Pan­demic thwarts Indigo’s re­cov­ery

Montreal Gazette - - FP MONTREAL - ILYA BANARES

Indigo Books & Mu­sic Inc., Canada’s largest chain of book­stores, was on track to re­turn to prof­itabil­ity right up un­til the pan­demic hit.

In­stead, it re­ported a $171-mil­lion loss in the fis­cal fourth quar­ter ended in March and ex­pects a “dam­ag­ing ” year ahead, ac­cord­ing to chief ex­ec­u­tive Heather Reis­man.

Indigo was on the road to end the fis­cal year with “es­sen­tially flat” ad­justed earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion, and then “re­turn to prof­itabil­ity,” re­flect­ing the Toronto-based re­tailer’s at­tempts to “po­si­tion the com­pany to be able to thrive in a vastly changed en­vi­ron­ment,” Reis­man said in a con­fer­ence call with in­vestors and an­a­lysts on Wed­nes­day morn­ing.

And then the en­vi­ron­ment got re­ally crazy.

With the on­set of the coro­n­avirus, Indigo now faces a “dam­ag­ing set of con­di­tions,” Reis­man said.

In an in­ter­view late last week, Reis­man called on the fed­eral gov­ern­ment to make “truly low-cost loans” to re­tail­ers to avoid heavy job losses.

The path for­ward won’t be easy as con­sumers scale back dis­cre­tionary pur­chases, said Univer­sity of Toronto mar­ket­ing pro­fes­sor David Sober­man.

“Peo­ple are just read­ing less and watch­ing a lot more tele­vi­sion and stream­ing than they were in the past,” he said. “A lot of the sales that a store like Indigo gets are from peo­ple that are ba­si­cally just in the mall and they take their kids in there and then they make some pur­chases,” said Sober­man, a fac­ulty mem­ber at the Rot­man School of Man­age­ment.

“When there’s no­body in the mall, it’s pretty hard to get peo­ple to come in.”

Indigo in­vestors have strug­gled in the past year.

The com­pany’s mar­ket value shrank to just $25 mil­lion on Thurs­day, about a tenth of what the com­pany was worth in July 2019.

The stock is trad­ing at its low­est since go­ing pub­lic in 1996.

David Mc­fad­gen, an an­a­lyst at Cor­mark Se­cu­ri­ties, still rates Indigo a buy with a price tar­get of $5.15.

That’s “based on its val­u­a­tion and our ex­pec­ta­tion of an Ebitda re­cov­ery” some­time in the fu­ture, he wrote in a re­port Tues­day, not­ing that Indigo has re­opened 172 stores out of 196.

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