Indigo Reports FY24 Third Quarter Results

Indigo Reports FY24 Third Quarter Results

TORONTO, Feb. 8, 2024 /CNW/ – Indigo Books & Music Inc. (TSX: IDG), Canada’s leading book and lifestyle retailer, reported financial results for the 13-week period ended December 30, 2023 compared to the 13-week period ended December 31, 2022.

The Company recognized total revenue of $370.6 million in the quarter, compared to revenue of $422.7 million in the same period last year. Disruptions throughout 2023, including the ransomware attack and the pre-mature launch of a new digital platform, negatively impacted the Company’s ability to serve its customers. This was most significantly felt in the online channel, which disproportionally underperformed compared to the retail network. Prevailing economic headwinds also impacted consumer spending patterns as customers continued to show price sensitivity, noted by lower full-priced sell through.

The Company recognized decreased revenue in both its general merchandise and print product lines. General merchandise suffered from a less successful product assortment, missing certain key top-selling holiday products. On the book side of the business, top-selling releases of the quarter were not as strong as last year, leading to lower sales in this category. 

Commenting on the results, CEO Heather Reisman said: “These results are disappointing and in no way reflect the opportunity we have with our customers. We are deeply and effectively engaged in a turnaround. I feel confident that with the current focus, we will fully reclaim our position as the booklovers’ happy place, both in store and online.”

Adjusted EBITDA for the quarter was $22.3 million, compared to $40.8 million in the prior year. The aforementioned impacts of the current macro-economic environment led to an increased penetration of promotions and discounts. The Company deeply discounted product, a decision made to fully clear unproductive inventory which it does not intend to carry forward as part of its assortment.  

During the quarter, the Company undertook several steps aimed at improving customer engagement and the overall economics of the business including enriching book assortment, simplifying and improving lifestyle assortment and streamlining the organization and head office workforce. Improving customer engagement and profitability is the full focus for the Company.   

Driven by the sales and margin declines as well as significant restructuring costs, net income for the quarter totaled $10.0 million ($0.36 net income per basic common share) compared to net income of $34.3 million ($1.23 net income per basic common share) in the prior year.

Subsequent to quarter end, the Company amended and extended its revolving credit facility with Trilogy Retail Holdings Inc. (“TRHI”), as lender. The material terms of the amendment are limited to (i) an increased principal credit amount to up to $70.0 million and, with the consent of TRHI, this amount may be increased by up to an additional $10.0 million; (ii) an extended maturity date to December 31, 2024; and (iii) a revised interest rate to the Royal Bank of Canada prime rate from time to time in effect +2.5%. The amended credit facility, the effectiveness of which is subject to certain customary conditions precedent which are expected to be satisfied in the coming days, will be used for ongoing working capital needs and general corporate purposes of the Company, and for non-recurring restructuring costs and capital expenditures agreed between the Company and TRHI from time to time. It was issued on reasonable commercial terms, and is not convertible, directly or indirectly, into equity or voting securities.

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, February 9th, 2024.  

To join the conference call without operator assistance, you may register and enter your phone number at  https://emportal.ink/3RjPfsf to receive an instant automated call back.  

The call can also be accessed through an operator by dialing 416-764-8659 from within the Toronto area, or 1-888-664-6392 outside of Toronto. The eight-digit participant code is 15865756. 

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on February 16th, 2024. The call playback can be accessed after 12:00 p.m. (ET) on February 9th, 2024, 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 865756#. 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, which include geopolitical events such as war, acts of terrorism, and civil disorder and the adverse impacts of inflationary pressures; ongoing impacts to consumer behaviour from the ransomware attack; 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 27, 2023 and available on the Company’s issuer profile on the SEDAR+ website at www.sedarplus.ca.  

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 news 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.sedarplus.ca). 

