Indigo Fiscal-Year Earnings Up 14%

Revenue Rises 3.0%

TORONTO, May 31 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 14% increase in net earnings for its fiscal year ending April 3, 2010. Net earnings for the year were $34.9 million compared to $30.7 million last year. The Company noted that this year was a 53-week reporting period.

Revenue for the year was $969 million, up $28.5 million, or 3.0% from last year. On a 52 week, comparable store basis, Indigo and Chapters superstores posted 0.6% growth, while Coles and Indigo Spirit small format stores were down 2.2%. Sales from Indigo's online channel, chapters.indigo.ca, decreased 4.8%.

Commenting on the results, CEO Heather Reisman said, "We are pleased with our bottom line improvement, particularly since we invested significant capital and operating expense in Kobo, our digital reading initiative. We are also very pleased with the growth in our lifestyle and toy businesses, which allowed us to report top line growth against a year which included phenomenal sales from Stephanie Meyer's Twilight series. This confirms that our strategy of enriching our assortment is being well accepted by our customers."

Revenue for the fourth quarter was up $13.7 million over the same quarter last year. The Company noted that this was a 14-week reporting period. On a 13 week, comparable store basis, Indigo and Chapters superstores were down 2.7% while Coles and Indigo Spirit small format stores were down 5.8%. Sales from Indigo's online channel, chapter.indigo.ca, decreased 3.3%.

Ms Reisman noted, "The last quarter was a challenging one for us, with no blockbuster hit to compete with last year's over-the-top success of Stephanie Meyer. Our store traffic was also down materially during the two weeks of the Olympics as Canadians stayed home to cheer on our athletes."

Net earnings for the quarter were $0.5 million compared to $1.9 million last year. This quarter included significant expense related to the start up and growth of Kobo, which the Company expects will continue in the coming fiscal year.

Shortly after the close of the fiscal year, Canadian retailers, including Indigo, launched Kobo eReaders in-store nationally and online to high demand. Retailers in the United States and Australia will launch the Kobo eReader in May and June, 2010.

Indigo transferred all of the assets of its digital reading initiative into a newly formed company, Kobo Inc. (www.kobobooks.com) in December, 2009. Kobo subsequently raised $16 million in funding from strategic partners, including $5 million from Indigo, and investment from US based Borders Group Inc., Instant Fame, a division of Cheung Kong (Holdings) Limited of Hong Kong, and REDGroup Retail PTY Ltd of Australia.

In the fiscal year, the Company opened six new superstores across the country. New stores were opened in Surrey, BC; Calgary, AB (2); Edmonton, AB; Milton, ON; and Laval, QC and residents of those cities now enjoy award winning book, toy and gift lover's havens in their market. Indigo also expanded their IndigoKids departments in 30 locations continuing their strategy to make Indigo the ultimate family friendly destination and the largest specialty toy retailer in Canada.

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-GAAP Financial Measures

The Company prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles. In order to provide additional insight into the business, the Company has also provided non-GAAP data, including comparative store sales growth, in the press release above. This measure does not have a standardized meaning prescribed by GAAP, 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 (TSX:IDG). As the largest book, gift and specialty toy retailer in the country, 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, www.chapters.indigo.ca, features books, eBooks, toys, music and DVDs, and hosts the award winning Indigo Online Community. In 2008, Indigo launched Pistachio, an eco-aware lifestyle store. In 2009, Indigo spun off their digital eReading division to launch KOBO Inc. - a leading destination for eReading.

Chapters and Indigo are rated as the number one and number two most favoured retailers in Canada by the Kubas Major Market Retail Report, and have occupied the list since 2000.

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 $9 mm to schools in need.

Visit loveofreading.org for more information.

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

    
                         Consolidated Balance Sheets
                                                         As at         As at
                                                       April 3,     March 28,
    (thousands of dollars)                                2010          2009
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                          103,898        92,169
    Accounts receivable                                  8,455         9,890
    Inventories                                        224,406       221,767
    Income taxes recoverable                               899             -
    Prepaid expenses                                     6,771         5,118
    Future tax assets                                    6,615         6,181
    -------------------------------------------------------------------------
    Total current assets                               351,044       335,125
    -------------------------------------------------------------------------
    Property, plant and equipment                       77,478        72,137
    Future tax assets                                   40,894        36,422
    Intangible assets                                   23,794        16,299
    Goodwill                                            26,632        27,523
    -------------------------------------------------------------------------
    Total assets                                       519,842       487,506
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities           229,920       233,353
    Deferred revenue                                    12,882        11,612
    Income taxes payable                                     -           344
    Current portion of long-term debt                    1,863         2,734
    -------------------------------------------------------------------------
    Total current liabilities                          244,665       248,043
    -------------------------------------------------------------------------
    Long-term accrued liabilities                        8,203         6,301
    Long-term debt                                       1,174         2,272
    -------------------------------------------------------------------------
    Total liabilities                                  254,042       256,616
    -------------------------------------------------------------------------

