Indigo Reports Q2 Results

Early Success in Transformation Strategy Drives Change in Dividend Policy

TORONTO, Nov. 5, 2013 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported revenue of $179.4 million for its second quarter ending September 28, 2013.  Revenue declined 3.3% from the previous year due primarily to the phenomenal success last year of the Fifty Shades and Hunger Games trilogies, the much slowed but continuing growth of eReading, and the Company operating nine fewer stores.  Excluding revenue from the hit trilogies, revenue increased 0.3% from the same quarter last year as the Company continued to experience double-digit growth in lifestyle, paper, and toy sales.

On a comparable store basis, Indigo and Chapters superstores posted a 2.8% decrease in revenue, while Coles and IndigoSpirit small format stores were down 8.2%.  Excluding the blockbuster titles, comparable store sales increased 0.1% in superstores and 0.6% in small format stores. Online sales increased 3.3% to $18.7 million from $18.1 million for the same period last year.

Just after the close of the quarter, the Company launched the Indigo Mobile App with extremely positive feedback from both the tech press and from users.  The Indigo App was also featured in the Apple^® App Store^® as one of the best new apps.

In addition, just following the close of the quarter, Indigo finalized an agreement with American Girl to open American Girl "shop in shops" in selected Indigo retail locations.

By the end of Q2, the Company had opened its first 12 !ndigotech™ shops.  These shop within shops feature design-inspired lifestyle electronics and accessories.  The Company will open 20 more !ndigotech™ shops across Canada before the holiday season.

The Company recognized a net loss of $10.1 million for the 13-week period ended September 28, 2013 ($0.39 net loss per common share), compared to a net loss of $4.0 million ($0.16 net loss per common share) in the same period last year. The increased loss was partially the result of lower book sales but more significantly the intentionally higher operating, selling and administrative expenses, compared to last year, associated with its transformational initiatives.  Specifically, Indigo invested additional funds in marketing to engage Canadian customers with its new categories, in advancing its digital capabilities, in creating merchandising within its existing superstores to highlight the expanded product mix, and in improving several aspects of its general merchandise capabilities.

The Board of Directors today approved a quarterly dividend of 11 cents per common share to be paid on December 3, 2013, to all shareholders of record as of November 19, 2013.

Based on early success with new initiatives, the Company anticipates entering a period of major store renovations, increased investment in its proprietary product development capability, and increased digital investment to fully bring to life its booklovers lifestyle store concept.   In light of these planned increased expenditures to support the Company's strategic development and growth, the Board of Directors today approved the suspension of the Company's quarterly dividend beyond December 3, 2013.  The current dividend program was initiated at a time of significant earnings and very much prior to the advent and impact of the digital reading revolution.

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 in Canada; 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 unaudited interim condensed consolidated financial statements in accordance with International Financial Reporting Standards and International Accounting Standards 34, "Interim Financial Reporting."  In order to provide additional insight into the business, the Company has also provided non-IFRS data, including comparative store sales growth, 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.  Comparative store sales growth 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. Comparable store sales are defined as sales generated by stores that have been open for more than 12 months on a 52-week basis.

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 Books & Music; Indigo Books, Gifts, Kids; IndigoSpirit; Chapters; The World's Biggest Bookstore; and Coles. The online channel, indigo.ca, offers a one-stop online shop with a robust selection of books, toys, home décor, stationery and gifts.

In 2004, Indigo founded the Indigo Love of Reading Foundation, a registered charity that provides new books and education materials to high-needs Canadian elementary schools, to address the literacy crisis in Canada. To date the Foundation, as well as its "Adopt A School" program, have contributed more than $15.6 million—equating to over 1.4 million books— to high-needs elementary schools across Canada.  Visit loveofreading.org for more information.

