Indigo Reports FY24 Third Quarter Results

TORONTO, Feb. 8, 2024 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's leading book and lifestyle retailer, reported financial results for the 13-week period ended December 30, 2023 compared to the 13-week period ended December 31, 2022.

The Company recognized total revenue of $370.6 million in the quarter, compared to revenue of $422.7 million in the same period last year. Disruptions throughout 2023, including the ransomware attack and the pre-mature launch of a new digital platform, negatively impacted the Company's ability to serve its customers. This was most significantly felt in the online channel, which disproportionally underperformed compared to the retail network. Prevailing economic headwinds also impacted consumer spending patterns as customers continued to show price sensitivity, noted by lower full-priced sell through.

The Company recognized decreased revenue in both its general merchandise and print product lines. General merchandise suffered from a less successful product assortment, missing certain key top-selling holiday products. On the book side of the business, top-selling releases of the quarter were not as strong as last year, leading to lower sales in this category. 

Commenting on the results, CEO Heather Reisman said: "These results are disappointing and in no way reflect the opportunity we have with our customers. We are deeply and effectively engaged in a turnaround. I feel confident that with the current focus, we will fully reclaim our position as the booklovers' happy place, both in store and online."

Adjusted EBITDA for the quarter was $22.3 million, compared to $40.8 million in the prior year. The aforementioned impacts of the current macro-economic environment led to an increased penetration of promotions and discounts. The Company deeply discounted product, a decision made to fully clear unproductive inventory which it does not intend to carry forward as part of its assortment.  

During the quarter, the Company undertook several steps aimed at improving customer engagement and the overall economics of the business including enriching book assortment, simplifying and improving lifestyle assortment and streamlining the organization and head office workforce. Improving customer engagement and profitability is the full focus for the Company.   

Driven by the sales and margin declines as well as significant restructuring costs, net income for the quarter totaled $10.0 million ($0.36 net income per basic common share) compared to net income of $34.3 million ($1.23 net income per basic common share) in the prior year.

Subsequent to quarter end, the Company amended and extended its revolving credit facility with Trilogy Retail Holdings Inc. ("TRHI"), as lender. The material terms of the amendment are limited to (i) an increased principal credit amount to up to $70.0 million and, with the consent of TRHI, this amount may be increased by up to an additional $10.0 million; (ii) an extended maturity date to December 31, 2024; and (iii) a revised interest rate to the Royal Bank of Canada prime rate from time to time in effect +2.5%. The amended credit facility, the effectiveness of which is subject to certain customary conditions precedent which are expected to be satisfied in the coming days, will be used for ongoing working capital needs and general corporate purposes of the Company, and for non-recurring restructuring costs and capital expenditures agreed between the Company and TRHI from time to time. It was issued on reasonable commercial terms, and is not convertible, directly or indirectly, into equity or voting securities.

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 9^th, 2024.  

To join the conference call without operator assistance, you may register and enter your phone number at  https://emportal.ink/3RjPfsf 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 15865756. 

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on February 16^th, 2024. The call playback can be accessed after 12:00 p.m. (ET) on February 9^th, 2024, 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 865756#. 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 to consumer behaviour 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 the SEDAR+ website at www.sedarplus.ca.  

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.sedarplus.ca). 

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 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
	December 30,	December 31,	April 1,
(thousands of Canadian dollars)	2023	2022	2023
ASSETS
Current
Cash and cash equivalents	93,818	149,961	65,113
Accounts receivable	28,780	29,721	14,069
Inventories	227,085	317,257	244,063
Prepaid expenses	7,102	7,267	6,830
Derivative assets	—	2,128	699
Other assets	4,068	3,681	1,254
Total current assets	360,853	510,015	332,028
Property, plant, and equipment, net	46,036	55,346	52,464
Right-of-use assets, net	296,018	308,526	318,302
Intangible assets, net	34,544	32,700	35,287
Total assets	737,451	906,587	738,081
LIABILITIES AND EQUITY (DEFICIT)
Current
Accounts payable and accrued liabilities	223,085	289,958	169,860
Unredeemed gift card liability	76,850	79,158	66,887
Provisions	2,167	569	1,879
Deferred revenue	22,507	22,876	20,129
Short-term lease liabilities	69,737	69,573	69,161
Total current liabilities	394,346	462,134	327,916
Long-term accrued liabilities	549	876	1,007
Long-term provisions	851	784	851
Long-term lease liabilities	402,815	419,431	428,284
Total liabilities	798,561	883,225	758,058
Equity (deficit)
Share capital	227,707	227,094	227,094
Contributed surplus	15,014	15,242	15,463
Retained deficit	(303,886)	(220,455)	(262,969)
Accumulated other comprehensive income	55	1,481	435
Total equity (deficit)	(61,110)	23,362	(19,977)
Total liabilities and equity (deficit)	737,451	906,587	738,081

