A N N UA L RE P O RT FO R TH E 5 2-WEEK P ERI OD END ED A PR IL 2 , 2 022
The Indigo Mission
To inspire reading and simplify our customers’
journeys to live with intention.
Indigo operates under the following banners:
Indigo Books & Music, Chapters, Coles, Indigospirit, and indigo.ca.
The Company employs approximately 5,000 people across the country.
!ndigo Enrich Your Life, Chapters, !ndigo, Coles and indigo.ca are registered trade marks of Indigo Books & Music Inc.
Table of Contents
3. Report of the CEO
5. Management’s Responsibility for Financial Reporting
6. Management’s Discussion and Analysis
36. Independent Auditor’s Report
39. Consolidated Financial Statements and Notes
71. Corporate Governance Policies
72. Executive Management and Board of Directors
73. Five-Year Summary of Financial Information
74. Investor Information
75. Indigo’s Commitment to Communities Across Canada
Report of the CEO
Dear Shareholder,
As always, it is my pleasure to be writing to you sharing the highlights of the recently ended year.
2021/2022 was another year of advancing our business notwithstanding the continued impact of COVID on
our customers, our employees, and the supply chains so central to our performance.
I am pleased to report that on five key indices of business ‘health’ – Indigo achieved satisfying results. The
Company delivered 17.4% year-over-year sales growth; returned to profitability; continued to add excellent
new team members to support an ambitious agenda; maintained high employee engagement; and sustained
record high brand affection from our customers.
Less measurable in the short term, we have used the challenges and lessons of living through a pandemic to
‘muscle build’ in ways that will strengthen future sales and profitability. To highlight just two areas of focus:
People Strategy
There is no question that two years of remote work and the stresses of COVID have had an impact on how
people feel and think and want to work.
We are therefore adapting key elements in our People Management Processes to ensure rich alignment with
emerging changes in employee values.
We are thoughtfully shaping a hybrid work model to leverage the clear advantages of work in person, with the
equally valuable option to avoid travel time when doing so is not productive.
We are also revisiting key aspects of our Staffing Process and our Potential Development/Career Planning process.
The advances we are making in these processes are significant. They will simultaneously address evolving values
and tap into energy, creativity, and commitment.
While these efforts began in the year just past – they will continue to be a big focus moving forward. Our goal
always – to attract and retain the best people.
Supply Chain
Though always important, the pandemic brought into full relief the strategic need for flexible, ever more pro-
ductive, and ever more environmentally sensitive supply chains – from end to end.
Indigo used this past year to make some immediately implementable advances which allowed us to thrive through
the constantly changing demands created by COVID spikes and retreats. More importantly, we gained learning
and insights during the past 24 months which is now influencing a fundamental rethink in every area of supply
chain from product sourcing through to end delivery of product to our customers – whether in stores or at home.
Supply chain advances will continue to be a major focus during the upcoming year.
Annual Report 2022 3
In other areas
Sustainability
This past year, we further advanced our commitment to a zero-carbon footprint by 2035.We publicly launched
our Write the Future program and committed to reporting on advances. While we have a Director of
Sustainability, it is worth noting that achievements against our stated objectives rest with the Executive Team.
Retail in the 21st Century
A trend that is now irrefutable is that retail is about being boldly and intelligently planted in both the digital
and physical world. And in understanding how to leverage functional capabilities of each to provide the very
best service and experience for our customer.
Over the past year we have been hard at work on an exciting new digital platform which will launch before our
all-important holiday quarter. We also are at the drawing boards for a totally new physical retail experience which
will continue our life-long commitment to being a meaningful participant in every community in which we
operate. Together our ‘bricks and clicks’ strategy is designed to sustain our position as our customers’ ‘happy place’.
Speaking of physical stores, a few years ago – and just before the pandemic – we shared that we had opened
our first U.S.-based Indigo with the intention of testing and learning. COVID then put a short-term halt on
this expansion effort. I am pleased to share however that Indigo Short Hills is thriving. And we indeed have
learned a lot. Stay tuned for further plans.
Indigo Love of Reading Foundation
From our inception we have had a commitment to giving back. Our main focus is on childhood literacy in high
needs communities. I am pleased to share that since its inception, and in partnership with our customers, the
Indigo Love of Reading Foundation has committed over $33 million to support children’s literacy and promote
educational equity in communities across Canada. This past year we supercharged our efforts, knowing how
challenged our Indigo Love of Reading communities were by school closings. We are proud to have partnered
with over 200 schools where we donated over 200,000 books. With this effort we reached children in need
across every province and territory in Canada.
Looking forward
As we look to the year ahead and beyond, we see tremendous potential for our brand and by extension – our
business. Know that we value your trust in us and that we come to work every day focused on being the very
best we can be.
Finally, I can’t close this letter without a big call out to the incredible people who make up the Indigo organi-
zation. For a second year in a row – and with all the stresses and demands of COVID continuing to ‘add up’
the Indigo team did a stellar job of delivering – for our customers, our suppliers, our shareholders, and each
other. Thank you all!!
4
Report of the CEO
Heather Reisman
Chair and Chief Executive Officer
Management’s Responsibility for
Financial Reporting
Management of Indigo Books & Music Inc. (the “Company”) is responsible for the preparation and integrity of the consoli-
dated financial statements as well as the information contained in this report. The following consolidated financial statements
of the Company have been prepared in accordance with International Financial Reporting Standards, which involve manage-
ment’s best judgments and estimates based on available information.
