Indigo Reports Third Quarter Fiscal 2020 Financial Results - Focus on Profitability Drives Net Earnings Growth of 20%
Indigo Reports Third Quarter Fiscal 2020 Financial Results - Focus on Profitability Drives Net Earnings Growth of 20%
Canada NewsWire
TORONTO, Feb. 6, 2020
TORONTO, Feb. 6, 2020 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported revenue for the third quarter of $383.7 million. This compares with revenue of $426.0 million for the same period last year. The sales decline was the result of a deliberate strategy to pull back on non-margin accretive promotional activities. The result of this strategic decision was an adjusted EBITDA improvement of 23.1%, excluding IFRS 16.
Commenting on the results, CEO Heather Reisman said: "We are in the early stages of a fundamental repositioning of Indigo – one that will fully build on our customer affection for our brand but that will allow us to thrive in an environment which is totally different from the one we were "born into". We are pleased to see some early positive financial impact but we are fully committed to returning to growth and true profitability and we feel confident about the actions we are and will be taking."
Indigo reported net earnings of $25.8 million ($0.94 basic net earnings per common share) compared to net earnings of $21.5 million ($0.80 basic net earnings per common share) last year. This bottom-line improvement was achieved on a declining sales base through focused efforts to improve margin rates across the business and lower the Company's cost infrastructure. Excluding the impact of IFRS 16, the Company reported an improvement of $8.1 million in adjusted EBITDA for the quarter.
The Company launched a cost-cutting initiative at the beginning of the year targeting $20.0 to $25.0 million in cost savings. Year-to-date, the Company has been able to reduce operating, selling, general and administrative expenses, and has met the target of $20.0 million. While this reduction has been partly offset by costs associated with non-recurring expenses associated with the move of the Company's proprietary New York design studio to Toronto, it is reflective of the Company's commitment to future profitability. Additionally, the Company will underspend against its capital expenditure target of $20 million for this year, a significant reduction from prior years.
Adoption of IFRS 16, Leases
The Company adopted IFRS 16 Leases ("IFRS 16") in the first quarter of fiscal 2020, replacing IAS 17 Leases and related interpretations. IFRS 16 introduced a single lessee accounting model which required substantially all the Company's operating leases to be recorded on the balance sheet as a right-of-use asset and a lease liability, representing the obligation to make future lease payments. The Company implemented the standard on March 31, 2019 using the modified retrospective approach, therefore the Company's 2020 results reflect lease accounting under IFRS 16. Prior year results have not been restated and continue to be reported under IAS 17. When compared to the previous accounting method, this resulted in a material adjustment to the Company's financial statements.
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 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 27151295.
A playback of the call will also be available by telephone until 11:59 p.m. (ET) on Friday, February 14th, 2020. The call playback can be accessed after 11:00 a.m. (ET) on Friday, February 7th, 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 151295 #. 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 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; 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 ("IFRS") 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 total comparable sales and 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. Total comparable sales and adjusted EBITDA are key indicators used by the Company to measure performance against internal targets and prior period results. These measures are commonly used by financial analysts and investors to compare Indigo to other retailers.
Total comparable sales is based on comparable retail store sales and includes online sales for the same period. Comparable retail store sales are based on a 52-week fiscal year and defined as sales generated by stores that have been open for more than 52 weeks. These measures exclude sales fluctuations due to store openings and closings, significant renovations, permanent relocation and material changes in square footage. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of earnings (loss) from equity investments. The method of calculating adjusted EBITDA is consistent with that used in prior periods.
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 and one territory under different banners including Indigo, Chapters, Coles, Indigospirit, and The Book Company. The Company also has retail operations in the United States through a wholly-owned subsidiary, operating its first retail store in Short Hills, New Jersey. The online channel, indigo.ca, offers a one-stop online shop with a robust selection of books, toys, home décor, stationery, and gifts.
Indigo founded the Indigo Love of Reading Foundation in 2004 to address the underfunding of public elementary school libraries. Every year the Indigo Love of Reading 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 Indigo Love of Reading Foundation has committed over $31 million to more than 3,000 elementary schools, benefitting more than 1,000,000 students.
