Indigo shares drop on earnings miss as it works through strategy shift

TORONTO — Shares of Indigo Books & Music Inc. closed down almost 15 per cent Wednesday as the company missed earnings expectations amid a strategy change.

The Toronto-based retailer said its revenue dropped and its loss widened in its first quarter as it worked to cut promotions and low-margin merchandise, as well as remodel stores and offerings.

CEO Heather Reisman said the transition pressures have led to lower sales, but are already helping with margins.

“We have strategically moved to be far less promotional” she said.

“We just have to live through it this year, we just have to live through it.”

The bookseller said its revenue totalled $192.6 million for the period ended June 29, down $12.8 million from $205.4 million for the same quarter the previous year.

Comparable sales, including stores and e-commerce, fell 7.6 per cent.

Reisman said the pullback on lower priced items and promotions was having an impact online, where customers are more price sensitive. It has also somewhat affected sales in stores, though the company is still seeing steady foot traffic.

“We are seeing our customers come in, but they’re spending a bit less.”

Reisman said products led by new chief creative officer Nathan Williams, who started June 3, would start rolling out in about nine months.

The co-founder of Kinfolk magazine is expected to shake up the company’s creative direction with general merchandise after sales in the category slowed in the past year.

The revamped and selective product offerings are part of Indigo’s efforts to differentiate itself from online retailer Amazon, which Indigo generally matches on book prices.

“There’s no question that the intensity with which Amazon is in the market is huge and we have several categories that are up against them,” Reisman said.

Indigo’s net loss came in at $19.1 million or 69 cents per common share in the quarter compared with a net loss of $15.4 million or 57 cents per share in the first quarter of its 2019 financial year.

Analysts surveyed by financial markets data firm Refinitiv expected revenue of $237.2 million, and adjusted net loss of $12.45 million or 46 cents per share. The company didn’t provide an adjusted loss for the quarter.

The first quarter comes on the back of a challenging year for the bookseller, as it reported a nearly $40-million net loss for its 2019 financial year.

Indigo blamed, in part, a prolonged Canada Post strike and lower consumer spending in the fourth quarter.

The company has said it remains committed to growing into a global brand, despite not planning to open any new stores this year as it works instead to advance other initiatives.

Indigo operates one store in the United States, at New Jersey’s Mall at Short Hills, where foot traffic has proved disappointing and prompted Indigo to re-evalutae its real estate strategy in the future.

The company’s shares ended down $1.17, or 14.87 per cent, at $6.7 on the Toronto Stock Exchange.

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