Saturday, December 14, 2019


Indigo Books & Music Inc
(TSX: IDG.TO) Add to Watchlist
-0.03 (-0.69%)
as of Dec 13, 2019

Indigo Reports Second Quarter Financial Results for 2020 Fiscal Year

Indigo Books & Music Inc. (TSX:IDG.TO), Canada's largest book, gift and specialty toy retailer reported total comparable sales decline of 8.0% for the second quarter of its current 2020 fiscal year, including both online sales and comparable store sales.

Revenue for the second quarter ended September 28, 2019 was $203.4 million compared to $216.3 million for the same period last year, a decrease of $12.9 million. This decline in revenue was primarily a result of strong competitive pressures and the Company's planned efforts to reduce promotions to improve profitability. Compared to the prior quarter, the general merchandise business had some positive momentum through the back-to-school season and improvements in the assortment, while the book business sustained historical trends. Together with stronger inventory management, this strategic shift in promotional activity led to a margin rate improvement of 1.3% in the second quarter, consistent with the improvements in the first quarter. Commenting on the results, CEO Heather Reisman said: "As we continue to navigate our strategic shift, we are seeing promising early results on key performance measures."

Indigo reported a net loss of $20.5 million ($0.74 net loss per common share) compared to a net loss of $19.1 million ($0.70 net loss per common share) last year. This increase in the net loss position is due to higher amortization in the current period, driven by an increase in the Company's capital asset base from its significant store renewal program in fiscal 2019. Outside of the impact of depreciation and amortization and excluding the impact of IFRS 16, the Company reported an improvement of $0.4 million in adjusted EBITDA for the quarter on a lower sales base. This increase is due to margin rate improvements across the business and a reduction in cost of operations and selling, administrative and other expenses, as the Company continues its focus on profitability.

The Company launched a cost-cutting initiative at the beginning of this year targeting $20.0 to $25.0 million in cost savings. In the first half of fiscal 2020, the Company has been able to reduce operating, selling, administrative and other expenses by $9.0 million. While this reduction has been partly offset by costs associated with the opening of net-new stores and some one-time expenses associated with the move of the Company's New York office to Toronto, it is reflective of the Company's commitment to future profitability. Additionally, the Company will meet its capital expenditure target of $20 million for this year, a significant reduction from prior years.

This quarter, the Company launched its new membership program, plum® PLUS. plum PLUS rewards customers with an immediate discount on eligible products, free shipping and the ability to earn points on almost every dollar spent at all Indigo, Chapters, Indigospirit, and Coles stores across Canada, as well as at

Adoption of IFRS 16, Leases

The Company adopted IFRS 16 Leases ("IFRS 16") in the first quarter of fiscal 2020, replacing IAS 17 Leases and related interpretations. IFRS 16 introduced a single lessee accounting model which required substantially all the Company's operating leases to be recorded on balance sheet as a right-of-use asset and a lease liability, representing the obligation to make future lease payments. The Company implemented the standard on March 31, 2019 using the modified retrospective approach, therefore the Company's 2020 results reflect lease accounting under IFRS 16. Prior year results have not been restated and continue to be reported under IAS 17. When compared to the previous accounting method, this resulted in a material adjustment to the Company's financial statements.

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), 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 74758249.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Thursday, November 14(th), 2019. The call playback can be accessed after 11:00 a.m. (ET) on Thursday, November 7(th), 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 758249 #. The conference call transcript will be archived in the Investor Relations section of the Indigo website,

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 and adjusted EBITDA, in this press 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. Total comparable sales and adjusted EBITDA are key indicators used by the Company to measure performance against internal targets and prior period results. These measures are 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. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and equity investments. The method of calculating adjusted EBITDA is consistent with that used in prior periods.

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 and one territory under different banners including Indigo, Chapters, Coles, Indigospirit, and The Book Company. The Company also has retail operations in the United States through a wholly-owned subsidiary, operating its first retail store in Short Hills, New Jersey. The online channel,, 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 $31 million to more than 3,000 elementary schools, benefitting more than 1,000,000 students.

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

Consolidated Balance Sheets


             As at
             As at
         As at

           September 28,
       September 29,
       March 30,

            (thousands of Canadian dollars)                                                                                                               2019               2018            2019




            Cash and cash equivalents                                                                                                                   46,615             59,623          41,290

            Short-term investments                                                                                                                      20,500             60,222          87,150

            Accounts receivable                                                                                                                         19,809             22,294          10,543

            Inventories                                                                                                                                298,690            303,782         252,541

            Prepaid expenses                                                                                                                             7,489              8,518           5,802

            Income taxes receivable                                                                                                                        640                               483

            Derivative assets                                                                                                                              123                588           1,070

            Other assets                                                                                                                                   949                983             853

              Total current assets                                                                                                            394,815            456,010         399,732


            Property, plant, and equipment, net                                                                                                        117,375            110,122         125,906

