Indigo Reports Fiscal 2021 Third Quarter Financial Results - Exceptional holiday sales momentum dampened by government-mandated retail closures and capacity restrictions

TORONTO, Feb. 4, 2021 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book and lifestyle retailer, reported third quarter financial results.

Double-digit revenue growth in the first seven weeks of the quarter provided some cushion but could not overcome the severe impact of new government-mandated closures in several provinces, as well as severe customer capacity restrictions in markets with open stores.  As a result, revenue for the third quarter ended December 26, 2020, initially headed to show real growth, came in at $365.4 million compared to revenue of $383.7 million in the same period last year, a decrease of $18.3 million or 5 percent.  

Revenues were challenged by a significant wave of mandated COVID-19 store closures in Manitoba, Ontario and Quebec during the second part of November and December, a critical period of sales. The Company achieved exceptional e-commerce revenue growth of 92%, and the success of the Company's enhanced omnichannel capabilities, including click-and-collect, curbside pickup and Instacart, did blunt some of the effects of mandated re-closures. Bright spots in the quarter also included double-digit growth in the Company's baby and wellness categories and continued strength in its proprietary lifestyle brand OUI, showcasing customers' affinity for both core categories and new product assortment.

Commenting on the results, CEO Heather Reisman said: "These results are a testament to the demonstrated resilience of our teams and a deep affinity for our brand, achieved against massive disruption from mandated shut-downs and store limitations during the most important six weeks of our year. These shutdowns created a particularly uneven playing field in Ontario with 'essential' retailers selling all non-essential items, a practice disallowed by other provinces. Nevertheless, we remain energized by the momentum we saw pre-closures and look forward to having COVID-19 behind us."

Adjusted EBITDA for the period was $37.8 million for the 13-week period ended December 26, 2020, compared to $43.3 million for the same period last year. In the quarter, the Company recognized $9.7 million in occupancy expense abatement to share the financial burden of COVID-19 and $3.2 million in government support from the Canada Emergency Wage Subsidy.

Indigo reported net earnings of $30.7 million ($1.11 net earnings per basic common share) for the third quarter ended December 26, 2020, compared to net earnings of $25.8 million ($0.94 net earnings per basic common share) last year. This improvement was a result of income taxes and the application of previously unrecognized income tax losses.

With no outstanding debt and a cash balance of $229.4 million, the Company continues to be well positioned to manage through these uncertain times.

Analyst/Investor Call 
Indigo will host a conference call for analysts and investors to review these results at 9:00 a.m. (Eastern Time) tomorrow, February 5th, 2021. The call can be accessed by dialing 647-427-7450 from within the Toronto area, or 1-888-231-8191 outside of Toronto. The seven-digit participant code is 6671095.           

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on February 12, 2021. The call playback can be accessed after 12:00 p.m. (ET) on February 6, by dialing 416-849-0833 from within the Toronto area, or 1-855-859-2056outside of Toronto. The seven-digit replay passcode number is 6671095. The conference call transcript will be archived in the Investor Relations section of the Indigo website, www.indigo.ca. 

Forward-Looking Statements 
Statements contained in this news release that are not historical facts are "forward-looking information" within the meaning of applicable Canadian securities legislation. To the extent any forward-looking information constitutes "financial outlooks" within the meaning of applicable Canadian securities laws, such information is being provided as preliminary financial and operational results. Financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to various risks and uncertainties that could cause actual results to differ materially from those expressed in or implied in this news release. Among the key factors that could cause such differences are: general economic, market or business conditions; the future impacts and government response to the COVID-19 pandemic, including any impact to online and/or retail operations of the Company; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company, as set out in the Company's annual information form dated June 23, 2020 and available on the Company's issuer profile on SEDAR at www.sedar.com.

Undue reliance should not be placed on such forward-looking information and no assurance can be given that such events will occur in the disclosed time frames or at all. Any forward-looking information included in this news release is made as of the date of this news release and the Company does not undertake an obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

Non-IFRS Financial Measures 
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). In order to provide additional insight into the business, the Company has also provided non-IFRS data, specifically adjusted EBITDA, in this press release. These measures do not have standardized meanings prescribed by IFRS and are therefore specific to Indigo and may not be comparable to similar measures presented by other companies. 

For additional context see "Results of Operations" and "Non-IFRS Financial Measures" in the Management's Discussion and Analysis (which can be found at www.indigo.ca/investor-relations or www.sedar.com).

