DAVIDsTEA Inc.

Good afternoon, ladies and gentlemen, and welcome to David's Tees Second Quarter 2022 Earnings Webcast. Today's webcast is being recorded and is in a listen-only mode. Before we get started, I would like to remind you of the company's Safe Harbor language. This presentation includes forward-looking statements about our expectations for the performance of our business in the coming quarter and year. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Risk Factors in our Form 10-K, which is filed with the Canadian and U.S. Securities Regulatory Authorities and is available on www.cedar.com, www.sec.gov, as well as in the Investor Relations section of the company's website at www.davidst.com. The forward-looking statements in this discussion speak only as of today's date, and we undertake no obligation to update or revise any of these statements. If any non-IFRS financial measure is used on this call, a reconciliation to the most directly comparable IFRS financial measure will be detailed in our Form 10-Q. As a reminder, all dollar amounts referred to are in Canadian dollars unless otherwise indicated. Now, I would like to turn the call over to Sarah Siegel, Chief Executive Officer and Chief Brand Officer of David's Tea.

Thank you, operator. Good afternoon, everyone. David's Tea experienced volatility in our channel. Retail and wholesale channels were stable. However, primarily in our online channel, there was a slowdown in the second quarter of 2022, with sales and profitability decreasing year over year, mainly due to an uncertain macroeconomic environment, dampening demand. After successfully navigating through this COVID-19 pandemic, we are coping with additional headwinds, notably mounting inflationary pressure and recessionary fears that are affecting consumer habits and possibly discretionary spending in North America. Despite these temporary challenges, our wholesale business in Canada expanded in the second quarter with sales more than doubling year over year on the strength of a growing footprint at grocery chains, drugstores, and big box locations, to 3,800 doors, including a wider assortment of wellness-focused and organic products. We have complemented our wholesale strategy with store-in-store concepts in drugstores like Rexall, London Drugs, and Neighborly. We are currently selling 30 tea assortments within store-in-store concepts across 230 doors in Canada, and plan to reach 40 assortments and nearly 300 doors early into calendar 2023. Our entire wholesale strategy is predicated on selling through these customers to consumers at an attractive product margin. To build on this success story, we will launch a new sachet format that will soon be available throughout our wholesale channel. The new convenience-driven, individually wrapped, fully compostable sachet offering will elevate the consumer experience and speak even more to the brand value and accessibility of the loose leaf tea. Beginning in the fourth quarter, we plan to start replicating this wholesale success in the United States with a gradual step-by-step launch at select locations. The plan is to release a curated assortment of loose leaf tea products, learn from the outcome, and expand accordingly. We anticipate it will take two to three years to penetrate the U.S. wholesale market and leverage the expected high-volume sales it will generate. In addition, we intend to introduce our plan-based ready-to-drink beverages in the first quarter of 2023, according to our current projections and fluctuating supply chain constraints, which tend to lengthen new initiatives. These healthful, benefit-driven, tea-based RTD beverages will build on our expanded wholesale presence and will target a large addressable market, with marked differentiation in terms of health and wellness and convenience.