Indigo reports $22.4-million second-quarter loss as consumers pull back on spending

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Indigo Books & Music Inc. IDG-T lost $22.4-million in its second fiscal quarter, as the country’s largest bookstore chain continued to struggle with waning consumer demand.

On Tuesday, the Toronto-based retailer reported that its net loss widened to 80 cents per common share in the quarter ended Sept. 30, compared with a net loss of $15.9-million or 57 cents a share in the same quarter last year.

The retail industry has been under immense pressure, as consumers feeling the pain of inflation and of high interest rates are pulling back on spending. That trend particularly affects retailers that sell “discretionary,” or non-essential items, as Indigo does.

While it copes with those macroeconomic factors, Indigo has embarked on “a major transformation process,” founder and chief executive officer Heather Reisman recently said during an online question-and-answer session with representatives from the Canadian publishing industry. The company is calling the plan “Indigo 4.0.”

“We have a journey ahead of us, however I’m confident that we will return Indigo to both growth and profitability” Ms. Reisman said on a conference call on Wednesday morning to discuss the quarterly results.

Indigo has lost money in four out of its past five fiscal years, and more recently experienced significant turnover in its board and executive ranks. Now, the company is cutting costs in a number of key business areas.

“This cost containment will continue to be a focus moving forward, as the company looks to adapt to the pressures of the current macroeconomic environment, re-evaluate the economics of its operations and improve profitability,” a press release from Indigo stated on Tuesday.

Second-quarter revenues amounted to $206.9-million, a 12.4-per-cent decrease compared with the prior year. Sales decreased both in stores and online, while price-sensitive customers were most likely to shop during discount promotions, putting pressure on the retailer’s profit margins.

The continuing financial strain follows a period of significant upheaval at Indigo. In February, the company was the victim of a cyberattack that took down its systems and compromised sensitive employee information. In June, Indigo announced that Ms. Reisman would retire as executive chair of the board of directors, and on the same day announced the resignation of four out of 10 members of the board.

One of the departing directors said she was resigning because of mistreatment and a loss of confidence in board leadership, allegations that the company has not addressed.

Also in June, Indigo veteran Andrea Limbardi left her role as president to take over as CEO of Reitmans Canada Ltd. Then in September, Indigo announced that its CEO, Peter Ruis, had resigned after just one year in the job. Shortly after that announcement, Ms. Reisman returned to the company, and to her former role as CEO.

Ms. Reisman has said that her objective is to increase the share of Indigo’s sales that come from books, saying during the recent online session that books should make up 65 per cent to 70 per cent of its sales in the future. In the most recent fiscal year, print products made up 51.9 per cent of Indigo’s revenues, while general merchandise made up 44.1 per cent of sales.

That new goal represents a move away from a strategy that Ms. Reisman put in place years ago to sell more general merchandise at Indigo, as the chain faced increasing competition from online sales and from the expansion of Amazon. While the stores continue to sell items such as mugs, pillows and candles, Ms. Reisman said recently that she is focused on finding the “right balance” of product in the stores.

Since her return, the company has been stepping up that effort in preparation for the all-important holiday season. Indigo is highly dependent on holiday sales, with roughly 40 per cent of its revenues typically recorded during the third quarter, which covers October through the end of December.

Recently, a company controlled by Ms. Reisman’s husband, former Onex Corp. CEO Gerry Schwartz, extended a $45-million credit facility to finance Indigo’s “seasonal working capital and operational needs,” according to a company statement. As of the end of the second quarter, Indigo has drawn $43-million on that line of credit, which includes an option to increase the amount by up to $10-million with Trilogy’s consent.

During the session with Canadian publishers in October, Ms. Reisman cautioned that the company’s turnaround would take some time.

“We have already kicked off – we kicked it off one week after I returned – a major transformation process. … You won’t see the numbers for the next couple of quarters,” she said during the session.

“The bottom-line numbers will not look like they should. But this is why we put the financing in place, to ensure we not only move through that, but we get way beyond it.”