Indigo Reports First Quarter Financial Results: Aggressive Investment Program and Comparable Sales Growth of 2.4%

TORONTO, Aug. 7, 2018 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported total comparable sales growth of 2.4% for the first quarter of its current 2019 fiscal year, including both online sales and comparable store sales.

Revenue for the first quarter ended June 30, 2018 was $205.4 million compared to $206.4 million in the same period last year. Online sales continued to grow across all categories, in books and general merchandise, with highly successful promotional campaigns driving a meaningful increase in e-commerce traffic and average order value. The retail channel experienced expected downward pressure due to a number of stores undergoing renovations and the closure of a few low performing stores as part of the Company's retail transformation, while renovated stores continued to deliver double-digit growth. Lower revenue was also driven by a one-time gift card breakage revenue adjustment of $3.8 million in the prior period, due to a change in accounting estimates.

Commenting on the results, CEO Heather Reisman said: "This quarter marks the beginning of the most aggressive investment period in our history. We are making major investments in our Canadian retail network, we've just opened our new Calgary distribution centre, we continue to make meaningful investments in our digital platform and we are poised to open our first US store. As with any period of major investment, this has put temporary pressure on our profitability. Based on the tremendous response to our new concept stores and the growth we are seeing online, we are confident this period of investment will solidify our position as a valued retailer."

Net loss for the first quarter was $15.4 million ($0.57 net loss per common share) compared to a net loss of $5.3 million ($0.20 net loss per common share) last year. This decline in profitability was primarily driven by the impact of the Company's investment in strategic initiatives, including store renovations and the expansion of its distribution facilities, as well as a change in accounting estimates for breakage in the prior year. Indigo ended the quarter in a very strong financial position with cash and short-term investments of $154.9 million and no debt.

As the Company is rolling out its new store concept, renovated stores continue to perform exceptionally well, justifying the plan to accelerate this major retail transformation in the coming quarters, including the opening of a first location in the U.S. Additionally, the Company is launching operations in its new Alberta distribution centre, allowing it to provide faster and more efficient service to its customers across Canada.

In May 2018, the Indigo Love of Reading Foundation granted an additional $1.5 million to 30 high-needs elementary schools across Canada, bringing the total committed by the Foundation to $28 million since its inception in 2004.

Analyst/Investor Call

Indigo will host a conference call for analysts and investors to review these results at 9:00 a.m. (Eastern Time) tomorrow, August 8^th, 2018. The call can be accessed by dialing 416-764-8688 from within the Toronto area, or 1-888-390-0546 outside of Toronto. The eight digit participant code is 11032355.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Wednesday, August 15^th, 2018. The call playback can be accessed after 11:00 a.m. (ET) on Wednesday, August 8^th, 2018, by dialing 416-764-8677 from within the Toronto area, or 1-888-390-0541 outside of Toronto. The six-digit replay passcode number is 032355#. The conference call transcript will be archived in the Investor Relations section of the Indigo website, www.indigo.ca.

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; 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 unaudited interim condensed consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") and International Accounting Standards 34, "Interim Financial Reporting." In order to provide additional insight into the business, the Company has also provided non-IFRS data, including total comparable sales, 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. Total comparable sales 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.

Total comparable sales is based on comparable retail store sales and includes online sales for the same period. Comparable retail store sales are based on a 52-week fiscal year and defined as sales generated by stores that have been open for more than 52 weeks. These measures exclude sales fluctuations due to store openings and closings, significant renovations, permanent relocation and material changes in square footage.

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; 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 provides grants to high-needs elementary schools so they can transform their libraries with the purchase of new books and educational resources. To date, the Indigo Love of Reading Foundation has committed over $28 million to 3,000 elementary schools, benefitting more than 900,000 students.

