TORONTO, June 27,
2023 /CNW/ - Indigo
Books & Music Inc. (TSX: IDG), Canada's leading book and lifestyle retailer,
reported financial results for the 52-week period ended
April 1, 2023 compared to the 52-week
period ended April 2, 2022.
On February 8, 2023, the Company
was the victim of a ransomware attack, resulting in internal
operational disruptions and service disruptions to both sales
channels. This had a material impact on sales and profitability in
the fourth quarter and fiscal year, as further discussed below.
The Company's ecommerce platforms were temporarily shut down,
with the full website being restored after four weeks. The retail
network was unable to process electronic payments for approximately
three days and experienced other operational limitations that
impacted the Company's ability to fulfil demand.
Revenue for the year totaled $1.058
billion, compared to $1.062
billion in the prior year, a decrease of $4.6 million or 0.4%. Prior year revenue was
inclusive of a one-time payment of $17.0
million, resulting from the renegotiation of the Company's
partnership with one of its café vendors. Merchandise sales, the
total of retail and online sales and excluding other revenues, grew
$4.6 million or 0.5% to $1.015 billion, compared to $1.010 billion in the prior year.
Merchandise sales growth was achieved despite the ransomware
attack, which compounded the headwinds of an already challenging
macro-economic environment. Customers' desire to shop in-store
fuelled a rebounding retail channel, which in the Company's second
quarter drove sales above pre-pandemic levels and in the third
quarter delivered a record-breaking Boxing week.1 Strong
retail performance resulted in a shift in the sales channel mix,
which coupled with the ransomware attack led to a year-over-year
decline in online sales performance. However, the Company's
ecommerce platforms sustained year-to-date sales growth of 71%,
through January, compared to pre-pandemic fiscal 2020,
demonstrating their importance as a lever of expansion and
investment for the Company. The general merchandise business
increased 5.8% in the current year, with double-digit growth in the
paper, baby and wellness product categories. The print business
declined by 3.7%, negatively impacted by system limitations from
the ransomware attack which adversely affected the Company's
ability to replenish its inventory levels.
Commenting on results, CEO Peter
Ruis said: "This has been a turbulent year for Indigo, as
the progress gained from our post-pandemic re-emergence was
negatively impacted by adverse macro-economic factors. These
headwinds were furthered by the ransomware attack in our fourth
quarter. I am incredibly thankful for our incredible teams, who
have been working tirelessly to bring operations back to normal.
Through all of this, Indigo customers continued to show their
loyalty to our brand, and we are proud to have achieved merchandise
sales growth. We are looking forward to injecting momentum back
into the business in fiscal 2024 with the exciting launch of a new
digital platform in the late Summer and our new flagship store at
the Well, Toronto in
September."
Adjusted EBITDA for the year was a loss of $20.5 million, compared to earnings of
$32.5 million in the prior year. The
ransomware attack caused an interruption to the Company's sales
operations, the ultimate financial impact of which cannot be
reasonably estimated at this time, however, the impact was material
to fiscal 2023 sales, Adjusted EBITDA and net loss position.
Adjusted EBITDA was further impacted by the macro-economic
environment which drove increased cost of inventories and an
incremental $5.5 million of
international freight, amongst other inflationary pressures. The
Company was challenged by higher shrink levels, which is consistent
with industry trends, and incurred additional costs associated with
the modernization of its ecommerce platforms.
Indigo maintains cyber insurance coverage and is in the process
of working with its insurer to make claims under the policy. While
the business interruption losses cannot be reasonable estimated at
this time, the Company incurred $5.2
million of expenses as of April 1,
2023 which impacted the net loss position. Net loss for the
year totalled $49.6 million
($1.78 net loss per basic common
share) compared to net earnings of $3.3
million ($0.12 net earnings
per basic common share) in the prior year.
Fourth quarter results were heavily impacted by the ransomware
attack, driving a decrease in revenue of $26.5 million to $194.2
million for the quarter ended April
1, 2023, compared to revenue of $220.7 million in the prior year. This also
accounted for the majority of the $19.1
million change in net loss position, which was a loss of
$42.5 million compared to a loss of
$23.4 million in the same period last
year.
Indigo is also pleased to announce the appointment of Mr.
Donald Lewtas, Mr. Joel Silver and Mr. Markus Dohle to its Board of Directors, with Mr.
Lewtas and Mr. Silver joining the Audit Committee and Mr. Lewtas
chairing the committee.
On June 27, 2023, the Company
received a binding commitment with respect to a revolving line of
credit facility with a related party, Trilogy Retail Holdings Inc.
