Canada: BMO cuts DavidsTea’s target price 40% amid company ‘reset’
BMO Capital Markets slashed its target price for DavidsTea Inc.’s stock by almost 40 per cent after the company announced tepid fourth quarter results last week.
BMO analyst Kelly Bania lowered the Montreal-based company’s stock to $5.50 from $9, citing its ‘self-inflicted’ issues and a lack of visibility for the new fiscal year as key factors.
“Following a challenging and promotional F4Q17 plagued by excessive inventory, a near-term turnaround in fundamentals likely hinges on an improvement in the product assortment, in our view,” Bania wrote in a note Monday.
The new fiscal year would be a “reset year” for the company, DavidsTea’s new chief executive officer Joel Silver said in a statement last week.
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Bania thinks the company may be missing its co-founder David Segal, who “was influential in merchandising and innovation and particularly given the presence of artificial ingredients in many of DTEA’s tea blends.”
Silver, who took over from interim CEO Christine Bullen in March, said weak product assortment was one of the company’s key challenges in the quarter resulting in lower gross profit margins.
“My initial priorities as President and CEO will be centered around improving the product assortment, in-store experience and getting back to the core of the DavidsTea brand while being very disciplined when allocating capital, purchasing inventory and incurring expenses,” Silver said in the company’s results for the fourth quarter which ended January 28.
Source: Finacial Post
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