For the second quarter in a row, Indigo’s sales were also impacted by a debilitating ransomware attack that the company disclosed in early February.Ryan Remiorz/The Canadian Press
Indigo Books & Music Inc. IDG-T faced a double hit from a ransomware attack as well as macroeconomic challenges that have curtailed consumers’ shopping habits, pushing sales down and widening its loss in the company’s first quarter.
The Toronto-based retailer reported a net loss of $28.5-million, or $1.02 per share, in the first quarter of its 2024 fiscal year, compared with a loss of $25.4-million or 91 cents per share in the same period the prior year.
Indigo executives noted the same trends in consumer sentiment highlighted this week by one of Canada’s largest retailers, Canadian Tire Corp. Ltd. CTC-A-T – as inflation and multiple interest-rate hikes have dampened spending and put pressure on retail sales.
The higher cost of everyday necessities such as groceries have put significant pressure on household budgets. In response, when it comes to discretionary purchases that they can put off – which comprise a large proportion of the products Indigo sells – shoppers are inclined to wait for sales and buy more products on discount when possible.
Retailers are competing more for those shoppers’ dollars, ramping up promotions in some cases.
“Customers are demonstrating increased price sensitivity in this environment, noted through an increased penetration of promotions, and a lift in sales during promotional periods,” Indigo chief executive officer Peter Ruis said on a conference call Friday to discuss the results for the quarter, which ended July 1.
For the second quarter in a row, Indigo’s sales were also affected by a debilitating ransomware attack that the company disclosed in early February. The attack took Indigo’s e-commerce website offline and compromised sensitive employee data.
The lingering effects of the attack included a weaker online marketing presence – since the hack affected Indigo’s optimization abilities that help it to show up on search engines, as well as its express pickup for online orders.
The attack also led to difficulties replenishing inventory, affecting product availability in stores and online. Indigo recently launched a new website, which Mr. Ruis said will significantly improve customers’ online shopping experience.
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“While we have made substantial progress to achieve almost full operational function by the end of the quarter, the ransomware attack did have a material impact on quarterly sales,” Mr. Ruis said.
Indigo’s revenue decreased by 12.4 per cent year-over-year to $179.2-million in the quarter. Online revenue fell by 26 per cent to $38-million.
The first quarter is generally a quiet one for Indigo, which makes the majority of its sales each year during the holidays.
The company is also currently cutting costs, and realized savings during the quarter from lower labour costs and decreased spending on warehousing and distribution. Like other retailers, Indigo also noted that international freight costs have fallen from their COVID-19 peaks, when supply chain snarls inflated the cost of shipping products to warehouses.
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In June, Indigo secured a credit line from its controlling shareholder, Gerry Schwartz, to finance the company’s “seasonal working capital and operational needs,” according to a news release. On July 31, the company entered into the $45-million credit facility from Trilogy Retail Holdings Inc., which is controlled by Mr. Schwartz. That amount could be increased by as much as $10-million. (Mr. Schwartz previously provided Indigo with a credit line in 2020, to give the company “financial flexibility” during the pandemic.)
The retailer has faced upheaval on its board of directors in recent months. In June, Indigo saw a sudden exodus of nearly half of its directors, as well as allegations of mistreatment by one director.
On the same day the company announced the departures of four of its 10 directors, it also announced the impending retirement of company founder Heather Reisman on Aug. 22. Ms. Reisman had served as the board’s executive chair since last September, when she stepped back as CEO. The company has since appointed three new directors.