The Company’s accounting procedures and related systems of internal control are designed to provide reasonable assur-
ance that its assets are safeguarded and its financial records are reliable. In recognizing that the Company is responsible for
both the integrity and objectivity of the consolidated financial statements, management is satisfied that the consolidated finan-
cial statements have been prepared according to and within reasonable limits of materiality and that the financial information
throughout this report is consistent. The Board of Directors, along with the Company’s management team, have reviewed and
approved the consolidated financial statements and information contained within this report.
The Board of Directors monitors management’s internal control and financial reporting responsibilities through an Audit
Committee composed entirely of independent directors. This Committee meets regularly with senior management and the
Company’s internal and independent external auditors to discuss internal control, financial reporting, and audit matters. The
Audit Committee also meets with the external auditors without the presence of management to discuss audit results.
Ernst & Young LLP, whose report follows, were appointed as independent auditors by a vote of the Company’s shareholders
to audit the consolidated financial statements.
Heather Reisman Craig Loudon
Chair and Chief Executive Officer Chief Financial Officer and
Executive Vice President, Supply Chain
Annual Report 2022 5
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) is prepared as at June 2, 2022 and is based primarily on the
consolidated financial statements of Indigo Books & Music Inc. (the “Company” or “Indigo”) for the 52-week period ended
April 2, 2022 and 53-week period ended April 3, 2021. The Company’s consolidated financial statements and accompanying
notes are reported in Canadian dollars and have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) using the accounting policies described
therein.
This MD&A should be read in conjunction with the consolidated financial statements and accompanying notes contained
in the attached Annual Report. The Annual Report and additional information about the Company, including the Annual
Information Form, can be found on SEDAR at www.sedar.com.
Overview
Indigo is Canada’s leading book and lifestyle retailer and was formed as a result of the August 2001 amalgamation of Chapters
Inc. and Indigo Books & Music Inc. The Company offers a curated assortment of books, gifts, baby, kids, wellness and lifestyle
products, that supports customers by simplifying their journey to Living with Intention™. The Company operates retail stores
in all ten provinces and one territory in Canada, and also has retail operations in the United States through a wholly-owned
subsidiary, operating one retail store in Short Hills, New Jersey.The retail network includes 88 superstores (2021 – 88) under
the Indigo and Chapters names, as well as 85 small format stores (2021 – 89) under the banners Coles and Indigospirit. Retail
operations are seamlessly integrated with the Company’s digital channels, including the www.indigo.ca website and the mobile
applications, which are extensions of the physical stores and offer customers an expanded assortment of book titles, along
with a meaningfully curated assortment of general merchandise. The Company also offers a marketplace assortment of giftable
products, experiences, services, and subscriptions on www.thoughtfull.co.
Throughout fiscal 2022, the Company employed an average of approximately 5,000 people (on a full-time, part-time,
and casual basis) and generated annual revenue of $1,062.3 million. The consolidated financial statements of the Company
comprise the Company and its wholly-owned subsidiaries; Indigo Design Studio, Inc., Indigo Cultural Department Store Inc.
(“Indigo U.S.”), and YYZ Holdings Inc. (“YYZ”), along with its 20% equity investment in Unplug Meditation, LLC (“Unplug”).
The Company supports a separate registered charity called the Indigo Love of Reading Foundation (the “Foundation”).
The Foundation provides new books and learning materials to high-needs elementary schools and children across the country
through donations from Indigo, its customers, its suppliers, and its employees.
Statement on COVID-19
The Company, and the retail industry, continue to navigate the impacts of the COVID-19 pandemic, including government
imposed restrictions, such as closures, quarantine policies and social distancing measures that negatively impact the Company’s
retail operations, distributions centres, head office operations and supply chain.
The Company undertook the following actions in fiscal 2022:
• Participated in rolling closures of its retail network, as directed by local governments and public health authorities.
This notably included province-wide closures in Ontario that negatively impacted the Company’s retail operations
through the majority of the first quarter; store locations with external entrances re-opened on June 1, 2021, with
remaining store locations in the province having re-opened on June 29, 2021. The Company successfully executed on
the reopening of 93 closed retail stores across Canada with a focus on driving operational effectiveness.
6
Management ’s Discussion and Analysis
• In December 2021, the Company responded to the adverse impact of the Omicron variant on retail foot traffic
patterns and implemented mandated government capacity restrictions, which most notably included a fifty percent
reduction in capacity in the province of Ontario during critical selling weeks.
• Recognized $7.7 million of COVID-19 occupancy expense abatement as a direct response to the economic impact
of the COVID-19 pandemic, compared to $15.5 million in the prior year. The Company continues to negotiate with
landlords regarding abatement to share the financial burden of COVID-19.
• Applied for the Canada Emergency Rent Subsidy (“CERS”) program and recognized rent subsidies of $2.9 million,
compared to $1.1 million in the prior year.
• Applied for the Canada Emergency Wage Subsidy (“CEWS”) program and recognized payroll subsidies of $2.3 mil-
lion, compared to $27.4 million in the prior year.
• Entered into a $25.0 million related party revolving line of credit to enhance the Company’s liquidity in response
to uncertainty surrounding the pandemic’s financial impacts. No advances were made on the non-interest bearing
facility, which matured on February 1, 2022.
• Forecasted inbound inventory receipts to account for modest delays as a result of disruption to the global supply chain
based on the monitored impacts of higher inbound freight costs and constrained shipping capacity.
• Effectively mitigated disruption to its print business, stemming from the raw material scarcity and distribution delays
experienced across the publishing industry, by shifting inventory purchases earlier in the planning season. As a result,
the Company had sufficient inventory on-hand for bestselling titles and its back list catalogue to fulfill an increased
demand for books during the holiday season.
The Company’s top priority remains the health and safety of its customers, employees and communities, and extensive
health and safety measures have been employed that meet or exceed the guidance and direction from public health authorities.
