Indigo delivers Q3 net earnings of
$34.3M and Adjusted EBITDA of
$40.8M
TORONTO, Feb. 9, 2023
/CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book and lifestyle retailer,
reported financial results for the 13-week period ended
December 31, 2022 compared to the
13-week period ended January 1,
2022.
Following strong top-line performance in the
first half of the fiscal year, sales for the third quarter
reflected the pressures of the current macro-economic environment.
The Company recognized total revenue of $422.7 million in the quarter, compared to
$430.7 million in the same period
last year, a decrease of 1.9%. While softer demand adversely
impacted sales in the beginning of the quarter, the Company
generated revenue growth from Black Friday onward. In the retail
channel, where December sales exceeded the prior year, the Company
also achieved a record-breaking Boxing week.1 The online
channel, which experienced a decline compared to the prior year,
sustained 63% sales growth to the comparable pre-pandemic quarter
and had a record-breaking Black Friday.
The Company delivered growth in its general
merchandise business, demonstrating the ongoing success of an
evolving product assortment. Double-digit growth was achieved in
the baby, toys and wellness categories. Despite revenue declining
year-over-year, the print business grew in sales and market share
relative to the comparable pre-pandemic period.2
Commenting on the results, CEO Peter Ruis said: "Despite a recessionary
external environment, we generated a creditable result as consumers
cut back in response to the inflationary pressures. We continue to
take strategic steps to increase productivity and generate
sustainable and profitable growth. Our strength in the month of
December demonstrates the power of our brand and Indigo's position
as a key gifting destination for Canadians."
Adjusted EBITDA for the quarter was $40.8 million compared to $52.0 million in the same period last year. The
impact of the current macro-economic environment extended past
revenue, adversely effecting costs. The Company incurred increased
cost of inventories, and incremental international freight, amongst
other inflationary pressures. Customers shopped late, waiting for
Black Friday deals. Adjusted EBITDA was further impacted by
additional investment to support modernized ecommerce technology,
as well as higher amortization of the Company's right-of-use
assets, as the prior year amortization was reduced by lease
modifications recognized. Net earnings for the quarter totaled
$34.3 million ($1.23 net earnings per basic common share),
compared to $45.1 million
($1.62 net earnings per basic common
share) in the same period in the prior year.
Indigo experienced a cybersecurity incident
commencing on February 8th, 2023,
resulting in internal operational disruptions and service
disruptions to both the ecommerce and retail channels. The Company
is working alongside third-party experts to resolve the situation
and to understand if customer data has been accessed. Indigo's main
priorities are to protect customer data, limit the operational and
financial impacts of this incident and safely resume full
operations as quickly as possible.
1 Historical
data referencing fiscal 2013 onwards
|
2 BookNet
Canada
|
|
Analyst/Investor
Call
Indigo will host a conference call for analysts
and investors to review these results at 10:00 a.m. (Eastern Time) tomorrow, February 10th, 2023.
To join the conference call without operator
assistance, you may register and enter your phone number
at https://bit.ly/3VZWeqe 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 50832338.
A playback of the call will also be available by
telephone until 11:59 p.m. (ET) on
February 17th, 2023. The
call playback can be accessed after 12:00
p.m. (ET) on February
10th, 2023, 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 832338#. 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; 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 2, 2022 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 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.sedar.com).
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, baby, kids, wellness
and lifestyle products, that support their customers every day and
at key life stages by simplifying their journey to live with
intention. 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 runs two
annual national granting programs: the Literacy Fund Grant, which
is a multi-year grant provided to high-needs schools across the
country; and the Adopt a School program, a grassroots fundraising
initiative that unites Indigo, its retail stores, Indigo's staff,
local schools, and their communities. In the wake of the COVID-19
pandemic and the unprecedented nation-wide school closures, the
Foundation committed $1.0 million to
provide books to families in need. With the support of the Company,
its customers, employees, and suppliers, the Foundation has
committed over $35.0 million to more
than 3,500 high-needs elementary schools across Canada since 2004. The Foundation is dedicated
to raising awareness about the critical importance of children's
literacy while providing essential literary support to high-needs
children across Canada.
