Indigo Reports Full Year Results for Fiscal 2019

TORONTO, May 28, 2019 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported revenue of $1.05 billion for its fiscal year ended March 30, 2019. Total revenue decreased by $32.8 million or 3.0% compared to the previous year. Total comparable sales, including both online sales and comparable store sales, decreased by 1.1%.

Revenues were challenged by the operating stresses stemming from major store renovations, relocations, store closures, and the prolonged Canada Post strike, which significantly impacted performance throughout the period with lagging effects into the fourth quarter. Results were then further impacted by a pull back in consumer spending on nonessentials in the fourth quarter.

Commenting on the results, CEO Heather Reisman said: "This year we experienced a shift in our top line momentum of the last several years.  That said, we have every confidence in the investments we have made, in our customers' deep affection for our brand, and in our mission to enrich the lives of Canadians."  

Indigo reported a net loss of $36.8million ($1.35 net loss per common share) compared to net earnings of $22.0 million ($0.82 net earnings per common share) last year. This decline in profitability was largely attributed to the factors noted above and deeper discounting in response to these revenue fluctuations. A change in accounting estimates of $11.9 million for breakage which resulted in a benefit in fiscal 2018 also contributed to the unfavourable year-over-year variance. Additionally, the Company's loss position was unfavourably impacted by higher amortization in the current period, driven by an increase in the Company's capital asset base in response to its growth in recent years.

Revenue for the fourth quarter was $199.2 million, down $16.2 million from the same quarter last year. Total comparable sales, including both online sales and comparable store sales, decreased by 8.7% in the fourth quarter. The Company believes that a broader slowing of consumer discretionary spending in the fourth quarter had a meaningful impact. Net loss for the quarter was $23.8 million compared to a net loss of $10.7 million last year. In addition to the broader economic conditions and assortment challenges that affected full-year results, the timing of Easter negatively impacted the quarter.

Despite the challenging year, the Company invested in its business in a meaningful way to drive long-term top and bottom-line returns. The Company delivered its new store concept to 17 more locations in fiscal 2019, including the opening of its first store in the U.S. Additionally, the Company operationalized its new distribution facility in Alberta to support growth and to provide faster, more efficient service to its customers in Western Canada.

During the fourth quarter, the Company launched a cost reduction and productivity initiative focussed on improving the Company's profitability in the coming fiscal year. In conjunction with the appointment of Nathan Williams as Chief Creative Officer, and subsequent to the fiscal year-end, the Company decided to repatriate its global sourcing and product development functions from New York to Toronto.

Also, in May 2019, the Indigo Love of Reading Foundation granted an additional $1.5 million to 30 high-needs elementary schools across Canada, bringing the total committed by the Foundation to over $31 million since its inception in 2004.

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, May 29^th, 2019. The call can be accessed by dialing 416-764-8688 from within the Toronto area, or 1-888-390-0546 outside of Toronto. The eight digit participant code is 72103914.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Wednesday, June 5^th, 2019. The call playback can be accessed after 11:00 a.m. (ET) on Wednesday, May 29^st, 2019, by dialing 416-764-8677 from within the Toronto area, or 1-888-390-0541 outside of Toronto. The six-digit replay passcode number is 103914#. 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 statements which involve risk and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. Among the key factors that could cause such differences are: general economic, market or business conditions; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company.

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, including total comparable sales, in the press release above. This measure does not have a standardized meaning prescribed by IFRS and is therefore specific to Indigo and may not be comparable to similar measures presented by other companies. Total comparable sales is a key indicator used by the Company to measure performance against internal targets and prior period results. This measure is commonly used by financial analysts and investors to compare Indigo to other retailers.

Total comparable sales is based on comparable retail store sales and includes online sales for the same period. Comparable retail store sales are based on a 52-week fiscal year and defined as sales generated by stores that have been open for more than 52 weeks. These measures exclude sales fluctuations due to store openings and closings, significant renovations, permanent relocation and material changes in square footage.

About Indigo Books & Music Inc.

Indigo is a publicly traded Canadian company listed on the Toronto Stock Exchange (IDG). As the largest book, gift and specialty toy retailer in Canada, Indigo operates in all provinces under different banners including Indigo, Chapters, Coles, Indigospirit, and The Book Company. The Company also has retail operations in the United States through a wholly-owned subsidiary, operating its first retail store in Short Hills, New Jersey. The online channel, indigo.ca, offers a one-stop online shop with a robust selection of books, toys, home décor, stationery, and gifts.

Indigo founded the Indigo Love of Reading Foundation in 2004 to address the underfunding of public elementary school libraries.  Every year the Indigo Love of Reading 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 Indigo Love of Reading Foundation has committed over $31 million to more than 3,000 elementary schools, benefitting more than 1,000,000 students.

To learn more about Indigo, please visit the "Our Company" section at indigo.ca.