Future Developments
The COVID-19 pandemic has introduced volatility to the economy and consumer spending, disrupted supply chains and cre-
ated significant volatility in financial markets on a global scale, the extent of which will depend on future developments that
are highly uncertain and cannot be reliably forecasted.
These future developments include new information regarding vaccination rates and efficacy, disease immunity, the
recurrence of waves of significant infections, as well as ongoing consumer fears about the disease that could adversely affect
traffic to Indigo’s stores and demand for its products, among others.The downstream impacts of pandemic-related disruptions
have adversely impacted the global supply chain, and future developments could further strain the availability of raw materials
to produce inventory desired by the Company’s buying teams, as well as the timing and cost of shipment and logistics to fulfill
consumer demand. This includes the adverse impact of pandemic restrictions mandated by governments in fiscal 2022 in global
shipping ports like Shanghai, and the delays in the inbound receipt of goods caused as a consequence of these developments.
The foregoing statement on COVID-19 is not an exhaustive description of the actual or potential impacts of the COVID-19
pandemic on the Company. Given this unprecedented period of uncertainty, there can be no assurances regarding: the closure
status of retail locations as a result of COVID-19; the COVID-19-related impacts on the Company’s business, operations and
performance; credit, foreign currency, and liquidity risks generally; and other risks inherent to the Company’s business
and/or factors beyond its control which could have a material adverse effect on the Company. Investors should also refer to
the risks described below under “Risks and Uncertainties”.
Annual Report 2022 7
General Development of the Business
Since 1997, Indigo has been its customers’ self-declared “Happy Place” – today, it is a rich omni-channel cultural environment
filled with books, lifestyle, paper, kids and baby products, and the creative, service-obsessed people who help make it all
happen. Indigo has always believed in living life fully and generously, in being kind to each other and to the environment, and
that stories – big and little – really do connect us all to each other.
Indigo is on a mission to support their customers and employees to live their best lives – lives on purpose, by providing
life-enriching products, inspirational content and illuminating experiences. With a meaningfully curated assortment and expert
advice from the Indigo team, the Company endeavours to empower its customers to actively identify what they value the most
and support them to live in alignment with those values. As the retail landscape has shifted over the past two decades, Indigo’s
differentiated in-store and digital experience has evolved to align to the changing needs of its employees, customers, and the
communities it serves.
The Company’s priorities over the past three years and key strategies moving forward include accelerating its assortment
of thoughtfully curated products, developing Indigo’s store of the future, redefining Indigo’s digital presence, reimagining its
loyalty programs and fostering high performing teams.
Accelerate Assortment Transformation
Indigo celebrates culture-makers and creators including authors, artists, designers, chefs, musicians, and thought leaders. For
consumers looking to invest in pursuing their passions and living life fully, Indigo is a retailer that provides access to the books,
products, and community that support them in their journey. With books at the core, Indigo leverages a global network of
authors and industry experts to provide a trusted one-stop shopping experience as a partner through all of life’s key moments
– from baby’s first steps to graduation, first home to the empty nest. All provided with a combination of thoughtful curation,
extraordinary convenience, and world class service.
Indigo’s meaningfully curated assortment is supported by the Company’s design and global sourcing teams that lead the
creative development of Indigo’s proprietary merchandise. In fiscal 2020, to further integrate the design and global sourcing
teams and enhance its proprietary offerings, the Company closed its New York design studio and relocated the design and
global sourcing functions to Indigo’s head office in Toronto. In fiscal 2021, the Company successfully expanded its proprietary
brands, which now include OUI STUDIO™ and OUI Design (collectively “OUI”), LOVE & LORE®, Auria™, NÓTA™,
Wonder Co.™, Mini Maison™and The Littlest™. These brands extend across the Living,Wellness, Fashion, Paper, Kids and Baby
categories. The Company is committed to adapting and improving its proprietary product development capability, as well as
expanding its curated assortment of coveted third party brands.
In fiscal 2022, management enhanced its merchandising practices and onboarding tool set to accelerate the growth of
Indigo’s general merchandise assortment. The Company’s lifestyle category continues to drive meaningful growth for the
general merchandise business, with entry into new product lines like gourmet goods, cookware and bedding deepening its
targeted assortment. Indigo also partnered with Canadian technology start-up, Convictional, to accelerate its growth through
third-party sellers by refining the Company’s drop ship seller experience, delivering curation at scale on its digital platforms.
These efforts worked in tandem with stronger merchandising practices, which included a reduced promotional cadence and
bold strategic inventory bets, to lift the business’s full-priced sell-through. This strengthened assortment, coupled with com-
pelling decision support from the Company’s retail and digital channels, acts as a robust platform for the Company’s current
growth trajectory.
8
Management ’s Discussion and Analysis
Develop Indigo’s Store of the Future
Indigo’s stores reflect its transformation from a bookstore to a cultural concept store; a physical and digital meeting place
inspired by and filled with books, music, art, ideas, and beautifully designed lifestyle products.
The distinction between physical retail and digital retail has evolved and customers expect to have a seamless experience
with the Indigo brand, regardless of channel. Recognizing this, the Company is continuing to focus on digital innovation
and an exceptional customer experience, that meets them where they are. In fiscal 2020, the Company launched an express
pick-up checkout solution, which allows customers to order online and pick up their order in store within the same day. Fiscal
2021 saw meaningful investment in this express pick-up solution to broaden its functionality and provide a more intuitive
check-out experience, and it has become a critical delivery solution through the COVID-19 pandemic. The Company also
launched curbside pick-up to allow for contactless sales transactions and integrated with third party same-day fulfillment
solutions like Instacart and Cornershop by Uber, where customers can have their orders delivered in less than two hours in
serviced markets.
