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Indigo Q2 Results Reflect Strong Margin and Productivity Improvements

Plum Rewards Membership Tops 5 Million Customers

TORONTO, Nov. 6, 2012 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 5.9% decrease in net revenue for its second quarter ending September 29, 2012. Revenue for the quarter was $185.6 million, down $11.6 million from last year driven primarily by a delay in the planned launch of the new Kobo devices.  In addition, the Company operated seven fewer Coles stores.  Book sales for the quarter were down only modestly to last year owing to strong titles as well as effective efforts to drive book sales both in store and online.

On a comparable store basis, Indigo and Chapters superstores posted a 6.5% decrease in revenue, while Coles and IndigoSpirit small format stores were down 2.2%.

Commenting on the results, CEO Heather Reisman said, "We are focused on driving significant margin and productivity improvements and are pleased that our on-going efforts are reflected in our results.  We will continue to broaden our assortment in our key growth categories to drive higher top line sales to offset the decline in physical books. We're also pleased to have the newest Kobo eReaders now in store as top gift picks for the upcoming holiday season."

The net loss attributable to shareholders of the Company from continuing operations improved $24.8 million from a loss of $28.8 million last year to a loss of $4.0 million this year.  The significant reduction in net loss was due to there being no impairment charges in the current year.  In the same period last year, the Company recorded a full write down of the $25.4 million of goodwill allocated to the Indigo segment.  In addition, the Company experienced improvements in margin and productivity in the current year.

The net loss per share from continuing operations improved from a loss of $1.14 per share last year to a loss of $0.16 per share due to the above noted factors.

In the quarter, the Company's plum rewards program was recognized for global leadership, earning the award for Loyalty Innovation in Retail at the 3rd Annual COLLOQUY Loyalty Awards.  In less than 18 months, five million Canadians joined the plum rewards program, collecting over seven billion plum points.  Designed in response to customer feedback, plum rewards help shoppers discover products that match their interests and passions while rewarding and recognizing their purchases. Plum rewards members can collect points on virtually every in-store purchase, have self-service access to personalized recommendations and offers online or at in-store kiosks, and enjoy special member pricing on online book purchases.

Also in the second quarter, Indigo launched its award winning annual Adopt-A-School program, a three week national fundraising campaign that raised over $580 thousand — the equivalent of over 50 thousand books — to support 570 participating schools across Canada. Through the program Indigo helps augment the $1.5 million in grants made annually by the Indigo Love of Reading Foundation to benefit high needs elementary schools.

The Board of Directors today approved a quarterly dividend of 11 cents per common share to be paid on December 5, 2012, to all shareholders of record as of November 20, 2012.

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 in Canada; 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 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 comparative store sales growth, in the press release above. This measure does not have a standardized meaning prescribed by IFRS and is therefore specific to Indigo and may not be comparable to similar measures presented by other companies.  Comparative store sales growth is a key indicator used by the Company to measure performance against internal targets and prior period results. This measure is commonly used by financial analysts and investors to compare Indigo to other retailers. Comparable store sales are defined as sales generated by stores that have been open for more than 12 months on a 52-week basis.

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 under different banners including Indigo Books & Music; Indigo Books, Gifts, Kids; IndigoSpirit; Chapters; The World's Biggest Bookstore; and Coles. The online channel, indigo.ca, offers a one-stop online shop with a robust selection of books, toys, home décor, stationery and gifts.

In 2004, Indigo founded the Indigo Love of Reading Foundation, a registered charity that provides new books and education materials to high-needs Canadian elementary schools, to address the literacy crisis in Canada. To date the Foundation, as well as the Indigo "Adopt A School" program, have contributed $13 million, equating to more than a million books, to high-needs elementary schools across Canada.  Visit loveofreading.org for more information.

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 29, October 1, March 31,
(thousands of Canadian dollars)   2012 2011 2012
ASSETS        
Current        
Cash and cash equivalents   192,598 45,491 207,601
Accounts receivable   14,092 21,831 12,627
Inventories   247,604 263,918 229,706
Prepaid expenses   4,835 15,285 3,695
Total current assets   459,129 346,525 453,629
Property, plant and equipment   62,111 76,031 67,464
Intangible assets   22,467 31,251 22,810
Goodwill   - 1,216 -
Deferred tax assets   53,986 68,250 48,633
Total assets   597,693 523,273 592,536
LIABILITIES AND EQUITY        
Current        
Accounts payable and accrued liabilities   198,435 224,159 174,201
Unredeemed gift card liability   37,912 36,292 42,711
Provisions   175 - 232
Deferred revenue   12,882 12,401 11,234
Income taxes payable   111 650 65
Notes payable   - 5,168 -
Current portion of long-term debt   900 1,305 1,060
Total current liabilities   250,415 279,975 229,503
Long-term accrued liabilities   4,448 5,038 5,800
Long-term provisions   391 - 460
Long-term debt   1,045 1,623 1,141
Total liabilities   256,299 286,636 236,904
Equity        
Share capital   203,660 202,962 203,373
Contributed surplus   7,570 6,839 7,039
Retained earnings   130,164 4,882 145,220
Total equity attributable to shareholders of Indigo   341,394 214,683 355,632
Non-controlling interest   - 21,954 -
Total equity   341,394 236,637 355,632
Total liabilities and equity   597,693 523,273 592,536

