Indigo Digital Business Grows 170%.....Core Business in Transition

TORONTO, Aug. 9, 2011 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 1.1% decrease in net revenue for its first quarter ending July 2, 2011. Revenue for the quarter was $202 million, down $2 million from last year driven primarily by lower physical book sales.  At the same time, Indigo's digital business grew 170% accelerating late in the quarter with the launch of the top rated Kobo Touch eReader.

Commenting on the results, CEO Heather Reisman said, "We are very pleased with the growth in our digital business…in the short term our retail business will be challenged however we are confident that our strategy to transition to become a full lifestyle retailer will bear fruit."

On a comparable store basis, Indigo and Chapters superstores posted a 5.4% decrease in revenue, while Coles and IndigoSpirit small format stores were down 5.2%.

During the quarter, the Company established a $3.2 million inventory provision for its annual summer clearance sale as it intends to discount more aggressively to clear a larger amount of product than in prior years.

The net loss attributable to shareholders of the Company for the quarter was $18 million compared to $5 million last year.  Ms. Reisman noted, "The results were expected as we invest both in the growth of our digital business and in preparing to launch our proprietary gift and lifestyle business in the fall of this year."

Indigo's majority held Kobo, a global leader in eReading, announced the launch of local content stores in Germany, the largest book market outside of the US, and in Spain in May 2011. Local stores, offering local-language content, apps and eReaders, for other select European markets will follow this summer - an industry first. In providing local content and reading experiences for European readers, Kobo continues to build on the vision of giving people around the world the freedom to read on any device and share their love of reading with friends.

During the quarter, Indigo launched it's free plum rewards program nationally, attracting over 1.3 million new members in the first three months of operation. Plum Rewards offer Indigo customers a free, points- based loyalty program that extends rewards in-store and online.  Indigo also launched 3 additional IndigoKids locations, reinforcing their position as Canada's largest specialty retailer of Kids' toys and edutainment products.

The Board of Directors today also approved a quarterly dividend of 11 cents per common share to be paid on September 7^th, 2011, to all shareholders of record as of August 23, 2011.

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.  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) and the majority shareholder of the global eReading service Kobo Inc. 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 division, http://www.chapters.indigo.ca, features books, eBooks, toys, gifts and, and hosts the award winning Indigo Online Community.  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 has contributed $10.5 million to schools in need. Visit loveofreading.org for more information.

To learn more about Indigo, please visit the About Our Company section of www.indigo.ca.

Consolidated Balance Sheets
(Unaudited)
		As at	As at	As at	As at
		July 2,	July 3,	April 2,	April 4,
(thousands of Canadian dollars)		2011	2010	2011	2010
ASSETS
Current
Cash and cash equivalents		73,385	85,510	83,661	103,898
Accounts receivable		14,380	10,827	12,684	8,455
Inventories		215,746	223,836	232,694	224,406
Income taxes recoverable		-	899	-	899
Prepaid expenses		6,840	5,948	7,941	6,771
Total current assets		310,351	327,020	336,980	344,429
Property, plant and equipment		76,532	74,831	78,777	74,800
Intangible assets		30,620	24,860	30,614	23,793
Deferred tax assets		66,093	48,625	38,004	48,214
Goodwill		26,632	26,632	26,632	26,632
Total assets		510,228	501,968	511,007	517,868
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities		165,382	172,965	180,899	179,063
Unredeemed gift card liability		41,600	37,460	40,991	37,816
Provisions		-	130	-	178
Deferred revenue		11,467	14,849	11,528	12,882
Income taxes payable		649	-	657	-
Notes payable		4,896	-	-	-
Current portion of long-term debt		1,281	1,460	1,290	1,863
Total current liabilities		225,275	226,864	235,365	231,802
Long-term accrued liabilities		5,275	6,841	6,284	8,203
Long-term debt		1,685	1,198	1,995	1,174
Total liabilities		232,235	234,903	243,644	241,179
Equity
Share capital		202,962	198,569	202,220	198,635
Contributed surplus		6,646	5,939	6,066	5,633
Retained earnings		42,135	57,270	48,629	65,496
Total equity attributable to shareholders of the Company		251,743	261,778	256,915	269,764
Non-controlling interest		26,250	5,287	10,448	6,925
Total equity		277,993	267,065	267,363	276,689
Total liabilities and equity		510,228	501,968	511,007	517,868

Consolidated Statements of Loss and Comprehensive Loss
(Unaudited)
	13-week	13-week
	period ended	period ended
	July 2,	July 3,
(thousands of Canadian dollars, except per share data)	2011	2010
Revenues	202,093	204,286
Cost of sales	125,395	117,755
Gross profit	76,698	86,531
Cost of operations	65,656	64,603
Selling and administrative expenses	30,766	22,954
Foreign currency translation	144	(192)
Operating loss before the following	(19,868)	(834)
Depreciation of property, plant and equipment	4,594	4,466
Amortization of intangible assets	3,625	2,412
Interest on long-term debt and financing charges	44	33
Interest income on cash and cash equivalents	(159)	(80)
Loss before income taxes	(27,972)	(7,665)
Income tax recovery	(3,778)	(411)
Net loss and comprehensive loss for the period	(24,194)	(7,254)
Net loss and comprehensive loss attributable to:
Shareholders of the Company	(18,105)	(5,360)
Non-controlling interest	(6,089)	(1,894)
Total net loss and comprehensive loss for the period	(24,194)	(7,254)
Net loss per common share
Basic	$(0.72)	$ (0.22)
Diluted	$(0.72)	$ (0.22)

Consolidated Statements of Cash Flows
(Unaudited)
	13-week	13-week
	period ended	period ended
	July 2,	July 3,
(thousands of Canadian dollars)	2011	2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	(24,194)	(7,254)
Add (deduct) items not affecting cash
Depreciation of property, plant and equipment	4,594	4,466
Amortization of intangible assets	3,625	2,412
Loss on disposal of capital assets	4	67
Stock-based compensation	595	223
Directors' compensation	149	112
Deferred tax assets	(3,602)	(411)
Interest on long-term debt and financing charges	44	33
Interest income on cash and cash equivalents	(159)	(80)
Other	261	(871)
Net change in non-cash working capital balances related to operations
Accounts receivable	(1,696)	(2,372)
Inventories	16,948	570
Prepaid expenses	1,101	823
Income taxes payable (recoverable)	(8)	-
Accounts payable and accrued liabilities	(16,526)	(7,460)
Unredeemed gift card liability	609	(356)
Provisions	-	(48)
Deferred revenue	(61)	1,967
Cash flows used in operating activities	(18,316)	(8,179)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of non-capital tax losses	(10,109)	-
Purchase of property, plant and equipment	(2,353)	(4,277)
Addition of intangible assets	(3,631)	(3,479)
Cash flows used in investing activities	(16,093)	(7,756)
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable	5,055	-
Repayment of long-term debt	(319)	(666)
Interest received	172	50
Proceeds from share issuances	578	74
Repurchase of common shares	-	(313)
Issuance of equity securities by subsidiary to non-controlling interest	21,345	-
Dividends paid	(2,767)	(2,722)
Cash flows from (used in) financing activities	24,064	(3,577)
Effect of foreign currency exchange rate changes on cash and cash equivalents	69	1,124
Net decrease in cash and cash equivalents during the period	(10,276)	(18,388)
Cash and cash equivalents, beginning of period	83,661	103,898
Cash and cash equivalents, end of period	73,385	85,510

 

For further information:

Janet Eger
Vice President, Public Relations
416 342 8561
[e-mail]