Indigo Reports Second Quarter Financial Results: Comparable Sales Growth and Continued Aggressive Investment Program

TORONTO, Nov. 6, 2018 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported total comparable sales growth of 0.7% for the second quarter of its current 2019 fiscal year, including both online sales and comparable store sales.

Revenue for the second quarter ended September 29, 2018 was $216.3 million compared to $224.6 million for the same period last year, a decrease of $8.3 million. This decline in sales was driven by the closure of a few low performing stores and renovations in 12 stores as the Company continues to transform its retail operations. Online sales continued to grow, both in books and general merchandise, fuelled by a healthy increase in online traffic.  A one-time gift card breakage revenue adjustment in the prior period, due to a change in accounting estimates, also contributed to lower revenues.

Commenting on the results, CEO Heather Reisman said: "In this quarter, we continued to invest aggressively to transform both our retail network and our online environments to deliver the best customer experience in the market, enriching our customers' lives and making Indigo their happy place.  While this massive transformation has a temporary impact on sales and profitability, we are energized by our customers' response as our reimagined stores continue to generate impressive revenue and contribution growth.  We feel uniquely positioned to attack the crucial Holiday season ahead."

Net loss for the second quarter was $19.1 million ($0.70 net loss per common share) compared to a net loss of $4.6 million ($0.17 net loss per common share) last year. This decline in profitability was primarily driven by the impact of the Company's investment in strategic initiatives, including store renovations and the expansion of its distribution facilities, as well as minimum wage increases driving up operating expenses and a change in accounting estimates for breakage in the prior year. Indigo ended the quarter in a very strong financial position with cash, cash equivalents and short-term investments of $120 million and no debt.

In October 2018, the Company opened its first US location at the Mall at Short Hills in New Jersey. The 30,000-square foot location features IndigoKids, IndigoBaby as well as a Café Indigo and carries Indigo's full assortment of books, beautiful gifts and exclusive in-house designed lifestyle products, all crafted to enrich the lives of its customers. Since fiscal 2017, the Company has renovated 17 locations and will complete another eight by the end of fiscal 2019.

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 7^th, 2018. 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 43394481.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Wednesday, November 14^th, 2018. The call playback can be accessed after 11:00 a.m. (ET) on Wednesday, November 7^th, 2018, 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 394481#. 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 unaudited interim condensed consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") 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 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 Books & Music; Indigospirit; Chapters; 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.

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 $28 million to 3,000 elementary schools, benefitting more than 900,000 students.

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 29,	September 30,	March 31,
(thousands of Canadian dollars)	2018	2017 ^1	2018 ^1
ASSETS
Current
Cash and cash equivalents	59,623	160,540	150,256
Short-term investments	60,222	10,000	60,000
Accounts receivable	22,294	18,139	6,747
Inventories	303,782	292,377	264,586
Prepaid expenses	8,518	7,473	4,124
Derivative assets	588	77	1,439
Other assets	983	2,704	865
Total current assets	456,010	491,310	488,017
Property, plant, and equipment	110,122	70,208	82,314
Intangible assets	29,882	16,296	24,215
Equity investments	2,684	2,993	4,330
Deferred tax assets	47,857	48,212	35,563
Total assets	646,555	629,019	634,439
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities	228,676	211,813	177,344
Unredeemed gift card liability	35,236	36,374	44,218
Provisions	160	178	166
Deferred revenue	7,452	11,721	7,029
Income taxes payable	152	22	152
Derivative liabilities	109	3,835	327
Total current liabilities	271,785	263,943	229,236
Long-term accrued liabilities	2,904	1,708	2,283
Long-term provisions	45	45	45
Total liabilities	274,734	265,696	231,564
Equity
Share capital	225,360	218,080	221,854
Contributed surplus	12,040	11,295	11,621
Retained earnings	134,071	136,700	168,585
Accumulated other comprehensive income (loss)	350	(2,752)	815
Total equity	371,821	363,323	402,875
Total liabilities and equity	646,555	629,019	634,439

¹Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the unaudited condensed interim consolidated financial statements for additional information.