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

Consolidated Balance Sheets
		As at	As at	As at
		June 30,	July 1,	March 31,
(thousands of Canadian dollars)		2018	2017 ^1	2018 ^1
ASSETS
Current
Cash and cash equivalents		94,907	96,661	150,256
Short-term investments		60,000	100,000	60,000
Accounts receivable		12,370	9,645	6,747
Inventories		257,718	242,287	264,586
Prepaid expenses		6,845	13,686	4,124
Derivative assets		3,216	-	1,439
Other assets		922	794	865
Total current assets		435,978	463,073	488,017
Property, plant, and equipment		94,708	66,592	82,314
Intangible assets		27,184	15,110	24,215
Equity investments		3,163	3,459	4,330
Deferred tax assets		40,431	46,372	35,563
Total assets		601,464	594,606	634,439
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities		159,111	164,769	177,344
Unredeemed gift card liability		42,027	46,584	44,218
Provisions		160	110	166
Deferred revenue		7,180	11,577	7,029
Income taxes payable		152	360	152
Derivative liabilities		106	2,292	327
Total current liabilities		208,736	225,692	229,236
Long-term accrued liabilities		2,472	1,719	2,283
Long-term provisions		45	44	45
Total liabilities		211,253	227,455	231,564
Equity
Share capital		222,699	216,359	221,854
Contributed surplus		12,041	11,141	11,621
Retained earnings		153,196	141,330	168,585
Accumulated other comprehensive income (loss)		2,275	(1,679)	815
Total equity		390,211	367,151	402,875
Total liabilities and equity		601,464	594,606	634,439
^1 Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the condensed interim consolidated financial statements for additional information.

Consolidated Statements of Loss and Comprehensive Loss
		13-week		13-week
		period ended		period ended
		June 30,		July 1,
(thousands of Canadian dollars, except per share data)		2018		2017 ^1
Revenue		205,376		206,357
Cost of sales		(117,463)		(112,449)
Gross profit		87,913		93,908
Operating, selling, and administrative expenses		(108,788)		(100,901)
Operating loss		(20,875)		(6,993)
Net interest income		810		597
Share of loss from equity investments		(639)		(573)
Loss before income taxes		(20,704)		(6,969)
Income tax recovery		5,315		1,707
Net loss		(15,389)		(5,262)
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to net earnings:
Net change in fair value of cash flow hedges
	[net of taxes of (554); 2017 - 667]	1,505		(1,826)
Reclassification of net realized loss
	[net of taxes of 16; 2017 - 17]	(45)		(48)
Other comprehensive income (loss)		1,460		(1,874)
Total comprehensive loss		(13,929)		(7,136)
Net loss per common share
Basic		$	(0.57)	$	(0.20)
Diluted		$	(0.57)	$	(0.20)
^1 Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the condensed interim consolidated financial statements for additional information.

Consolidated Statements of Cash Flows
		13-week	13-week
		period ended	period ended
		June 30,	July 1,
(thousands of Canadian dollars)		2018	2017 ^1
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net loss		(15,389)	(5,262)
Adjustments to reconcile net losses to cash flows from operating activities
	Depreciation of property, plant, and equipment	5,127	4,368
	Amortization of intangible assets	2,192	1,907
	Loss on disposal of capital assets	240	-
	Share-based compensation	489	434
	Directors' compensation	89	99
	Deferred tax assets	(5,406)	(1,707)
	Disposal of assets held for sale	-	1,037
	Other	(81)	674
Net change in non-cash working capital balances		(21,623)	(25,692)
Interest expense		3	2
Interest income		(813)	(599)
Share of earnings from equity investments		639	573
Cash flows used for operating activities		(34,533)	(24,166)
CASH FLOWS USED FOR INVESTING ACTIVITIES
Purchase of property, plant, and equipment		(17,757)	(5,882)
Addition of intangible assets		(5,165)	(1,745)
Distribution from equity investments		528	434
Interest received		813	443
Investment in associate		-	(2,666)
Cash flows used for investing activities		(21,581)	(9,416)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issuances		688	325
Cash flows from financing activities		688	325
Effect of foreign currency exchange rate changes on cash and cash equivalents		77	(520)
Net decrease in cash and cash equivalents during the period		(55,349)	(33,777)
Cash and cash equivalents, beginning of period		150,256	130,438
Cash and cash equivalents, end of period		94,907	96,661
^1Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the condensed interim consolidated financial statements for additional information.

 

Non-IFRS Financial Measures

The following table reconciles total comparable sales to revenue, the most comparable IFRS measure.

Non-IFRS Financial Measures
		13-week	13-week
		period ended	period ended
		June 30,	July 1,
(millions of Canadian dollars)		2018	2017 ^1	% increase
Revenue		205.4	206.4	(0.5)
Adjustments
	Other revenue ^2	(5.4)	(7.6)
	Stores not in both fiscal periods	(16.3)	(19.4)
Total comparable sales		183.7	179.4	2.4

¹Certain prior period figures have been restated due to the adoption of IFRS 15. Refer to Note 3 of the
condensed interim consolidated financial statements for additional information.

²Includes cafés, irewards, gift card breakage, Plum breakage, corporate sales and corporate revenue share.

SOURCE Indigo Books & Music Inc.

Sorya Gaulin, Vice President, Strategic Communications, 416 263 5036, [email protected]

Related Links

http://www.indigo.ca