Indigo Q3 Results Reflect Strong Margin Improvement

- Improved Net Earnings, Growth in Online, Increased Investment to Accelerate Transformation -

TORONTO, Feb. 5, 2013 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 4.9% decrease in net revenue for its third quarter ending December 29, 2012. Revenue for the quarter was $335.6 million.  The decrease was due to lower eReader revenues and declining book sales, as consumers shift to digital reading, and the absence of any hit books as against two blockbusters last holiday.  The decrease in eReader and book revenue was partially offset by continued growth in the gift, lifestyle and toy businesses.

On a comparable store basis, Indigo and Chapters superstores posted a 5.0% decrease in revenue, while Coles and IndigoSpirit small format stores were down 5.2%.  Online sales increased 3.6% compared to the same period last year.  The increase was driven by growth in the gift, lifestyle and toys businesses and higher book sales.

Indigo generated higher gross profit compared to last year as a result of a 2.2% improvement in margin rate.  The improvement in margin rate can be attributed to a shift to higher margin gift and lifestyle products, lower sales discounts, fewer markdowns, and shipping more products through the Company's distribution centres.

In the quarter, the Company continued to make meaningful operating investments in its transformation. Commenting on the results, CEO Heather Reisman said, "We are pleased that our results reflect our efforts to dramatically improve margins and significantly expand our product mix in key categories and online to drive sales growth. We've made great strides during the quarter to accelerate our transformation while reinforcing our position as Canada's preferred destination for gift giving.  It is satisfying to know that customers continue to see Indigo as their gift destination of choice."

The net earnings attributable to shareholders of the Company increased $7.6 million from $14.4 million last year to $22.0 million this year.  The increase in the net earnings was due to the elimination of losses from discontinued operations as a result of the sale of Kobo in January 2013 partially offset by increased investment in the business transformation.  The net earnings per share improved from net earnings of $0.57 per share last year to net earnings of $0.87 per share.

The Board of Directors today approved a quarterly dividend of 11 cents per common share to be paid on March 6, 2013, to all shareholders of record as of February 19, 2013.

During the quarter, Indigo partnered nationally with the Governor General Literary Awards to showcase and support the best of the best in Canadian literature in both English and French.

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 the Indigo "Adopt A School" program, have contributed $13 million, equating to more than a 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
    December 29, December 31, March 31,
(thousands of Canadian dollars)   2012 2011 2012
ASSETS        
Current        
Cash and cash equivalents   314,692 148,610 207,601
Accounts receivable   27,075 21,690 12,627
Inventories   242,303 234,705 229,706
Prepaid expenses   4,151 3,915 3,695
Derivatives   - 1,747 -
Assets held for sale   - 117,551 -
Total current assets   588,221 528,218 453,629
         
Property, plant and equipment   61,085 70,409 67,464
Intangible assets   22,112 22,333 22,810
Goodwill   - 1,216 -
Deferred tax assets   46,310 60,290 48,633
Total assets   717,728 682,466 592,536
LIABILITIES AND EQUITY        
Current        
Accounts payable and accrued liabilities   272,760 241,553 174,201
Unredeemed gift card liability   63,639 60,959 42,711
Provisions   221 - 232
Deferred revenue   13,882 12,110 11,234
Income taxes payable   111 310 65
Notes payable   - 5,224 -
Current portion of long-term debt   811 1,163 1,060
Liabilities associated with assets held for sale   - 114,400 -
Total current liabilities   351,424 435,719 229,503
Long-term accrued liabilities   4,153 4,820 5,800
Long-term provisions   285 - 460
Long-term debt   856 1,327 1,141
Total liabilities   356,718 441,866 236,904
Equity        
Share capital   203,733 203,254 203,373
Contributed surplus   7,858 6,860 7,039
Retained earnings   149,419 16,468 145,220
Total equity attributable to shareholders of Indigo   361,010 226,582 355,632
Non-controlling interest   - 14,018 -
Total equity   361,010 240,600 355,632
Total liabilities and equity   717,728 682,466 592,536

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
(Unaudited)
         
  13-week 13-week 39-week 39-week
  period ended period ended period ended period ended
  December 29, December 31, December 29, December 31,
(thousands of Canadian dollars, except per share data) 2012 2011 2012 2011
         
