Indigo Books and Music Inc
TSX:IDG
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.48
2.49
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Indigo Books and Music Inc
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to the Indigo Books & Music Fiscal Year 2019 Q4 Investor and Analyst Call.[Operator Instructions] This call is being recorded on Wednesday, May 29, 2019.And I would now like to turn the conference over to Craig Loudon. Please go ahead.
Good morning, and thank you for joining us to review Indigo's fiscal 2019 results.My name is Craig Loudon, and I'm the Chief Financial Officer. Joining us from Indigo today is the Chief Executive Officer, Heather Reisman.Regarding the materials for this conference call, we issued the press release after market close yesterday evening. It can be found at indigo.ca and on SEDAR. This conference call will be recorded and archived in the investor relations section of the Indigo website. A playback of the call will also be available by telephone until 11:59 p.m. Eastern time on June 5, 2019.This conference call may contain forward-looking statements, and to the extent that it does, we refer you to our cautionary statement regarding forward-looking statements in the press release and the MD&A related to this quarter and year.I would now like to turn the call over to Heather Reisman.
Good morning, everyone, and thank you for joining us.Fiscal 2019 was a challenging year. We saw a shift in the very positive top and bottom line momentum we've sustained in recent years. We faced significant disruption to our online channel triggered by the Canadian postal strike in the second half of the fiscal year and felt the omnichannel impact of economic pressures on consumer discretionary spending in the fourth quarter. In addition to these headwinds, ongoing renovations in the retail channel did hamper our historical revenue growth. Though it was a challenging year, we remain confident in the underlying strength of our business, our customers' deep affection for the brand and our ability to advance the company to its next chapter of transformation and growth.As we've discussed in the past few quarters, we have executed on an ambitious capital investment plan to renovate retail stores and bring our reimagined retail experience to a greater number of customers. In the fiscal year, we delivered our new store concept to 17 locations, including the opening of our first store in the U.S. Toward returning to sales and profit growth, we have initiated a few improvement initiatives. We have appointed a new Chief Creative Officer, Nathan Williams. Nathan was the Founder and Executive Creative Director of the global brand, Kinfolk. Nathan will be returning from Copenhagen to Toronto. Indigo's -- and he will be running Indigo's creative teams, including the development of Indigo's private label items. We are very excited to see his unique vision brought to our company.We are laser focused on cost-cutting and productivity initiatives, and in line with this, we have made the decision to repatriate our global sourcing and product development functions from New York to our home office in Toronto. We have also made some organization changes. And we have issued a separate press release detailing these changes to our leadership team, all of which we feel will strengthen us moving forward. I would now like to hand it over to Craig to speak to the financial results in detail.
Thank you, Heather.The results we are discussing are for the 52 weeks ended March 30, 2019. Comparative figures have been provided for the 52 weeks ended March 31, 2018.Revenue was $1.05 billion for the full year, which was $32.8 million less than prior year. The retail channel was impacted by the strategic closure of a few low-performing stores as well as the disruptions due to store renovations throughout the period. The online channel was negatively affected by the Canadian postal strike, with lagging impacts through the fourth quarter. In addition to these channel-specific drivers, the company's fiscal results were impacted by softer consumer spending in the nonessentials market space and the mature general merchandise assortment generating lower demand. A onetime breakage revenue adjustment in the prior year due to a change in accounting estimates also contributed to lower revenues.Total comparable sales, including online, decreased by 1.1%. Specifically, retail revenue was down 1.8% in superstores and up 1.2% in small-format stores. The general merchandise business was negatively impacted in the superstore format by the factors previously discussed, which resulted in negative comparable sales, while small-format stores were merchandised with non-book product in a more significant way in fiscal 2019, generating a sales lift.Gross profit decreased by $48.6 million, driven by deeper discounting and lower full-price sell-through in response to the downward revenue pressures discussed. Growth in lower-margin areas of the business such as bestseller books and toy also contributed to the gross profit decrease.Overall, operating, selling and administration costs increased by $25.7 million compared to last year primarily due to the impact of legislated minimum wage increases across the country; increased occupancy from the addition of net new stores and the other operating expenses associated with executing the company's retail transformation; as well as higher distribution costs associated with the western distribution center, which became operational in the fourth quarter.For the year, adjusted EBITDA decreased by $74.3 million to a loss position of $19.1 million compared to earnings of $55.2 million last year. This was primarily driven by ongoing renovations in the retail channel, disruption to the online channel, a weaker economic environment and deeper discounting in response to these revenue fluctuations. As mentioned, a change in accounting estimates for breakage which resulted in EBITDA improvement for fiscal 2018 furthered the unfavorable year-over-year variance.We ended the year with $128.4 million in cash and short-term investments, an $81.8 million decrease from last year, while having no debt. This decrease in cash and cash equivalents was primarily the result of the planned capital investment program delivered in the fiscal year.At this point, I would like to open the call for any questions.
