Indigo Reports FY24 Second Quarter Results

TORONTO, Nov. 7, 2023 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's leading book and lifestyle retailer, reported financial results for the 13-week period ended September 30, 2023 compared to the 13-week period ended October 1, 2022.

The Company recognized total revenue of $206.9 million in the quarter, compared to revenue of $236.2 million in the same period last year, when the Company achieved its highest ever merchandise sales in a second fiscal quarter. Sales in both the retail and online channels in the current year were negatively impacted by the downward pressures of a challenging macro-economic environment. This has reduced overall consumer demand and customers continue to show price sensitivity, noted by lifts in sales during key promotional events, which put pressure on sales margins. This was compounded by temporary disruptions from the launch of the Company's modernized website. The new platform has provided improved functionality and agility, and an overall superior customer experience, however online revenue was impacted during the launch period. By the end of the quarter, most critical disruptions had been resolved, leading to improvements in online conversion.

Commenting on the results, CEO Heather Reisman said: "I am delighted to be back as CEO.  I look forward to working with our team to re-energize our connection to our customers who have long considered Indigo their 'happy place'. We have a clear road map and are committed to returning Indigo to profitability and growth. I am also pleased to share that this month we opened a new store at The Well, in downtown Toronto.  It fully reflects our mission to inspire reading and enrich the lives of our customers and from the moment we opened our doors has been embraced by the local community."

Adjusted EBITDA for the quarter was a loss of $13.8 million, compared to a loss of $10.6 million in the prior year. The Company focused on cost containment in key areas of the business. These actions indeed helped mitigate the impact of lost sales to profitability, resulting in a decrease in Adjusted EBITDA of only $3.2 million compared to the same period last year. This cost containment will continue to be a focus moving forward, as the Company looks to adapt to the pressures of the current macro-economic environment, re-evaluate the economics of its operations and improve profitability. Net loss for the quarter totaled $22.4 million ($0.80 net loss per basic common share) compared to a net loss of $15.9 million ($0.57 net loss per basic common share) in the prior year, impacted by the items discussed above, as well as certain non-recurring costs incurred in the quarter.

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, November 8^th, 2023.

To join the conference call without operator assistance, you may register and enter your phone number at https://emportal.ink/3ZbAsmR to receive an instant automated call back. 

The call can also be accessed through an operator by dialing 416-764-8659 from within the Toronto area, or 1-888-664-6392 outside of Toronto. The eight-digit participant code is 55615556.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on November 15^th, 2023. The call playback can be accessed after 12:00 p.m. (ET) on November 8^th, 2023, 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 615556#. 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, which include geopolitical events such as war, acts of terrorism, and civil disorder and the adverse impacts of inflationary pressures; ongoing impacts from the ransomware attack; 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 27, 2023 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 news 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 Canada's leading book and lifestyle retailer, offering a curated assortment of books, gifts, home, wellness, fashion, paper, baby and kids products, that support customers by simplifying their journey to Living with Intention. The Company operates retail stores in all ten provinces and one territory in Canada, and also has retail operations in the United States through a wholly-owned subsidiary, operating one retail store in Short Hills, New Jersey. Retail operations are seamlessly integrated with the Company's digital channels, including the www.indigo.ca website and the mobile applications, which are extensions of the physical stores and offer customers an expanded assortment of book titles, along with a meaningfully curated assortment of general merchandise. 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.

The Company supports a separate registered charity, called the Indigo Love of Reading Foundation (the "Foundation"), which is committed to addressing educational inequality, and more specifically, the literacy crisis in Canada. The Foundation provides resources including new books and learning materials, training and year-round curation support to help ensure teachers, education staff, school administrators and other key stakeholders have the tools they need to promote literacy in their communities. With the support of the Company, its customers, employees, and suppliers, the Foundation has committed over $35.0 million to more than 1,000,000 students across Canada since 2004.

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

Consolidated Balance Sheets
(Unaudited)
	As at	As at	As at
	September 30,	October 1,	April 1,
(thousands of Canadian dollars)	2023	2022	2023
ASSETS
Current
Cash and cash equivalents	27,678	22,635	65,113
Accounts receivable	13,045	14,708	14,069
Inventories	316,054	379,713	244,063
Prepaid expenses	7,351	7,891	6,830
Derivative assets	—	7,041	699
Other assets	1,665	1,323	1,254
Total current assets	365,793	433,311	332,028
Property, plant, and equipment, net	48,691	59,068	52,464
Right-of-use assets, net	303,861	317,850	318,302
Intangible assets, net	37,903	28,601	35,287
Total assets	756,248	838,830	738,081
LIABILITIES AND EQUITY (DEFICIT)
Current
Accounts payable and accrued liabilities	220,155	246,452	169,860
Related party credit facility	43,000	20,000	—
Unredeemed gift card liability	58,568	57,021	66,887
Provisions	2,224	575	1,879
Deferred revenue	19,566	21,056	20,129
Short-term lease liabilities	70,432	69,583	69,161
Total current liabilities	413,945	414,687	327,916
Long-term accrued liabilities	1,132	840	1,007
Long-term provisions	784	764	851
Long-term lease liabilities	411,304	430,095	428,284
Total liabilities	827,165	846,386	758,058
Equity (Deficit)
Share capital	227,707	227,090	227,094
Contributed surplus	15,321	15,033	15,463
Retained deficit	(313,869)	(254,709)	(262,969)
Accumulated other comprehensive income (loss)	(76)	5,030	435
Total equity (deficit)	(70,917)	(7,556)	(19,977)
Total liabilities and equity (deficit)	756,248	838,830	738,081

