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Press release from CNW Group

Indigo Q3 Results Reflect Strong Margin Improvement

Tuesday, February 05, 2013

Indigo Q3 Results Reflect Strong Margin Improvement16:01 EST Tuesday, February 05, 2013- Improved Net Earnings, Growth in Online, Increased Investment to Accelerate Transformation -TORONTO, Feb. 5, 2013 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 4.9% decrease in net revenue for its third quarter ending December 29, 2012. Revenue for the quarter was $335.6 million.  The decrease was due to lower eReader revenues and declining book sales, as consumers shift to digital reading, and the absence of any hit books as against two blockbusters last holiday.  The decrease in eReader and book revenue was partially offset by continued growth in the gift, lifestyle and toy businesses.On a comparable store basis, Indigo and Chapters superstores posted a 5.0% decrease in revenue, while Coles and IndigoSpirit small format stores were down 5.2%.  Online sales increased 3.6% compared to the same period last year.  The increase was driven by growth in the gift, lifestyle and toys businesses and higher book sales.Indigo generated higher gross profit compared to last year as a result of a 2.2% improvement in margin rate.  The improvement in margin rate can be attributed to a shift to higher margin gift and lifestyle products, lower sales discounts, fewer markdowns, and shipping more products through the Company's distribution centres.In the quarter, the Company continued to make meaningful operating investments in its transformation. Commenting on the results, CEO Heather Reisman said, "We are pleased that our results reflect our efforts to dramatically improve margins and significantly expand our product mix in key categories and online to drive sales growth. We've made great strides during the quarter to accelerate our transformation while reinforcing our position as Canada's preferred destination for gift giving.  It is satisfying to know that customers continue to see Indigo as their gift destination of choice."The net earnings attributable to shareholders of the Company increased $7.6 million from $14.4 million last year to $22.0 million this year.  The increase in the net earnings was due to the elimination of losses from discontinued operations as a result of the sale of Kobo in January 2013 partially offset by increased investment in the business transformation.  The net earnings per share improved from net earnings of $0.57 per share last year to net earnings of $0.87 per share.The Board of Directors today approved a quarterly dividend of 11 cents per common share to be paid on March 6, 2013, to all shareholders of record as of February 19, 2013.During the quarter, Indigo partnered nationally with the Governor General Literary Awards to showcase and support the best of the best in Canadian literature in both English and French.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 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 atAs at  December 29, December 31,March 31,(thousands of Canadian dollars) 2012 20112012ASSETS    Current    Cash and cash equivalents 314,692148,610207,601Accounts receivable 27,07521,69012,627Inventories 242,303234,705229,706Prepaid expenses 4,1513,9153,695Derivatives -1,747-Assets held for sale -117,551-Total current assets 588,221528,218453,629     Property, plant and equipment 61,08570,40967,464Intangible assets 22,11222,33322,810Goodwill -1,216-Deferred tax assets 46,31060,29048,633Total assets 717,728682,466592,536LIABILITIES AND EQUITY    Current    Accounts payable and accrued liabilities 272,760241,553174,201Unredeemed gift card liability 63,63960,95942,711Provisions 221-232Deferred revenue 13,88212,11011,234Income taxes payable 11131065Notes payable -5,224-Current portion of long-term debt 8111,1631,060Liabilities associated with assets held for sale -114,400-Total current liabilities 351,424435,719229,503Long-term accrued liabilities 4,1534,8205,800Long-term provisions 285-460Long-term debt 8561,3271,141Total liabilities 356,718441,866236,904Equity    Share capital 203,733203,254203,373Contributed surplus 7,8586,8607,039Retained earnings 149,41916,468145,220Total equity