    Non-controlling interest                             6,831             -

    Shareholders' equity
    Share capital                                      198,635       196,471
    Contributed surplus                                  4,670         3,685
    Retained earnings                                   55,664        30,734
    -------------------------------------------------------------------------
    Total shareholders' equity                         258,969       230,890
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity         519,842       487,506
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



       Consolidated Statements of Earnings and Comprehensive Earnings

                                                       53-week       52-week
                                                  period ended  period ended
                                                       April 3,     March 28,
    (thousands of dollars, except per share data)         2010          2009
    -------------------------------------------------------------------------

    Revenues                                           968,927       940,399
    Cost of sales, operations, selling and
     administration                                    895,930       867,945
    -------------------------------------------------------------------------
                                                        72,997        72,454
    -------------------------------------------------------------------------
    Depreciation of property, plant and equipment       19,682        22,223
    Amortization of intangible assets                    8,326         5,638
    Write-off of capital assets                          1,086             -
    -------------------------------------------------------------------------
                                                        29,094        27,861
    -------------------------------------------------------------------------
    Earnings before the undernoted items                43,903        44,593
    Interest on long-term debt and financing charges       214           309
    Interest income on cash and cash equivalents          (333)       (1,443)
    Dilution gain on sale of non-controlling
     interest in subsidiary                             (3,019)            -
    Deemed disposition of goodwill                         891             -
    -------------------------------------------------------------------------
    Earnings before income taxes and non-controlling
     interest                                           46,150        45,727
    Income tax expense
      Current                                            1,481           344
      Future                                            11,056        14,733
    -------------------------------------------------------------------------
                                                        12,537        15,077
    -------------------------------------------------------------------------
    Earnings before non-controlling interest            33,613        30,650
    Non-controlling interest                            (1,310)            -
    -------------------------------------------------------------------------
    Net earnings and comprehensive earnings for the
     period                                             34,923        30,650
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per common share
    Basic                                         $       1.42  $       1.24
    Diluted                                       $       1.39  $       1.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                    Consolidated Statements of Cash Flows

                                                       53-week       52-week
                                                  period ended  period ended
                                                       April 3,     March 28
    (thousands of dollars)                                2010          2009
    -------------------------------------------------------------------------

    CASH FLOWS FROM OPERATING ACTIVITIES
    Net earnings                                        34,923        30,650
    Add (deduct) items not affecting cash
      Depreciation of property, plant and equipment     19,682        22,223
      Amortization of intangible assets                  8,326         5,638
      Stock-based compensation                           1,130           862
      Directors' stock-based compensation                  378           362
      Future tax assets                                  2,842        10,324
      Loss on disposal of capital assets                   290            30
      Write-off of capital assets                        1,086             -
      Non-controlling interest                          (1,310)            -
      Dilution gain on sale of non-controlling
       interest in subsidiary                           (3,019)            -
      Deemed disposal of goodwill                          891             -
      Other                                              1,387           883

    Net change in non-cash working capital balances
     related to operations
      Accounts receivable                                1,435          (894)
      Inventories                                       (2,639)      (15,508)
      Prepaid expenses                                  (1,653)         (189)
      Income taxes payable (recoverable)                (1,243)          365
      Deferred revenue                                   1,270         1,262
      Accounts payable and accrued liabilities          (1,531)       38,782
    -------------------------------------------------------------------------
    Cash flows from operating activities                62,245        94,790
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property, plant and equipment          (24,927)      (34,041)
    Addition of intangible assets                      (16,231)      (12,176)
    Acquisition of non-capital tax losses               (7,748)       (2,932)
    -------------------------------------------------------------------------
    Cash flows used in investing activities            (48,906)      (49,149)
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING ACTIVITIES
    Repayment of long-term debt                         (3,031)       (3,784)
    Proceeds from share issuances                        1,909           287
    Repurchase of common shares                           (446)       (5,025)
    Issuance of equity securities by subsidiary to
     non-controlling interest                           11,000             -
    Dividends paid                                      (9,815)            -
    -------------------------------------------------------------------------
    Cash flows used in financing activities               (383)       (8,522)
    -------------------------------------------------------------------------

    Effect of foreign currency exchange rate
     changes on cash and cash equivalents               (1,227)         (883)

    Net increase in cash and cash equivalents
     during the period                                  11,729        36,236
    Cash and cash equivalents, beginning of period      92,169        55,933
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period           103,898        92,169
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE Indigo Books & Music Inc.

For further information: For further information: Janet Eger, Director, Public Relations, (416) 342-8561, jeger@indigo.ca


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