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Indigo Reports Second Quarter Financial Results for 2020 Fiscal Year

TORONTO , Nov. 6, 2019 /CNW/ - Indigo Books & Music Inc. (IDG.TO), Canada's largest book, gift and specialty toy retailer reported total comparable sales decline of 8.0% for the second quarter of its current 2020 fiscal year, including both online sales and comparable store sales.

Indigo Books & Music Inc. (CNW Group/Indigo Books & Music Inc.)

Revenue for the second quarter ended September 28, 2019 was $203 .4 million compared to $216.3 million for the same period last year, a decrease of $12.9 million . This decline in revenue was primarily a result of strong competitive pressures and the Company's planned efforts to reduce promotions to improve profitability. Compared to the prior quarter, the general merchandise business had some positive momentum through the back-to-school season and improvements in the assortment, while the book business sustained historical trends. Together with stronger inventory management, this strategic shift in promotional activity led to a margin rate improvement of 1.3% in the second quarter, consistent with the improvements in the first quarter. Commenting on the results, CEO Heather Reisman said: "As we continue to navigate our strategic shift, we are seeing promising early results on key performance measures."

Indigo reported a net loss of $20.5 million ( $0.74 net loss per common share) compared to a net loss of $19.1 million ( $0.70 net loss per common share) last year. This increase in the net loss position is due to higher amortization in the current period, driven by an increase in the Company's capital asset base from its significant store renewal program in fiscal 2019.  Outside of the impact of depreciation and amortization and excluding the impact of IFRS 16, the Company reported an improvement of $0.4 million in adjusted EBITDA for the quarter on a lower sales base. This increase is due to margin rate improvements across the business and a reduction in cost of operations and selling, administrative and other expenses, as the Company continues its focus on profitability.   

The Company launched a cost-cutting initiative at the beginning of this year targeting $20.0 to $25.0 million in cost savings.  In the first half of fiscal 2020, the Company has been able to reduce operating, selling, administrative and other expenses by $9.0 million . While this reduction has been partly offset by costs associated with the opening of net-new stores and some one-time expenses associated with the move of the Company's New York office to Toronto , it is reflective of the Company's commitment to future profitability.  Additionally, the Company will meet its capital expenditure target of $20 million for this year, a significant reduction from prior years. 

This quarter, the Company launched its new membership program, plum® PLUS. plum PLUS rewards customers with an immediate discount on eligible products, free shipping and the ability to earn points on almost every dollar spent at all Indigo, Chapters, Indigospirit, and Coles stores across Canada , as well as at indigo.ca.

Adoption of IFRS 16, Leases

The Company adopted IFRS 16 Leases ("IFRS 16") in the first quarter of fiscal 2020, replacing IAS 17 Leases and related interpretations. IFRS 16 introduced a single lessee accounting model which required substantially all the Company's operating leases to be recorded on balance sheet as a right-of-use asset and a lease liability, representing the obligation to make future lease payments. The Company implemented the standard on March 31, 2019 using the modified retrospective approach, therefore the Company's 2020 results reflect lease accounting under IFRS 16. Prior year results have not been restated and continue to be reported under IAS 17. When compared to the previous accounting method, this resulted in a material adjustment to the Company's financial statements.   

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 , November 7 th, 2019. 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 74758249.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Thursday , November 14th, 2019. The call playback can be accessed after 11:00 a.m. (ET) on Thursday , November 7th, 2019, 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 758249 #. 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 and 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. Total comparable sales and adjusted EBITDA are key indicators used by the Company to measure performance against internal targets and prior period results. These measures are 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. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and equity investments. The method of calculating adjusted EBITDA is consistent with that used in prior periods.

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 and one territory under different banners including Indigo, Chapters, Coles, Indigospirit, and The Book Company. The Company also has retail operations in the United States through a wholly-owned subsidiary, operating its first retail store in Short Hills, New Jersey . 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 $31 million to more than 3,000 elementary schools, benefitting more than 1,000,000 students.

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)


2019

2018

2019






ASSETS





Current





Cash and cash equivalents


46,615

59,623

41,290

Short-term investments


20,500

60,222

87,150

Accounts receivable


19,809

22,294

10,543

Inventories


298,690

303,782

252,541

Prepaid expenses


7,489

8,518

5,802

Income taxes receivable


640

-

483

Derivative assets


123

588

1,070

Other assets


949

983

853

Total current assets


394,815

456,010

399,732

Property, plant, and equipment, net


117,375

110,122

125,906

Right-of-use assets, net1


420,932

-

-

Intangible assets, net


30,866

29,882

32,527

Equity investments


2,773

2,684

4,359

Deferred tax assets1


101,450

47,857

47,940

Total assets


1,068,211

646,555

610,464

LIABILITIES AND EQUITY





Current





Accounts payable and accrued liabilities1


222,968

228,676

179,180

Unredeemed gift card liability


42,987

35,236

48,729

Provisions


-

160

60

Deferred revenue


8,148

7,452

7,636

Income taxes payable 


-

152

-

Short-term lease liabilities1


42,943

-

-

Derivative liabilities


199

109

-

Total current liabilities


317,245

271,785

235,605

Long-term accrued liabilities1


1,761

2,904

4,698

Long-term provisions


46

45

45

Long-term lease liabilities1


527,711

-

-

Total liabilities


846,763

274,734

240,348

Equity





Share capital


226,986

225,360

225,531

Contributed surplus


12,039

12,040

12,716

Retained earnings (deficit)1


(17,296)

134,071

131,311

Accumulated other comprehensive income (loss)

(281)

350

558

Total equity


221,448

371,821

370,116

Total liabilities and equity


1,068,211

646,555

610,464






1The noted current period balances have been impacted by the adoption of IFRS 16. Refer to note 3 of the
unaudited interim condensed consolidated financial statements for additional information.

