Indigo Reports FY22 Third Quarter Results - Indigo delivers double-digit sales growth, exceeding pre-pandemic levels and driving a 47% increase in year-over-year net earnings

TORONTO, Feb.  10, 2022 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book and lifestyle retailer reported financial results for the 13-week period ended January 1, 2022 compared to the 13-week period ended December 26, 2020.

Revenue for the quarter increased $65.3 million or 17.9% to $430.7 million compared to the same period last year, and $47.0 million or 12.2% to pre-pandemic levels (13-week period ended December 28, 2019.) The Company delivered on sales growth despite disruption from the Omicron variant and the reintroduction of severe pandemic restrictions in several key jurisdictions during the three most critical December selling weeks. Prior to these impacts, third-quarter results demonstrated exceptionally strong momentum in both the retail and online channels. 

While retail traffic was challenged by the Omicron environment, customers shopped the Company's store network with intent and its print and general merchandise assortment strongly resonated, driving revenues above the same period last year. The combined efforts of its strong assortment and scaled-back promotional strategy lifted the penetration of full-priced sales by double-digits, delivering profitable top-line growth. The Company's lifestyle and toy businesses performed remarkably well, driven by the respective success of its proprietary brand program and strategic inventory buys, while its print business benefited from renewed interest in reading, lifting book sales across all categories.

The Company's omnichannel growth to pre-pandemic levels was driven by its online channel, which surged over the past two years and delivered growth of 86.3% compared to the same quarter in fiscal 2020 (13-week period ended December 28, 2019.)  

Commenting on the results, CEO Heather Reisman said: "These results demonstrate the success of our efforts to provide a meaningfully curated offering to our customers, the power of our position as the Country's leading bookseller, and the strength of the Indigo brand. We built incredibly strong momentum early in the holiday season and were pleased we could still deliver growth despite being challenged by an unrelenting set of pandemic conditions. We look forward to seeing through this global pandemic to a place where we can fire on all cylinders." 

Adjusted EBITDA for the quarter was $52.0 million compared to $37.8 million for the same period last year, an increase of $14.2 million. This improvement was driven by robust sales and merchandise margin performance. It is worth noting, that these results were achieved against significantly elevated freight and last-mile logistics costs associated with a challenged global supply chain, and against last year's meaningful COVID-19 labour support for home office and field leadership.

Indigo reported net earnings of $45.1 million ($1.62 net earnings per basic common share) compared to net earnings of $30.7 million ($1.11 net earnings per basic common share) last year, an improvement of $14.4 million or 46.9%, for the reasons discussed.

With no outstanding debt and a cash balance of $189.9 million, the Company continues to be well positioned to manage through any further uncertainty stemming from COVID-19.

Analyst/Investor Call 
Indigo will host a conference call for analysts and investors to review these results at 10:00 a.m. (Eastern Time) tomorrow, February 11^th, 2022. The call can be accessed by dialing 416-764-8659 from within the Toronto area, or 1-888-664-6392 outside of Toronto. The eight-digit participant code is 37572134.        

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on February 18^th, 2022. The call playback can be accessed after 12:00 p.m. (ET) on February 11^th, 2022, 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 572134. 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 information" within the meaning of applicable Canadian securities legislation. To the extent any forward-looking information constitutes "financial outlooks" within the meaning of applicable Canadian securities laws, such information is being provided as preliminary financial and operational results. Financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to various risks and uncertainties that could cause actual results to differ materially from those expressed in or implied in this news release. Among the key factors that could cause such differences are: general economic, market or business conditions; the future impacts and government response to the COVID-19 pandemic, including any impact to online and/or retail operations of the Company; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company, as set out in the Company's annual information form dated June 1, 2021 and available on the Company's issuer profile on SEDAR at www.sedar.com.

Undue reliance should not be placed on such forward-looking information and no assurance can be given that such events will occur in the disclosed time frames or at all. Any forward-looking information included in this news release is made as of the date of this news release and the Company does not undertake an obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

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, specifically adjusted EBITDA, in this press release. These measures do not have standardized meanings prescribed by IFRS and are therefore specific to Indigo and may not be comparable to similar measures presented by other companies. 