attributable to shareholders of Indigo 361,010226,582355,632Non-controlling interest -14,018-Total equity 361,010240,600355,632Total liabilities and equity 717,728682,466592,536Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)(Unaudited)      13-week13-week39-week39-week period endedperiod endedperiod endedperiod ended December 29,December 31,December 29,December 31,(thousands of Canadian dollars, except per share data)2012201120122011     Revenues335,572352,858707,644738,111Cost of sales190,838208,456397,713431,035Gross profit144,734144,402309,931307,076Operating and administrative expenses115,679112,721296,828320,991Operating earnings (loss)29,05531,68113,103(13,915)Interest on long-term debt and financing charges293489117Interest income on cash and cash equivalents(685)(25)(1,844)(40)Earnings (loss) before income taxes29,71131,67214,858(13,992)Income tax expense7,6767,9612,3233,109Earnings (loss) and comprehensive earnings (loss) for the period from continuing operations22,03523,71112,535(17,101)Loss and comprehensive loss for the period from discontinued operations (net of tax)-(17,906)-(41,679)Net earnings (loss) and comprehensive earnings (loss) for the period22,0355,80512,535(58,780)     Net earnings (loss) and comprehensive earnings (loss) attributable to:    Shareholders of Indigo22,03514,36212,535(38,863)Non-controlling interest-(8,557)-(19,917)     Net earnings (loss) per common share from continuing operations    Basic$0.87$0.94$0.50$(0.68)Diluted$0.86$0.93$0.49$(0.68)     Net loss per common share from discontinued operations    Basic$ -$(0.37)$ -$(0.86)Diluted$ -$(0.37)$ -$(0.86)     Net earnings (loss) per common share    Basic$0.87$0.57$0.50$(1.54)Diluted$0.86$0.56$0.49$(1.54)Consolidated Statements of Cash Flows(Unaudited) 13-week13-week39-week39-week period endedperiod endedperiod endedperiod ended December 29,December 31,December 29,December 31,(thousands of Canadian dollars)2012201120122011     CASH FLOWS FROM OPERATING ACTIVITIES    Net earnings (loss) from continuing operations for the period22,03523,71112,535(17,101)Add (deduct) items not affecting cash     Depreciation of property, plant and equipment4,4274,81013,47513,826 Amortization of intangible assets2,6172,0827,5546,266 Impairment of capital assets-3,9562503,956  Impairment of goodwill---25,416 Loss on disposal of capital assets-504465 Stock-based compensation210196569866 Directors' compensation101117330384 Deferred tax assets7,6767,9612,3233,109 Other(175)2,453(418)43Net change in non-cash working capital balances related to continuing operations93,69997,12192,80285,620Interest on long-term debt and financing charges293489117Interest income on cash and cash equivalents(685)(25)(1,844)(40)Income taxes received--45-Operating cash flows of discontinued operations-(51,874)-(68,687)Cash flows from operating activities129,93490,592127,75453,840     CASH FLOWS FROM INVESTING ACTIVITIES    Acquisition of non-capital tax losses---(10,559)Purchase of property, plant and equipment(3,401)(4,682)(6,949)(10,530)Addition of intangible assets(2,262)(2,152)(6,876)(6,040)Investing cash flows of discontinued operations-(3,289)-(7,936)Cash flows used in investing activities(5,663)(10,123)(13,825)(35,065)     CASH FLOWS FROM FINANCING ACTIVITIES    Notes payable---5,280Repayment of long-term debt(280)(335)(964)(1,047)Interest received629151,753109Proceeds from share issuances50-280578Purchase of shares in subsidiary---(3,009)Dividends paid(2,780)(2,776)(8,336)(8,315)Financing cash flows of discontinued operations-50,604-75,082Cash flows from (used in) financing activities(2,381)47,508(7,267)68,678     Effect of foreign currency exchange rate changes on cash and cash equivalents204(2,422)429(68)     Net increase in cash and cash equivalents during the period122,094125,555107,09187,385Cash and cash equivalents, beginning of period192,59845,491207,60183,661Cash and cash equivalents, end of period314,692171,046314,692171,046     Cash and cash equivalents attributable to:    Continuing operations314,692148,610314,692148,610Discontinued operations-22,436-22,436 314,692171,046314,692171,046 SOURCE: Indigo Books & Music Inc.For further information: Janet Eger Vice President, Public Relations 416 342 8561 jeger@indigo.ca