 

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)

2019

2018

2019

2018






Revenue 

203,364

216,313

395,920

421,689

Cost of sales 

(118,565)

(128,871)

(227,247)

(246,334)

Gross profit

84,799

87,442

168,673

175,355

Operating, selling, and administrative expenses1

(106,022)

(113,466)

(209,593)

(222,254)

Operating loss1

(21,223)

(26,024)

(40,920)

(46,899)

Net interest income (expense)1

(5,846)

750

(11,270)

1,560

Share of loss from equity investments

(815)

(479)

(1,588)

(1,118)

Loss before income taxes1

(27,884)

(25,753)

(53,778)

(46,457)

Income tax recovery1

7,429

6,628

14,253

11,943

Net loss1

(20,455)

(19,125)

(39,525)

(34,514)






Other comprehensive income (loss)





Items that are or may be reclassified subsequently to net
loss:





Net change in fair value of cash flow hedges
   [net of taxes of (275) and 92; 2018 - 551 and (3)]

753

(1,499)

(251)

6

Reclassification of net realized gain
   [net of taxes of 48 and 215; 2018 - 156 and 173]

(133)

(426)

(588)

(471)

Other comprehensive income (loss)

620

(1,925)

(839)

(465)






Total comprehensive loss1

(19,835)

(21,050)

(40,364)

(34,979)






Net loss per common share1





Basic

$

(0.74)

$

(0.70)

$

(1.44)

$

(1.28)

Diluted 

$

(0.74)

$

(0.70)

$

(1.44)

$

(1.28)






1 The noted current period balances have been impacted by the adoption of IFRS 16. Refer to note 3 of the unaudited interim condensed consolidated
financial statements for additional information.

 

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)


2019

2018

2019

2018







CASH FLOWS USED FOR OPERATING ACTIVITIES






Net loss1


(20,455)

(19,125)

(39,525)

(34,514)

Adjustments to reconcile net loss to cash flows used for operating
activities






Depreciation of property, plant, and equipment and right-of-use
assets1


16,080

5,038

31,846

10,165

Amortization of intangible assets


3,312

2,362

6,578

4,554

Loss on disposal of capital assets


490

90

951

330

Share-based compensation 


373

487

621

976

Directors' compensation


73

96

157

185

Deferred income tax recovery 1


(7,429)

(6,719)

(14,253)

(12,125)

Other


102

(395)

356

(475)

Net change in non-cash working capital balances related to
operations1


(2,078)

5,756

(19,531)

(15,867)

Interest expense1


6,324

-

12,401

3

Interest income


(520)

(749)

(1,173)

(1,563)

Share of loss from equity investments


815

479

1,588

1,118

Cash flows used for operating activities


(2,913)

(12,680)

(19,984)

(47,213)







CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES






Purchase of property, plant, and equipment


(1,383)

(20,541)

(4,232)

(38,298)

Addition of intangible assets 


(2,443)

(5,060)

(4,925)

(10,225)

Change in short-term investments


17,500

(222)

66,650

(222)

Distribution from equity investments


-

-

-

528

Interest received


173

749

826

1,562

Cash flows from (used for) investing activities


13,847

(25,074)

58,319

(46,655)







CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES






Repayment of principal on lease liabilities1


(10,602)

-

(20,615)

-

Interest paid1


(6,325)

-

(12,402)

-

Proceeds from share issuances


-

2,076

-

2,764

Cash flows from (used for) financing activities


(16,927)

2,076

(33,017)

2,764







Effect of foreign currency exchange rate changes on cash and cash
equivalents


264

394

7

471







Net increase (decrease) in cash and cash equivalents during the
period


(5,729)

(35,284)

5,325

(90,633)

Cash and cash equivalents, beginning of period


52,344

94,907

41,290

150,256

Cash and cash equivalents, end of period


46,615

59,623

46,615

59,623







1The noted current period balances have been impacted by the adoption of IFRS 16. Refer to note 3 of the unaudited interim condensed consolidated financial
statements for additional information.

 

Non-IFRS Financial Measures


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








13-week

13-week

% increase /
(decrease) 



period ended

period ended



September 28,

September 29,

(millions of Canadian dollars)


2019

2018

Revenue


203.4

216.3

(6.0)

Adjustments





Other revenue1


(4.4)

(5.6)


Stores not in both fiscal periods


(19.8)

(15.9)


Total comparable sales


179.2

194.8

(8.0)

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


The following table reconciles adjusted EBITDA to loss before income taxes, the most comparable IFRS measure, and shows
the impact of IFRS 16 to the Company's statement of loss in the period:


13-week


13-week

13-week


period ended


period ended

period ended


September 28,


September 28,

September 29,


2019


2019

2018


IFRS 16

Impact of IFRS 16

IAS 17

 IAS 17 

Revenue

203.4


203.4

216.3

Cost of sales

(118.6)


(118.6)

(128.9)

Cost of operations

(60.9)

(15.4)

(76.3)

(78.4)

Selling, administrative and other expenses

(25.2)

(1.5)

(26.7)

(27.6)

Adjusted EBITDA1

(1.3)

(16.9)

(18.2)

(18.6)

Depreciation of property, plant and equipment and right-of-use assets

(16.1)

10.2

(5.9)

(5.0)

Amortization

(3.3)


(3.3)

(2.4)

Loss on diposal of capital assets

(0.5)


(0.5)

(0.1)

Net interest income (expense)

(5.8)

6.3

0.5

0.8

Share of loss from equity investments

(0.8)


(0.8)

(0.5)

Losses before income taxes 

(27.9)

(0.4)

(28.3)

(25.8)

1Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and equity investments. 


 

SOURCE Indigo Books & Music Inc.


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