[Operator Instructions] Your first question is from Bob Gibson of PI Financial.
I'd like to kind of focus on the fourth quarter, if I could. And for starters, gross margin in the quarter wasn't as strong as last year. And I'm kind of seeing a trend in the last couple of quarters where your gross margin is not as strong. Can I get some color on how come?
Sure. Well, first of all, I think, as we've said, margin was challenged throughout the year, but I think, in Q4, you had additional softness in top line. But in any event, to answer your question specifically on margin, we had a year with many disruptions, as we've said. Many of the stores opened late, which generated -- the new stores, our renovated portfolio, opened late. As a result, we had excess inventory. The Canada Post situation had also added to that inventory issue, where we had to move considerable inventory out of our online channel and out to stores. And so really the challenge last year was that of discounting. There was more discounting than we would like to have seen, and that impacted margin throughout the year but mainly in Q3 and Q4. And we're certainly being very careful with inventory this year and have pulled back considerably to ensure that, that doesn't continue.
Okay. And just top line, it looks like also that online sales weren't maybe as strong as they might have been versus a year ago.
Yes. And certainly we came into the strike situation just before holiday with double-digit growth in the online channel, and then once that disruption went into full swing, we were in double-digit negative territory. It has been slow to recover. And in general, though, in Q4, I would say we are seeing different behavior from consumers. I mean we are definitely a business of wants and not necessarily needs, and I think certainly we are seeing that consumer behaving differently. And certainly we've been talking to the banks and different people that seek consumers spending on cards and whatnot, and they've certainly confirmed that, at the start of the calendar year, there has been a significant pullback, from what they're seeing in spending data.
Okay. And when I look at general merchandise as a -- sort of a percentage of your overall sales, it seems to have been flattening out. Any color on that?
[ Negative ]...
Sure. Well, Heather...
It's Bob, right?
Yes, that's Bob.
Bob, it's Heather. We had 4, almost 5, years of incredible growth in our general merchandise business, like literally 20%, 30% year-over-year growth in general merchandise. And last year, we just hit a wall, just a combination of factors. We just hit a wall with it, and we did not see the level of growth. You're absolutely right. Part of this lack of growth is the reason that we've decided to take a whole fresh look at the way we approach it and why we've made a change in creative direction. So not -- it's not a big mystery. It just we had year after year after year after year of really big growth. And at some point, we just needed to take a look at what was really driving that growth and how do we have to look at it going forward. So not a big mystery, but you're absolutely right. It did slow down, and we need to get it back juiced up. We know when it's right. The customer responds extremely well, but there's a real need for newness on a continuing basis, and that's our job.
Okay. Great. While I've got you, any color on how New Jersey is doing?
It's going to do okay. It's not knocking it out of the park, but I do want to put it in a bit of perspective. The traffic in that mall has taken a pretty big dip this year, so interesting, right? We're dependent on traffic. The customers that come in love it, and they come back and come back and come back. And what is encouraging about it is that our margins are so much higher there than they are in our Canadian business. The reality is that, our product, all of our proprietary product, we price the same price in the U.S. as in Canada. And the customer is happy with it, really happy with it. And as you know, we're new, and everything we're doing is positive to them. So our feeling is our -- the basic orientation of our strategy is correct. I say that respectfully given these numbers are nowhere near what any of us want them to be. What we've decided to do is to hold off any further growth this year, any new stores this year. We want to really put the effort into the overall evolution of the general merchandise product, the lifestyle product. And as we just hired Nathan, it will take a couple of quarters for the -- his impact to come onboard. But as soon as we get that to where we believe it can be for the next big growth, we're going to go back and look at the U.S. strategy, for sure.
Okay. So that sort of answers my next question. So no new stores this year.