In fiscal 2021, in light of COVID-19, the Company accelerated its review of its real estate portfolio, closing 20 small format
stores. In fiscal 2022, the Company closed four small format stores. The Company will continue to assess how the physical retail
landscape has evolved with a fundamental shift in consumer behaviour, to reimagine Indigo’s ‘Store of the Future’. Planning
also commenced on two new concept stores in fiscal 2022 as the Company reimagines the experience and role of the physical
store; these new concept stores will be opening in fiscal 2023 and 2024 in Ottawa and downtown Toronto, respectively.
In fiscal 2022, the Company renegotiated its partnership with Starbucks Coffee Canada, Inc.; moving forward, 36 cafés
will continue to operate as Starbucks within Indigo stores, while the remaining cafés located in the Company’s superstore
format, which have been closed throughout the course of the COVID-19 pandemic, will be reimagined under the evolving
Indigo brand retail experience. The Company also announced a new partnership with Good Earth Cafes Ltd. to bring their
Coffeehouse experience to select locations across communities in Canada. This partnership marks the start of Indigo’s inten-
tion to reimagine and convert its available café spaces, with a market-by-market, and sometimes store-by-store approach, offer-
ing customers regional relevance and supporting local businesses. The focus will be on exceptional customer experience,
delicious food, and drink, and partnering with like-minded values-based organizations across the country.
Redefine Indigo’s Digital Presence
In addition to reshaping Indigo’s physical store offerings, the Company continues to meaningfully invest in its digital platforms
to bring inspirational content and product to its customers, while enhancing their shopping experience.
Today’s Indigo online channels offer customers access to over 15 million book titles, along with a meaningfully curated
assortment of general merchandise, all to help a customer connect to the things that matter most to them.
To achieve this, the Company leveraged available capacity in its Calgary distribution center in the first half of fiscal 2020
to better serve online customers in Western Canada. The abrupt pivot to digital across the entire organization in the fourth
quarter of fiscal 2020, at the inception of the COVID-19 pandemic, included optimizing the website experience, customer
service automation, enhancing an express pick-up offering, and expanding the Ontario distribution centre to manage increased
online order volume, among others. Ultimately, the Company has focused on providing customers safe and efficient access to
the products that bring them joy during these difficult times.
In fiscal 2020, Indigo also launched www.thoughtfull.co, a gifting site dedicated to helping customers find unique and
meaningful gifts. Thoughtfull™ provides a last-minute gifting solution with digitally fulfilled delivery for its sophisticated
assortment of giftable experiences, services, and subscriptions. Thoughtfull™ has continued to be a platform to service cus-
tomers virtually, while providing further insight to the Company about customers’ experiential purchasing patterns.
Annual Report 2022 9
In fiscal 2021, Indigo kicked off a comprehensive modernization strategy with the objective of evolving its digital tech-
nology stack, drop ship program, and end-to-end site experience. This strategic endeavour encompasses a number of mid-
term initiatives to drive the Company’s competitiveness in response to the global digital acceleration experienced during the
pandemic. During the year, Indigo’s Buy Online Pick Up In-Store (BOPIS) experience was optimized to unlock further omni-
channel functionality and roll out a seamless experience of picking up products in as little as two hours across the Canadian
retail store network.
To extend the strong affinity for its retail store experience to Indigo.ca, the Company embarked on a transformation
strategy in fiscal 2022 to fully re-design a connected shopping experience and modernize its ecommerce technology. This
included Indigo entering into an agreement with Salesforce for its market-leading commerce cloud solution to function as a
critical pillar of its new digital architecture, offering personalized and tailored digital experiences. These efforts will deliver
an innovative and agile platform that will allow the Company to fully realize the potential of the ecommerce opportunity
unlocked by accelerated adoption during the global pandemic.The Company also introduced new digital marketing tools into
its ecommerce partner ecosystem in fiscal 2022 to enhance the effectiveness of its performance marketing program.
With a focus on inspiring and attracting customers, the Company has built a strong social media presence across Facebook,
Instagram, LinkedIn, Pinterest, Twitter, and TikTok with over half a million followers on Facebook and over 425,000 on
Instagram. Some of the locations in the Company’s retail network have their own community social profiles, which further
enhances customer engagement. In fiscal 2021, the Company launched a podcast titled Well Said, connecting customers to
the trusted voices in well-being to hear meaningful conversations about the art and science of living well to help them live
with purpose and intention.
Reimagine Loyalty Programs
The Company has a two-tiered loyalty program; plum®, a free points-based tier; and plum® PLUS, an annual fee-based tier
which was launched on a national scale in fiscal 2020, replacing the Company’s irewards® program. The plum® PLUS program
has since grown beyond the milestone of 500,000 members and is increasingly becoming a strategic vehicle for the Company
to meaningfully engage with its most loyal customers.
Optimizing the Company’s plum® loyalty program continues to be a key focus of the business to enhance the overall brand
experience. plum® is Indigo’s community, designed to inspire and motivate members to live Life on Purpose™ by unlocking
access to experiences and benefits that extend beyond their shopping journey. The Company aims to engage members with
relevant products, content, experiences and offers.
As an annual fee-based program, plum® PLUS offers free shipping, member discounts, and exclusive offers as incremental
benefits to the redeemable points offered on almost all products purchased. This membership tier has delivered on engaging
Indigo’s best customers, in addition to driving frequency and a meaningful lift in average transaction values. The success of
this program continues to deepen the Company’s understanding of its customers and to deliver a unique and personalized
member experience at key moments. In fiscal 2023, the Company will continue to build its customer-first culture by strength-
ening its capabilities to personalize each member touch point, providing a rich omni-channel shopping experience.
