Indigo Reports Third Quarter Financial Results: Flat Comparable Sales Despite Aggressive Transformation Program and Postal Disruptions

TORONTO, Feb. 5, 2019 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer, reported flat total comparable sales growth for the third quarter of its current 2019 fiscal year.

Revenue for the third quarter ended December 29, 2018 was $426.0 million compared to $433.3 million for the same period last year, a decrease of $7.3 million or 1.7%. This decline in revenue was driven partially by the residual impact of delayed renovations and meaningfully by the Canada Post strike. Leading up to the Canada Post strike, the Company had a strong online growth trend reflecting customer desire to shop this channel. This trend reversed itself dramatically with the Canada Post disruption. A one-time non-cash gift card breakage revenue adjustment of $4.4 million in the prior period also contributed to the lower reported revenue.

Commenting on the results, CEO Heather Reisman said: "Our third quarter financial performance was challenging. Given the factors which impacted the Company, we were satisfied to sustain sales essentially on par with last year."

Net earnings for the third quarter was $21.5 million (net earnings per common share of $0.80) compared to net earnings of $42.6 million (net earnings per common share of $1.58) last year. The Canada Post strike and store renovation selling disruptions contributed to higher costs and lower margins from resulting clearance strategies. Also contributing to lower profits were investments in strategic initiatives, including the expansion of the Company's distribution facilities, as well as minimum wage increases across Canada and the one-time revenue inclusion in the prior year for breakage as noted above. Indigo ended the quarter in a very strong financial position with cash, cash equivalents and short-term investments of $249 million and no debt.

In mid-October 2018, the Company opened its first U.S. location at the Mall at Short Hills in New Jersey and early indicators are showing that the concept is resonating well with customers. The 30,000-square foot location features IndigoKids and IndigoBaby, as well as a Café Indigo, while carrying Indigo's full assortment of books, beautiful gifts and exclusive in-house designed lifestyle products, all crafted to enrich the lives of its customers.

During the quarter, the Company opened three new stores, while completing renovations in four others, bringing the total number of newly designed and renovated stores to 24, since the start of its retail transformation journey.

Analyst/Investor Call

Indigo will host a conference call for analysts and investors to review these results at 5:30 p.m. (Eastern Time) today, February 5th, 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 56116783.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Tuesday, February 12th, 2019. The call playback can be accessed after 7:30 p.m. (ET) on Tuesday, February 5th, 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 116783#. 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; The Book Company; and Coles. In 2018, the Company opened its first Indigo U.S. location 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 $29 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)
(thousands of Canadian dollars)	As at December 29, 2018	As at December 30, 2017 ^1	As at March 31, 2018 ^1
ASSETS
Current
Cash and cash equivalents	249,251	247,895	150,256
Short-term investments	-	60,000	60,000
Accounts receivable	21,394	17,139	6,747
Inventories	253,486	270,839	264,586
Prepaid expenses	6,802	4,253	4,124
Income taxes receivable	382	-	-
Derivative assets	4,189	500	1,439
Other assets	3,346	794	865
Total current assets	538,850	601,420	488,017
Property, plant, and equipment	119,569	79,215	82,314
Intangible assets	31,407	17,619	24,215
Equity investments	5,495	5,438	4,330
Deferred tax assets	38,648	31,673	35,563
Total assets	733,969	735,365	634,439
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities	268,403	255,667	177,344
Unredeemed gift card liability	57,751	58,777	44,218
Provisions	154	172	166
Deferred revenue	7,625	7,154	7,029
Income taxes payable	-	23	152
Derivative liabilities	-	2,791	327
Total current liabilities	333,933	324,584	229,236
Long-term accrued liabilities	3,320	1,773	2,283
Long-term provisions	45	45	45
Total liabilities	337,298	326,402	231,564
Equity
Share capital	225,530	219,976	221,854
Contributed surplus	12,526	11,361	11,621
Retained earnings	155,550	179,304	168,585
Accumulated other comprehensive income (loss)	3,065	(1,678)	815
Total equity	396,671	408,963	402,875
Total liabilities and equity	733,969	735,365	634,439