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 30,	December 31,	December 30,	December 31,
(thousands of Canadian dollars, except per share data)	2023	2022	2023	2022
Revenue	370,645	422,728	756,701	863,531
Cost of sales	(229,619)	(256,031)	(459,343)	(519,601)
Gross profit	141,026	166,697	297,358	343,930
Operating, selling, and other expenses	(123,662)	(125,194)	(317,843)	(333,203)
Operating profit (loss)	17,364	41,503	(20,485)	10,727
Net interest expense	(7,381)	(5,947)	(20,247)	(18,343)
Earnings (loss) before income taxes	9,983	35,556	(40,732)	(7,616)
Income tax recovery (expense)	—	(1,302)	(185)	564
Net earnings (loss)	9,983	34,254	(40,917)	(7,052)
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to net earnings (loss), net of taxes:
Change in fair value of cash flow hedges	—	(1,055)	(71)	5,683
Reclassification of realized gain	—	(2,555)	(443)	(3,487)
Foreign currency translation adjustment	131	61	134	(230)
Other comprehensive income (loss)	131	(3,549)	(380)	1,966
Total comprehensive earnings (loss)	10,114	30,705	(41,297)	(5,086)
Net earnings (loss) per common share
Basic	$                0.36	$                 1.23	$               (1.46)	$               (0.25)
Diluted	$                0.35	$                 1.22	$               (1.46)	$               (0.25)

Consolidated Statements of Cash Flows
(Unaudited)
	13-week	13-week	39-week	39-week
	period ended	period ended	period ended	period ended
	December 30,	December 31,	December 30,	December 31,
(thousands of Canadian dollars)	2023	2022	2023	2022
OPERATING ACTIVITIES
Net earnings (loss)	9,983	34,254	(40,917)	(7,052)
Adjustments to reconcile net earnings (loss) to cash flows generated from operating activities
Depreciation of property, plant, and equipment	3,583	3,954	11,020	11,897
Depreciation of right-of-use assets	10,288	10,184	30,859	31,249
Amortization of intangible assets	4,061	1,642	9,604	7,469
Loss on disposal of capital assets	272	—	272	74
Gain on disposal of equity investment	—	—	—	(186)
Share-based compensation	(307)	210	(56)	625
Deferred income tax expense (recovery)	—	1,302	185	(564)
Other	1,586	1,572	(4)	1,172
Net change in non-cash working capital balances related to operations	94,660	113,222	64,577	76,107
Interest expense	7,870	6,282	21,343	19,010
Interest income	(489)	(335)	(1,096)	(667)
Cash flows generated from operating activities	131,507	172,287	95,787	139,134
INVESTING ACTIVITIES
Net purchases of property, plant, and equipment	(929)	(232)	(4,695)	(2,394)
Addition of intangible assets	(1,002)	(5,741)	(9,014)	(18,999)
Proceeds from disposal of equity investment	—	—	—	283
Interest received	489	335	1,096	667
Cash flows used for investing activities	(1,442)	(5,638)	(12,613)	(20,443)
FINANCING ACTIVITIES
Repayment of principal on lease liabilities	(11,498)	(11,472)	(33,334)	(34,725)
Interest paid	(7,602)	(6,282)	(21,076)	(19,010)
Proceeds from Related party credit facility	10,000	5,000	53,000	25,000
Repayment of Related party credit facility	(53,000)	(25,000)	(53,000)	(25,000)
Proceeds from share issuances	—	—	220	—
Cash flows used for financing activities	(62,100)	(37,754)	(54,190)	(53,735)
Effect of foreign currency exchange rate changes on cash and cash equivalents	(1,825)	(1,569)	(279)	(1,464)
Net increase in cash and cash equivalents during the period	66,140	127,326	28,705	63,492
Cash and cash equivalents, beginning of period	27,678	22,635	65,113	86,469
Cash and cash equivalents, end of period	93,818	149,961	93,818	149,961

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 30,	December 31,	December 30,	December 31,
(millions of Canadian dollars)	2023	2022	2023	2022
Revenue	370.6	422.7	756.7	863.5
Cost of sales	(229.6)	(256.0)	(459.3)	(519.6)
Cost of operations	(71.2)	(78.4)	(180.2)	(198.9)
Selling, general and administrative expenses	(30.8)	(31.0)	(79.8)	(83.8)
Depreciation of right-of-use assets	(10.3)	(10.2)	(30.9)	(31.2)
Finance charges related to leases	(6.5)	(6.3)	(19.5)	(19.0)
Adjusted EBITDA^1	22.3	40.8	(12.9)	11.0
Depreciation of property, plant and equipment	(3.6)	(4.0)	(11.0)	(11.9)
Amortization of intangible assets	(4.1)	(1.6)	(9.6)	(7.5)
Loss on disposal of capital assets	(0.3)	—	(0.3)	(0.1)
Gain on disposal of equity investment	—	—	—	0.2
Net interest income (expense)	(0.9)	0.3	(0.7)	0.7
Non-recurring legal fees	(0.1)	—	(0.8)	—
Restructuring costs	(3.0)	—	(5.4)	—
Expenses from ransomware attack	(0.3)	—	(1.3)	—
Insurance proceeds from ransomware attack	—	—	1.3	—
Earnings (Loss) before income taxes	10.0	35.6	(40.7)	(7.6)
^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.

Madison Downey, Public Relations, [email protected]