Canadian retail industry magnate Herschel Segal has won a proxy contest giving him control of DavidsTea Inc., setting one of the country’s leading retail brands on a new course amid annual losses and waning same-store sales growth.
The Montreal-based founder of clothing chain Le Château, who started DavidsTea a decade ago with his cousin David Segal, convinced a majority of shareholders to elect his seven-director slate and vote out the incumbent board. At 87, he will now try to revive the company’s fortunes as executive chairman and interim chief executive.
Davids shares jumped 5 per cent to $4.15 in afternoon trading on the Nasdaq exchange. They’ve lost 35 per cent of their value this year.
The shift in leadership raises questions about the company’s ability to steer through yet more management turnover at a critical juncture. This will mark the fourth time DavidsTea changes CEOs in the three years since going public in 2015.
“I would like to thank DavidsTea’s individual shareholders for their support,” Mr. Segal said in a statement on Thursday confirming the result. “Now it’s time for the new board of directors to get to work.”
The retail veteran’s victory comes after a particularly acrimonious proxy battle with the company’s previous bosses, who were backed by a block of institutional shareholders. While the former management and directors of DavidsTea said they made every effort to strike a compromise with Mr. Segal, shareholder TDM Asset Management attacked the founder’s “erratic behaviour” and his alleged inability to lead employees as well as his spotty track record with Le Château.
A lingering lack of support for Mr. Segal could lead to an exodus of executive talent at DavidsTea, which would make the early days of the new board’s mandate even more difficult. Chief executive officer Joel Silver was also elected as an eighth board member Wednesday, but quit instead of working with Mr. Segal, according to a statement. Other executives could also leave the company, insiders have said privately.
Reached by phone, Mr. Silver declined to comment. A search for candidates to replace him as CEO has begun.
Mr. Segal’s Rainy Day Investments holding owns a roughly 46-per-cent stake in Davids. He was a director of the retailer until this past March, when he stepped down in disagreement about its future direction. Among his criticisms of former management, he cited its failure to focus on the in-store experience.
Montreal-based DavidsTea is coming off losses in four of its past five fiscal years, a period during which it nevertheless managed to double annual sales to $224-million as of Feb. 3. Although the company’s Canadian stores have fared well, a push into the United States has proved costly as DavidsTea struggled to adapt its offerings to American tastes. Same-store sales growth for its entire 240-store network has declined in each of the past three years.
Mr. Segal has vowed to stabilize the company’s U.S. operations, cut costs he says have spiralled out of control and refocus on the Canadian market. Mr. Silver dismissed the plan as a step back for the company, a retreat to its traditional Canadian street-and-shopping-mall footprint at a time when it needs to look forward and build out new sales and distribution channels.
The good news for Mr. Segal is that tea’s best days might still lie ahead.
“A new tea culture is brewing in hot and ready-to-drink tea, following the developments seen in coffee,” market research firm Mintel Group said in its global annual review of the beverage in January. Consumers want unique and authentic experiences when drinking tea and are becoming more interested in tea varieties and origin, the group said.
Mr. Segal is joined on DavidTea’s board by William Cleman, Pat De Marco, Emilia Di Raddo, Max Ludwig Fischer, Peter Robinson and Roland Walton, a former executive at Tim Hortons.