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
31,
|
January 1,
|
April 2,
|
(thousands of Canadian
dollars)
|
2022
|
2022
|
2022
|
|
|
|
|
ASSETS
|
|
|
|
Current
|
|
|
|
Cash and cash
equivalents
|
149,961
|
189,872
|
86,469
|
Accounts
receivable
|
29,721
|
18,223
|
12,941
|
Inventories
|
317,257
|
274,682
|
273,849
|
Prepaid
expenses
|
7,267
|
6,579
|
13,508
|
Derivative
assets
|
2,128
|
197
|
—
|
Other
assets
|
3,681
|
3,520
|
3,246
|
Total current
assets
|
510,015
|
493,073
|
390,013
|
Property, plant,
and equipment, net
|
55,346
|
66,520
|
64,319
|
Right-of-use
assets, net
|
308,526
|
335,378
|
333,767
|
Intangible
assets, net
|
32,700
|
19,353
|
21,171
|
Equity
investment, net
|
—
|
2,156
|
97
|
Total
assets
|
906,587
|
916,480
|
809,367
|
LIABILITIES
AND EQUITY
|
|
|
|
Current
|
|
|
|
Accounts payable
and accrued liabilities
|
289,958
|
244,424
|
178,138
|
Unredeemed gift
card liability
|
79,158
|
75,269
|
62,653
|
Provisions
|
569
|
1,481
|
472
|
Deferred
revenue
|
22,876
|
22,197
|
20,699
|
Short-term lease
liabilities
|
69,573
|
66,298
|
69,100
|
Derivative
liabilities
|
—
|
27
|
631
|
Total current
liabilities
|
462,134
|
409,696
|
331,693
|
Long-term accrued
liabilities
|
876
|
1,048
|
1,068
|
Long-term
provisions
|
784
|
649
|
702
|
Long-term lease
liabilities
|
419,431
|
453,088
|
448,084
|
Total
liabilities
|
883,225
|
864,481
|
781,547
|
Equity
|
|
|
|
Share
capital
|
227,094
|
227,069
|
227,090
|
Contributed
surplus
|
15,242
|
14,338
|
14,618
|
Retained
deficit
|
(220,455)
|
(189,954)
|
(213,403)
|
Accumulated other
comprehensive income (loss)
|
1,481
|
546
|
(485)
|
Total
equity
|
23,362
|
51,999
|
27,820
|
Total
liabilities and equity
|
906,587
|
916,480
|
809,367
|
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
31,
|
January 1,
|
December
31,
|
January 1,
|
(thousands of Canadian
dollars, except per share data)
|
2022
|
2022
|
2022
|
2022
|
|
|
|
|
|
Revenue
|
422,728
|
430,666
|
863,531
|
841,560
|
Cost of
sales
|
(256,031)
|
(252,427)
|
(519,601)
|
(482,883)
|
Gross
profit
|
166,697
|
178,239
|
343,930
|
358,677
|
Operating, selling, and
other expenses
|
(125,194)
|
(127,079)
|
(333,203)
|
(313,940)
|
Operating
profit
|
41,503
|
51,160
|
10,727
|
44,737
|
Net interest
expense
|
(5,947)
|
(5,991)
|
(18,343)
|
(18,068)
|
Earnings (loss)
before income taxes
|
35,556
|
45,169
|
(7,616)
|
26,669
|
Income tax recovery
(expense)
|
(1,302)
|
(49)
|
564
|
45
|
Net earnings
(loss)
|
34,254
|
45,120
|
(7,052)
|
26,714
|
|
|
|
|
|
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)
|
(110)
|
5,683
|
116
|
Reclassification of realized
loss (gain)
|
(2,555)
|
(22)
|
(3,487)
|
1,632
|
Foreign currency translation
adjustment
|
61
|
245
|
(230)
|
318
|
Other comprehensive
income (loss)
|
(3,549)
|
113
|
1,966
|
2,066
|
|
|
|
|
|
Total comprehensive
earnings (loss)
|
30,705
|
45,233
|
(5,086)
|
28,780
|
|
|
|
|
|
Net earnings (loss)
per common share
|
|
|
|
|
Basic
|
$
1.23
|
$
1.62
|
$
(0.25)
|
$
0.96
|
Diluted
|
$
1.22
|
$
1.60
|
$
(0.25)
|
$
0.94
|
Consolidated
Statements of Cash Flows
|
(Unaudited)
|
|
|
13-week
|
13-week
|
39-week
|
39-week
|
|
period
ended
|
period
ended
|
period
ended
|
period
ended
|
|
December
31,
|
January
1,
|
December
31,
|
January
1,
|
(thousands of
Canadian dollars)
|
2022
|
2022
|
2022
|
2022
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net earnings
(loss)
|
34,254
|
45,120
|
(7,052)
|