Consolidated Statements of Loss and Comprehensive Loss
(Unaudited)
	13-week	13-week	26-week	26-week
	period ended	period ended	period ended	period ended
	September 30,	October 1,	September 30,	October 1,
(thousands of Canadian dollars, except per share data)	2023	2022	2023	2022
Revenue	206,885	236,247	386,056	440,803
Cost of sales	(125,224)	(140,762)	(229,724)	(263,570)
Gross profit	81,661	95,485	156,332	177,233
Operating, selling, and other expenses	(97,402)	(106,666)	(194,181)	(208,009)
Operating loss	(15,741)	(11,181)	(37,849)	(30,776)
Net interest expense	(6,651)	(6,217)	(12,866)	(12,396)
Loss before income taxes	(22,392)	(17,398)	(50,715)	(43,172)
Income tax recovery (expense)	—	1,499	(185)	1,866
Net loss	(22,392)	(15,899)	(50,900)	(41,306)
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to net loss, net of taxes:
Change in fair value of cash flow hedges	—	4,848	(71)	6,738
Reclassification of realized gain	—	(690)	(443)	(932)
Foreign currency translation adjustment	(117)	(156)	3	(291)
Other comprehensive income (loss)	(117)	4,002	(511)	5,515
Total comprehensive loss	(22,509)	(11,897)	(51,411)	(35,791)
Net loss per common share
Basic	$(0.80)	$(0.57)	$(1.82)	$(1.49)
Diluted	$(0.80)	$(0.57)	$(1.82)	$(1.49)

Consolidated Statements of Cash Flows
(Unaudited)
	13-week	13-week	26-week	26-week
	period ended	period ended	period ended	period ended
	September 30,	October 1,	September 30,	October 1,
(thousands of Canadian dollars)	2023	2022	2023	2022
OPERATING ACTIVITIES
Net loss	(22,392)	(15,899)	(50,900)	(41,306)
Adjustments to reconcile net loss to cash flows used for operating activities
Depreciation of property, plant, and equipment	3,723	3,967	7,437	7,943
Depreciation of right-of-use assets	10,299	10,586	20,571	21,065
Amortization of intangible assets	3,407	3,091	5,543	5,827
Loss on disposal of capital assets	—	68	—	74
Gain on disposal of equity investment	—	(186)	—	(186)
Share-based compensation	122	172	251	415
Deferred income tax expense (recovery)	—	(1,499)	185	(1,866)
Other	(1,271)	(248)	(1,591)	(400)
Net change in non-cash working capital balances related to operations	(16,176)	(22,038)	(30,083)	(37,115)
Interest expense	6,944	6,371	13,473	12,728
Interest income	(293)	(154)	(607)	(332)
Cash flows used for operating activities	(15,637)	(15,769)	(35,721)	(33,153)
INVESTING ACTIVITIES
Net purchases of property, plant, and equipment	(1,594)	(71)	(3,766)	(2,162)
Addition of intangible assets	(2,984)	(7,234)	(8,012)	(13,258)
Proceeds from disposal of equity investment	—	283	—	283
Interest received	293	154	607	332
Cash flows used for investing activities	(4,285)	(6,868)	(11,171)	(14,805)
FINANCING ACTIVITIES
Repayment of principal on lease liabilities	(10,995)	(11,617)	(21,836)	(23,253)
Interest paid	(6,944)	(6,371)	(13,473)	(12,728)
Related party credit facility	43,000	20,000	43,000	20,000
Proceeds from share issuances	43	—	220	—
Cash flows from (used for) financing activities	25,104	2,012	7,911	(15,981)
Effect of foreign currency exchange rate changes on cash and cash equivalents	1,271	92	1,546	105
Net increase (decrease) in cash and cash equivalents during the period	6,453	(20,533)	(37,435)	(63,834)
Cash and cash equivalents, beginning of period	21,225	43,168	65,113	86,469
Cash and cash equivalents, end of period	27,678	22,635	27,678	22,635

Non-IFRS Financial Measures
The following table reconciles Adjusted EBITDA to net loss before income taxes, the most comparable IFRS measure:
	13-week	13-week	26-week	26-week
	period ended	period ended	period ended	period ended
	September 30,	October 1,	September 30,	October 1,
(millions of Canadian dollars)	2023	2022	2023	2022
Revenue	206.9	236.2	386.1	440.8
Cost of sales	(125.2)	(140.8)	(229.7)	(263.6)
Cost of operations	(54.7)	(63.7)	(109.0)	(120.5)
Selling, general and administrative expenses	(24.0)	(25.4)	(49.0)	(52.8)
Depreciation of right-of-use assets	(10.3)	(10.6)	(20.6)	(21.1)
Finance charges related to leases	(6.5)	(6.4)	(13.0)	(12.7)
Adjusted EBITDA^1	(13.8)	(10.6)	(35.2)	(29.8)
Depreciation of property, plant and equipment	(3.7)	(4.0)	(7.4)	(7.9)
Amortization of intangible assets	(3.4)	(3.1)	(5.5)	(5.8)
Loss on disposal of capital assets	—	(0.1)	—	(0.1)
Gain on disposal of equity investment	—	0.2	—	0.2
Net interest income (expense)	(0.1)	0.2	0.2	0.3
Non-recurring legal fees	(0.3)	—	(0.7)	—
Restructuring costs	(2.0)	—	(2.4)	—
Expenses from ransomware attack	(0.4)	—	(1.0)	—
Insurance proceeds from ransomware attack	1.3	—	1.3	—
Loss before income taxes	(22.4)	(17.4)	(50.7)	(43.2)
^1Earnings before interest, taxes, depreciation, amortization, asset disposals, and certain non-recurring or unusual amounts, and includes IFRS 16 right-of-use asset depreciation and associated finance charges.

SOURCE Indigo Books & Music Inc.

Melissa Perri, Senior Manager, Public Relations, [email protected]