Indigo Reports Fiscal 2021 First Quarter Financial Results – Exceptional growth in online business blunts impact of coast to coast mandated store closures

TORONTO, Aug. 6, 2020 /CNW/ – Indigo Books & Music Inc. (TSX: IDG), Canada’s largest book, gift and specialty toy retailer,…

TORONTO, Aug. 6, 2020 /CNW/ – Indigo Books & Music Inc. (TSX: IDG), Canada’s largest book, gift and specialty toy retailer, reported first quarter financial results and provided an update on recent developments related to the COVID-19 global pandemic.

In a quarter when the Company was forced to close its stores for the majority of the period, and with some stores essentially closed until the very end, the Company reported revenue of $135.1 million, compared with revenue of $192.6 million for the same period last year, a decline of $57.5 million. The Company was able to blunt some of the impact of these closures though its online channel which experienced exceptional growth. Online revenue grew 214% for the 13-week period compared to last year, remaining strong through the reopening period.

The Company refocused its efforts at the outset of the pandemic to meet demand through its digital channels – lifted by a renewed interest in the core categories of reading, wellness, at-home learning and entertainment, and successfully fulfilled order volumes comparable to its holiday season while maintaining full social distancing precautions in all warehouses.

Commenting on the results, CEO Heather Reisman said: “Despite the unparalleled challenges we faced in the first quarter, we are extremely pleased with the way our entire organization adapted to the unprecedented demands to both adjust the business and meet the needs of our customers. We are also buoyed by the level of customer engagement with us. This uniquely disruptive period has driven significant customer acquisition, plum member sign ups and encouraged our loyal customers to further embrace our digital experience, signifying the strength of our brand. We have no doubt we will emerge stronger than ever when the clouds of COVID-19 are lifted.”

During the quarter, the Company also reduced discretionary spending and workforce size to better align to the current environment. These actions helped absorb the impact of lost sales to profitability, resulting in a decrease in adjusted EBITDA (see “Non-IFRS Measures” below) of only $7.6 million dollars compared to the first quarter of last year. Indigo reported a net loss of $31.6 million ($1.15 net loss per common share) compared to a net loss of $19.1 million ($0.69 net loss per common share) last year.

In August 2020, to enhance the Company’s financial flexibility the Company closed on a $25 million, interest free revolving credit facility from a company controlled by Mr. Gerald W. Schwartz, who is the controlling shareholder of Indigo.

Key COVID-19 developments in the first quarter of fiscal 2021:

  • Engaged with all landlords for rent relief to ensure the burden of COVID-19 is fairly shared.
  • Implemented full social distancing in all warehouses.
  • Opened all stores by the end of the quarter but curtailed hours remain in place, as does social distancing within stores.
  • Launched curbside pick-up to alleviate demand on distribution centres and protect the health and safety of the Company’s customers, employees and communities.
  • Increased investment in digital to ensure full ability to continue to drive the opportunities in this channel.

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, August 7th, 2020. 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 92338685.

A playback of the call will also be available by telephone until 11:59 p.m. (ET) on August 14, 2020. The call playback can be accessed after 11:00 a.m. (ET) on August 7, 2020, 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 338685#. 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 23, 2020 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).

AboutIndigo Books& Music Inc.

Indigo is a publicly traded Canadian company listed on the Toronto Stock Exchange (IDG). Indigo’s Cultural Department Store, is the world’s first physical and digital meeting place inspired by and filled with books, music, art, ideas, and beautifully designed lifestyle products. 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. Every year the 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 Foundation has committed over $32 million to more than 3,000 elementary schools, benefitting more than 1,000,000 students. Most recently in April 2020, 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. To learn more about Indigo, please visit the “Our Company” section at indigo.ca. To learn more about Indigo, please visit the “Our Company” section at indigo.ca.

Consolidated Balance Sheets

(Unaudited)






 As at 

 As at 

 As at 


June 27,

June 29,

March 28,

(thousands of Canadian dollars)