Foster High Performing Teams
While a key focus of the Company’s business is evolving to meet the emerging needs of customers, Indigo is also focused on
becoming the best rewarding retail employer in Canada. The Company’s continued evolution and new business strategies are
supported by driving a high-performance growth culture and aspiring for operational excellence.
10
Management ’s Discussion and Analysis
The Company’s ambition is to be the best rewarding retail employer, not only in pay, but in a holistic view of the employ-
ment relationship that includes a sense of purpose, meaningful relationships, benefits, and flexible work opportunities. This
Company-wide initiative focuses on driving engagement, high performance, and operational excellence, while removing inef-
ficiency from the Company’s work processes. The Company is focusing on the development of high-performing teams where
individuals are encouraged to chart their own career paths and apply their strengths to meaningful work, allowing them to
bring their best selves to work. This work involves partnerships across all areas of the Company and is expected to continue
to evolve over the next several years.
In fiscal 2020, Forbes selected Indigo as one of Canada’s Best Employers in 2019 based on an independent survey from
a vast sample of more than 8,000 Canadian employees working for companies employing at least 500 people in their Canadian
operations. Indigo was ranked 125th out of all selected organizations and 12th in the retail category. In fiscal 2021, Indigo con-
tinued to attain a record-high employee engagement score of 87%, as well as receiving external acknowledgment of its pos-
itive employee and customer experience. In fiscal 2022, Indigo was recognized as a leading employer by Forbes Best Employer
and Globe and Mail’s Women Lead Here ROB awards.
Indigo’s high performing teams’ resilience and strong embodiment of the Company’s values allowed the business to suc-
cessfully respond to the ever-evolving challenges introduced by COVID-19 in fiscal 2022.
Results of Operations
The following three tables summarize selected financial and operational information for the Company. The classification of
financial information presented below is specific to Indigo and may not be comparable to that of other retailers. The selected
financial information is derived from the consolidated financial statements for the 52-week period ended April 2, 2022,
53-week period ended April 3, 2021 and 52-week period ended March 28, 2020.
Key elements of the consolidated statements of earnings (loss) and comprehensive earnings (loss) for the periods indi-
cated are shown in the following table:
52-week 53-week
period ended period ended
April 2, % April 3, %
(millions of Canadian dollars) 2022 Revenue 2021 Revenue
Revenue 1,062.3 100.0 904.7 100.0
Cost of sales (619.2) 58.3 (567.9) 62.8
Cost of operations (245.7) 23.1 (212.8) 23.5
Selling, general and administrative expenses (104.3) 9.8 (83.6) 9.2
Depreciation of right-of-use assets (36.1) 3.4 (43.0) 4.8
Finance charges related to leases (24.5) 2.3 (25.7) 2.8
Adjusted EBITDA1 32.5 3.1 (28.3) 3.1
Depreciation of property, plant
and equipment (16.0) 1.5 (17.2) 1.9
Amortization of intangible assets (11.9) 1.1 (12.9) 1.4
Gain (loss) on disposal of capital assets 0.0 0.0 0.8 0.1
Net interest income 0.8 0.1 0.9 0.1
Share of loss from equity investment 0.0 0.0 (0.2) 0.0
Impairment loss from equity investment (2.0) 0.2 – –
Earnings (loss) before income taxes 3.3 0.3 (56.9) 6.3
1 Earnings before interest, taxes, depreciation, amortization, asset disposals, share of loss from equity investment, and impairment, and includes IFRS 16 right-of-use
asset depreciation and associated finance charges. For further information on the key metric and its computation, see “Non-IFRS Financial Measures”.
Annual Report 2022 11
Adjusted EBITDA is a key indicator used by the Company to measure performance against internal targets and prior
period results and is commonly used by financial analysts and investors to assess performance. This measure is specific to
Indigo and has no standardized meaning prescribed by IFRS. Therefore, adjusted EBITDA may not be comparable to similar
measures presented by other companies. A reconciliation of adjusted EBITDA to earnings (loss) before income taxes, the
most directly comparable measure determined under IFRS, is presented above for informational purposes. For further infor-
mation regarding this metric, refer to “Non-IFRS Financial Measures”.
Selected financial information of the Company for the last three fiscal years is shown in the following table:
52-week 53-week 52-week
period ended period ended period ended
April 2, April 3, March 28,
(millions of Canadian dollars, except per share data) 2022 2021 2020
Revenue
Superstores 595.5 439.8 655.8
Small format stores 93.1 72.6 122.1
Online 321.7 370.0 162.7
Other 52.0 22.3 17.1
1,062.3 904.7 957.7
Earnings (loss) before income taxes 3.3 (56.9) (100.3)
Income tax expense – (1.0) (84.7)
Net earnings (loss) 3.3 (57.9) (185.0)
Total assets 809.4 799.5 883.0
Lease liabilities (including current portion) 517.2 550.3 568.6
Working capital 58.3 46.1 85.2
Basic earnings (loss) per common share $0.12 $(2.09) $(6.72)
Diluted earnings (loss) per common share $0.12 $(2.09) $(6.72)
12
Management ’s Discussion and Analysis
Selected operating information of the Company for the last three fiscal years is shown in the following table:
52-week 53-week 52-week
period ended period ended period ended
April 2, April 3, March 28,
2022 2021 2020
Stores Opened
Superstores – – –
Small format stores – 1 –
– 1 –
Stores Rebranded, Relocated, or Renovated
Superstores 9 – 3
Small format stores – – –
9 – 3
Stores Closed
Superstores – – 1
Small format stores 4 20 7
4 20 8
Number of Stores Open at Year-End
Superstores 88 88 88
Small format stores 85 89 108
173 177 196
Selling Square Footage at Year-End (in thousands)
Superstores 1,941 1,941 1,941
Small format stores 222 231 279
2,163 2,172 2,220
Revenue
Total consolidated revenue for the 52-week period ended April 2, 2022 increased $157.6 million or 17.4% to $1,062.3 mil-
lion from $904.7 million for the 53-week period ended April 3, 2021, exceeding the Company’s top-line performance in the
preceding three fiscal years. The Company experienced a strong recovery in its retail channel and an ecommerce business that,
while moderating to last year’s COVID-19 peak, sustained incremental growth of 98% to fiscal 2020 levels. This was driven
by an exceptionally well-received product strategy, which saw increased demand for its diversified businesses and a refined
promotional cadence that drove improvements in full-priced sell-through for its assortment. These sales were generated
despite absorbing downward pressures from challenging market and operational conditions, which included the Omicron
variant and severe pandemic conditions during its seasonally-strong third quarter.
