Indigo Reports Full Year Results

Accelerates Transformation

TORONTO, May 27, 2014 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported revenue of $868 million for its fiscal year ended March 29, 2014. Total revenue decreased 1.3% compared to the previous year which was extraordinarily impacted by the Fifty Shades and Hunger Game trilogies. Lower eReader sales and the Company operating five fewer stores also had some impact on revenue. Excluding the impact of the Fifty Shades and Hunger Game trilogies, revenue increased 1.3%.

On a comparable store basis, Indigo and Chapters superstore revenue decreased 0.9%, while Coles and Indigospirit small format store revenue decreased 5.0%. Excluding the blockbuster titles, comparable store sales increased 1.3% in superstores and 0.4% in small format stores.

Commenting on the results, CEO Heather Reisman said, "In an industry which is world-wide experiencing meaningful sales declines, we are pleased with the customer response to all our transformation efforts, with the sales performance, and with the potential for further growth and profitability moving forward."

The Company reported a net loss for the year of $31 million compared to net earnings of $4.3 million last year. The loss was the result of significant operating investments in the Company to accelerate its transformation, somewhat lower margin rates due to an increasingly competitive retail environment, higher non-cash tax expense as the Company recorded a valuation allowance against its tax assets, higher severance costs due to a reorganization of its workforce during the fourth quarter, and higher non-cash store impairment charges.

Revenue for the fourth quarter was $184 million, up $0.3 million from the same quarter last year. Net loss for the quarter was $14 million compared to a net loss of $8.2 million last year. The increased loss was due to lower margin rates, non-cash store impairment charges, severance costs, and ongoing investments in the Company's transformational strategy.

Further commenting on the results, CEO Heather Reisman said, "We feel strongly that the investments made to accelerate our transformation are absolutely right to ensure Indigo remains a strong, vibrant and valued brand for customers, employees and shareholders.   Based on performance so far this quarter, we are certainly seeing the traction we hoped for with our investments."

Subsequent to the quarter, Indigo launched the first two American Girl® Specialty Boutiques outside of the United States to the delight of thousands of Canadian fans. The launch of the 1800 square foot boutiques located at Indigo's Yorkdale Mall location, and Chapters on Robson Street in Vancouver serve to reinforce Indigo's commitment to the importance of creative play for kids in partnership with one of the most adored and iconic brands in the world.  Response has been outstanding.

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 ("IFRS"). 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). 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; 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 grants $1.5 million to 20 high-needs elementary schools so they can transform their libraries with the purchase of new books and education resources. To date, the Indigo Love of Reading Foundation's Literacy Fund has committed $15.5 million to more than 170 schools nationally. The Foundation's annual grassroots Adopt a School program unites employees, customer, schools and their communities to raise funds to put even more books into the hands of children. Over the past five years we have raised over $2.0 million so 400,000 children have a book to call their own.

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

Consolidated Balance Sheets
		As at		As at		As at
		March 29,		March 30,		April 1,
(thousands of Canadian dollars)		2014		2013		2012
ASSETS
Current
Cash and cash equivalents		157,578		210,562		206,718
Accounts receivable		5,582		7,126		12,810
Inventories		218,979		216,533		229,199
Prepaid expenses		5,184		4,153		3,692
Total current assets		387,323		438,374		452,419
Property, plant and equipment		58,476		58,903		66,928
Intangible assets		21,587		22,164		22,810
Equity investment		598		968		961
Deferred tax assets		44,604		48,731		48,633
Total assets		512,588		569,140		591,751
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities		136,428		150,177		173,416
Unredeemed gift card liability		46,827		47,169		42,711
Provisions		928		2,168		232
Deferred revenue		12,860		13,733		11,234
Income taxes payable		-		11		65
Current portion of long-term debt		584		773		1,060
Total current liabilities		197,627		214,031		228,718
Long-term accrued liabilities		2,896		4,004		5,800
Long-term provisions		164		78		460
Long-term debt		227		705		1,141
Total liabilities		200,914		218,818		236,119
Equity
Share capital		203,812		203,805		203,373
Contributed surplus		8,820		8,128		7,039
Retained earnings		99,042		138,389		145,220
Total equity		311,674		350,322		355,632
Total liabilities and equity		512,588		569,140		591,751