Revenues 335,572 352,858 707,644 738,111
Cost of sales 190,838 208,456 397,713 431,035
Gross profit 144,734 144,402 309,931 307,076
Operating and administrative expenses 115,679 112,721 296,828 320,991
Operating earnings (loss) 29,055 31,681 13,103 (13,915)
Interest on long-term debt and financing charges 29 34 89 117
Interest income on cash and cash equivalents (685) (25) (1,844) (40)
Earnings (loss) before income taxes 29,711 31,672 14,858 (13,992)
Income tax expense 7,676 7,961 2,323 3,109
Earnings (loss) and comprehensive earnings (loss) for the period from continuing operations 22,035 23,711 12,535 (17,101)
Loss and comprehensive loss for the period from discontinued operations (net of tax) - (17,906) - (41,679)
Net earnings (loss) and comprehensive earnings (loss) for the period 22,035 5,805 12,535 (58,780)
         
Net earnings (loss) and comprehensive earnings (loss) attributable to:        
Shareholders of Indigo 22,035 14,362 12,535 (38,863)
Non-controlling interest - (8,557) - (19,917)
         
Net earnings (loss) per common share from continuing operations        
Basic $0.87 $0.94 $0.50 $(0.68)
Diluted $0.86 $0.93 $0.49 $(0.68)
         
Net loss per common share from discontinued operations        
Basic $ - $(0.37) $ - $(0.86)
Diluted $ - $(0.37) $ - $(0.86)
         
Net earnings (loss) per common share        
Basic $0.87 $0.57 $0.50 $(1.54)
Diluted $0.86 $0.56 $0.49 $(1.54)

Consolidated Statements of Cash Flows
(Unaudited)
  13-week 13-week 39-week 39-week
  period ended period ended period ended period ended
  December 29, December 31, December 29, December 31,
(thousands of Canadian dollars) 2012 2011 2012 2011
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net earnings (loss) from continuing operations for the period 22,035 23,711 12,535 (17,101)
Add (deduct) items not affecting cash        
  Depreciation of property, plant and equipment 4,427 4,810 13,475 13,826
  Amortization of intangible assets 2,617 2,082 7,554 6,266
  Impairment of capital assets - 3,956 250 3,956
   Impairment of goodwill - - - 25,416
  Loss on disposal of capital assets - 50 44 65
  Stock-based compensation 210 196 569 866
  Directors' compensation 101 117 330 384
  Deferred tax assets 7,676 7,961 2,323 3,109
  Other (175) 2,453 (418) 43
Net change in non-cash working capital balances related to continuing operations 93,699 97,121 92,802 85,620
Interest on long-term debt and financing charges 29 34 89 117
Interest income on cash and cash equivalents (685) (25) (1,844) (40)
Income taxes received - - 45 -
Operating cash flows of discontinued operations - (51,874) - (68,687)
Cash flows from operating activities 129,934 90,592 127,754 53,840
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Acquisition of non-capital tax losses - - - (10,559)
Purchase of property, plant and equipment (3,401) (4,682) (6,949) (10,530)
Addition of intangible assets (2,262) (2,152) (6,876) (6,040)
Investing cash flows of discontinued operations - (3,289) - (7,936)
Cash flows used in investing activities (5,663) (10,123) (13,825) (35,065)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Notes payable - - - 5,280
Repayment of long-term debt (280) (335) (964) (1,047)
Interest received 629 15 1,753 109
Proceeds from share issuances 50 - 280 578
Purchase of shares in subsidiary - - - (3,009)
Dividends paid (2,780) (2,776) (8,336) (8,315)
Financing cash flows of discontinued operations - 50,604 - 75,082
Cash flows from (used in) financing activities (2,381) 47,508 (7,267) 68,678
         
Effect of foreign currency exchange rate changes on cash and cash equivalents 204 (2,422) 429 (68)
         
Net increase in cash and cash equivalents during the period 122,094 125,555 107,091 87,385
Cash and cash equivalents, beginning of period 192,598 45,491 207,601 83,661
Cash and cash equivalents, end of period 314,692 171,046 314,692 171,046
         
Cash and cash equivalents attributable to:        
Continuing operations 314,692 148,610 314,692 148,610
Discontinued operations - 22,436 - 22,436
  314,692 171,046 314,692 171,046

 

SOURCE: Indigo Books & Music Inc.

For further information:

Janet Eger
Vice President, Public Relations
416 342 8561
jeger@indigo.ca