Indigo Reports Full Year Results

Accelerates Transformation

TORONTO, May 27, 2014 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported revenue of $868 million for its fiscal year ended March 29, 2014. Total revenue decreased 1.3% compared to the previous year which was extraordinarily impacted by the Fifty Shades and Hunger Game trilogies. Lower eReader sales and the Company operating five fewer stores also had some impact on revenue. Excluding the impact of the Fifty Shades and Hunger Game trilogies, revenue increased 1.3%.

On a comparable store basis, Indigo and Chapters superstore revenue decreased 0.9%, while Coles and Indigospirit small format store revenue decreased 5.0%. Excluding the blockbuster titles, comparable store sales increased 1.3% in superstores and 0.4% in small format stores.

Commenting on the results, CEO Heather Reisman said, "In an industry which is world-wide experiencing meaningful sales declines, we are pleased with the customer response to all our transformation efforts, with the sales performance, and with the potential for further growth and profitability moving forward."

The Company reported a net loss for the year of $31 million compared to net earnings of $4.3 million last year. The loss was the result of significant operating investments in the Company to accelerate its transformation, somewhat lower margin rates due to an increasingly competitive retail environment, higher non-cash tax expense as the Company recorded a valuation allowance against its tax assets, higher severance costs due to a reorganization of its workforce during the fourth quarter, and higher non-cash store impairment charges.

Revenue for the fourth quarter was $184 million, up $0.3 million from the same quarter last year. Net loss for the quarter was $14 million compared to a net loss of $8.2 million last year. The increased loss was due to lower margin rates, non-cash store impairment charges, severance costs, and ongoing investments in the Company's transformational strategy.

Further commenting on the results, CEO Heather Reisman said, "We feel strongly that the investments made to accelerate our transformation are absolutely right to ensure Indigo remains a strong, vibrant and valued brand for customers, employees and shareholders.   Based on performance so far this quarter, we are certainly seeing the traction we hoped for with our investments."

Subsequent to the quarter, Indigo launched the first two American Girl® Specialty Boutiques outside of the United States to the delight of thousands of Canadian fans. The launch of the 1800 square foot boutiques located at Indigo's Yorkdale Mall location, and Chapters on Robson Street in Vancouver serve to reinforce Indigo's commitment to the importance of creative play for kids in partnership with one of the most adored and iconic brands in the world.  Response has been outstanding.

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 consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). 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; 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 grants $1.5 million to 20 high-needs elementary schools so they can transform their libraries with the purchase of new books and education resources. To date, the Indigo Love of Reading Foundation's Literacy Fund has committed $15.5 million to more than 170 schools nationally. The Foundation's annual grassroots Adopt a School program unites employees, customer, schools and their communities to raise funds to put even more books into the hands of children. Over the past five years we have raised over $2.0 million so 400,000 children have a book to call their own.

To learn more about Indigo, please visit the Our Company section at indigo.ca.

Consolidated Balance Sheets
             
    As at   As at   As at
    March 29,   March 30,   April 1,
(thousands of Canadian dollars)   2014   2013   2012
ASSETS            
Current            
Cash and cash equivalents   157,578   210,562   206,718
Accounts receivable   5,582   7,126   12,810
Inventories   218,979   216,533   229,199
Prepaid expenses   5,184   4,153   3,692
Total current assets   387,323   438,374   452,419
             
Property, plant and equipment   58,476   58,903   66,928
Intangible assets   21,587   22,164   22,810
Equity investment   598   968   961
Deferred tax assets   44,604   48,731   48,633
Total assets   512,588   569,140   591,751
LIABILITIES AND EQUITY            
Current            
Accounts payable and accrued liabilities   136,428   150,177   173,416
Unredeemed gift card liability   46,827   47,169   42,711
Provisions   928   2,168   232
Deferred revenue   12,860   13,733   11,234
Income taxes payable   -   11   65
Current portion of long-term debt   584   773   1,060
Total current liabilities   197,627   214,031   228,718
Long-term accrued liabilities   2,896   4,004   5,800
Long-term provisions   164   78   460
Long-term debt   227   705   1,141
Total liabilities   200,914   218,818   236,119
Equity            
Share capital   203,812   203,805   203,373
Contributed surplus   8,820   8,128   7,039
Retained earnings   99,042   138,389   145,220
Total equity   311,674   350,322   355,632
Total liabilities and equity   512,588   569,140   591,751
             

