Indigo Books & Music Inc.

Janet Eger - Vice President, Public Affairs Heather Reisman - Chairman and Chief Executive Officer Laura Carr - Executive Vice President and Chief Financial Officer

David McFadgen - Cormark Securities

Good morning and thank you for joining us to review Indigo’s fiscal 2016 results. My name is Janet Eger, and I’m the Vice President of Public Affairs.

Joining us from Indigo today are the Chief Executive Officer, Heather Reisman, and Chief Financial Officer, Laura Carr. Regarding the materials for this conference call, we issued the press release aftermarket close yesterday, which can be found at indigo.ca and on SEDAR.

The conference call is recorded and archived in the Investor Relations section of the Indigo website. A playback of the call will also be available by telephone until 11:59 Eastern Time on June 8, 2016.

This conference call may contain forward-looking statements, and to the extent that it does we refer you to our cautionary statements regarding forward-looking statements in the press release and the MD&A related to this quarter and year. I would like to turn the call over now to Heather Reisman.

Thanks, Janet. Good morning, everyone, and thank you for joining us.

It really is wonderful to be here discussing our full-year results following several years of operating investments on our business to effective transformation; we are now clearly demonstrating both growth momentum and improve profitability. For the full-year, same-store sales grew by 12.5% and our online digital channel sales increased more than 15%.

As a result of that revenue growth we more than doubled our EBITDA for the year. I would say that worth noting is that not knowing that our financial metrics improved, but actually all the key metrics of the business improved including traffic, conversion, new customers, omnichannel shoppers, customer affection for the brand, and employee engagement.

Our net promoter score which we think is a key measure of the strength of the brand and tells us how our customers feel about us has increased again to an impressive 68%. I just want to share that recently we were named top retail employer brand for the second-year in a row in a survey by external organization Randstad.

We were also ranked as the fourth best brand overall in the country. Nice results for us.

Laura will take you through the financials in more detail, but before I hand it over I really do want to take this opportunity to say thank you for the shareholders who have stayed with us during the challenging times and even more important to say a huge thank you to all of the Indigo team. I feel very proud of their efforts – the collective efforts of our entire team to move the Company through this transformation period.

We have a number of exciting strategic initiatives underway which will allow us to capitalize on the growth momentum and continue to build on the success of the year past. And finally, just a few days ago, we opened our new format store at Sherway Gardens in Toronto and it is being extremely well received.

So good news for today and I am happy to turn it over to Laura.

Thank you, Heather, and good morning, everyone. The results that we are discussing today are for the 53 weeks ended April 2, 2016, comparative figures have been provided for the 52 weeks ended March 28, 2015.

As Heather mentioned, the key highlights of our full-year results was the continued strong revenue growth delivering $99 million more than last year despite operating three fewer superstores and four fewer small format stores. On a comparable 52-week basis, total revenue was 9.5% higher than last year; specifically retail revenue was 12.8% up in superstores and 10.9% up in our small format stores.

Our online sales also grew by 16.9% on a full-year basis and that is 15.3% on a comparable 52-week basis. Both our new and general merchandise categories and our core book business performed well.

We experienced double-digit growth in lifestyle, paper and toys. The trend for adult coloring books also generated strong growth in our core book business and we also had good sales in writing instrument such as coloring pencils.

Additionally, the toys business benefited from the successful launch of three more American Girl specialty boutiques this year. Full-year revenue from general merchandise categories grew to 34% of the total compared to just over 30% last year as we continue to diversify our product assortment beyond our core book offering.

Our margin rate improved by 0.8% this year and margin dollars increased by almost $51 million. The rate improvement was driven by more effective promotions, greater sell-through of full-priced products, higher vendor support, and improved inventory management.

Overall, operating, selling and administration costs increased by $28 million compared to the same period last year partly due to the longer 53-week period this year. Higher costs were also driven by increased spend on marketing and creative campaigns a higher number of strategic projects and higher bonus and incentive costs relating to the improved business performance.

For the year, EBITDA improved by $22.6 million driven by higher revenue and improved margin rates. Net earnings were $28.6 million, an improvement of $32.1 million compared to the same period last year.

The improvement was primarily driven by higher EBITDA and a lower tax expense. As our shareholders are aware, we continue to maintain a very strong balance sheet.

