Indigo Net Earnings Up 29% for Key Holiday Quarter

Revenue Increases 3.1%

TORONTO, Jan. 25 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 29% increase in net earnings for its third quarter ending December 26, 2009. Net earnings for the quarter were $34.5 million compared to $26.8 million last year.

Revenue for the quarter was $340.2 million, up $10.2 million from the same quarter last year. On a comparable store basis, Indigo and Chapters superstores posted 3.4% growth, while Coles and Indigo Spirit small format stores were down 1.6%. Sales from Indigo's online channel, chapters.indigo.ca, decreased 2.7% to $29.3 million.

Commenting on the quarter's results, CEO Heather Reisman said, "We are very pleased to report these earnings, particularly in the current environment. The results reflect the impact of our ongoing efforts to improve store experience, productivity and customer loyalty. We are equally pleased with top line sales - achieved notwithstanding being against last year's massive success of the Stephenie Meyer Twilight Series. Our small format and online channels are particularly impacted by blockbuster releases."

During the quarter, the Company transferred all the assets of its digital reading initiative into a newly formed company, Kobo Inc. (www.kobobooks.com). 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. Indigo recorded a $2.1 million increase in pre-tax earnings as a result of the transaction and continues to own 58% of the company.

Reisman, who is Chair of Kobo, noted that "Indigo and Kobo are very well positioned to play a major role in the emerging eBook revolution both in Canada and globally."

During the quarter the Company opened one new superstore in Laval, Quebec with residents now enjoying an award winning book, toy and gift lover's haven in their market. During the quarter Indigo also opened expanded IndigoKids departments in Ottawa, Newmarket, Sudbury, and Thunder Bay continuing its strategy to make Indigo the ultimate family friendly destination.

The Company also announced today that its Board of Directors has declared a quarterly cash dividend of $0.10 per outstanding common share to be paid to shareholders of record as of the close of business on February 12, 2010, with a payment date of February 26, 2010.

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.

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 launched KOBO - 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 $7.5mm 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
                                 (Unaudited)

                                                 As at      As at      As at
                                              December   December      March
    (thousands of dollars)                    26, 2009   27, 2008   28, 2009
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                  202,763    168,092     92,169
    Accounts receivable                         16,231     17,689      9,890
    Inventories                                246,312    228,017    221,767
    Prepaid expenses                             5,090      4,740      5,118
    Future tax assets                            4,589      6,590      6,181
    -------------------------------------------------------------------------
    Total current assets                       474,985    425,128    335,125
    -------------------------------------------------------------------------
    Property, plant and equipment               78,669     67,938     72,137
    Future tax assets                           23,164     31,085     36,422
    Intangible assets                           20,317     13,774     16,299
    Goodwill                                    26,632     27,523     27,523
    -------------------------------------------------------------------------
    Total assets                               623,767    565,448    487,506
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities   333,319    312,262    233,353
    Deferred revenue                            12,180     11,101     11,612
    Income taxes payable                           703      2,308        344
    Current portion of long-term debt            2,388      2,740      2,734
    -------------------------------------------------------------------------
    Total current liabilities                  348,590    328,411    248,043
    -------------------------------------------------------------------------
    Long-term accrued liabilities                7,096      6,174      6,301
    Long-term debt                               1,328      2,210      2,272
    -------------------------------------------------------------------------
    Total liabilities                          357,014    336,795    256,616
    -------------------------------------------------------------------------
    Non-controlling interest                     7,905          -          -
    -------------------------------------------------------------------------
    Shareholders' equity
    Share capital                              196,585    196,471    196,471
    Contributed surplus                          4,641      3,365      3,685
    Retained earnings                           57,622     28,817     30,734
    -------------------------------------------------------------------------
    Total shareholders' equity                 258,848    228,653    230,890
    -------------------------------------------------------------------------
    Total liabilities and shareholders'
     equity                                    623,767    565,448    487,506
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



       Consolidated Statements of Earnings and Comprehensive Earnings
                                 (Unaudited)

                                    13-week    13-week    39-week    39-week
                                     period     period     period     period
                                      ended      ended      ended      ended
    (thousands of dollars,         December   December   December   December
     except per share data)        26, 2009   27, 2008   26, 2009   27, 2008
    -------------------------------------------------------------------------