For additional context see "Results of Operations" and "Non-IFRS Financial Measures" in the Management's Discussion and Analysis (which can be found at www.indigo.ca/investor-relations or www.sedar.com).

About Indigo Books & Music Inc. 
Indigo is a publicly traded Canadian company listed on the Toronto Stock Exchange (IDG). Indigo is Canada's leading book and lifestyle retailer, offering a curated assortment of books, gifts, baby, kids, wellness and lifestyle products, that support their customers every day and at key life stages by simplifying their journey to live with intention. Indigo believes in real books, in living life fully and generously, in being kind to each other and that stories – big and little – connect us.

Indigo founded the Indigo Love of Reading Foundation in 2004 to address the underfunding of public elementary school libraries and the literacy challenges faced by children in high-needs communities across Canada. The Foundation provides grants to high-needs elementary schools so they can transform their libraries with the purchase of new books and educational resources. Most recently, in the wake of the COVID-19 pandemic and unprecedented nation-wide school closures, the Foundation committed $1.0 million to provide books to families in need. With the support of the Company, its customers, employees, and suppliers, the Foundation has committed over $33 million to more than 3,000 high-needs elementary schools across Canada since 2004.

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

Consolidated Balance Sheets
(Unaudited)
	As at	As at	As at
	January 1,	December 26,	April 3,
(thousands of Canadian dollars)	2022	2020	2021
ASSETS
Current
Cash and cash equivalents	189,872	229,424	84,935
Accounts receivable	18,223	26,395	22,976
Inventories	274,682	218,163	215,114
Prepaid expenses	6,579	7,937	12,278
Income taxes receivable	-	138	-
Derivative assets	197	-	-
Other assets	3,520	3,202	2,120
Total current assets	493,073	485,259	337,423
Loan receivable	-	446	-
Property, plant, and equipment, net	66,520	80,982	77,131
Right-of-use assets, net	335,378	366,104	361,864
Intangible assets, net	19,353	21,475	20,916
Equity investment, net	2,156	2,350	2,156
Total assets	916,480	956,616	799,490
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities	244,424	249,992	145,193
Unredeemed gift card liability	75,269	68,626	58,053
Provisions	1,481	2,185	2,365
Deferred revenue	22,197	16,880	16,486
Short-term lease liabilities	66,298	63,022	67,603
Derivative liabilities	27	1,716	1,622
Total current liabilities	409,696	402,421	291,322
Long-term accrued liabilities	1,048	1,371	2,090
Long-term provisions	649	696	827
Long-term lease liabilities	453,088	491,378	482,671
Total liabilities	864,481	895,866	776,910
Equity
Share capital	227,069	226,986	226,986
Contributed surplus	14,338	14,075	13,782
Retained deficit	(189,954)	(177,202)	(216,668)
Accumulated other comprehensive income (loss)	546	(3,109)	(1,520)
Total equity	51,999	60,750	22,580
Total liabilities and equity	916,480	956,616	799,490

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
(Unaudited)
	13-week		13-week		39-week		39-week
	period ended		period ended		period ended		period ended
	January 1,		December 26,		January 1,		December 26,
(thousands of Canadian dollars, except per share data)	2022		2020		2022		2020
Revenue	430,666		365,426		841,560		705,786
Cost of sales	(252,427)		(217,940)		(482,883)		(440,773)
Gross profit	178,239		147,486		358,677		265,013
Operating, selling, and other expenses	(127,079)		(110,843)		(313,940)		(264,948)
Operating profit	51,160		36,643		44,737		65
Net interest expense	(5,991)		(5,921)		(18,068)		(18,466)
Earnings (loss) before income taxes	45,169		30,722		26,669		(18,401)
Income tax recovery (expense)	(49)		-		45		-
Net earnings (loss)	45,120		30,722		26,714		(18,401)
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to net earnings (loss), net of taxes:
Change in fair value of cash flow hedges	(110)		(3,151)		116		(4,654)
Reclassification of realized loss (gain)	(22)		(861)		1,632		(856)
Foreign currency translation adjustment	245		(597)		318		(597)
Other comprehensive income (loss)	113		(4,609)		2,066		(6,107)
Total comprehensive earnings (loss)	45,233		26,113		28,780		(24,508)
Net earnings (loss) per common share
Basic	$	1.62	$	1.11	$	0.96	$	(0.67)
Diluted	$	1.60	$	1.09	$	0.94	$	(0.67)