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, home, wellness, fashion, paper, baby and kids products, that support customers by simplifying their journey to Living with Intention. The Company operates retail stores in all ten provinces and one territory in Canada, and also has retail operations in the United States through a wholly-owned subsidiary, operating one retail store in Short Hills, New Jersey. Retail operations are integrated with the Company’s digital channels, including the www.indigo.ca website and the mobile applications, which are extensions of the physical stores and offer customers an expanded assortment of book titles, along with a meaningfully curated assortment of general merchandise. 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. 

The Company supports a separate registered charity, called the Indigo Love of Reading Foundation (the “Foundation”), which is committed to addressing educational inequality, and more specifically, the literacy crisis in Canada. The Foundation provides resources including new books and learning materials, training and year-round curation support to help ensure teachers, education staff, school administrators and other key stakeholders have the tools they need to promote literacy in their communities. With the support of the Company, its customers, employees, and suppliers, the Foundation has committed over $35.0 million to more than 1,000,000 students 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

December 30, 

December 31, 

April 1,

(thousands of Canadian dollars)

2023

2022

2023

ASSETS

Current

Cash and cash equivalents 

93,818

149,961

65,113

Accounts receivable

28,780

29,721

14,069

Inventories 

227,085

317,257

244,063

Prepaid expenses

7,102

7,267

6,830

Derivative assets 

2,128

699

Other assets 

4,068

3,681

1,254

Total current assets

360,853

510,015

332,028

Property, plant, and equipment, net

46,036

55,346

52,464

Right-of-use assets, net 

296,018

308,526

318,302

Intangible assets, net

34,544

32,700

35,287

Total assets

737,451

906,587

738,081

LIABILITIES AND EQUITY (DEFICIT)

Current

Accounts payable and accrued liabilities 

223,085

289,958

169,860

Unredeemed gift card liability

76,850

79,158

66,887

Provisions

2,167

569

1,879

Deferred revenue 

22,507

22,876

20,129

Short-term lease liabilities

69,737

69,573

69,161

Total current liabilities

394,346

462,134

327,916

Long-term accrued liabilities 

549

876

1,007

Long-term provisions

851

784

851

Long-term lease liabilities 

402,815

419,431

428,284

Total liabilities

798,561

883,225

758,058

Equity (deficit)

Share capital 

227,707

227,094

227,094

Contributed surplus 

15,014

15,242

15,463

Retained deficit

(303,886)

(220,455)

(262,969)

Accumulated other comprehensive income

55

1,481

435

Total equity (deficit)

(61,110)

23,362

(19,977)

Total liabilities and equity (deficit)

737,451

906,587

738,081

 

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

December 30, 

December 31,

December 30, 

December 31,

(thousands of Canadian dollars, except per share data)

2023

2022

2023

2022

Revenue

370,645

422,728

756,701

863,531

Cost of sales

(229,619)

(256,031)

(459,343)

(519,601)

Gross profit

141,026

166,697

297,358

343,930

Operating, selling, and other expenses

(123,662)

(125,194)

(317,843)

(333,203)

Operating profit (loss)

17,364

41,503

(20,485)

10,727

Net interest expense

(7,381)

(5,947)

(20,247)

(18,343)

Earnings (loss) before income taxes

9,983

35,556

(40,732)

(7,616)

Income tax recovery (expense)

(1,302)

(185)

564

Net earnings (loss)

9,983

34,254

(40,917)

(7,052)

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 

(1,055)

(71)

5,683

   Reclassification of realized gain

(2,555)

(443)

(3,487)

   Foreign currency translation adjustment 

131

61

134

(230)

Other comprehensive income (loss)

131

(3,549)

(380)

1,966

Total comprehensive earnings (loss)

10,114

30,705

(41,297)

(5,086)

Net earnings (loss) per common share 

Basic 

$                0.36

$                 1.23

$               (1.46)

$               (0.25)

Diluted

$                0.35

$                 1.22

$               (1.46)

$               (0.25)

 

Consolidated Statements of Cash Flows

(Unaudited)