Increased revenue was realized across the Company’s print and general merchandise businesses. Strong demand for print
lifted category sales 8% to last year, largely driven by the popularity of reading on TikTok (#BookTok), driving significant
sales in both new and previously released titles. Revenue was further buoyed by the success of the Company’s evolving
general merchandise assortment with exceptional sales growth of over 30% in both its lifestyle and baby product categories.
The Company’s proprietary home brand OUI and proprietary paper brand NÓTA™ also delivered exceedingly strong sales,
together driving over a quarter of the total revenue growth for fiscal 2022.
Retail revenue, which is inclusive of orders fulfilled through omnichannel store pick-up, increased by $176.2 million or
34.4% to $688.6 million for the 52-week period ended April 2, 2022 compared to $512.4 million in the prior year. Customers’
desire to shop in-store drove a rebound in retail revenue as COVID-19 containment measures eased year-over-year and
customers shopped with intent. Conversion rates experienced only a modest decline as traffic increased meaningfully to last
Annual Report 2022 13
year and average transaction values grew over the last two fiscal years. The channel’s strong sales trajectory delivered a full
rebound to pre-pandemic sales during the third quarter, before the adverse impact of Omicron was experienced during
critical selling weeks that included Christmas and Boxing Day. The retail channel continued to face pressures in its fourth
quarter, as the impact of Omicron subsided and other macroeconomic headwinds impacted consumer behaviour.
Online revenue decreased by $48.3 million or 13.1% to $321.7 million for the 52-week period ended April 2, 2022 com-
pared to $370.0 million in the prior year, as demand moderated from the height of COVID-19 lockdowns last year and the
Company’s retail channel recovered. Notably, customers are increasingly beginning their purchase journey on the Company’s
digital platforms, contributing to high in-store conversion. As noted, the online business sustained 98% growth to fiscal 2020
sales, and continues to be a lever of growth and investment focus for the Company.
The Company has historically reported on comparable sales, a key performance indicator in prior years. Due to the
rolling store closures from COVID-19 and the impact of social distancing and fluctuating government-mandated capacity con-
straints in reopened stores, the Company believes that comparable sales are not currently representative of the underlying
trends of its business. Due to the diminished relevance of this key performance indicator, comparable sales are not further
discussed in this report.
Revenue from other sources includes corporate sales, plum® PLUS membership fees (“plum® PLUS revenue”), revenue
from unredeemed plum® points (“plum® breakage”), revenue from unredeemed gift cards (“gift card breakage”), revenue-sharing
with Rakuten Kobo Inc. (“Kobo”), irewards card sales and other non-merchandise revenue. Revenue from other sources
increased $29.7 million or 133.2% to $52.0 million for the 52-week period ended April 2, 2022 compared to $22.3 million
in the prior year. The increase was driven by plum® PLUS revenue as the paid loyalty tier program continued to attract new
customers over the course of the year. Revenues also benefited from the one-time payment of $17.0 million from Starbucks
Coffee Canada, Inc. (“Starbucks”), on the renegotiation of its partnership with the Company.
Revenue by channel is highlighted below:
52-week 53-week
period ended period ended
April 2, April 3, % increase/
(millions of Canadian dollars) 2022 2021 (decrease)
Superstores1 595.5 439.8 35.4
Small format stores1 93.1 72.6 28.2
Online (including store kiosks) 321.7 370.0 (13.1)
Other 2 52.0 22.3 133.2
Total 1,062.3 904.7 17.4
1 Includes sales on orders placed on indigo.ca and fulfilled through store pick-up.
2 Includes corporate sales, plum® PLUS revenue, plum® breakage, gift card breakage, Kobo revenue share, irewards and a one-time payment from Starbucks.
Revenue by product line is as follows:
52-week 53-week
period ended period ended
April 2, April 3,
2022 2021
Print 1 53.6% 58.4%
General merchandise 2 41.5% 39.2%
Other 3 4.9% 2.4%
Total 100.0% 100.0%
1 Includes books, magazines, newspapers, eReaders, and related shipping revenue.
2 Includes lifestyle, paper, toys, electronics, and related shipping revenue.
3 Includes corporate sales, plum® PLUS revenue, plum® breakage, gift card breakage, Kobo revenue share, irewards, and a one-time payment from Starbucks.
14
Management ’s Discussion and Analysis
Cost of Sales
Cost of sales includes the landed cost of goods sold, online shipping costs, inventory shrink and damage reserve, less all vendor
support programs. Cost of sales increased by $51.3 million to $619.2 million for the 52-week period ended April 2, 2022,
compared to $567.9 million in the prior year. As a percentage of total revenue, cost of sales decreased to 58.3% compared
to 62.8% in the prior year.