            Right-of-use assets, net(1)                                                                                                                420,932

            Intangible assets, net                                                                                                                      30,866             29,882          32,527

            Equity investments                                                                                                                           2,773              2,684           4,359

            Deferred tax assets(1)                                                                                                                     101,450             47,857          47,940

              Total assets                                                                                                                  1,068,211            646,555         610,464




            Accounts payable and accrued liabilities(1)                                                                                                222,968            228,676         179,180

            Unredeemed gift card liability                                                                                                              42,987             35,236          48,729

            Provisions                                                                                                                                                       160              60

            Deferred revenue                                                                                                                             8,148              7,452           7,636

            Income taxes payable                                                                                                                                             152

            Short-term lease liabilities(1)                                                                                                             42,943

            Derivative liabilities                                                                                                                         199                109

              Total current liabilities                                                                                                       317,245            271,785         235,605


            Long-term accrued liabilities(1)                                                                                                             1,761              2,904           4,698

            Long-term provisions                                                                                                                            46                 45              45

            Long-term lease liabilities(1)                                                                                                             527,711

              Total liabilities                                                                                                               846,763            274,734         240,348



            Share capital                                                                                                                              226,986            225,360         225,531

            Contributed surplus                                                                                                                         12,039             12,040          12,716

            Retained earnings (deficit)(1)                                                                                                            (17,296)           134,071         131,311

            Accumulated other comprehensive income (loss)                                                                                                (281)               350             558

              Total equity                                                                                                                    221,448            371,821         370,116


              Total liabilities and equity                                                                                                  1,068,211            646,555         610,464


              (1)The noted current period balances have been impacted by the adoption of IFRS 16. Refer to note 3 of the
    unaudited interim condensed consolidated financial statements for additional information.
Consolidated Statements of Loss and Comprehensive Loss


                                                                                                                                                                                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)                                                                                                              2019                               2018            2019                2018

    ---                                                                                                                                                                                                                                                 ---

                Revenue                                                                                                                                             203,364                            216,313         395,920             421,689

              Cost of sales                                                                                                                                                  (118,565)                         (128,871)      (227,247)          (246,334)

                Gross profit                                                                                                                                         84,799                             87,442         168,673             175,355

              Operating, selling, and administrative expenses(1)                                                                                                             (106,022)                         (113,466)      (209,593)          (222,254)

                Operating loss(1)                                                                                                                                  (21,223)                          (26,024)       (40,920)           (46,899)

              Net interest income (expense)(1)                                                                                                                                 (5,846)                               750        (11,270)              1,560

              Share of loss from equity investments                                                                                                                              (815)                             (479)        (1,588)            (1,118)

    ---                                                                                                                                                                                                                                                 ---

                Loss before income taxes(1)                                                                                                                        (27,884)                          (25,753)       (53,778)           (46,457)

              Income tax recovery(1)                                                                                                                                             7,429                              6,628          14,253              11,943

                Net loss(1)                                                                                                                                        (20,455)                          (19,125)       (39,525)           (34,514)

    ---                                                                                                                                                                                                                                                 ---

                Other comprehensive income (loss)

              Items that are or may be reclassified subsequently to net

              Net change in fair value of cash flow hedges                                                                                                                         753                            (1,499)          (251)                  6
       [net of taxes of (275) and 92; 2018 - 551 and (3)]

              Reclassification of net realized gain                                                                                                                              (133)                             (426)          (588)              (471)
       [net of taxes of 48 and 215; 2018 - 156 and 173]

                Other comprehensive income (loss)                                                                                                                       620                            (1,925)          (839)              (465)

    ---                                                                                                                                                                                                                                                 ---

                Total comprehensive loss(1)                                                                                                                        (19,835)                          (21,050)       (40,364)           (34,979)

    ===                                                                                                                                                                                                                                                 ===

                Net loss per common share(1)

              Basic                                                                                                                                                                      $

                (0.74)                  $
            (0.70)    $

     (1.44) $

              Diluted                                                                                                                                                                    $

                (0.74)                  $
            (0.70)    $

     (1.44) $

    ===                                                                                                                                                                                                                                                                          ===

                1 The noted current period balances have been impacted by the adoption of IFRS 16. Refer to note 3 of the unaudited interim condensed consolidated
    financial statements for additional information.
Consolidated Statements of Cash Flows




                period ended
        period ended

        period ended
        period ended

                September 28,
        September 29,

        September 28,
        September 29,

              (thousands of Canadian dollars)                                                                                                                                                                     2019                2018                      2019                  2018



              Net loss(1)                                                                                                                                                                                     (20,455)           (19,125)                 (39,525)             (34,514)

              Adjustments to reconcile net loss to cash flows used for operating

              Depreciation of property, plant, and equipment and right-of-use                                                                                                                                   16,080               5,038                    31,846                10,165