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 28, | December 29, | March 30, | ||
(thousands of Canadian dollars) | 2019 | 2018 | 2019 | |
ASSETS | ||||
Current | ||||
Cash and cash equivalents | 216,198 | 249,251 | 41,290 | |
Short-term investments | 7,750 | - | 87,150 | |
Accounts receivable | 19,755 | 21,394 | 10,543 | |
Loan receivable | 720 | - | - | |
Inventories | 247,261 | 253,486 | 252,541 | |
Prepaid expenses | 6,604 | 6,802 | 5,802 | |
Income taxes receivable | 138 | 382 | 483 | |
Derivative assets | 19 | 4,189 | 1,070 | |
Other assets | 3,465 | 3,346 | 853 | |
Total current assets | 501,910 | 538,850 | 399,732 | |
Loan receivable | 926 | - | - | |
Property, plant, and equipment, net | 110,455 | 119,569 | 125,906 | |
Right-of-use assets, net1 | 449,998 | - | - | |
Intangible assets, net | 29,351 | 31,407 | 32,527 | |
Equity investments | 2,611 | 5,495 | 4,359 | |
Deferred tax assets1 | 91,228 | 38,648 | 47,940 | |
Total assets | 1,186,479 | 733,969 | 610,464 | |
LIABILITIES AND EQUITY | ||||
Current | ||||
Accounts payable and accrued liabilities1 | 261,281 | 268,403 | 179,180 | |
Unredeemed gift card liability | 65,676 | 57,751 | 48,729 | |
Provisions | 180 | 154 | 60 | |
Deferred revenue | 10,234 | 7,625 | 7,636 | |
Short-term lease liabilities1 | 42,707 | - | - | |
Derivative liabilities | 803 | - | - | |
Total current liabilities | 380,881 | 333,933 | 235,605 | |
Long-term accrued liabilities1 | 1,476 | 3,320 | 4,698 | |
Long-term provisions | 45 | 45 | 45 | |
Long-term lease liabilities1 | 556,873 | - | - | |
Total liabilities | 939,275 | 337,298 | 240,348 | |
Equity | ||||
Share capital | 226,986 | 225,530 | 225,531 | |
Contributed surplus | 12,463 | 12,526 | 12,716 | |
Retained earnings1 | 8,554 | 155,550 | 131,311 | |
Accumulated other comprehensive income (loss) | (799) | 3,065 | 558 | |
Total equity | 247,204 | 396,671 | 370,116 | |
Total liabilities and equity | 1,186,479 | 733,969 | 610,464 | |
1 The noted current period balances have been impacted by the adoption of IFRS 16. Refer to Note 3 of the unaudited interim condensed consolidated financial statements for additional information | ||||
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 28, | December 29, | December 28, | December 29, | |
(thousands of Canadian dollars, except per share data) | 2019 | 2018 | 2019 | 2018 |
Revenue | 383,737 | 425,971 | 779,657 | 847,660 |
Cost of sales | (216,872) | (252,700) | (444,119) | (499,034) |
Gross profit | 166,865 | 173,271 | 335,538 | 348,626 |
Operating, selling, and other expenses1 | (124,641) | (147,294) | (334,233) | (369,548) |
Operating profit1 | 42,224 | 25,977 | 1,305 | (20,922) |
Net interest income (expense)1 | (5,964) | 722 | (17,234) | 2,282 |
Share of earnings (loss) from equity investments | - | 2,812 | (1,588) | 1,694 |
Earnings (loss) before income taxes1 | 36,260 | 29,511 | (17,517) | (16,946) |
Income tax recovery (expense)1 | (10,411) | (8,032) | 3,842 | 3,911 |
Net earnings (loss)1 | 25,849 | 21,479 | (13,675) | (13,035) |
Other comprehensive income (loss) | ||||
Items that are or may be reclassified subsequently to net | ||||
Net change in fair value of cash flow hedges | (520) | 3,815 | (771) | 3,821 |
Reclassification of net realized (gain) loss | 2 | (1,100) | (586) | (1,571) |
Other comprehensive income (loss) | (518) | 2,715 | (1,357) | 2,250 |
Total comprehensive earnings (loss)1 | 25,331 | 24,194 | (15,032) | (10,785) |
Net earnings (loss) per common share1 | ||||
Basic | $0.94 | $0.80 | ($0.50) | ($0.48) |
Diluted | $0.94 | $0.79 | ($0.50) | ($0.48) |
1 The noted current period balances have been impacted by the adoption of IFRS 16. Refer to Note 3 of the unaudited interim condensed consolidated financial statements for additional information. | ||||
Consolidated Statements of Cash Flows | |||||
(Unaudited) | |||||
13-week | 13-week | 39-week | 39-week | ||
period ended | period ended | period ended | period ended | ||
December 28, | December 29, | December 28, | December 29, | ||
(thousands of Canadian dollars) | 2019 | 2018 | 2019 | 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |||||
Net earnings (loss)1 | 25,849 | 21,479 | (13,675) | (13,035) | |
Adjustments to reconcile net earnings (loss) to cash flows from operating | |||||
Depreciation of property, plant, and equipment and right-of-use assets1 | 15,631 | 5,700 | 47,477 | 15,865 | |