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 28,	September 29,	March 30,
(thousands of Canadian dollars)		2013	2012	2012
ASSETS
Current
Cash and cash equivalents		166,260	192,247	210,562
Accounts receivable		12,620	14,274	7,126
Inventories		241,939	242,696	216,533
Prepaid expenses		6,641	4,653	4,153
Total current assets		427,460	453,870	438,374
Property, plant and equipment		58,072	61,481	58,903
Intangible assets		22,255	22,467	22,164
Equity investment		-	125	968
Deferred tax assets		58,061	53,986	48,731
Total assets		565,848	591,929	569,140
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities		184,595	192,671	150,177
Unredeemed gift card liability		42,016	37,912	47,169
Provisions		1,726	175	2,168
Deferred revenue		13,462	12,882	13,733
Income taxes payable		10	111	11
Current portion of long-term debt		752	900	773
Total current liabilities		242,561	244,651	214,031
Long-term accrued liabilities		3,147	4,448	4,004
Long-term provisions		78	391	78
Long-term debt		450	1,045	705
Total liabilities		246,236	250,535	218,818
Equity
Share capital		203,812	203,660	203,805
Contributed surplus		8,094	7,570	8,128
Retained earnings		107,706	130,164	138,389
Total equity		319,612	341,394	350,322
Total liabilities and equity		565,848	591,929	569,140

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 28,	September 29,	September 28,	September 29,
(thousands of Canadian dollars, except per share data)	2013	2012	2013	2012
Revenues	179,417	185,563	350,942	372,189
Cost of sales	(96,935)	(100,356)	(196,224)	(206,684)
Gross profit	82,482	85,207	154,718	165,505
Operating, selling and administrative expenses	(96,375)	(90,719)	(189,684)	(180,736)
Operating loss	(13,893)	(5,512)	(34,966)	(15,231)
Interest on long-term debt and financing charges	(30)	(21)	(57)	(52)
Interest income on cash and cash equivalents	600	578	1,184	1,159
Share of loss from equity investment	(238)	(369)	(609)	(729)
Loss before income taxes	(13,561)	(5,324)	(34,448)	(14,853)
Income tax recovery	3,491	1,311	9,330	5,353
Net loss and comprehensive loss for the period	(10,070)	(4,013)	(25,118)	(9,500)
Net loss per common share
Basic	$  (0.39)	$  (0.16)	$ (0.98)	$(0.38)
Diluted	$  (0.39)	$  (0.16)	$ (0.98)	$(0.38)

Consolidated Statements of Cash Flows
(Unaudited)
		13-week	13-week	26-week	26-week
		period ended	period ended	period ended	period ended
		September 28,	September 29,	September 28,	September 29,
(thousands of Canadian dollars)		2013	2012	2013	2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period		(10,070)	(4,013)	(25,118)	(9,500)
Add (deduct) items not affecting cash
	Depreciation of property, plant and equipment	4,074	4,329	8,113	9,048
	Amortization of intangible assets	2,761	2,515	5,474	4,937
	Net impairment of capital assets	-	-	-	250
	Loss on disposal of capital assets	3	-	13	44
	Stock-based compensation	194	200	697	359
	Directors' compensation	111	96	244	229
	Deferred tax assets	(3,491)	(1,311)	(9,330)	(5,353)
	Other	587	509	12	(245)
Net change in non-cash working capital balances		(6,669)	9,863	(5,693)	(1,295)
Interest on long-term debt and financing charges		30	21	57	52
Interest income on cash and cash equivalents		(600)	(578)	(1,184)	(1,159)
Income taxes received (paid)		(1)	41	(1)	45
Distributions from equity investment		359	-	359	107
Share of loss from equity investment		238	369	609	729
Cash flows from (used in) operating activities		(12,474)	12,041	(25,748)	(1,752)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(5,868)	(2,673)	(7,158)	(3,454)
Addition of intangible assets		(3,733)	(2,784)	(5,565)	(4,614)
Interest received		601	611	1,241	1,218
Cash flows used in investing activities		(9,000)	(4,846)	(11,482)	(6,850)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt		(234)	(338)	(431)	(684)
Interest paid		(34)	(38)	(70)	(86)
Proceeds from share issuances		7	142	7	230
Dividends paid		(2,782)	(2,780)	(5,565)	(5,556)
Repurchase of options		-	-	(975)	-
Cash flows used in financing activities		(3,043)	(3,014)	(7,034)	(6,096)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(569)	(522)	(38)	227
Net increase (decrease) in cash and cash equivalents during the period		(25,086)	3,659	(44,302)	(14,471)
Cash and cash equivalents, beginning of period		191,346	188,588	210,562	206,718
Cash and cash equivalents, end of period		166,260	192,247	166,260	192,247

 

SOURCE: Indigo Books & Music Inc.

Janet Eger
Vice President, Public Affairs
416 342 8561
[email protected]