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
	13-week	13-week	52-week	52-week
	period ended	period ended	period ended	period ended
	March 29,	March 30,	March 29,	March 29,
(thousands of Canadian dollars, except per share data)	2014	2013	2014	2013
Revenues	184,333	183,976	867,668	878,785
Cost of sales	(106,298)	(102,915)	(493,955)	(495,099)
Gross profit	78,035	81,061	373,713	383,686
Operating, selling and administrative expenses	(98,620)	(92,551)	(403,693)	(383,319)
Operating profit (loss)	(20,585)	(11,490)	(29,980)	367
Interest on long-term debt and financing charges	(13)	(32)	(95)	(101)
Interest income on cash and cash equivalents	611	765	2,377	2,609
Share of earnings (loss) from equity investment	(211)	89	789	1,315
Earnings (loss) before income taxes	(20,198)	(10,668)	(26,909)	4,190
Income tax recovery (expense)
Current	37	-	37	-
Deferred	5,783	2,421	(4,127)	98
Net earnings (loss) and comprehensive earnings (loss) for the period	(14,378)	(8,247)	(30,999)	4,288
Net earnings (loss) per common share
Basic	$(0.56)	$(0.32)	$(1.21)	$0.17
Diluted	$(0.56)	$(0.32)	$(1.21)	$0.17

Consolidated Statements of Cash Flows
		13-week	13-week	52-week	52-week
		period ended	period ended	period ended	period ended
		March 29,	March 30,	March 29,	March 30,
(thousands of Canadian dollars)		2014	2013	2014	2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) for the period		(14,378)	(8,247)	(30,999)	4,288
Add (deduct) items not affecting cash
	Depreciation of property, plant and equipment	4,144	4,313	16,358	17,638
	Amortization of intangible assets	2,925	2,691	11,123	10,245
	Net impairment of capital assets	2,099	-	2,604	250
	Loss on disposal of capital assets	189	21	302	65
	Stock-based compensation	317	174	1,242	743
	Directors' compensation	81	116	425	446
	Deferred tax assets	(5,783)	(2,421)	4,127	(98)
	Other	224	(42)	(206)	(482)
Net change in non-cash working capital balances		(93,143)	(88,979)	(19,196)	1,089
Interest on long-term debt and financing charges		13	32	95	101
Interest income on cash and cash equivalents		(611)	(765)	(2,377)	(2,609)
Income taxes received (paid)		-	(13)	26	32
Share of earnings (loss) from equity investment		211	(89)	(789)	(1,315)
Cash flows from (used in) operating activities		(103,712)	(93,209)	(17,265)	30,393
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,512)	(2,572)	(18,700)	(9,441)
Addition of intangible assets		(2,473)	(2,745)	(10,546)	(9,621)
Distributions from equity investment		800	1,201	1,159	1,308
Interest received		640	791	2,463	2,691
Cash flows used in investing activities		(3,545)	(3,325)	(25,624)	(15,063)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable		-	-	-	190
Repayment of long-term debt		(194)	(236)	(814)	(1,200)
Interest paid		(40)	(33)	(110)	(160)
Proceeds from share issuances		-	52	7	332
Dividends paid		-	(2,783)	(8,348)	(11,119)
Repurchase of options		-	-	(975)	-
Cash flows used in financing activities		(234)	(3,000)	(10,240)	(11,957)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(223)	20	145	471
Net increase (decrease) in cash and cash equivalents during the period		(107,714)	(99,514)	(52,984)	3,844
Cash and cash equivalents, beginning of period		265,292	310,076	210,562	206,718
Cash and cash equivalents, end of period		157,578	210,562	157,578	210,562

 

SOURCE: Indigo Books & Music Inc.

Janet Eger
Vice President, Public Affairs
416 342 8561
[email protected]