    Revenues                        340,195    330,014    740,736    725,877
    Cost of sales, operations,
     selling and administration     287,717    283,462    674,384    662,519
    -------------------------------------------------------------------------
                                     52,478     46,552     66,352     63,358
    -------------------------------------------------------------------------
    Amortization of property,
     plant and equipment              5,079      5,341     14,909     16,900
    Amortization of intangible
     assets                           2,184      1,413      6,149      4,012
    Write-off of capital assets         455          -        455          -
    -------------------------------------------------------------------------
                                      7,718      6,754     21,513     20,912
    -------------------------------------------------------------------------
    Earnings before the undernoted
     items                           44,760     39,798     44,839     42,446
    Interest on long-term debt and
     financing charges                   49         69        167        248
    Interest income on cash and cash
     equivalents                        (45)      (391)      (181)    (1,184)
    Kobo dilution gain               (3,019)         -     (3,019)         -
    Deemed disposition of goodwill      891          -        891          -
    Non-controlling interest
     (recovery)                         (76)         -        (76)         -
    -------------------------------------------------------------------------
    Earnings before income taxes     46,960     40,120     47,057     43,382
    Income tax expense
      Current                         2,169      2,329      2,169      2,329
      Future                         10,261     11,021     10,462     12,320
    -------------------------------------------------------------------------
    Net earnings and comprehensive
     earnings for the period         34,530     26,770     34,426     28,733
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                    Consolidated Statements of Cash Flows
                                 (Unaudited)

                                    13-week    13-week    39-week    39-week
                                     period     period     period     period
                                      ended      ended      ended      ended
                                   December   December   December   December
    (thousands of dollars)         26, 2009   27, 2008   26, 2009   27, 2008
    -------------------------------------------------------------------------

    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net earnings                     34,530     26,770     34,426     28,733
    Add items not affecting cash
      Amortization of property,
       plant and equipment            5,079      5,341     14,909     16,900
      Stock-based compensation          299        219        810        641
      Directors' compensation            96         86        289        263
      Future tax assets              14,554     11,021     14,850     12,320
      Loss on disposal of property,
       plant and equipment               83          -        256         13
      Amortization of intangible
       assets                         2,184      1,413      6,149      4,012
    Write-off of capital assets         455          -        455          -
    Non-controlling interest            (76)         -        (76)         -
    Kobo dilution gain               (3,019)         -     (3,019)         -
      Deemed disposal of goodwill       891          -        891          -

    Net change in non-cash working
     capital balances related to
     operations
      Accounts receivable            (7,761)    (9,455)    (6,341)    (8,693)
      Inventories                   (12,122)   (12,843)   (24,545)   (21,758)
      Prepaid expenses                1,487        398         28        189
      Income taxes payable            1,569      2,329        359      2,329
      Deferred revenue                 (357)      (452)       568        751
      Accounts payable and accrued
       liabilities                   86,846     92,807    100,761    117,564
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                     124,738    117,634    140,770    153,264
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Purchase of property, plant
     and equipment                   (3,963)   (13,349)   (20,768)   (25,342)
    Addition of intangible assets    (4,518)    (3,117)   (10,577)    (8,026)
    Cash flows used in investing   ------------------------------------------
     activities                      (8,481)   (16,466)   (31,345)   (33,368)
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Repayment of long-term debt        (760)      (727)    (2,264)    (2,999)
    Proceeds from share issuances       110         10        239        287
    Repurchase of common shares        (446)    (2,395)      (446)    (5,025)
    Issuance of equity securities
     by subsidiary to
     non-controlling interest        11,000          -     11,000          -
    Dividends paid                   (2,453)         -     (7,360)         -
    -------------------------------------------------------------------------
    Cash flows from (used in)
     financing activities             7,451     (3,112)     1,169     (7,737)
    -------------------------------------------------------------------------

    Net increase in cash and cash
     equivalents during the
     period                         123,708     98,056    110,594    112,159
    Cash and cash equivalents,
     beginning of period             79,055     70,036     92,169     55,933
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                  202,763    168,092    202,763    168,092
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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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