Amortization of intangible assets | 3,393 | 2,921 | 9,971 | 7,475 | |
Gain on disposal of equity investment | (1,484) | - | (1,484) | - | |
Loss on disposal of capital assets | 70 | 527 | 1,021 | 857 | |
Share-based compensation | 359 | 438 | 980 | 1,414 | |
Directors' compensation | 65 | 75 | 222 | 260 | |
Deferred income tax expense (recovery)1 | 10,411 | 8,213 | (3,842) | (3,913) | |
Other | 278 | (434) | 634 | (909) | |
Net change in non-cash working capital balances related to operations1 | 113,337 | 112,840 | 93,806 | 96,973 | |
Interest expense1 | 6,466 | 3 | 18,867 | 6 | |
Interest income | (460) | (726) | (1,633) | (2,288) | |
Share of (earnings) loss from equity investments | - | (2,812) | 1,588 | (1,694) | |
Cash flows from operating activities | 173,915 | 148,224 | 153,932 | 101,011 | |
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES | |||||
Net purchases of property, plant, and equipment | 1,098 | (15,669) | (3,134) | (53,967) | |
Addition of intangible assets | (1,879) | (4,451) | (6,804) | (14,676) | |
Change in short-term investments | 12,750 | 60,222 | 79,400 | 60,000 | |
Distribution from equity investments | - | - | - | 528 | |
Interest received | 587 | 726 | 1,413 | 2,288 | |
Cash flows from (used for) investing activities | 12,556 | 40,828 | 70,875 | (5,827) | |
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES | |||||
Repayment of principal on lease liabilities1 | (10,137) | - | (30,752) | - | |
Interest paid1 | (6,465) | - | (18,867) | - | |
Proceeds from share issuances | - | 143 | - | 2,907 | |
Cash flows from (used for) financing activities | (16,602) | 143 | (49,619) | 2,907 | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | (286) | 433 | (280) | 904 | |
Net increase in cash and cash equivalents during the period | 169,583 | 189,628 | 174,908 | 98,995 | |
Cash and cash equivalents, beginning of period | 46,615 | 59,623 | 41,290 | 150,256 | |
Cash and cash equivalents, end of period | 216,198 | 249,251 | 216,198 | 249,251 | |
1 The noted current period balances have been impacted by the adoption of IFRS 16. Refer to Note 3 of the unaudited interim condensed consolidated financial statements for additional information. | |||||
Non-IFRS Financial Measures | |||||
The following table reconciles total comparable sales to revenue, the most comparable IFRS measure: | |||||
13-week | 13-week | ||||
period ended | period ended | % increase / (decrease) | |||
December 28, | December 29, | ||||
(millions of Canadian dollars) | 2019 | 2018 | |||
Revenue | 383.7 | 426.0 | (9.9) | ||
Adjustments | |||||
Other revenue1 | (5.0) | (3.1) | |||
Adjustments for non-comparable items | (16.0) | (17.3) | |||
Total comparable sales | 362.9 | 405.6 | (10.5) | ||
1 Includes café revenue, irewards card sales, revenue from unredeemed gift cards, revenue from unredeemed Plum points, Plum Plus membership fees, corporate sales and revenue-sharing with Rakuten Kobo Inc. | |||||
The following table reconciles adjusted EBITDA to loss before income taxes, the most comparable IFRS measure, and shows the impact of IFRS 16 to the Company's statement of loss in the period: | |||||
13-week | 13-week | 13-week | |||
period ended | period ended | period ended | |||
December 28, | December 28, | December 29, | |||
2019 | 2019 | 2018 | |||
(millions of Canadian dollars) | IFRS 16 | Impact of IFRS 16 | IAS 17 | IAS 17 | |
Revenue | 383.7 | - | 383.7 | 426.0 | |
Cost of sales | (216.9) | - | (216.9) | (252.7) | |
Cost of operations | (77.8) | (15.6) | (93.4) | (100.0) | |
Selling, general and administrative expenses | (29.2) | (1.0) | (30.2) | (38.2) | |
Adjusted EBITDA1 | 59.8 | (16.6) | 43.2 | 35.1 | |
Depreciation of property, plant and equipment and right-of-use assets | (15.6) | 10.0 | (5.6) | (5.7) | |
Amortization of intangible assets | (3.4) | - | (3.4) | (2.9) | |
Gain (loss) on diposal of capital assets and equity investments | 1.4 | - | 1.4 | (0.5) | |
Net interest income (expense) | (6.0) | 6.5 | 0.5 | 0.7 | |
Share of earnings from equity investments | - | - | - | 2.8 | |
Earnings before income taxes | 36.3 | (0.1) | 36.2 | 29.5 | |
1 Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of earnings (loss) from equity investments. | |||||
SOURCE Indigo Books & Music Inc.
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