("Trilogy"), as lender (the "Credit Facility"). The Credit Facility
is for an aggregate principal amount of up to $45.0 million and, with the consent of Trilogy,
the amount may be increased by up to $10.0
million. The Credit Facility will be used to finance the
seasonal working capital and operational needs of the Company, will
be issued on reasonable commercial terms, and will not be
convertible, directly or indirectly, into equity or voting
securities. The Credit Facility will be subject to the terms and
conditions of the credit agreement anticipated to be entered into
between the Company and Trilogy on or before July 31, 2023.
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, June
28th, 2023.
To join the conference call without operator assistance, you may
register and enter your phone number
at https://emportal.ink/3APm7Rs 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 73083952.
A playback of the call will also be available by telephone until
11:59 p.m. (ET) on July 5th, 2023. The call playback can
be accessed after 12:00 p.m. (ET) on
June 28th, 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 083952#. 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 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 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, home, wellness,
fashion, paper, baby and kids products, that support customers by
simplifying their journey to Living 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 annual national
granting programs such as 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 addition, 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. The
Foundation is dedicated to giving back to communities in need,
while at the same time raising awareness about the critical
importance of children's literacy in Canada.
To learn more about Indigo, please visit the "Our Company"
section at indigo.ca.
Consolidated Balance
Sheets
|
|
|
As at
|
As at
|
|
April
1,
|
April 2,
|
(thousands of Canadian
dollars)
|
2023
|
2022
|
|
|
|
ASSETS
|
|
|
Current
|
|
|
Cash and cash
equivalents
|
65,113
|
86,469
|
Accounts
receivable
|
14,069
|
12,941
|
Inventories
|
244,063
|
273,849
|
Prepaid
expenses
|
6,830
|
13,508
|
Derivative
assets
|
699
|
-
|
Other assets
|
1,254
|
3,246
|
Total current
assets
|
332,028
|
390,013
|
Property, plant, and
equipment, net
|
52,464
|
64,319
|
Right-of-use assets,
net
|
318,302
|
333,767
|
Intangible assets,
net
|
35,287
|
21,171
|
Equity investment,
net
|
-
|
97
|
Total
assets
|
738,081
|
809,367
|
LIABILITIES AND
EQUITY (DEFICIT)
|
|
|
Current
|
|
|
Accounts payable and
accrued liabilities
|
169,860
|
178,138
|
Unredeemed gift card
liability
|
66,887
|
62,653
|
Provisions
|
1,879
|
472
|
Deferred
revenue
|
20,129
|
20,699
|
Short-term lease
liabilities
|
69,161
|
69,100
|
Derivative
liabilities
|
-
|
631
|
Total current
liabilities
|
327,916
|
331,693
|
Long-term accrued
liabilities
|
1,007
|
1,068
|
Long-term
provisions
|
851
|
702
|
Long-term lease
liabilities
|
428,284
|
448,084
|
Total
liabilities
|
758,058
|
781,547
|
Equity
(deficit)
|
|
|
Share
capital
|
227,094
|
227,090
|
Contributed
surplus
|
15,463
|
14,618
|
Retained
deficit
|
(262,969)
|
(213,403)
|
Accumulated other
comprehensive income (loss)
|
435
|
(485)
|
Total equity
(deficit)
|
(19,977)
|
27,820
|
Total liabilities
and equity (deficit)
|
738,081
|
809,367
|
Consolidated
Statements of Earnings (Loss) and Comprehensive Earnings
(Loss)
|
|
|
|
|
|
52-week
|
52-week
|
|
period
ended
|
period ended
|
|
April
1,
|
April 2,
|
(thousands of Canadian
dollars, except per share data)
|
2023
|
2022
|
|
|
|
Revenue
|
1,057,740
|
1,062,250
|
Cost of
sales
|
(641,529)
|
(619,212)
|
Gross
profit
|
416,211
|
443,038
|
Operating, selling, and
other expenses
|
(442,005)
|
(414,020)
|
Operating profit
(loss)
|
(25,794)
|
29,018
|
Net interest
expense
|
(24,143)
|
(23,694)
|
Share of loss from
equity investment
|
-
|
(32)
|
Impairment loss from
equity investment
|
-
|
(2,027)
|
Gain on sale of equity
investment
|
186
|
-
|
Earnings (loss)