13-week

13-week

39-week

39-week

period ended

period ended

period ended

period ended

December 30, 

December 31,

December 30, 

December 31,

(thousands of Canadian dollars)

2023

2022

2023

2022

OPERATING ACTIVITIES

Net earnings (loss)

9,983

34,254

(40,917)

(7,052)

Adjustments to reconcile net earnings (loss) to cash flows generated from operating activities

   Depreciation of property, plant, and equipment

3,583

3,954

11,020

11,897

   Depreciation of right-of-use assets

10,288

10,184

30,859

31,249

   Amortization of intangible assets

4,061

1,642

9,604

7,469

   Loss on disposal of capital assets

272

272

74

   Gain on disposal of equity investment

(186)

   Share-based compensation

(307)

210

(56)

625

   Deferred income tax expense (recovery)

1,302

185

(564)

   Other

1,586

1,572

(4)

1,172

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

94,660

113,222

64,577

76,107

Interest expense

7,870

6,282

21,343

19,010

Interest income

(489)

(335)

(1,096)

(667)

Cash flows generated from operating activities

131,507

172,287

95,787

139,134

INVESTING ACTIVITIES

Net purchases of property, plant, and equipment

(929)

(232)

(4,695)

(2,394)

Addition of intangible assets

(1,002)

(5,741)

(9,014)

(18,999)

Proceeds from disposal of equity investment

283

Interest received 

489

335

1,096

667

Cash flows used for investing activities

(1,442)

(5,638)

(12,613)

(20,443)

FINANCING ACTIVITIES

Repayment of principal on lease liabilities 

(11,498)

(11,472)

(33,334)

(34,725)

Interest paid 

(7,602)

(6,282)

(21,076)

(19,010)

Proceeds from Related party credit facility

10,000

5,000

53,000

25,000

Repayment of Related party credit facility

(53,000)

(25,000)

(53,000)

(25,000)

Proceeds from share issuances

220

Cash flows used for financing activities

(62,100)

(37,754)

(54,190)

(53,735)

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

(1,825)

(1,569)

(279)

(1,464)

Net increase in cash and cash equivalents during the period

66,140

127,326

28,705

63,492

Cash and cash equivalents, beginning of period

27,678

22,635

65,113

86,469

Cash and cash equivalents, end of period

93,818

149,961

93,818

149,961

 

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

December 30, 

December 31,

December 30, 

December 31,

(millions of Canadian dollars)

2023

2022

2023

2022

Revenue

370.6

422.7

756.7

863.5

Cost of sales

(229.6)

(256.0)

(459.3)

(519.6)

Cost of operations

(71.2)

(78.4)

(180.2)

(198.9)

Selling, general and administrative expenses 

(30.8)

(31.0)

(79.8)

(83.8)

Depreciation of right-of-use assets

(10.3)

(10.2)

(30.9)

(31.2)

Finance charges related to leases

(6.5)

(6.3)

(19.5)

(19.0)

Adjusted EBITDA1

22.3

40.8

(12.9)

11.0

Depreciation of property, plant and equipment 

(3.6)

(4.0)

(11.0)

(11.9)

Amortization of intangible assets

(4.1)

(1.6)

(9.6)

(7.5)

Loss on disposal of capital assets

(0.3)

(0.3)

(0.1)

Gain on disposal of equity investment 

0.2

Net interest income (expense)

(0.9)

0.3

(0.7)

0.7

Non-recurring legal fees

(0.1)

(0.8)

Restructuring costs

(3.0)

(5.4)

Expenses from ransomware attack

(0.3)

(1.3)

Insurance proceeds from ransomware attack

1.3

Earnings (Loss) before income taxes

10.0

35.6

(40.7)

(7.6)

1 Earnings before interest, taxes, depreciation, amortization, asset disposals, and certain non-recurring or unusual amounts, and includes IFRS 16 right-of-use asset depreciation and associated finance charges.

 

SOURCE Indigo Books & Music Inc.