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Press release from CNW Group

Indigo Digital Business Grows 170%.....Core Business in Transition

Tuesday, August 09, 2011

Indigo Digital Business Grows 170%.....Core Business in Transition16:01 EDT Tuesday, August 09, 2011TORONTO, Aug. 9, 2011 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 1.1% decrease in net revenue for its first quarter ending July 2, 2011. Revenue for the quarter was $202 million, down $2 million from last year driven primarily by lower physical book sales.  At the same time, Indigo's digital business grew 170% accelerating late in the quarter with the launch of the top rated Kobo Touch eReader.Commenting on the results, CEO Heather Reisman said, "We are very pleased with the growth in our digital business…in the short term our retail business will be challenged however we are confident that our strategy to transition to become a full lifestyle retailer will bear fruit."On a comparable store basis, Indigo and Chapters superstores posted a 5.4% decrease in revenue, while Coles and IndigoSpirit small format stores were down 5.2%.During the quarter, the Company established a $3.2 million inventory provision for its annual summer clearance sale as it intends to discount more aggressively to clear a larger amount of product than in prior years.The net loss attributable to shareholders of the Company for the quarter was $18 million compared to $5 million last year.  Ms. Reisman noted, "The results were expected as we invest both in the growth of our digital business and in preparing to launch our proprietary gift and lifestyle business in the fall of this year."Indigo's majority held Kobo, a global leader in eReading, announced the launch of local content stores in Germany, the largest book market outside of the US, and in Spain in May 2011. Local stores, offering local-language content, apps and eReaders, for other select European markets will follow this summer - an industry first. In providing local content and reading experiences for European readers, Kobo continues to build on the vision of giving people around the world the freedom to read on any device and share their love of reading with friends.During the quarter, Indigo launched it's free plum rewards program nationally, attracting over 1.3 million new members in the first three months of operation. Plum Rewards offer Indigo customers a free, points- based loyalty program that extends rewards in-store and online.  Indigo also launched 3 additional IndigoKids locations, reinforcing their position as Canada's largest specialty retailer of Kids' toys and edutainment products.The Board of Directors today also approved a quarterly dividend of 11 cents per common share to be paid on September 7th, 2011, to all shareholders of record as of August 23, 2011.Forward-Looking StatementsStatements 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 MeasuresThe Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards.  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) and the majority shareholder of the global eReading service Kobo Inc. 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 division, http://www.chapters.indigo.ca, features books, eBooks, toys, gifts and, and hosts the award winning Indigo Online Community.  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 has contributed $10.5 million to schools in need. Visit loveofreading.org for more information.To learn more about Indigo, please visit the About Our Company section of www.indigo.ca.Consolidated Balance Sheets(Unaudited)  As at As atAs atAs at  July 2,July 3,April 2,April 4,(thousands of Canadian dollars) 2011201020112010ASSETS     Current     Cash and cash equivalents 73,38585,51083,661103,898Accounts receivable 14,38010,82712,6848,455Inventories 215,746223,836232,694224,406Income taxes recoverable -899-899Prepaid expenses 6,8405,9487,9416,771Total current assets 310,351327,020336,980344,429      Property, plant and equipment 76,53274,83178,77774,800Intangible assets 30,62024,86030,61423,793Deferred tax assets 66,09348,62538,00448,214Goodwill 26,63226,63226,63226,632Total assets 510,228501,968511,007517,868      LIABILITIES AND EQUITY     Current     Accounts payable and accrued liabilities 165,382172,965180,899179,063Unredeemed gift card liability 41,60037,46040,99137,816Provisions -130-178Deferred revenue 11,46714,84911,52812,882Income taxes payable 649-657-Notes payable 4,896---Current portion of long-term debt 1,2811,4601,2901,863Total current liabilities 225,275226,864235,365231,802      Long-term accrued liabilities 5,2756,8416,2848,203Long-term debt 1,6851,1981,9951,174Total liabilities 232,235234,903243,644241,179      Equity     Share capital 202,962198,569202,220198,635Contributed surplus 6,6465,9396,0665,633Retained earnings 42,13557,27048,62965,496Total equity attributable to shareholders of the Company 251,743261,778256,915269,764Non-controlling interest 26,2505,28710,4486,925Total equity 277,993267,065267,363276,689Total liabilities and equity 510,228501,968511,007517,868Consolidated Statements of Loss and Comprehensive Loss(Unaudited) 13-week13-week period endedperiod ended July 2,July 3,(thousands of Canadian dollars, except per share data)20112010   Revenues202,093204,286Cost of sales125,395117,755Gross profit76,69886,531Cost of operations65,65664,603Selling and administrative expenses30,76622,954Foreign currency translation144(192)Operating loss before the following(19,868)(834)Depreciation of property, plant and equipment4,5944,466Amortization of intangible assets3,6252,412Interest on long-term debt and financing charges4433Interest income on cash and cash equivalents(159)(80)Loss before income taxes(27,972)(7,665)Income tax recovery(3,778)(411)Net loss and comprehensive loss for the period(24,194)(7,254)   Net loss and comprehensive loss attributable to:  Shareholders of the Company(18,105)(5,360)Non-controlling interest(6,089)(1,894)Total net loss and comprehensive loss for the period(24,194)(7,254)   Net loss per common share  Basic$(0.72)$ (0.22)Diluted$(0.72)$ (0.22)Consolidated Statements of Cash Flows(Unaudited) 13-week13-week period endedperiod ended July 2,July 3,(thousands of Canadian dollars)20112010   CASH FLOWS FROM OPERATING ACTIVITIES  Net loss for the period(24,194)(7,254)Add (deduct) items not affecting cash   Depreciation of property, plant and equipment4,5944,466 Amortization of intangible assets3,6252,412 Loss on disposal of capital assets467 Stock-based compensation595223 Directors' compensation149112 Deferred tax assets(3,602)(411) Interest on long-term debt and financing charges4433 Interest income on cash and cash equivalents(159)(80) Other261(871)    Net change in non-cash working capital balances related to operations   Accounts receivable(1,696)(2,372) Inventories16,948570 Prepaid expenses1,101823 Income taxes payable (recoverable)(8)- Accounts payable and accrued liabilities(16,526)(7,460) Unredeemed gift card liability609(356) Provisions-(48) Deferred revenue(61)1,967Cash flows used in operating activities(18,316)(8,179)   CASH FLOWS FROM INVESTING ACTIVITIES  Acquisition of non-capital tax losses(10,109)-Purchase of property, plant and equipment(2,353)(4,277)Addition of intangible assets(3,631)(3,479)Cash flows used in investing activities(16,093)(7,756)   CASH FLOWS FROM FINANCING ACTIVITIES  Note payable5,055-Repayment of long-term debt(319)(666)Interest received17250Proceeds from share issuances57874Repurchase of common shares-(313)Issuance of equity securities by subsidiary to non-controlling interest21,345-Dividends paid(2,767)(2,722)Cash flows from (used in) financing activities24,064(3,577)   Effect of foreign currency exchange rate changes on cash and cash equivalents691,124   Net decrease in cash and cash equivalents during the period(10,276)(18,388)Cash and cash equivalents, beginning of period83,661103,898Cash and cash equivalents, end of period73,38585,510 For further information: Janet Eger Vice President, Public Relations 416 342 8561 jeger@indigo.ca