before income taxes
|
(49,751)
|
3,265
|
Income tax
recovery
|
185
|
-
|
Net earnings
(loss)
|
(49,566)
|
3,265
|
|
|
|
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
|
5,705
|
(639)
|
Reclassification of
realized loss (gain)
|
(4,559)
|
1,630
|
Foreign currency
translation adjustment
|
(226)
|
44
|
Other comprehensive
income
|
920
|
1,035
|
|
|
|
Total comprehensive
earnings (loss)
|
(48,646)
|
4,300
|
|
Net earnings (loss)
per common share
|
|
|
Basic
|
$
(1.78)
|
$
0.12
|
Diluted
|
$
(1.78)
|
$
0.12
|
Consolidated
Statements of Cash Flows
|
|
52-week
|
52-week
|
|
period
ended
|
period ended
|
|
April
1,
|
April 2,
|
(thousands of Canadian
dollars)
|
2023
|
2022
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
Net earnings
(loss)
|
(49,566)
|
3,265
|
Adjustments to
reconcile net earnings (loss) to cash flows from operating
activities
|
|
|
Depreciation of property,
plant and equipment
|
15,667
|
16,006
|
Depreciation of right-of-use
assets
|
41,419
|
36,144
|
Amortization of intangible
assets
|
9,898
|
11,886
|
Loss on disposal of capital
assets
|
141
|
29
|
Share-based
compensation
|
846
|
864
|
Deferred income tax
recovery
|
(185)
|
-
|
Share of loss from equity
investment
|
-
|
32
|
Impairment loss from equity
investment
|
-
|
2,027
|
Gain on sale of equity
investment
|
(186)
|
-
|
Other
|
1,417
|
(328)
|
Net change in non-cash
working capital balances related to operations
|
34,209
|
(12,338)
|
Interest
expense
|
25,573
|
24,514
|
Interest
income
|
(1,430)
|
(820)
|
Cash flows from
operating activities
|
77,803
|
81,281
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
Net purchases of
property, plant, and equipment
|
(3,343)
|
(3,248)
|
Addition of intangible
assets
|
(24,015)
|
(12,143)
|
Proceeds from disposal
of equity investment
|
283
|
1,032
|
Interest
received
|
1,430
|
820
|
Cash flows used for
investing activities
|
(25,645)
|
(13,539)
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
Repayment of principal
on lease liabilities
|
(46,227)
|
(41,641)
|
Interest
paid
|
(25,573)
|
(24,514)
|
Proceeds from related
party credit facility
|
25,000
|
-
|
Repayment of related
party credit facility
|
(25,000)
|
-
|
Proceeds from share
issuances
|
3
|
76
|
Cash flows used for
financing activities
|
(71,797)
|
(66,079)
|
|
|
|
Effect of foreign
currency exchange rate changes on cash and cash
equivalents
|
(1,717)
|
(129)
|
|
|
|
Net increase
(decrease) in cash and cash equivalents during the
period
|
(21,356)
|
1,534
|
Cash and cash
equivalents, beginning of period
|
86,469
|
84,935
|
Cash and cash
equivalents, end of period
|
65,113
|
86,469
|
Non-IFRS Financial
Measures
|
|
|
|
|
|
The following table
reconciles Adjusted EBITDA to net earnings (loss) before income
taxes, the most comparable IFRS measure:
|
|
|
|
|
|
|
52-week
|
|
52-week
|
|
|
period
ended
|
%
Revenue
|
period ended
|
% Revenue
|
|
April
1,
|
April 2,
|
(millions of Canadian
dollars)
|
2023
|
2022
|
Revenue
|
1,057.7
|
100.0
|
1,062.3
|
100.0
|
Cost of
sales
|
(641.5)
|
60.7
|
(619.2)
|
58.3
|
Cost of
operations
|
(262.8)
|
24.8
|
(245.7)
|
23.1
|
Selling, general and
administrative expenses
|
(106.9)
|
10.1
|
(104.3)
|
9.8
|
Depreciation of
right-of-use assets
|
(41.4)
|
3.9
|
(36.1)
|
3.4
|
Finance charges related
to leases
|
(25.6)
|
2.4
|
(24.5)
|
2.3
|
Adjusted
EBITDA1
|
(20.5)
|
1.9
|
32.5
|
3.1
|
Depreciation of
property, plant and equipment
|
(15.7)
|
1.5
|
(16.0)
|
1.5
|
Amortization of
intangible assets
|
(9.9)
|
0.9
|
(11.9)
|
1.1
|
Loss on disposal of
capital assets
|
(0.1)
|
0.0
|
0.0
|
0.0
|
Net interest
income
|
1.4
|
0.1
|
0.8
|
0.1
|
Impairment loss from
equity investment
|
-
|
-
|
(2.0)
|
0.2
|
Gain on sale of equity
investment
|
0.2
|
0.0
|
-
|
-
|
Expenses from
ransomware attack
|
(5.2)
|
0.5
|
-
|
-
|
Earnings (loss)
before income taxes
|
(49.8)
|
4.7
|
3.3
|
0.3
|
1 Earnings
before interest, taxes, depreciation, amortization, asset
disposals, income from equity investment, impairment, 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.