Indigo Reports Second Quarter Financial Results for 2020 Fiscal Year

TORONTO, Nov. 6, 2019 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), 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.

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 14^th, 2019. The call playback can be accessed after 11:00 a.m. (ET) on Thursday, November 7^th, 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. 

SOURCE Indigo Books & Music Inc.