Indigo Books & Music Inc.

For the 13 weeks ended December 30, 2023, revenue was $371 million versus $423 million a year ago. Online revenue declined 29% to $77 million from $107 million, and retail revenue fell 8% to $281 million from $306 million. Comparable sales decreased 14%; comparable retail store sales declined 10% in superstores and 5% in small-format stores. Cost of sales was $230 million versus $256 million, with cost of sales excluding online shipping at $216 million versus $233 million; as a percent of revenue, this rose to 58% from 55%. Operating, selling and administrative costs declined to $102 million from $109 million. Adjusted EBITDA was $22.3 million compared with $40.8 million, and net income was $10 million, or $0.36 per share, versus $34.3 million, or $1.23 per share. Management did not provide formal next-quarter or full-year financial guidance on the call, but said the transformation plan is intended to bring the business back toward its core and that benefits will take time to show up in results.

Heather Reisman framed the quarter as the result of multiple setbacks in 2023, including the ransomware attack, general merchandise overbuys, and the premature e-commerce launch, layered on top of a difficult macro environment. She said management made tough but necessary decisions to clear inventory, reinvest in books, simplify operations, and stabilize e-commerce. Her tone was candid but confident: she repeatedly emphasized belief in Indigo’s brand strength and said the company is focused on a transformation plan that will take time to show in the numbers.

Craig Loudon walked through the financial hit from lower sales, mix pressure, and discounting. He said gross margin was affected by clearance activity, estimating the general merchandise business took about a five-point margin hit, while online shipping costs fell to $14 million from $23 million due to lower volume and better carrier terms. He also highlighted cost control, including about $10 million annualized savings from home office reductions and a goal of $15 million in operating cost savings for the year, while noting the company amended and extended its revolving line of credit with Trilogy to up to $70 million, expandable by $10 million, at prime plus 2.5% through December 31, 2024.

Analysts focused on the company’s strategic reset, asking what Reisman’s priorities were now that she is back, whether the business is prioritizing EBITDA/profitability again, and whether head office restructuring was complete. Management said the transformation plan is aimed at returning the business closer to its core and that the head office restructuring is done, with cost savings already underway. Questions also centered on the inventory clearance impact, where management estimated about five points of margin pressure in general merchandise, and on the e-commerce platform/cyberattack, where Indigo said the platform has stabilized but is still being improved and insurance recoveries are still being processed.