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 29,	September 30,	September 29,		September 30,
(thousands of Canadian dollars, except per share data)	2018	2017 ^1	2018		2017 ^1
Revenue	216,313	224,570	421,689		430,927
Cost of sales	(128,871)	(124,776)	(246,334)		(237,225)
Gross profit	87,442	99,794	175,355		193,702
Operating, selling, and administrative expenses	(113,466)	(105,886)	(222,254)		(206,787)
Operating loss	(26,024)	(6,092)	(46,899)		(13,085)
Net interest income	750	661	1,560		1,258
Share of loss from equity investments	(479)	(466)	(1,118)		(1,039)
Loss before income taxes	(25,753)	(5,897)	(46,457)		(12,866)
Income tax recovery	6,628	1,267	11,943		2,974
Net loss	(19,125)	(4,630)	(34,514)		(9,892)
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	(1,499)	(2,467)	6		(4,293)
[net of taxes of 551 and (3) ; 2017 - 902 and 1,569]
Reclassification of net realized (gain) loss	(426)	1,589	(471)		1,541
[net of taxes of 156 and 173 ; 2017 - (581) and (563)]
Other comprehensive loss	(1,925)	(878)	(465)		(2,752)
Total comprehensive loss	(21,050)	(5,508)	(34,979)		(12,644)
Net loss per common share
Basic	($0.70)	($0.17)	$	(1.28)	$	(0.37)
Diluted	($0.70)	($0.17)	$	(1.28)	$	(0.36)

¹Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the unaudited condensed interim consolidated financial statements for additional information.

Consolidated Statements of Cash Flows
(Unaudited)
	13-week	13-week	26-week	26-week
	period ended	period ended	period ended	period ended
	September 29,	September 30,	September 29,	September 30,
(thousands of Canadian dollars)	2018	2017 ^1	2018	2017 ^1
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net loss	(19,125)	(4,630)	(34,514)	(9,892)
Adjustments to reconcile net loss to cash flows from operating activities
Depreciation of property, plant, and equipment	5,038	4,530	10,165	8,898
Amortization of intangible assets	2,362	1,790	4,554	3,697
Loss on disposal of capital assets	90	(39)	330	(39)
Share-based compensation	487	348	976	782
Directors' compensation	96	82	185	181
Deferred tax assets	(6,719)	(1,447)	(12,125)	(3,154)
Disposal of assets held for sale	-	-	-	1,037
Collateral from derivative transactions	-	(1,910)	-	(1,910)
Other	(395)	(237)	(475)	437
Net change in non-cash working capital balances	5,756	(15,673)	(15,867)	(41,365)
Interest expense	-	3	3	5
Interest income	(749)	(664)	(1,563)	(1,263)
Share of loss from equity investments	479	466	1,118	1,039
Cash flows used for operating activities	(12,680)	(17,381)	(47,213)	(41,547)
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(20,541)	(8,107)	(38,298)	(13,989)
Addition of intangible assets	(5,060)	(2,976)	(10,225)	(4,721)
Change in short-term investments	(222)	90,000	(222)	90,000
Distribution from equity investments	-	-	528	434
Interest received	749	663	1,562	1,106
Investment in associate	-	-	-	(2,666)
Cash flows from (used for) investing activities	(25,074)	79,580	(46,655)	70,164
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issuances	2,076	1,445	2,764	1,770
Cash flows from financing activities	2,076	1,445	2,764	1,770
Effect of foreign currency exchange rate changes on cash and cash equivalents	394	235	471	(285)
Net increase (decrease) in cash and cash equivalents during the period	(35,284)	63,879	(90,633)	30,102
Cash and cash equivalents, beginning of period	94,907	96,661	150,256	130,438
Cash and cash equivalents, end of period	59,623	160,540	59,623	160,540

¹Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the unaudited condensed interim 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
	period ended	period ended
	September 29,	September 30,
(millions of Canadian dollars)	2018	2017 ^1	% increase
Revenue	216.3	224.6	(3.7)
Adjustments
Other revenue ^2	(5.6)	(9.5)
Stores not in both fiscal periods	(15.7)	(21.5)
Total comparable sales	195.0	193.6	0.7

¹Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the unaudited condensed interim 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.

Sorya Gaulin, Vice President, Strategic Communications, 416 263 5036, [email protected]

Related Links

http://www.indigo.ca