Excluding the impact of online shipping costs, cost of sales increased by $55.0 million to $560.8 million for the 52-week
period ended April 2, 2022, compared to $505.8 million in the prior year. As a percentage of total revenue, cost of sales
excluding the impact of online shipping costs decreased to 52.8% compared to 55.9%. The Company delivered its highest-
ever omni-channel merchandise margin rate, impacted by strategic shifts made to the Company’s promotional cadence and
discounting activities. This was furthered by the rebound of the Company’s retail channel, which typically has a higher margin
profile, while the online channel also delivered record merchandise margin rate performance (excluding the impact of shipping
costs). These improvements blunted the impacts of higher inbound freight costs triggered by global supply chain constraints.
Online shipping costs decreased by $3.7 million to $58.4 million for the 52-week period ended April 2, 2022, compared
to $62.1 million in the prior year. While the variable rate of shipping increased, impacted by fuel surcharges and shipping pre-
miums surrounding the severe flooding in British Columbia in the third quarter, the absolute costs decreased compared to
the prior year, largely in response to the tempered demand in the online channel.
Cost of Operations
Cost of operations includes all store, store support, online, and distribution centre costs. Cost of operations increased by
$32.9 million to $245.7 million for the 52-week period ended April 2, 2022, compared to $212.8 million in the prior year.
As a percent of total revenue, cost of operations decreased to 23.1% compared to 23.5% in the prior year. The increase in
cost of operations was impacted by a higher sales volume and the associated variable costs, however leveraging on fixed costs
in the rebounding retail channel drove improvements to cost of operations as a percent of total revenue. This increase was
further impacted by the reduction in external COVID-19 support recognized in cost of operations, which totaled $10.8 mil-
lion in the 52-week period ended April 2, 2022, compared to $32.0 million in the prior year. In the current year, the Company
realized $1.3 million of benefit from the CEWS (partial benefit attributed to operating costs), which offset labour charges in
the retail and online networks.The Company also realized $2.9 million of reductions from rent subsidies from the CERS pro-
gram, and $6.6 million in reductions to its cost of operations relating to COVID-19 occupancy expense abatement. In the
prior year, the Company recognized $15.4 million of benefit from the CEWS program, $1.1 million from the CERS program
and $15.5 million from COVID-19 occupancy expense abatement. The Company is still in negotiations with its landlords
regarding rent abatement to address the financial impacts of the most recent wave of COVID-19 related store closures.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include marketing, head office costs, and operating expenses associated with the
Company’s strategic initiatives. These expenses increased $20.7 million to $104.3 million for the 52-week period ended
April 2, 2022, compared to $83.6 million in the prior year. As a percent of total revenue, selling, general and administrative
expenses increased to 9.8% compared to 9.2% in the prior year.This was impacted by increased strategic spending, following
a tightening of discretionary spending in the prior year, as the Company looks to build on the ecommerce momentum gen-
erated. Further, the Company recognized a reduction in external COVID-19 support recognized in selling, general and
administration expenses, which totaled $2.1 million in the 52-week period ended April 2, 2022, compared to $12.0 million
in the prior year. In the current year, the Company realized $1.0 million of benefit from the CEWS (partial benefit attributed
to selling, general and administrative expenses), which offset head office labour charges, compared to $12.0 million in the
prior year.
Annual Report 2022 15
Lease Charges
Lease charges associated with IFRS 16 include the depreciation of the right-of-use assets and finance charges associated with
the lease liabilities. Lease charges decreased by $8.1 million to $60.6 million for the 52-week period ended April 2, 2022,
compared to $68.7 million in the prior year. The decrease was primarily a result of lower amortization in the period, as lease
modifications recognized decreased the carrying value of the right-of-use assets.
Adjusted EBITDA
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, asset disposals, share of loss from
equity investment, and impairment, and includes IFRS 16 right-of-use asset depreciation and associated finance charges. Adjusted
EBITDA improved by $60.8 million to $32.5 million for the 52-week period ended April 2, 2022, compared to a loss of
$28.3 million in the prior year. Adjusted EBITDA, as a percent of total revenue, improved to 3.1% this year, compared to a loss
3.1% in the prior year. Higher adjusted EBITDA was driven by higher sales and omni-channel merchandise margin performance,
a result of a strong product assortment and strategic shifts made to the Company’s pricing strategies. This was furthered by a
one-time payment of $17.0 million, resulting from the renegotiation of the partnership with Starbucks, and a reduction in
amortization on the Company’s right-of-use assets.The improvement to adjusted EBITDA was achieved against lower external
COVID-19 support and elevated freight and last-mile logistics costs associated with a challenged global supply chain.
A reconciliation of adjusted EBITDA to earnings (loss) before income taxes has been included in the “Results of
Operations” section of this MD&A.
Capital Assets
Depreciation and amortization of capital assets, excluding right-of-use assets, for the 52-week period ended April 2, 2022
decreased $2.1 million to $27.9 million compared to $30.0 million in the prior year. The decrease in depreciation and amor-
tization was a result of a lower capital asset base impacted by historical decisions to defer capital investments in light of uncer-
tainty surrounding COVID-19.
Capital expenditures in fiscal 2022 totaled $15.4 million compared to $13.3 million in the prior year, and were primarily
to support the Company’s strategic plans for ecommerce growth. Capital expenditures included $12.1 million for digital
application software and internal development costs, $1.9 million for furniture, fixtures, equipment and leasehold improve-
ments, net of tenant allowances, and $1.4 million for technology equipment. None of the capital expenditures were financed
through leases.