¹ Certain 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 Earnings (Loss) and Comprehensive Earnings (Loss) (Unaudited)
(thousands of Canadian dollars, except per share data)		13-week period ended December 29, 2018		13-week period ended December 30, 2017 ^1	39-week period ended December 29, 2018	39-week period ended December 30, 2017 ^1
Revenue		425,971		433,328	847,660	864,255
Cost of sales		(252,700)		(244,230)	(499,034)	(481,455)
Gross profit		173,271		189,098	348,626	382,800
Operating, selling, and administrative expenses		(147,294)		(133,454)	(369,548)	(340,241)
Operating profit (loss)		25,977		55,644	(20,922)	42,559
Net interest income		722		753	2,282	2,011
Share of earnings from equity investments		2,812		2,444	1,694	1,405
Earnings (loss) before income taxes		29,511		58,841	(16,946)	45,975
Income tax recovery (expense)		(8,032)		(16,237)	3,911	(13,263)
Net earnings (loss)		21,479		42,604	(13,035)	32,712
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 (1,401) and (1,404) ; 2017 - (64) and 1,505]	3,815		175	3,821	(4,118)
Reclassification of net realized (gain) loss
	[net of taxes of 404 and 577 ; 2017 - (329) and (892)]	(1,100)		899	(1,571)	2,440
Other comprehensive income (loss)		2,715		1,074	2,250	(1,678)
Total comprehensive earnings (loss)		24,194		43,678	(10,785)	31,034
Net earnings (loss) per common share
Basic		$0.80		$1.58	($0.48)	$1.22
Diluted		$0.79		$1.56	($0.48)	$1.20

¹ Certain 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)
(thousands of Canadian dollars)	13-week period ended December 29, 2018	13-week period ended December 30, 2017 ^1	39-week period ended December 29, 2018	39-week period ended December 30, 2017 ^1
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	21,479	42,604	(13,035)	32,712
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation of property, plant, and equipment	5,700	4,840	15,865	13,738
Amortization of intangible assets	2,921	2,020	7,475	5,717
Loss on disposal of capital assets	527	85	857	46
Share-based compensation	438	321	1,414	1,103
Directors' compensation	75	82	260	263
Deferred tax assets	8,213	16,146	(3,913)	12,992
Disposal of assets held for sale	-	-	-	1,037
Collateral from derivative transactions	-	1,910	-	-
Other	(434)	1,142	(909)	1,579
Net change in non-cash working capital balances	112,840	87,508	96,973	46,143
Interest expense	3	3	6	8
Interest income	(726)	(756)	(2,288)	(2,019)
Share of income from equity investments	(2,812)	(2,444)	(1,694)	(1,405)
Cash flows from operating activities	148,224	153,461	101,011	111,914
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(15,669)	(13,932)	(53,967)	(27,921)
Addition of intangible assets	(4,451)	(3,345)	(14,676)	(8,066)
Change in short-term investments	60,222	(50,000)	60,000	40,000
Distribution from equity investments	-	(1)	528	433
Interest received	726	765	2,288	1,871
Investment in associate	-	-	-	(2,666)
Cash flows from (used for) investing activities	40,828	(66,513)	(5,827)	3,651
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issuances	143	1,561	2,907	3,331
Cash flows from financing activities	143	1,561	2,907	3,331
Effect of foreign currency exchange rate changes on cash and cash equivalents	433	(1,154)	904	(1,439)
Net increase in cash and cash equivalents during the period	189,628	87,355	98,995	117,457
Cash and cash equivalents, beginning of period	59,623	160,540	150,256	130,438
Cash and cash equivalents, end of period	249,251	247,895	249,251	247,895

¹ Certain 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:

(millions of Canadian dollars)	13-week period ended December 29, 2018	13-week period ended December 30, 2017 ^1	% increase (decrease)
Revenue	426.0	433.3	(1.7)
Adjustments
Other revenue ^2	(3.1)	(10.0)
Stores not in both fiscal periods	(35.2)	(35.6)
Total comparable sales	387.7	387.7	0.0

¹ Certain 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

² Includes cafés, irewards, gift card breakage, plum breakage, corporate sales, Kobo revenue share and other reserves

SOURCE Indigo Books & Music Inc.

Kate Gregory, Director, Public Relations Telephone [phone] Ext. 6659, [email protected]

Related Links

http://www.indigo.ca