26,714
|
Adjustments to
reconcile net earnings (loss) to
cash flows from operating activities
|
|
|
|
|
Depreciation of property,
plant and equipment
|
3,954
|
3,992
|
11,897
|
12,043
|
Depreciation of right-of-use
assets
|
10,184
|
7,549
|
31,249
|
26,697
|
Amortization of intangible
assets
|
1,642
|
2,785
|
7,469
|
9,269
|
Loss on disposal of capital
assets
|
—
|
6
|
74
|
36
|
Gain on disposal of equity
investment
|
—
|
—
|
(186)
|
—
|
Share-based
compensation
|
210
|
(23)
|
625
|
578
|
Deferred income tax expense
(recovery)
|
1,302
|
49
|
(564)
|
(45)
|
Other
|
1,572
|
942
|
1,172
|
338
|
Net change in non-cash
working capital balances
related to operations
|
113,222
|
71,310
|
76,107
|
69,538
|
Interest
expense
|
6,282
|
6,123
|
19,010
|
18,617
|
Interest
income
|
(335)
|
(132)
|
(667)
|
(549)
|
Cash flows from
operating activities
|
172,287
|
137,721
|
139,134
|
163,236
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
Net purchases of
property, plant, and equipment
|
(232)
|
(523)
|
(2,394)
|
(1,546)
|
Addition of intangible
assets
|
(5,741)
|
(2,059)
|
(18,999)
|
(7,707)
|
Proceeds from disposal
of equity investments
|
—
|
—
|
283
|
516
|
Interest
received
|
335
|
132
|
667
|
549
|
Cash flows used for
investing activities
|
(5,638)
|
(2,450)
|
(20,443)
|
(8,188)
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
Repayment of principal
on lease liabilities
|
(11,472)
|
(10,273)
|
(34,725)
|
(31,316)
|
Interest
paid
|
(6,282)
|
(6,123)
|
(19,010)
|
(18,617)
|
Proceeds from related
party credit facility
|
5,000
|
—
|
25,000
|
—
|
Repayment of related
party credit facility
|
(25,000)
|
—
|
(25,000)
|
—
|
Proceeds from share
issuances
|
—
|
32
|
—
|
61
|
Cash flows used for
financing activities
|
(37,754)
|
(16,364)
|
(53,735)
|
(49,872)
|
|
|
|
|
|
Effect of foreign
currency exchange rate changes on
cash and cash equivalents
|
(1,569)
|
(940)
|
(1,464)
|
(239)
|
|
|
|
|
|
Net increase in cash
and cash equivalents during the period
|
127,326
|
117,967
|
63,492
|
104,937
|
Cash and cash
equivalents, beginning of period
|
22,635
|
71,905
|
86,469
|
84,935
|
Cash and cash
equivalents, end of period
|
149,961
|
189,872
|
149,961
|
189,872
|
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
31,
|
January 1,
|
December
31,
|
January 1,
|
(millions of Canadian
dollars)
|
2022
|
2022
|
2022
|
2022
|
Revenue
|
422.7
|
430.7
|
863.5
|
841.6
|
Cost of
sales
|
(256.0)
|
(252.4)
|
(519.6)
|
(482.9)
|
Cost of
operations
|
(78.4)
|
(80.0)
|
(198.9)
|
(186.6)
|
Selling, general and
administrative expenses
|
(31.0)
|
(32.7)
|
(83.8)
|
(79.3)
|
Depreciation of
right-of-use assets
|
(10.2)
|
(7.5)
|
(31.2)
|
(26.7)
|
Finance charges related
to leases
|
(6.3)
|
(6.1)
|
(19.0)
|
(18.6)
|
Adjusted
EBITDA1
|
40.8
|
52.0
|
11.0
|
47.5
|
Depreciation of
property, plant and equipment
|
(4.0)
|
(4.0)
|
(11.9)
|
(12.0)
|
Amortization of
intangible assets
|
(1.6)
|
(2.8)
|
(7.5)
|
(9.3)
|
Loss on disposal of
capital assets
|
—
|
—
|
(0.1)
|
—
|
Gain on disposal of
equity investment
|
—
|
—
|
0.2
|
—
|
Net interest
income
|
0.3
|
0.1
|
0.7
|
0.5
|
Earnings (loss)
before income taxes
|
35.6
|
45.2
|
(7.6)
|
26.7
|
1 Earnings
before interest, taxes, depreciation, amortization, asset
disposals, share of loss from equity investments, and impairment,
and includes IFRS 16 right-of-use asset depreciation and associated
finance charges.
|
SOURCE Indigo Books & Music
Inc.