Consolidated Statements of Cash Flows
(Unaudited)
	13-week	13-week	39-week	39-week
	period ended	period ended	period ended	period ended
	January 1,	December 26,	January 1,	December 26,
(thousands of Canadian dollars)	2022	2020	2022	2020
OPERATING ACTIVITIES
Net earnings (loss)	45,120	30,722	26,714	(18,401)
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation of property, plant, and equipment	3,992	4,129	12,043	13,020
Depreciation of right-of-use assets	7,549	10,183	26,697	31,728
Amortization of intangible assets	2,785	3,187	9,269	9,718
Loss on disposal of capital assets	6	-	36	247
Share-based compensation	(23)	425	578	1,031
Directors' compensation recognized in contributed surplus	-	74	-	222
Deferred income tax expense (recovery)	49	-	(45)	-
Rent concessions	-	(462)	-	(4,141)
Other	942	(787)	338	(899)
Net change in non-cash working capital balances related to operations	71,310	54,853	69,538	111,540
Interest expense	6,123	6,154	18,617	19,107
Interest income	(132)	(233)	(549)	(641)
Cash flows from operating activities	137,721	108,245	163,236	162,531
INVESTING ACTIVITIES
Net purchases of property, plant, and equipment	(523)	(1,543)	(1,546)	(3,528)
Addition of intangible assets	(2,059)	(2,385)	(7,707)	(6,635)
Proceeds from disposal of equity investment	-	-	516	-
Interest received	132	233	549	641
Cash flows used for investing activities	(2,450)	(3,695)	(8,188)	(9,522)
FINANCING ACTIVITIES
Repayment of principal on lease liabilities	(10,273)	(7,052)	(31,316)	(25,890)
Interest paid	(6,123)	(6,154)	(18,617)	(19,107)
Proceeds from share issuances	32	-	61	-
Cash flows used for financing activities	(16,364)	(13,206)	(49,872)	(44,997)
Effect of foreign currency exchange rate changes on cash and cash equivalents	(940)	559	(239)	939
Net increase in cash and cash equivalents during the period	117,967	91,903	104,937	108,951
Cash and cash equivalents, beginning of period	71,905	137,521	84,935	120,473
Cash and cash equivalents, end of period	189,872	229,424	189,872	229,424

Non-IFRS Financial Measures
The following table reconciles adjusted EBITDA to net earnings (loss) before income taxes, the most comparable IFRS measure:
	13-week	13-week	39-week	39-week
	period ended	period ended	period ended	period ended
	January 1,	December 26,	January 1,	December 26,
(millions of Canadian dollars)	2022	2020	2022	2020
Revenue	430.7	365.4	841.6	705.8
Cost of sales	(252.4)	(217.9)	(482.9)	(440.8)
Cost of operations	(80.0)	(69.4)	(186.6)	(154.2)
Selling, general and administrative expenses	(32.7)	(23.9)	(79.3)	(57.2)
Depreciation of right-of-use assets	(7.5)	(10.2)	(26.7)	(31.7)
Finance charges related to leases	(6.1)	(6.2)	(18.6)	(19.1)
Adjusted EBITDA^1	52.0	37.8	47.5	2.8
Depreciation of property, plant and equipment	(4.0)	(4.1)	(12.0)	(13.0)
Amortization of intangible assets	(2.8)	(3.2)	(9.3)	(9.7)
Gain on disposal of capital assets	-	-	-	0.9
Net interest income	0.1	0.2	0.5	0.6
Earnings (loss) before income taxes	45.2	30.7	26.7	(18.4)
^1Earnings before interest, taxes, depreciation, amortization, asset disposals, and share of loss from equity investments, and includes IFRS 16 right-of-use asset depreciation and associated finance charges.

SOURCE Indigo Books & Music Inc.

Madeleine Lowenborg-Frick, Director, Corporate Communications, [email protected]