2014

Indigo Reports Q2 Results

Early Success in Transformation Strategy Drives Change in Dividend Policy

TORONTO, Nov. 5, 2013 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported revenue of $179.4 million for its second quarter ending September 28, 2013.  Revenue declined 3.3% from the previous year due primarily to the phenomenal success last year of the Fifty Shades and Hunger Games trilogies, the much slowed but continuing growth of eReading, and the Company operating nine fewer stores.  Excluding revenue from the hit trilogies, revenue increased 0.3% from the same quarter last year as the Company continued to experience double-digit growth in lifestyle, paper, and toy sales.

On a comparable store basis, Indigo and Chapters superstores posted a 2.8% decrease in revenue, while Coles and IndigoSpirit small format stores were down 8.2%.  Excluding the blockbuster titles, comparable store sales increased 0.1% in superstores and 0.6% in small format stores. Online sales increased 3.3% to $18.7 million from $18.1 million for the same period last year.

Just after the close of the quarter, the Company launched the Indigo Mobile App with extremely positive feedback from both the tech press and from users.  The Indigo App was also featured in the Apple® App Store® as one of the best new apps.

In addition, just following the close of the quarter, Indigo finalized an agreement with American Girl to open American Girl "shop in shops" in selected Indigo retail locations.

By the end of Q2, the Company had opened its first 12 !ndigotech™ shops.  These shop within shops feature design-inspired lifestyle electronics and accessories.  The Company will open 20 more !ndigotech™ shops across Canada before the holiday season.

The Company recognized a net loss of $10.1 million for the 13-week period ended September 28, 2013 ($0.39 net loss per common share), compared to a net loss of $4.0 million ($0.16 net loss per common share) in the same period last year. The increased loss was partially the result of lower book sales but more significantly the intentionally higher operating, selling and administrative expenses, compared to last year, associated with its transformational initiatives.  Specifically, Indigo invested additional funds in marketing to engage Canadian customers with its new categories, in advancing its digital capabilities, in creating merchandising within its existing superstores to highlight the expanded product mix, and in improving several aspects of its general merchandise capabilities.

The Board of Directors today approved a quarterly dividend of 11 cents per common share to be paid on December 3, 2013, to all shareholders of record as of November 19, 2013.

Based on early success with new initiatives, the Company anticipates entering a period of major store renovations, increased investment in its proprietary product development capability, and increased digital investment to fully bring to life its booklovers lifestyle store concept.   In light of these planned increased expenditures to support the Company's strategic development and growth, the Board of Directors today approved the suspension of the Company's quarterly dividend beyond December 3, 2013.  The current dividend program was initiated at a time of significant earnings and very much prior to the advent and impact of the digital reading revolution.

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 unaudited interim condensed consolidated financial statements in accordance with International Financial Reporting Standards 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 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; The World's Biggest Bookstore; 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.

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, as well as its "Adopt A School" program, have contributed more than $15.6 million—equating to over 1.4 million books— to high-needs elementary schools across Canada.  Visit loveofreading.org for more information.

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

Consolidated Balance Sheets
(Unaudited)
         
    As at As at As at
    September 28, September 29, March 30,
(thousands of Canadian dollars)   2013 2012 2012
ASSETS        
Current        
Cash and cash equivalents   166,260 192,247 210,562
Accounts receivable   12,620 14,274 7,126
Inventories   241,939 242,696 216,533
Prepaid expenses   6,641 4,653 4,153
Total current assets   427,460 453,870 438,374
Property, plant and equipment   58,072 61,481 58,903
Intangible assets   22,255 22,467 22,164
Equity investment   - 125 968
Deferred tax assets   58,061 53,986 48,731
Total assets   565,848 591,929 569,140
LIABILITIES AND EQUITY        
Current        
Accounts payable and accrued liabilities   184,595 192,671 150,177
Unredeemed gift card liability   42,016 37,912 47,169
Provisions   1,726 175 2,168
Deferred revenue   13,462 12,882 13,733
Income taxes payable   10 111 11
Current portion of long-term debt   752 900 773
Total current liabilities   242,561 244,651 214,031
Long-term accrued liabilities   3,147 4,448 4,004
Long-term provisions   78 391 78
Long-term debt   450 1,045 705
Total liabilities   246,236 250,535 218,818
Equity        
Share capital   203,812 203,660 203,805
Contributed surplus   8,094 7,570 8,128
Retained earnings   107,706 130,164 138,389
Total equity   319,612 341,394 350,322
Total liabilities and equity   565,848 591,929 569,140


