Indigo faced a ‘challenging’ 2023 and will take some time to recover: CEO

TORONTO – The CEO of Indigo Books & Music Inc. says the retailer’s last year has been “challenging” and it could take some time for its financial results to recover.

Speaking on a call with analysts on Friday, Heather Reisman described 2023 as a year marked by “disruptions”: a ransomware attack that halted its e-commerce operations for a long period, the “premature” launch of a new platform intended to replace it , the overbuying of some merchandise and a “challenging” economic environment.

These developments caused Indigo’s third-quarter earnings to plummet, falling roughly 70 percent to $10 million from $34.3 million a year earlier.

Revenue for the quarter ended December 30 was $370.6 million, up from $422.7 million in the same quarter in 2022. Earnings per diluted share were 35 cents, down from 1.22 Dollars.

These figures have made the transformation plan that Indigo began last year even more critical. Reisman said steps were taken during the quarter to advance that plan.

“We made the decision to adjust the size and shape of our general merchandise inventory,” he said.

“This strategic decision to eliminate unnecessary inventory had a significant impact on margins and therefore profitability, but it was the right decision.”

Chief financial officer and chief operating officer Craig Loudon said that meant Indigo was becoming more reliant on discounts, which dragged down sales figures.

He also acknowledged that some of the problems were due to what the retailer was selling.

“We don’t think that in the final stretch of Christmas we had the appropriate variety of general merchandise that people were looking for in those last few weeks,” he said.

Indigo, which started as a bookseller, has significantly diversified its product mix in recent years and now offers a range of products from kitchenware to sex toys and even furniture.

Part of that diversification came under the leadership of Peter Ruis, an experienced retail business leader who became CEO of Indigo in September 2022.

Reisman, Indigo’s founder, retired last summer but rejoined the company in September after Ruis abruptly left the retailer.

Prior to Reisman’s retirement as CEO and director in August, four of Indigo’s 10 directors left its board, with Chika Stacy Oriuwa attributing their resignation to a “loss of confidence in board leadership” and “mistreatment.” Other executives left soon after.

Once Reisman took command of Indigo again, he launched a transformation plan, but gave few details.

Last week, a pair of companies owned by Gerald Schwartz, Indigo’s majority shareholder and Reisman’s husband, offered a non-binding proposal to take the retailer private.

On Friday, analysts got a better look at what has been happening at Indigo for the first time since the privatization bid.

Reisman said the company has now reinvested in its book inventory, which it sees as critical to its ethos of spreading the love of reading.

She also laid off an unspecified number of staff and streamlined her headquarters in January, which she characterized as “the normal course of business” and “a difficult, but right, decision.”

On an annualized basis, Indigo expects the move to save it $10 million.

Those savings could come in handy as Indigo focuses more on stabilizing its e-commerce operations, which underperformed its retail division.

Following the February 2023 cyberattack, Indigo began rolling out a temporary website and the retailer received $1.3 million in insurance proceeds.

When asked by an analyst what problems Indigo’s new e-commerce systems have faced, Reisman said: “I don’t think it’s appropriate for us to go into all the details here.”

However, he said that problems with Indigo’s e-commerce operations have stabilized and that the company is working “to achieve the full potential of what we want.”

This report by The Canadian Press was first published Feb. 9, 2024.

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