              Amortization of intangible assets                                                                                                                                                                  3,312               2,362                     6,578                 4,554

              Loss on disposal of capital assets                                                                                                                                                                   490                  90                       951                   330

              Share-based compensation                                                                                                                                                                             373                 487                       621                   976

              Directors' compensation                                                                                                                                                                               73                  96                       157                   185

              Deferred income tax recovery (1)                                                                                                                                                                 (7,429)            (6,719)                 (14,253)             (12,125)

              Other                                                                                                                                                                                                102               (395)                      356                 (475)

              Net change in non-cash working capital balances related to                                                                                                                                       (2,078)              5,756                  (19,531)             (15,867)

              Interest expense(1)                                                                                                                                                                                6,324                                       12,401                     3

              Interest income                                                                                                                                                                                    (520)              (749)                  (1,173)              (1,563)

              Share of loss from equity investments                                                                                                                                                                815                 479                     1,588                 1,118

                Cash flows used for operating activities                                                                                                                                            (2,913)           (12,680)                 (19,984)             (47,213)



              Purchase of property, plant, and equipment                                                                                                                                                       (1,383)           (20,541)                  (4,232)             (38,298)

              Addition of intangible assets                                                                                                                                                                    (2,443)            (5,060)                  (4,925)             (10,225)

              Change in short-term investments                                                                                                                                                                  17,500               (222)                   66,650                 (222)

              Distribution from equity investments                                                                                                                                                                                                                                  528

              Interest received                                                                                                                                                                                    173                 749                       826                 1,562

                Cash flows from (used for) investing activities                                                                                                                                      13,847            (25,074)                   58,319              (46,655)



              Repayment of principal on lease liabilities(1)                                                                                                                                                  (10,602)                                    (20,615)

              Interest paid(1)                                                                                                                                                                                 (6,325)                                    (12,402)

              Proceeds from share issuances                                                                                                                                                                                         2,076                                          2,764

                Cash flows from (used for) financing activities                                                                                                                                    (16,927)              2,076                  (33,017)                2,764


              Effect of foreign currency exchange rate changes on cash and cash                                                                                                                                    264                 394                         7                   471


                Net increase (decrease) in cash and cash equivalents during the                                                                                                                     (5,729)           (35,284)                    5,325              (90,633)

              Cash and cash equivalents, beginning of period                                                                                                                                                    52,344              94,907                    41,290               150,256

                Cash and cash equivalents, end of period                                                                                                                                             46,615              59,623                    46,615                59,623


                (1)The noted current period balances have been impacted by the adoption of IFRS 16. Refer to note 3 of the unaudited interim condensed 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         % increase /

              period ended
         period ended

              September 28,
         September 29,

              (millions of Canadian dollars)                                                                                                                 2019                        2018


              Revenue                                                                                                                                       203.4                       216.3                 (6.0)


              Other revenue(1)                                                                                                                              (4.4)                      (5.6)

              Stores not in both fiscal periods                                                                                                            (19.8)                     (15.9)


                Total comparable sales                                                                                                           179.2                       194.8                 (8.0)


                1 Includes cafés, irewards, gift card breakage, Plum breakage, corporate sales and Kobo revenue share.

              The following table reconciles adjusted EBITDA to loss before income taxes, the most comparable IFRS measure, and shows
    the impact of IFRS 16 to the Company's statement of loss in the period:



                                                                                                              period ended

           period ended
         period ended

                                                                                                             September 28,                                                        September 28,
         September 29,

                                                                                                                      2019                                                                  2019                  2018

                IFRS 16                         Impact of IFRS 16

              IAS 17
             IAS 17


              Revenue                                                                                               203.4                                                                 203.4                 216.3

              Cost of sales                                                                                       (118.6)                                                              (118.6)              (128.9)

              Cost of operations                                                                                   (60.9)                                    (15.4)                     (76.3)               (78.4)

              Selling, administrative and other expenses                                                           (25.2)                                     (1.5)                     (26.7)               (27.6)

                Adjusted EBITDA(1)                                                                       (1.3)                                    (16.9)                     (18.2)               (18.6)


               Depreciation of property, plant and equipment and right-of-
                use assets                                                                                          (16.1)                                      10.2                       (5.9)                (5.0)

              Amortization                                                                                          (3.3)                                                                (3.3)                (2.4)

              Loss on diposal of capital assets                                                                     (0.5)                                                                (0.5)                (0.1)

              Net interest income (expense)                                                                         (5.8)                                       6.3                         0.5                   0.8

              Share of loss from equity investments                                                                 (0.8)                                                                (0.8)                (0.5)

                Losses before income taxes                                                              (27.9)                                     (0.4)                     (28.3)               (25.8)


                (1)Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and equity investments.

SOURCE Indigo Books & Music Inc.

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SOURCE: Indigo Books & Music Inc.

Kate Gregory, Director, Public Relations, 416 364 4499 ext. 6659,
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