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 29, October 1, September 29, October 1,
(thousands of Canadian dollars, except per share data) 2012 2011 2012 2011
         
Revenues 185,589 197,248 372,072 385,253
Cost of sales 100,487 111,497 206,875 222,579
Gross profit 85,102 85,751 165,197 162,674
Operating and administrative expenses 90,975 115,579 181,149 208,270
Operating loss (5,873) (29,828) (15,952) (45,596)
Interest on long-term debt and financing charges 29 39 60 83
Interest expense (income) on cash and cash equivalents (578) 56 (1,159) (15)
Loss before income taxes (5,324) (29,923) (14,853) (45,664)
Income tax recovery (1,311) (1,074) (5,353) (4,852)
Loss and comprehensive loss for the period from continuing operations (4,013) (28,849) (9,500) (40,812)
Loss and comprehensive loss for the period from discontinued operations (net of tax) - (11,542) - (23,773)
Net loss and comprehensive loss for the period (4,013) (40,391) (9,500) (64,585)
         
Net loss and comprehensive loss attributable to:        
Shareholders of Indigo (4,013) (35,120) (9,500) (53,225)
Non-controlling interest - (5,271) - (11,360)
         
Net loss per common share from continuing operations        
Basic $(0.16) $(1.14) $(0.38) $(1.62)
Diluted $(0.16) $(1.14) $(0.38) $(1.62)
         
         
Net loss per common share from discontinued operations        
Basic $ - $(0.25) $ - $(0.49)
Diluted $ - $(0.25) $ - $(0.49)
         
Net loss per common share        
Basic $(0.16) $(1.39) $(0.38) $(2.11)
Diluted $(0.16) $(1.39) $(0.38) $(2.11)

Consolidated Statements of Cash Flows
(Unaudited)
  13-week 13-week 26-week 26-week
  period ended period ended period ended period ended
  September 29, October 1, September 29, October 1,
(thousands of Canadian dollars) 2012 2011 2012 2011
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss from continuing operations for the period (4,013) (28,849) (9,500) (40,812)
Add (deduct) items not affecting cash        
  Depreciation of property, plant and equipment 4,329 4,557 9,048 9,016
  Amortization of intangible assets 2,515 2,103 4,937 4,184
  Impairment of capital assets - - 250 -
  Impairment of goodwill - 25,416 - 25,416
  Loss on disposal of capital assets - 11 44 15
  Stock-based compensation 200 75 359 670
  Directors' compensation 96 118 229 267
  Deferred tax assets (1,311) (1,250) (5,353) (4,852)
  Other 510 (2,125) (243) (2,411)
Net change in non-cash working capital balances related to continuing operations 10,667 (18,306) (897) (11,501)
Interest on long-term debt and financing charges 29 39 60 83
Interest expense (income) on cash and cash equivalents (578) 56 (1,159) (15)
Income taxes received 41 - 45 -
Operating cash flows of discontinued operations - (282) - (16,813)
Cash flows from (used in) operating activities 12,485 (18,437) (2,180) (36,753)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Acquisition of non-capital tax losses - (450) - (10,559)
Purchase of property, plant and equipment (2,764) (3,651) (3,548) (5,848)
Addition of intangible assets (2,784) (2,259) (4,614) (3,888)
Investing cash flows of discontinued operations - (2,488) - (4,646)
Cash flows used in investing activities (5,548) (8,848) (8,162) (24,941)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Notes payable - 225 - 5,280
Repayment of long-term debt (338) (393) (684) (712)
Interest received 565 10 1,124 94
Proceeds from share issuances 142 - 230 578
Purchase of shares in subsidiary - - - (3,009)
Dividends paid (2,780) (2,772) (5,556) (5,539)
Financing cash flows of discontinued operations - 36 - 24,478
Cash flows from (used in) financing activities (2,411) (2,894) (4,886) 21,170
         
Effect of foreign currency exchange rate changes on cash and cash equivalents (523) 2,285 225 2,354
         
Net increase (decrease) in cash and cash equivalents during the period 4,003 (27,894) (15,003) (38,170)
Cash and cash equivalents, beginning of period 188,595 73,385 207,601 83,661
Cash and cash equivalents, end of period 192,598 45,491 192,598 45,491
         
Cash and cash equivalents attributable to:        
Continuing operations 192,598 18,497 192,598 18,497
Discontinued operations - 26,994 - 26,994
  192,598 45,491 192,598 45,491

 

 

SOURCE Indigo Books & Music Inc.

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