Indigo Reports First Quarter Financial Results

TORONTO, Aug. 13, 2019 /CNW/ – Indigo Books & Music Inc. (TSX:IDG), Canada’s largest book, gift and specialty toy retailer reported total comparable sales decline of 7.6% for the first quarter of its current 2020 fiscal year, including both online sales and comparable store sales.

Indigo Books & Music Inc. (CNW Group/Indigo Books & Music Inc.)

Revenue for the first quarter ended June 29, 2019 was $192.6 million compared to $205.4 million for the same period last year, a decrease of $12.8 million. This decline in sales was the result of a strategic shift to reduce promotional activity to improve profitability and eliminate unprofitable sales. Together with stronger inventory management, this strategic shift led to margin rate improvements of 0.8% in the first quarter. Additionally, the general merchandise business continues to be affected by softer discretionary spending in certain categories core to the Company, while the book business has sustained historical trends. 

Commenting on the results, CEO Heather Reisman said: “This quarter’s results were in line with our expectations. While we continue to face many of the same headwinds from last year, strategic steps to recharge growth, increase productivity and improve profitability are well underway. We remain confident in our investments over the long term and in the steps we are taking.”

Indigo reported a net loss of $19.1 million ($0.69 net loss per common share) compared to a net loss of $15.4 million ($0.57 net loss per common share) last year. This decline in profitability was attributed to the decline in sales and restructuring costs, partially offset by lower selling, administrative and other expenses as the Company continues its cost-cutting initiatives. Additionally, the Company’s loss position was unfavourably impacted by higher amortization in the current period, driven by an increase in the Company’s capital asset base from growth in recent years.

Adoption of IFRS 16, Leases

The Company adopted IFRS 16 Leases (“IFRS 16”) in the first quarter of fiscal 2020, replacing IAS17 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 first quarter 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, August 14th, 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 63479256.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Wednesday, August 21st, 2019. The call playback can be accessed after 11:00 a.m. (ET) on Wednesday, August 14th, 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 479256#. 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.


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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 this press release. 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 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, 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 $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 indigo.ca.

Consolidated Balance Sheets

 As at

 As at

 As at

 June 29,

 June 30,

 March 30,

(thousands of Canadian dollars)

2019

2018

2019

ASSETS

Current

Cash and cash equivalents

52,344

94,907

41,290

Short-term investments

38,000

60,000

87,150

Accounts receivable

12,325

12,370

10,543

Inventories

241,868

257,718

252,541

Prepaid expenses

7,652

6,845

5,802

Income taxes receivable

573

483

Derivative assets

3,216

1,070

Other assets

871

922

853

Total current assets

353,633

435,978

399,732

Property, plant, and equipment, net

122,362

94,708

125,906

Right-of-use assets, net1

411,752

Intangible assets, net

31,743

27,184

32,527

Equity investments

3,588

3,163

4,359

Deferred tax assets1

94,243

40,431

47,940

Total assets

1,017,321

601,464

610,464

LIABILITIES AND EQUITY

Current

Accounts payable and accrued liabilities1 

154,886

159,111

179,180

Unredeemed gift card liability

48,794

42,027

48,729

Provisions

200

160

60

Deferred revenue

7,897

7,180

7,636

Income taxes payable 

152

Short-term lease liabilities1

43,833

Derivative liabilities

924

106

Total current liabilities

256,534

208,736

235,605

Long-term accrued liabilities1

1,877

2,472

4,698

Long-term provisions

45

45

45

Long-term lease liabilities1

518,028

Total liabilities

776,484

211,253

240,348

Equity

Share capital

225,531

222,699

225,531

Contributed surplus

13,048

12,041

12,716

Retained earnings1

3,159

153,196

131,311

Accumulated other comprehensive income (loss) 

(901)

2,275

558

Total equity

240,837

390,211

370,116

Total liabilities and equity

1,017,321

601,464

610,464

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

Consolidated Statements of Loss and Comprehensive Loss

13-week

13-week

period ended

period ended

June 29,

June 30,

(thousands of Canadian dollars, except per share data)

2019

2018

Revenue 

192,556

205,376

Cost of sales 

(108,682)

(117,463)

Gross profit

83,874

87,913

Operating, selling, and administrative expenses1

(103,571)

(108,788)

Operating loss1

(19,697)

(20,875)

Net interest income (expense)1

(5,424)

810

Share of loss from equity investments

(773)

(639)

Loss before income taxes1

(25,894)

(20,704)

Income tax recovery1

6,824

5,315

Net loss1

(19,070)

(15,389)

Other comprehensive income (loss)

Items that are or may be reclassified subsequently to net loss:

Net change in fair value of cash flow hedges
[net of taxes of 368; 2018 – (554)]

(1,004)

1,505

Reclassification of net realized gain
[net of taxes of 167; 2018 – 16]

(455)

(45)

Other comprehensive income (loss)

(1,459)

1,460

Total comprehensive loss

(20,529)

(13,929)

Net loss per common share1

Basic

$

(0.69)

$

(0.57)

Diluted 

$

(0.69)

$

(0.57)

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

Consolidated Statements of Cash Flows

13-week

13-week 

period ended

period ended

June 29,

June 30,

(thousands of Canadian dollars)

2019

2018

OPERATING ACTIVITIES 

Net loss1

(19,070)

(15,389)

Adjustments to reconcile net loss to cash flows used for operating activities

Depreciation of property, plant, and equipment and right-of-use assets1

15,765

5,127

Amortization of intangible assets

3,266

2,192

Loss on disposal of capital assets

461

240

Share-based compensation 

248

489

Directors’ compensation

84

89

Deferred income tax recovery1

(6,824)

(5,406)

Other

256

(81)

Net change in non-cash working capital balances related to operations1

(17,453)

(21,623)

Interest expense1

6,077

3

Interest income

(653)

(813)

Share of loss from equity investments

773

639

Cash flows used for operating activities

(17,070)

(34,533)

INVESTING ACTIVITIES

Purchase of property, plant, and equipment

(2,849)

(17,757)

Addition of intangible assets 

(2,482)

(5,165)

Change in short-term investments

49,150

Distribution from equity investments

528

Interest received

653

813

Cash flows from (used for) investing activities

44,472

(21,581)

FINANCING ACTIVITIES

Repayment of principal on lease liabilities1

(10,013)

Interest paid1

(6,078)

Proceeds from share issuances

688

Cash flows from (used for) financing activities

(16,091)

688

Effect of foreign currency exchange rate changes on cash and cash equivalents

(257)

77

Net increase (decrease) in cash and cash equivalents during the period

11,054

(55,349)

Cash and cash equivalents, beginning of period

41,290

150,256

Cash and cash equivalents, end of period

52,344

94,907

1The noted current period balances have been impacted by the adoption of IFRS 16. 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

% increase

June 29,

June 30,

(millions of Canadian dollars)

2019

2018

 (decrease)

Revenue

192.6

205.4

(6.2)

Adjustments

Other revenue1

(3.2)

(5.4)

Stores not in both fiscal periods

(21.8)

(18.6)

Total comparable sales

167.6

181.4

(7.6)

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

SOURCE Indigo Books & Music Inc.

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