Indigo 3rd Quarter: Sales Dip 1.7%

Revenue at Indigo Books & Music in the third quarter ended December 29 fell 1.7%, to C$426 million (about US$321.7 million) and net earnings were C$21.5 million (US$16.2 million), compared to net earnings of C$42.6 (US$32.2 million) in the same period a year earlier. Total comparable sales were flat.

The company attributed the drop in revenue to "the residual impact of delayed renovations" and the Canada Post strike, which significantly affected online sales. In addition, "a one-time non-cash gift card breakage revenue adjustment of $4.4 million [US$3.3 million] in the prior period also contributed to the lower reported revenue."

The drop in profits was affected as well by "investments in strategic initiatives, including the expansion of the company's distribution facilities, as well as minimum wage increases across Canada."

CEO Heather Reisman commented: "Our third quarter financial performance was challenging. Given the factors which impacted the company, we were satisfied to sustain sales essentially on par with last year."

Noting the opening of its first store in the U.S.--in the Mall at Short Hills in New Jersey in October--Indigo said that "early indicators are showing that the concept is resonating well with customers." In a conference call with analysts, Reisman reiterated that in the store's first year, Indigo is focusing on operations, "and over the course of the year, [we want to] understand what if anything we might want to adjust before opening more stores... but we have no plans at the moment."

Altogether during the quarter, Indigo opened three stores, completed renovations in four others, bringing the total of newly designed and renovated stores to 24. Two stores were closed.

In the conference call, Reisman elaborated on the effect of the postal strike, calling it a "triple whammy" because customers couldn't easily receive orders they made online from Indigo; the other ways of shipping Indigo found were more expensive; and the company had to clear out inventory that wasn't selling at expected levels because of the disruption to online sales. In addition, some stores being renovated--and temporarily moved--opened later than anticipated, further cutting into sales.

Reisman said, however, that sales are "already starting to come back. It will take a little bit of time, but we remain optimistic about our position in the market. What I will share is we--in moments like this, we look very carefully at our customers. And we can see that the customers who we did dislocate, we can already see that they're starting to return."

The company is taking a break on its extensive renovation program, Reisman said. "We want to absorb a bit of what's happened and make sure that we're getting everything that we want out of what we did."

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