No. We're going to be extremely careful on capital this year. We spent a lot of money last year. We found it's taking longer to absorb it. And things that were a bit surprising to us, when we moved some stores, the customers took a little longer to find and come back than we would have anticipated. That was a bit strange because we opened new stores in the couple of years before, as you know, and the results were outstanding. So we just decided, this year, we want to absorb all the capital investments we've made, really get the assortment back to where we know it can drive the kind of growth we've experienced, and hold off on capital, be very, very, very careful with capital this year. So a bit into digital -- we'll put a bit into digital, and yes, but primarily be very, very careful and make sure we get the business back on the growth track that we've experienced. So a bit of a reset. That's where we are.
Your next question is from David McFadgen from Cormark.
I have a few questions. So I was looking at the comparable same-store sales, and Q4 obviously is down a fair bit. Is that still the case for the first 2 months into this quarter, a bit of improvement...
I'll give you a rough idea. Obviously, we don't like providing forward guidance, David, but certainly -- and also I think it is very early and not much time. But I will say we are seeing some encouraging signs from the consumer. I think we're still in for a bit of a tough period, but certainly, compared to Q4, we are seeing some positive signs, particularly in physical retail.
Well, some improvement, but it's probably going to be still tough but maybe not as tough. I'm not trying to put words in your mouth but just trying to...
Yes. That's a fair statement.
Fair enough? Yes, okay. So in the annual report you talked about realizing about $20 million to $25 million of savings this year. I was just wondering, is that net of all these new hires and promotions that you've announced yesterday?
Yes. The -- and I think -- just to clarify, I think the $20 million to $25 million figure was over, I believe we said, the next 2 years. Realistically it's probably 18 months type of time frame. And we are, I would say, at the moment halfway to our goal on that and pretty pleased with what we've been able to take it so far. And we are seeing other efficiencies in the business, like in supply chain, a lot of our investments there are paying off. And we are getting money out of the supply chain and reinvesting it in other areas that -- in addition to that number that's stated in the annual report. But yes, to answer your question, that would be net of those changes.
Okay. So typically in order to realize that level of synergies would result in restructuring charge, cash structuring charge. Just kind of can you give us an idea what that would be?
It did -- yes, we did some. It was not substantial, so it's not -- we didn't call it out specifically. I think part of it is that a big chunk of it was also related to we've had a lot of project work ongoing. So it's not just people but related to the multiyear store investments that we've been working on, so we had a lot of project resources engaged in that activity. So I would say that at least half of it came out with those type of requirements.
Okay. So there won't be -- I mean, at least for the half, there won't be a restructuring charge.
We did announce the movement of our New York office that will close sometime prior to the end of calendar year, and there will be a charge associated with that. I would say it's not that material. But we would not move out below the line level, just be into our regular costs.
Okay. So Heather, just a question. When you look at your business, obviously, over the past few years, you're much higher in general merchandises now compared with book. Do you think that your business is more economically sensitive now as a result?
Yes. I think that's absolutely true. Craig made the point that we are not a needs -- we're not doing milk or cheese or -- so we're not a full needs-based business. We have a couple of things we're looking at that will improve that reality a bit, but yes, we're a book business and a gifting business in -- under the larger lifestyle umbrella. And that's correct. We will be more sensitive to economic issues than we were when we were only books. That said, I remain convinced, and I think I can say this easily with our entire executive team, that our future will be in making sure that our general merchandise business is a strong and growing business. The future of the business is not in returning to books. It is the base and we want to keep it as the base, but the real growth remains. So yes.
Yes. And I think just to add one thing, David, to your point is that certainly I think what you're saying has validity in that right now, when we see the consumer pulling back a little bit, books are, certainly at the moment, holding up a little better than general merchandise. And so I think it's still great to have the mix of the two.
Yes, oh, yes. Oh, yes. Look, we're not getting out of that business for sure.
So I think, last quarter, you indicated that you will be renovating, I think, 2 or 3 stores in this fiscal year. I was just wondering, is that still the case? Or you're not renovating any...
We just have one that -- where we're doing a move of a store and then creating a new concept store. So we just -- there's a couple very small ones where it's more -- frankly, more maintenance related and potentially changing the -- a sign, but really it's just one project this year.
And already accounted for.
Yes.
Yes, yes, already accounted for.
And having said that, earlier on the call, you said you're going to be extremely careful with capital this year. So would a $20 million CapEx approximate number make sense?
Yes.
Yes.
That's what we are holding to, yes.
Exactly. So we have always had a focus on having a conservative balance sheet. Just put a little bit of a dent in that. So yes, we intend to build it back and be very careful.