Consolidated Statements of Loss and Comprehensive Loss
(Unaudited)
         
  13-week 13-week 26-week 26-week
  period ended period ended period ended period ended
  September 28, September 29, September 28, September 29,
(thousands of Canadian dollars, except per share data) 2013 2012 2013 2012
         
Revenues 179,417 185,563 350,942 372,189
Cost of sales (96,935) (100,356) (196,224) (206,684)
Gross profit 82,482 85,207 154,718 165,505
Operating, selling and administrative expenses (96,375) (90,719) (189,684) (180,736)
Operating loss (13,893) (5,512) (34,966) (15,231)
Interest on long-term debt and financing charges (30) (21) (57) (52)
Interest income on cash and cash equivalents 600 578 1,184 1,159
Share of loss from equity investment (238) (369) (609) (729)
Loss before income taxes (13,561) (5,324) (34,448) (14,853)
Income tax recovery 3,491 1,311 9,330 5,353
Net loss and comprehensive loss for the period (10,070) (4,013) (25,118) (9,500)
         
Net loss per common share        
Basic $  (0.39) $  (0.16) $ (0.98) $(0.38)
Diluted $  (0.39) $  (0.16) $ (0.98) $(0.38)


Consolidated Statements of Cash Flows
(Unaudited)
  13-week 13-week 26-week 26-week
  period ended period ended period ended period ended
  September 28, September 29, September 28, September 29,
(thousands of Canadian dollars) 2013 2012 2013 2012
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss for the period (10,070) (4,013) (25,118) (9,500)
Add (deduct) items not affecting cash        
  Depreciation of property, plant and equipment 4,074 4,329 8,113 9,048
  Amortization of intangible assets 2,761 2,515 5,474 4,937
  Net impairment of capital assets - - - 250
  Loss on disposal of capital assets 3 - 13 44
  Stock-based compensation 194 200 697 359
  Directors' compensation 111 96 244 229
  Deferred tax assets (3,491) (1,311) (9,330) (5,353)
  Other 587 509 12 (245)
Net change in non-cash working capital balances (6,669) 9,863 (5,693) (1,295)
Interest on long-term debt and financing charges 30 21 57 52
Interest income on cash and cash equivalents (600) (578) (1,184) (1,159)
Income taxes received (paid) (1) 41 (1) 45
Distributions from equity investment 359 - 359 107
Share of loss from equity investment 238 369 609 729
Cash flows from (used in) operating activities (12,474) 12,041 (25,748) (1,752)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of property, plant and equipment (5,868) (2,673) (7,158) (3,454)
Addition of intangible assets (3,733) (2,784) (5,565) (4,614)
Interest received 601 611 1,241 1,218
Cash flows used in investing activities (9,000) (4,846) (11,482) (6,850)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Repayment of long-term debt (234) (338) (431) (684)
Interest paid (34) (38) (70) (86)
Proceeds from share issuances 7 142 7 230
Dividends paid (2,782) (2,780) (5,565) (5,556)
Repurchase of options - - (975) -
Cash flows used in financing activities (3,043) (3,014) (7,034) (6,096)
         
Effect of foreign currency exchange rate changes on cash and cash equivalents (569) (522) (38) 227
         
Net increase (decrease) in cash and cash equivalents during the period (25,086) 3,659 (44,302) (14,471)
Cash and cash equivalents, beginning of period 191,346 188,588 210,562 206,718
Cash and cash equivalents, end of period 166,260 192,247 166,260 192,247

 

SOURCE Indigo Books & Music Inc.



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