About Indigo Books & Music Inc. 
Indigo is a publicly traded Canadian company listed on the Toronto Stock Exchange (IDG). Indigo is the world's first Cultural Department Store – a physical and digital meeting place inspired by and filled with books, music, art, ideas, and beautifully designed lifestyle products. Indigo believes in real books, in living life fully and generously, in being kind to each other and that stories – big and little – connect us.

Indigo founded the Indigo Love of Reading Foundation in 2004 to address the underfunding of public elementary school libraries. Every year the Foundation provides grants to high-needs elementary schools so they can transform their libraries with the purchase of new books and educational resources. To date, the Foundation has committed over $32 million to more than 3,000 elementary schools, benefitting more than 1,000,000 students. Most recently in April 2020, in the wake of the COVID-19 pandemic and unprecedented nation-wide school closures, the Foundation committed $1.0 million to provide books to families in need. To learn more about Indigo, please visit the "Our Company" section at indigo.ca.

Consolidated Balance Sheets
(Unaudited)
	As at	As at	As at
	December 26,	December 28,	March 28,
(thousands of Canadian dollars)	2020	2019	2020
ASSETS
Current
Cash and cash equivalents	229,424	216,198	120,473
Short-term investments	-	7,750	-
Accounts receivable	26,395	19,755	7,640
Inventories	218,163	247,261	241,812
Prepaid expenses	7,937	6,604	6,062
Income taxes receivable	138	138	138
Derivative assets	-	19	3,794
Other assets	3,202	4,185	2,320
Total current assets	485,259	501,910	382,239
Loan receivable	446	926	446
Property, plant, and equipment, net	80,982	110,455	91,215
Right-of-use assets, net	366,104	430,994	382,146
Intangible assets, net	21,475	29,351	24,571
Equity investment, net	2,350	2,611	2,353
Deferred tax assets	-	89,782	-
Total assets	956,616	1,166,029	882,970
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities	249,992	261,281	164,294
Unredeemed gift card liability	68,626	65,676	51,673
Provisions	2,185	180	2,034
Deferred revenue	16,880	10,234	10,682
Short-term lease liabilities	63,022	65,454	68,402
Derivative liabilities	1,716	803	-
Total current liabilities	402,421	403,628	297,085
Long-term accrued liabilities	1,371	1,476	1,196
Long-term provisions	696	45	469
Long-term lease liabilities	491,378	509,708	500,215
Total liabilities	895,866	914,857	798,965
Equity
Share capital	226,986	226,986	226,986
Contributed surplus	14,075	12,463	12,822
Retained earnings (deficit)	(177,202)	12,522	(158,801)
Accumulated other comprehensive income (loss)	(3,109)	(799)	2,998
Total equity	60,750	251,172	84,005
Total liabilities and equity	956,616	1,166,029	882,970

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
(Unaudited)
	13-week		13-week	39-week	39-week
	period ended		period ended	period ended	period ended
	December 26,		December 28,	December 26,	December 28,
(thousands of Canadian dollars, except per share data)	2020		2019	2020	2019
Revenue	365,426		383,737	705,786	779,657
Cost of sales	(217,940)		(216,872)	(440,773)	(444,119)
Gross profit	147,486		166,865	265,013	335,538
Operating, selling, and other expenses	(110,843)		(124,641)	(264,948)	(334,233)
Operating profit	36,643		42,224	65	1,305
Net interest expense	(5,921)		(5,964)	(18,466)	(17,234)
Share of loss from equity investments	-		-	-	(1,588)
Earnings (loss) before income taxes	30,722		36,260	(18,401)	(17,517)
Income tax recovery (expense)	-		(10,411)	-	3,842
Net earnings (loss)	30,722		25,849	(18,401)	(13,675)
Other comprehensive loss
Items that are or may be reclassified subsequently to net earnings (loss):
Net change in fair value of cash flow hedges    [net of taxes of 0 and 0; 2019 - 190 and 283]	(3,151)		(520)	(4,654)	(771)
Reclassification of net realized (gain) loss    [net of taxes of 0 and 0; 2019 - 0 and 215]	(861)		2	(856)	(586)
Foreign currency translation adjustment [net of taxes of 0 and 0; 2019 - 0 and 0]	(597)		-	(597)	-
Other comprehensive loss	(4,609)		(518)	(6,107)	(1,357)
Total comprehensive earnings (loss)	26,113		25,331	(24,508)	(15,032)
Net earnings (loss) per common share
Basic	$	1.11	$                    0.94	$                 (0.67)	$                 (0.50)
Diluted	$	1.09	$                    0.94	$                 (0.67)	$                 (0.50)