Consolidated Balance Sheets
		As at	As at
		March 30,	March 31,
(thousands of Canadian dollars)		2019	2018 ^1
ASSETS
Current
Cash and cash equivalents		41,290	150,256
Short-term investments		87,150	60,000
Accounts receivable		10,543	6,747
Inventories		252,541	264,586
Prepaid expenses		5,802	4,124
Income taxes receivable		483	-
Derivative assets		1,070	1,439
Other assets		853	865
Total current assets		399,732	488,017
Property, plant, and equipment, net		125,906	82,314
Intangible assets, net		32,527	24,215
Equity investments		4,359	4,330
Deferred tax assets		47,940	35,087
Total assets		610,464	633,963
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities		179,180	177,344
Unredeemed gift card liability		48,729	44,218
Provisions		60	166
Deferred revenue		7,636	7,029
Income taxes payable		-	152
Derivative liabilities		-	327
Total current liabilities		235,605	229,236
Long-term accrued liabilities		4,698	2,283
Long-term provisions		45	45
Total liabilities		240,348	231,564
Equity
Share capital		225,531	221,854
Contributed surplus		12,716	11,621
Retained earnings		131,311	168,109
Accumulated other comprehensive income		558	815
Total equity		370,116	402,399
Total liabilities and equity		610,464	633,963
^1Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 4 of the consolidated financial statements for additional information.

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
	13-week	13-week	52-week	52-week
	period ended	period ended	period ended	period ended
	March 30,	March 31,	March 30,	March 31,
(thousands of Canadian dollars, except per share data)	2019	2018 ^1	2019	2018 ^1
Revenue	199,164	215,363	1,046,824	1,079,618
Cost of sales	(120,844)	(122,639)	(619,878)	(604,094)
Gross profit	78,320	92,724	426,946	475,524
Operating, selling, and administrative expenses	(111,113)	(108,668)	(480,662)	(448,909)
Operating profit (loss)	(32,793)	(15,944)	(53,716)	26,615
Net interest income	938	999	3,220	3,010
Share of earnings (loss) from equity investments	(836)	(356)	858	1,049
Earnings (loss) before income taxes	(32,691)	(15,301)	(49,638)	30,674
Income tax recovery (expense)
Current		(399)		(489)
Deferred	8,929	4,970	12,840	(8,244)
Net earnings (loss)	(23,762)	(10,730)	(36,798)	21,941
Other comprehensive income (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 507 and (897) ; 2018 - (608) and 897]	(1,382)	1,470	2,439	(2,648)
Reclassification of net realized (gain) loss [net of taxes of 330 and 908 ; 2018 - (302) and (1,194)]	(900)	828	(2,471)	3,268
Foreign currency translation adjustment [net of taxes of (6)]	(225)	-	(225)	-
Other comprehensive income (loss)	(2,507)	2,298	(257)	620
Total comprehensive earnings (loss)	(26,269)	(8,432)	(37,055)	22,561
Net earnings (loss) per common share
Basic	($0.86)	($0.40)	($1.35)	$0.82
Diluted	($0.86)	($0.40)	($1.35)	$0.81
^1Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 4 of the consolidated financial statements for additional information.

Consolidated Statements of Cash Flows
	52-week	52-week
	period ended	period ended
	March 30,	March 31,
(thousands of Canadian dollars)	2019	2018 ^1
OPERATING ACTIVITIES
Net earnings (loss) for the period	(36,798)	21,941
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation of property, plant, and equipment	21,920	19,074
Amortization of intangible assets	10,650	7,922
Loss on disposal of capital assets	2,088	776
Share-based compensation	1,514	1,588
Directors' compensation	350	341
Deferred income tax expense (recovery)	(12,840)	8,244
Disposal of assets held for sale	-	1,037
Other	(809)	1,042
Net change in non-cash working capital balances	15,211	(29,528)
Interest expense	6	10
Interest income	(3,226)	(3,020)
Share of earnings from equity investments	(858)	(1,049)
Cash flows from (used for) operating activities	(2,792)	28,378
INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(67,505)	(37,080)
Addition of intangible assets	(19,056)	(16,871)
Change in short-term investments	(27,150)	40,000
Distribution from equity investments	829	1,233
Interest received	3,225	2,872
Investment in associate	-	(2,714)
Cash flows used for investing activities	(109,657)	(12,560)
FINANCING ACTIVITIES
Proceeds from share issuances	2,908	4,904
Cash flows from financing activities	2,908	4,904
Effect of foreign currency exchange rate changes on cash and cash equivalents	575	(904)
Net increase (decrease) in cash and cash equivalents during the period	(108,966)	19,818
Cash and cash equivalents, beginning of period	150,256	130,438
Cash and cash equivalents, end of period	41,290	150,256
^1Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 4 of the consolidated financial statements for additional information.

Non-IFRS Financial Measures
The following table reconciles total comparable sales to revenue, the most comparable IFRS measure:
		13-week	13-week		52-week	52-week
		period ended	period ended	% increase (decrease)	period ended	period ended	% increase (decrease)
		March 30,	March 31,		March 30,	March 31,
(millions of Canadian dollars)		2019	2018 ^1		2019	2018 ^1
Revenue		199.2	215.4	(7.5)	1,046.8	1,079.6	(3.0)
Adjustments
Other revenue ^2		(0.6)	(3.5)		(14.7)	(30.6)
Stores not in both fiscal periods		(21.5)	(17.9)		(85.8)	(92.1)
Total comparable sales		177.1	193.9	(8.7)	946.3	956.9	(1.1)
^1Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 4 of the consolidated financial statements for additional information.
^2Includes cafés, irewards, gift card breakage, plum breakage, corporate sales and Kobo revenue share.

SOURCE Indigo Books & Music Inc.

Kate Gregory, Director, Public Relations, 416 364 4499 ext. 6659, [email protected]

Related Links

http://www.indigo.ca