Pandemic thwarts Indigo’s recovery
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.