Consolidated Statements of Cash Flows
(Unaudited)
	13-week	13-week	39-week	39-week
	period ended	period ended	period ended	period ended
	December 26,	December 28,	December 26,	December 28,
(thousands of Canadian dollars)	2,020	2019	2020	2019
OPERATING ACTIVITIES
Net earnings (loss)	30,722	25,849	(18,401)	(13,675)
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation of property, plant, and equipment	4,129	5,651	13,020	17,475
Depreciation of right-of-use assets	10,183	9,980	31,728	30,002
Amortization of intangible assets	3,187	3,393	9,718	9,971
Gain on disposal of equity investment	-	(1,484)	-	(1,484)
Loss on disposal of capital assets	-	70	247	1,021
Share-based compensation	425	359	1,031	980
Directors' compensation	74	65	222	222
Deferred income tax expense (recovery)	-	10,411	-	(3,842)
Rent concessions	(462)	-	(4,141)	-
Other	(787)	278	(899)	634
Net change in non-cash working capital balances related to operations	54,853	113,337	111,540	93,806
Interest expense	6,154	6,466	19,107	18,867
Interest income	(233)	(460)	(641)	(1,633)
Share of loss from equity investments	-	-	-	1,588
Cash flows from operating activities	108,245	173,915	162,531	153,932
INVESTING ACTIVITIES
Net purchases of property, plant, and equipment	(1,543)	1,098	(3,528)	(3,134)
Addition of intangible assets	(2,385)	(1,879)	(6,635)	(6,804)
Change in short-term investments	-	12,750	-	79,400
Interest received	233	587	641	1,413
Cash flows from (used for) investing activities	(3,695)	12,556	(9,522)	70,875
FINANCING ACTIVITIES
Repayment of principal on lease liabilities	(7,052)	(10,137)	(25,890)	(30,752)
Interest paid	(6,154)	(6,465)	(19,107)	(18,867)
Cash flows used for financing activities	(13,206)	(16,602)	(44,997)	(49,619)
Effect of foreign currency exchange rate changes on cash and cash equivalents	559	(286)	939	(280)
Net increase in cash and cash equivalents during the period	91,903	169,583	108,951	174,908
Cash and cash equivalents, beginning of period	137,521	46,615	120,473	41,290
Cash and cash equivalents, end of period	229,424	216,198	229,424	216,198

Non-IFRS Financial Measures
The following table reconciles adjusted EBITDA to net earnings (loss) before income taxes, the most comparable IFRS measure:
	13-week	13-week	39-week	39-week
	period ended	period ended	period ended	period ended
	December 26,	December 28,	December 26,	December 28,
(millions of Canadian dollars)	2020	2019	2020	2019
Revenue	365.4	383.7	705.8	779.7
Cost of sales	(217.9)	(216.9)	(440.8)	(444.1)
Cost of operations	(69.4)	(77.8)	(154.2)	(197.4)
Selling, general and administrative expenses	(23.9)	(29.2)	(57.2)	(79.8)
Depreciation of right-of-use assets	(10.2)	(10.0)	(31.7)	(30.0)
Finance charges related to leases	(6.2)	(6.5)	(19.1)	(18.9)
Adjusted EBITDA^1	37.8	43.3	2.8	9.5
Depreciation of property, plant and equipment	(4.1)	(5.7)	(13.0)	(17.5)
Amortization of intangible assets	(3.2)	(3.4)	(9.7)	(10.0)
Gain on disposal of capital assets	-	1.4	0.9	0.5
Net interest income	0.2	0.5	0.6	1.6
Share of loss from equity investments	-	-	-	(1.6)
Earnings (loss) before income taxes	30.7	36.3	(18.4)	(17.5)
^1Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of loss from equity investments, and includes IFRS 16 right-of-use asset depreciation and associated finance charges.

SOURCE Indigo Books & Music Inc.

Kate Gregory, Director, Marketing and Communications, [email protected]

Related Links

http://www.indigo.ca