2020

2019

2020





ASSETS




Current




Cash and cash equivalents

110,563

52,344

120,473

Short-term investments

38,000

Accounts receivable

24,872

12,325

7,640

Inventories

218,124

241,868

241,812

Prepaid expenses

6,747

7,652

6,062

Income taxes receivable

138

573

138

Derivative assets

1,622

3,794

Other assets

2,271

871

2,320

Total current assets

364,337

353,633

382,239

Loan receivable

446

446

Property, plant, and equipment, net

87,008

122,362

91,215

Right-of-use assets, net

372,360

392,748

382,146

Intangible assets, net

23,055

31,743

24,571

Equity investment, net

2,353

3,588

2,353

Deferred tax assets

92,797

Total assets

849,559

996,871

882,970

LIABILITIES AND EQUITY




Current




Accounts payable and accrued liabilities

175,130

154,886

164,294

Unredeemed gift card liability

51,320

48,794

51,673

Provisions

2,203

200

2,034

Deferred revenue

10,718

7,897

10,682

Short-term lease liabilities

65,260

65,914

68,402

Derivative liabilities

924

Total current liabilities

304,631

278,615

297,085

Long-term accrued liabilities

950

1,877

1,196

Long-term provisions

672

45

469

Long-term lease liabilities

492,701

471,529

500,215

Total liabilities

798,954

752,066

798,965

Equity




Share capital

226,986

225,531

226,986

Contributed surplus

13,197

13,048

12,822

Retained earnings (deficit)

(190,404)

7,127

(158,801)

Accumulated other comprehensive income (loss)

826

(901)

2,998

Total equity

50,605

244,805

84,005

Total liabilities and equity

849,559

996,871

882,970

 

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)








13-week

13-week


period ended

period ended


June 27,

June 29,

(thousands of Canadian dollars, except per share data)

2020

2019




Revenue 

135,081

192,556

Cost of sales 

(96,944)

(108,682)

Gross profit

38,137

83,874

Operating, selling, and other expenses

(63,456)

(103,571)

Operating loss

(25,319)

(19,697)

Net interest expense

(6,284)

(5,424)

Share of loss from equity investments

(773)

Loss before income taxes

(31,603)

(25,894)

Income tax recovery 

6,824

Net loss

(31,603)

(19,070)




Other comprehensive 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 0; 2019 – 368]

(909)

(1,004)

Reclassification of net realized gain



[net of taxes of 0; 2019 – 167]

(1,263)

(455)

Other comprehensive loss

(2,172)

(1,459)




Total comprehensive loss

(33,775)

(20,529)




Net loss per common share



Basic

($1.15)

($0.69)

Diluted 

($1.15)

($0.69)

 

Consolidated Statements of Cash Flows

(Unaudited)





13-week

13-week


period ended

period ended


June 27,

June 29,

(thousands of Canadian dollars)

2020

2019




OPERATING ACTIVITIES



Net loss

(31,603)

(19,070)

Adjustments to reconcile net loss to cash flows from (used for) operating activities



Depreciation of property, plant, and equipment

4,591

5,932

Depreciation of right-of-use assets

10,652

9,833

Amortization of intangible assets

3,208

3,266

Loss on disposal of capital assets

247

461

Share-based compensation 

300

248

Directors’ compensation

75

84

Deferred income tax recovery

(6,824)

Rent concessions

(2,411)

Other

259

256

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

16,466

(17,453)

Interest expense

6,498

6,077

Interest income

(214)

(653)

Share of loss from equity investments

773

Cash flows from (used for) operating activities

8,068

(17,070)




INVESTING ACTIVITIES



Net purchases of property, plant, and equipment

(498)

(2,849)

Addition of intangible assets 

(1,705)

(2,482)

Change in short-term investments

49,150

Interest received

214

653

Cash flows from (used for) investing activities

(1,989)

44,472




FINANCING ACTIVITIES



Repayment of principal on lease liabilities

(9,232)

(10,013)

Interest paid

(6,498)

(6,078)

Cash flows used for financing activities

(15,730)

(16,091)




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

(259)

(257)




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

(9,910)

11,054

Cash and cash equivalents, beginning of period

120,473

41,290

Cash and cash equivalents, end of period

110,563

52,344

 

Non-IFRS Financial Measures


The following table reconciles adjusted EBITDA to loss before income taxes, the most comparable IFRS measure:


13-week

13-week


period ended

period ended


June 27,

June 29,

(millions of Canadian dollars)

2020

2019

Revenue

135.1

192.6

Cost of sales

(96.9)

(108.7)

Cost of operations

(32.1)

(58.7)

Selling, administrative and other expenses

(12.6)

(25.4)

Depreciation of right-of-use assets

(10.7)

(9.8)

Finance charges related to leases

(6.5)

(6.1)

Adjusted EBITDA1

(23.7)

(16.1)

Depreciation of property, plant and equipment

(4.6)

(5.9)

Amortization of intangible assets

(3.2)

(3.3)

Loss on disposal of capital assets

(0.2)

(0.5)

Net interest income

0.2

0.7

Share of loss from equity investments

(0.8)

Loss before income taxes 

(31.6)

(25.9)

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.