its brick-and-mortar business into online sales through its ecommerce platform.

      This meant the dismissal of many employees as DavidsTea focused more emphasis on ecommerce and wholesale business with grocery and pharmacy stores.

      Under bankruptcy legislation, DavidsTea could terminate its leases, leaving landlords in the lurch. Only 18 stores reopened in August.

      That scorched the company's revenues while reducing salary and employee-benefit costs by $12.2 million. Yet it hasn't appeared to have hurt the bottom line.

      On December 15, DavidsTea announced that its most recently quarterly sales were down 33.6 percent over the same quarter in 2019. But ecommerce and wholesale revenues jumped by 145.5 percent—from $9 million in the quarter in 2019 to $13.1 million in the most recent quarter.

      In a remarkable turn of events, quarterly net income reached nearly $14.5 million. That's an incredible turnaround from the $10.8-million quarterly loss in the same quarter of 2019.

      This is what's spurring the recent rise in the stock price.

      DavidsTea's stock chart shows a stunning rise from last June.

      DavidsTea has also been helped by a $1.4-million federal wage subsidy under Ottawa's COVID-19 Economic Response Plan.

      On the same day that these results were announced, the Québec Superior Court extended its stay of proceedings under the Companies' Creditors Arrangement Act (Canada) to March 19, 2021. This gives DavidsTea more time to complete its restructuring.

      In late October, CBC News reported that 45 DavidsTea locations in Canada were reopening as T. Kettle shops. They would employ 250 people.

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