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
         
  13-week 13-week 52-week 52-week
  period ended period ended period ended period ended
  March 29, March 30, March 29, March 29,
(thousands of Canadian dollars, except per share data) 2014 2013 2014 2013
         
Revenues 184,333 183,976 867,668 878,785
Cost of sales (106,298) (102,915) (493,955) (495,099)
Gross profit 78,035 81,061 373,713 383,686
Operating, selling and administrative expenses (98,620) (92,551) (403,693) (383,319)
Operating profit (loss) (20,585) (11,490) (29,980) 367
Interest on long-term debt and financing charges (13) (32) (95) (101)
Interest income on cash and cash equivalents 611 765 2,377 2,609
Share of earnings (loss) from equity investment (211) 89 789 1,315
Earnings (loss) before income taxes (20,198) (10,668) (26,909) 4,190
Income tax recovery (expense)        
     Current 37 - 37 -
     Deferred 5,783 2,421 (4,127) 98
Net earnings (loss) and comprehensive earnings (loss) for the period (14,378) (8,247) (30,999) 4,288
         
Net earnings (loss) per common share        
Basic $(0.56) $(0.32) $(1.21) $0.17
Diluted $(0.56) $(0.32) $(1.21) $0.17
         

Consolidated Statements of Cash Flows
         
  13-week 13-week 52-week 52-week
  period ended period ended period ended period ended
  March 29, March 30, March 29, March 30,
(thousands of Canadian dollars) 2014 2013 2014 2013
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net earnings (loss) for the period (14,378) (8,247) (30,999) 4,288
Add (deduct) items not affecting cash        
  Depreciation of property, plant and equipment 4,144 4,313 16,358 17,638
  Amortization of intangible assets 2,925 2,691 11,123 10,245
  Net impairment of capital assets 2,099 - 2,604 250
  Loss on disposal of capital assets 189 21 302 65
  Stock-based compensation 317 174 1,242 743
  Directors' compensation 81 116 425 446
  Deferred tax assets (5,783) (2,421) 4,127 (98)
  Other 224 (42) (206) (482)
Net change in non-cash working capital balances (93,143) (88,979) (19,196) 1,089
Interest on long-term debt and financing charges 13 32 95 101
Interest income on cash and cash equivalents (611) (765) (2,377) (2,609)
Income taxes received (paid) - (13) 26 32
Share of earnings (loss) from equity investment 211 (89) (789) (1,315)
Cash flows from (used in) operating activities (103,712) (93,209) (17,265) 30,393
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of property, plant and equipment (2,512) (2,572) (18,700) (9,441)
Addition of intangible assets (2,473) (2,745) (10,546) (9,621)
Distributions from equity investment 800 1,201 1,159 1,308
Interest received 640 791 2,463 2,691
Cash flows used in investing activities (3,545) (3,325) (25,624) (15,063)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Notes payable - - - 190
Repayment of long-term debt (194) (236) (814) (1,200)
Interest paid (40) (33) (110) (160)
Proceeds from share issuances - 52 7 332
Dividends paid - (2,783) (8,348) (11,119)
Repurchase of options - - (975) -
Cash flows used in financing activities (234) (3,000) (10,240) (11,957)
         
Effect of foreign currency exchange rate changes on cash and cash equivalents (223) 20 145 471
         
Net increase (decrease) in cash and cash equivalents during the period (107,714) (99,514) (52,984) 3,844
Cash and cash equivalents, beginning of period 265,292 310,076 210,562 206,718
Cash and cash equivalents, end of period 157,578 210,562 157,578 210,562

 

SOURCE Indigo Books & Music Inc.

For further information:

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