Yes, okay. So when I look at your results in fiscal 2018, you had a -- probably a banner year last year, which was obviously a tough year from a profitability perspective. Do you -- I would have thought or I think that the business should from a profitability perspective rebound quite a bit this year. Do you -- and I know you don't like guidance, but I'm just wondering. Do you think that's like a likely scenario?
We're -- again, we're not going to provide that guidance. However, I will say that I think it's going to continue to be a bit challenging. Yes, margin rate is going to improve. However, I think, if you look at Q4 and some of the signs from like consumer, although yes I said it's coming back a bit, we're still not anywhere back to where we'd want to be. And I think the other thing I didn't mention earlier in my margin discussion -- I focused mainly on general merchandise, but books, too, we have seen margin compression. And that one is tougher and more sustained. And that business has really shifted to a front-list business, where those titles are also in mass retailers and discounters. And our -- we are forced down on price points on the best-selling books to 40% and 50% off, which we don't like, but that does also put pressure on margins.
Okay. All right...
I think you can count on the fact that we're focused on the very things you think we should be focused on. We want to be conservative in what we share, but yes, we are very focused on it.
[Operator Instructions] And your next question is from [ Justin Scapier ] from -- an investor.
Great quarter. Question: What is your free cash flow estimate for the year?
Who are we speaking to? Could we know who we're speaking to?
The question is from [ Justin Scapier ], an -- a private investor.
Okay. Go ahead.
We generally don't provide forward guidance on that, [ Justin ]. We're going to be careful with that. I think we've covered that. We don't generally issue our full year financial plan, let alone a cash forecast.
Or spending...
And how is the New Jersey store performing?
We spoke to that earlier on the call. A question was asked.
We feel that the store is performing well, not knocking it out of the park as we might have hoped. But as I mentioned on the phone before, the customers who come into the store are loving it, shopping it, having a great time and returning. The mall has experienced a very significant drop in traffic, and that does have an impact on the overall opportunity for us. We are a business that does thrive where the traffic is there, but I think, if you visited it or if you talk to anybody who goes, the customers who go have given us a very positive response, positive in that we would want to do another store. We are just not going to do it this year.
Right. I think that makes sense. There's a huge growth opportunity in the U.S.
Yes. That would be it. And we always believed it was a growth opportunity for Indigo. It was why so many developers were and have been talking to us. We just want to wait until we advance the overall lifestyle assortment through the course of this year before we do another one.
But it's quite interesting that the books are holding up, though...
Yes. It's the books -- it's really interesting that -- books are not declining as much as people think. A bit of challenge with books is that there is pressure on margin, as Craig mentioned. A, I think bottom line, there is almost no margin. And when they're bought in store, there is a tendency of the customer to want to buy front list, which is more discounted. So the sales are there. The margin is more challenged. And that's one of the things we're going to be discussing with our wonderful book partners, our suppliers. It would be high on our list of discussion points, very high.
Got it. Okay. Great. And is there a minimum cash balance that you feel comfortable with? How should we -- I think, in this quarter, marketing cap versus cash works tend to be equivalent. How do you think about that?
I don't know how long you've been following us. We are in essence conservative in the sense that we have always wanted to maintain a strong balance sheet. And good for that strategy because we did not anticipate this challenging year. And in fact, we had it. And notwithstanding having had a challenging year, we're in fine shape and can do the things we need to do. So we are and always have been. We will continue to be conservative. And I think we mentioned earlier in the call we have a much, much, much more modest capital spend plan for this year. So the way we think about cash is, of course, we want to earn a good return on our cash but our first objective is to keep a strong balance sheet so that we know we can sustain through both growth opportunities and challenges. Retail is a challenging business these days, and you need a very secure balance sheet.
Your next question is from David McFadgen.
Sorry, I just meant to ask one other question. Regarding the fourth quarter, we've seen some other businesses that have been negatively impacted by some extreme weather over winter. I was just wondering is that the case with you?
I would say traffic -- in line with everything else we've discussed, traffic was definitely more of a challenge in our fourth quarter than holiday. Holiday, we were pretty pleased with the traffic we saw in both channels. But certainly, to your point, traffic was down in the fourth quarter. Part of that may well have been weather. We do look at that in certain parts of the country, but I think there was more to it than just weather. So thank you for your time and attention today. We appreciate you calling in, and look forward to reconnecting on a quarterly basis. Our first quarter results will be announced on or around August 7, 2019. Thank you, again, for your support, and have a good day. Thanks very much. Bye-bye.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.