Indigo Q1 Revenue Up 5.5%

Digital Business Grows Rapidly

TORONTO, Aug. 9 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 5.5% growth in revenue for its first quarter ending July 3, 2010.

Revenue for the quarter was $204.3 million, up $10.7 million from last year. On a comparable store basis, Indigo and Chapters superstores posted 1.5% growth, while Coles and Indigo Spirit small format stores were down 0.7%. Sales from Indigo's online channel, chapters.indigo.ca were flat to last year.

Commenting on the results, CEO Heather Reisman said, "We are pleased with our top line revenue growth, particularly from our rapidly growing digital business. Consumers have responded very favourably to our Kobo eReader launched in late May, and the business continues to gain traction in markets around the world."

Net loss for the quarter, historically the Company's weakest in any fiscal year, was $5.3 million compared to $2.3 million last year. Ms Reisman noted, "The increased loss is not unexpected as we continue to invest significantly in the growth and development of Kobo. We expect this investment to pay off materially in the mid to longer term".

The Board of Directors today also approved a quarterly dividend of 11 cents per common share to be paid on September 13th, 2010, to all shareholders of record as of August 30th, 2010.

During the quarter, the Company rolled out their Kobo eReader to Indigo and Chapters stores nationally. Indigo also launched an innovative "Teen Read Award" marketing program in-store and online at www.teenreadawards.ca to celebrate and reward the legions of Young Adult fiction fans who have propelled the division's substantial growth over the last five years. Additionally, the Indigo Love of Reading Foundation awarded $1.5 million in grants to 20 high-needs elementary schools across the country, bringing their commitment to $9 million dollars since the foundation launched in 2004. To date, Indigo has supported 90 schools nationally through the program.

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
                                 (Unaudited)

                                                 As at      As at      As at
                                                July 3,   June 27,   April 3,
    (thousands of dollars)                        2010       2009       2010
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                   84,314     69,165    103,489
    Restricted cash                              1,196        363        409
    Accounts receivable                         10,827      7,910      8,455
    Inventories                                223,836    208,208    224,406
    Income taxes recoverable                       899          -        899
    Prepaid expenses                             5,948      5,631      6,771
    Future tax assets                            7,036      6,717      6,615
    -------------------------------------------------------------------------
    Total current assets                       334,056    297,994    351,044
    -------------------------------------------------------------------------
    Property, plant and equipment               77,470     70,597     77,478
    Future tax assets                           40,894     36,422     40,894
    Intangible assets                           24,861     17,612     23,794
    Goodwill                                    26,632     27,523     26,632
    -------------------------------------------------------------------------
    Total assets                               503,913    450,148    519,842
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities   223,418    197,859    229,920
    Deferred revenue                            14,849     12,434     12,882
    Dividends payable                                -      2,453          -
    Income taxes payable                             -        344          -
    Current portion of long-term debt            1,460      2,538      1,863
    -------------------------------------------------------------------------
    Total current liabilities                  239,727    215,628    244,665
    -------------------------------------------------------------------------
    Long-term accrued liabilities                6,841      6,123      8,203
    Long-term debt                               1,198      1,868      1,174
    -------------------------------------------------------------------------
    Total liabilities                          247,766    223,619    254,042
    -------------------------------------------------------------------------
    Non-controlling interest                     5,160          -      6,831
    Shareholders' equity
    Share capital                              198,561    196,508    198,635
    Contributed surplus                          4,936      4,044      4,670
    Retained earnings                           47,490     25,977     55,664
    -------------------------------------------------------------------------
    Total shareholders' equity                 250,987    226,529    258,969
    -------------------------------------------------------------------------
    Total liabilities and shareholders'
     equity                                    503,913    450,148    519,842
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



           Consolidated Statements of Loss and Comprehensive Loss
                                 (Unaudited)

                                                        13-week      13-week
                                                         period       period
                                                          ended        ended
                                                         July 3,     June 27,
    (thousands of dollars, except per share data)          2010         2009
    -------------------------------------------------------------------------

    Revenues                                            204,286      193,551
    Cost of sales, operations, selling and
     administration                                     205,014      189,592
    -------------------------------------------------------------------------
                                                           (728)       3,959
    -------------------------------------------------------------------------
    Depreciation of property, plant and equipment         4,505        4,912
    Amortization of intangible assets                     2,412        1,841
    -------------------------------------------------------------------------
                                                          6,917        6,753
    -------------------------------------------------------------------------
    Loss before the undernoted items                     (7,645)      (2,794)
    Interest on long-term debt and financing charges         33           57
    Interest income on cash and cash equivalents            (80)        (11)
    -------------------------------------------------------------------------
    Loss before income taxes and non-controlling
     interest                                            (7,598)     (2,840)
    Income tax recovery                                    (421)       (536)
    Loss before non-controlling interest                 (7,177)     (2,840)
    Non-controlling interest                             (1,869)          -
    -------------------------------------------------------------------------
    Net loss and comprehensive loss for the period       (5,308)     (2,840)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per common share
    Basic                                                $(0.21)     $(0.09)
    Diluted                                              $(0.21)     $(0.09)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                    Consolidated Statements of Cash Flows
                                 (Unaudited)

                                                        13-week      13-week
                                                         period       period
                                                          ended        ended
                                                         July 3,     June 27,
    (thousands of dollars)                                 2010         2009
    -------------------------------------------------------------------------

    CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                             (5,308)      (2,304)
    Add (deduct) items not affecting cash
      Depreciation of property, plant and equipment       4,505        4,912
      Amortization of intangible assets                   2,412        1,841
      Stock-based compensation                              175          243
      Directors' stock-based compensation                   112          125
      Future tax assets                                    (421)        (536)
      Loss on disposal of capital assets                     67            8
      Non-controlling interest                           (1,869)           -
      Other                                                (926)         105

    Net change in non-cash working capital balances
     related to operations
      Accounts receivable                                (2,372)       1,980
      Inventories                                           570       13,559
      Prepaid expenses                                      823         (513)
      Deferred revenue                                    1,967          822
      Accounts payable and accrued liabilities           (7,864)     (35,672)
    -------------------------------------------------------------------------
    Cash flows used in operating activities              (8,129)     (15,430)
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING ACTIVITIES
      Change in restricted cash                            (787)           5
    Purchase of property, plant and equipment            (4,277)      (3,238)
    Addition of intangible assets                        (3,479)      (3,154)
    -------------------------------------------------------------------------
    Cash flows used in investing activities              (8,543)      (6,387)
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING ACTIVITIES
    Repayment of long-term debt                            (666)        (742)
    Proceeds from share issuances                            74           28
    Repurchase of common shares                            (313)           -
    Dividends paid                                       (2,722)           -
    -------------------------------------------------------------------------
    Cash flows used in financing activities              (3,627)        (714)
    -------------------------------------------------------------------------

    Effect of foreign currency exchange rate changes
     on cash and cash equivalents                         1,124         (105)

    Net decrease in cash and cash equivalents during
     the period                                         (19,175)     (22,636)
    Cash and cash equivalents, beginning of period      103,489       91,801
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period             84,314       69,165
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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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