We ended the year with $216.5 million in cash which represents a $13.3 million increase from last year. The increase was driven by the improved business performance.

Before I close, I would just like to highlight the fourth quarter revenue performance which continued the same strong trends of the earlier quarters. On a comparable 13-week basis which excludes the impact of the 53-week on non-comp stores, our superstore sales grew by 14.7%, and the small format stores grew by 15.8%.

On a comparable basis, our online channel grew by 9.8%. We are really pleased with this growth momentum that we have shown this year.

And I’d now like to open the call to any questions. Thank you.

Thank you, Laura.

May I just make one point – its Heather Reisman here. I actually have to leave a bit early today because I’m receiving an honorary degree.

So if there is any questions for me I would ask that [please] come first. Thank you.

Yes. Hi, thank you.

I have few questions. Heather, so for the last three quarters you continue to see extremely strong same-store sales growth on the 13% to 15% range which is pretty incredible.

Is this the new norm or just continued to be surprised that how strong these results are?

David you will know better than most that we will never do a prediction about the future. So all I would say is I think we have developed a very great relationship with our customers, we’re feeling positive about the business and I can assure you that we are working as hard as we can to do the best we can, but that’s as much as I can say about the future.

Thank you for that wonderful question.

Yes. So you talked about the new Sherway store, you said it’s being extremely well received.

Can you give us any metrics?

The Sherway store replaced a store that we had across the street of Queensway, it’s a little bit not much bigger, I think selling space might be about 1,500 square feet bigger and we’re doing well in the double-digit improvement in that store. So I think there is every indication, but it’s early, it’s only been open a couple weeks, but we’re feeling quite positive about it, very positive in fact anybody in Toronto invite you to come or having an open-party on Thursday night and I think you will get a great feel of the store.

Okay. And what are the plans to open American Girl stores in new fiscal 2017?

We just opened a new American Girl store at Sherway and right now we don’t have any additional – I think Laura this brings us to six or seven American Girl.

Seven in total including Sherway.

Seven in total and we think right now this is a good number to really optimize the opportunity, but it will say as we just completed a transaction with them to allow us to sell American Girl online, which we’re not able to do before. So that represents some advance and now it will be launched for Christmas this year.

Okay. And then when you look at your online revenue it’s up double-digit, what’s driving that is it – is it all in the categories?

Yes. I think all the – well, I know it is all of the categories and it is increasing the number of our customers who are shopping omnichannel, sorry a multi-channel.

Okay.

So in-store customers shopping with us both in-store and online.

Okay. And then just a CapEx question, Laura can you give us an update on what you think the CapEx might be for your current fiscal year?

David, we don’t give out the forward guidance, but generally we’ve always said that we have not spent more in CapEx than our EBITDA or may obviously intend to continue to grow our EBITDA and you should expect to see some growth in that capital number than the forward fiscal.

Now, I know there was some discussion about embarking on a more aggressive store reset renovation program, anything happening there?

Yes. We do intend to begin a program of investing in our stores across the country and we will do it in a measured, but fairly determined way over the next two to three years.

Okay. And then Laura just the last question…

David can I just ask you one favor, I really – this is one-day since I’m going to this event that I have yet. Can I just see if we can focus on the questions for me that anybody has and then come back to the one for Laura?

Okay.

Yes. I’ll get back in the queue if everybody else.

Sure, sure. Anybody else….

At this point there are no additional questions in queue.

Okay. So I’ll leave it to David to have a wonderful time.

Thanks everybody I’m going to hop off. Thank you so much.

Thank you, Heather.

Bye-bye.

So David do you have more questions.

Hi, Laura just back with one additional question. So on the CRA what’s the total potential liability.

Is it just the 0.7 million?

Yes. That’s the total.

We have launched [indiscernible] yes, but it’s being booked in the numbers for prudents only and we will contest it fully.

Okay, but the total potential liabilities only…

There is no further liability.

Okay, all right. Okay, that’s it from me.

Thanks.

Great, thank you. End of Q&A

Okay. Thank you for you time and attention today.

We appreciate you calling in and look forward to reconnecting on a quarterly basis. Our first quarter results will be announced on or around August 09, 2016.

Thank you again for your support and have a terrific day.