Net Interest Income
Net interest income, excluding finance charges related to leases, remained relatively constant, decreasing $0.1 million to
$0.8 million for the 52-week period ended April 2, 2022, compared to $0.9 million in the prior year. The Company nets
interest income against interest expense.
Equity Investment
The Company uses the equity method to account for its investment in Unplug, and recognizes its share of equity investment
earnings and losses as part of consolidated net earnings and losses.The Company recognized a loss of below $0.1 million from
Unplug for the 52-week period ended April 2, 2022 compared to a loss of $0.2 million in the prior year.
At each reporting date, the Company assesses whether indicators of impairment exist relating to its equity investment,
in accordance with IAS 36 “Impairment of Assets” and IAS 28 “Equity Accounting”. As at April 2, 2022, the Company noted
a decline in forecasted financial performance that indicated it was probable that future cash flows would not cover the carrying
amount of net assets. As such, impairment losses in the current year were taken against the Company’s equity investment.
Impairment losses for the 52-week period ended April 2, 2022 were $2.0 million, compared to no impairment loss recog-
nized in the prior year.
16
Management ’s Discussion and Analysis
Income Taxes
The Company recognized no income tax expense for the 52-week period ended April 2, 2022, compared to recognizing a
non-cash deferred income tax expense of $1.0 million in the prior year. Income taxes in the prior year were impacted by the
movement in cash flow hedges. The Company recognized no income tax expense on net earnings in the current year due to
the offsetting deferred income tax recovery from the re-recognition of deferred tax assets.
Since March 28, 2020, the Company has not recognized deferred tax assets, in excess of those used to offset any deferred
income tax expense in the period, influenced by prior period operating losses and uncertainty surrounding future profitability
introduced by the COVID-19 pandemic, among other factors.
The Company’s effective tax rate was 0%, compared to (1.8)% in the prior year.
Net Earnings (Loss)
The Company recognized net earnings of $3.3 million for the 52-week period ended April 2, 2022 ($0.12 net earnings per
common share), compared to a net loss of $57.9 million ($2.09 net loss per common share) in the prior year, an improvement
of $61.2 million. This was fueled by strong sales and a record omni-channel merchandise margin rate, which was delivered
through a successful product strategy and year-over-year recovery of the Company’s retail channel. This was furthered by a
one-time payment of $17.0 million, resulting from the renegotiation of the partnership with Starbucks, and a reduction in
amortization on the Company’s right-of-use assets. The growth to net earnings was achieved against lower external
COVID-19 support, elevated freight and last-mile logistics costs, and an impairment loss recognized against the Company’s
equity investment.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of gains and losses related to hedge accounting and the Company’s foreign cur-
rency translation adjustments. The Company has a formal hedging policy to mitigate foreign exchange risk, entering into con-
tracts to manage the currency fluctuation risk associated with forecasted U.S. dollar expenses, primarily for general
merchandise inventory purchases. Financial instruments used to mitigate risk include foreign exchange forward contracts.
All contracts entered into during the year have been designated as cash flow hedges for accounting purposes and extend over
a period not exceeding 12 months.
During the 52-week period ended April 2, 2022, the Company entered into contracts with total notional amounts of
C$155.7 million to buy U.S. dollars and sell Canadian dollars, compared to entering into contracts with total notional
amounts of C$69.7 million in the prior year. As at April 2, 2022, the Company had remaining contracts in place representing
total notional amounts of C$67.1 million and an unrealized net loss of $0.6 million, compared to total notional amounts of
C$34.6 million and an unrealized net loss of $1.6 million as at April 3, 2021.
During the 52-week period ended April 2, 2022, the Company had net losses (net of taxes) from the change in fair value
of outstanding cash flow hedges of $0.6 million, compared to net losses (net of taxes) of $4.5 million in the prior year. During
the same respective period, the Company reclassified net losses (net of taxes) from settled contracts of $1.6 million from
other comprehensive income (loss) to inventory and expenses, and net losses (net of taxes) of $0.1 million in the prior year.
The Company also recognized an other comprehensive gain of below $0.1 million from foreign currency translation
adjustments on consolidation of its foreign subsidiaries for the fiscal year ended April 2, 2022, compared to an other com-
prehensive loss of $0.1 million in the prior year.
These resulted in total other comprehensive income of $1.0 million for the 52-week period ended April 2, 2022, com-
pared to a total other comprehensive loss of $4.5 million in the prior year.
Annual Report 2022 17
Seasonality and Fourth Quarter Results
Indigo’s business is highly seasonal and follows quarterly sales and earnings (loss) fluctuation patterns, which are similar to
those of other retailers that are highly dependent on the holiday sales season. A disproportionate amount of revenues and
earnings are earned in the third quarter. As a result, quarterly performance is not necessarily indicative of the Company’s per-
formance for the rest of the year. The impact of certain risks, as discussed in the “Risks and Uncertainties” section of this
MD&A, would have a disproportionate impact to the Company’s financial performance should any such events occur during
the holiday sales season.
The following table sets out revenue, net earnings (loss), and basic and diluted earnings (loss) per common share for the
preceding eight fiscal quarters.
Fiscal quarters
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
(millions of Canadian dollars, Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
except per share data) 2022 2022 2022 2022 2021 2021 2021 2021
Revenue 220.7 430.7 238.8 172.1 199.0 365.4 205.3 135.1
Net earnings (loss) (23.4) 45.1 3.5 (21.9) (39.5) 30.7 (17.5) (31.6)
Basic earnings (loss) per common share $(0.84) $1.62 $0.13 $(0.79) $(1.42) $1.11 $(0.63) $(1.15)
Diluted earnings (loss) per
common share $(0.83) $1.60 $0.13 $(0.79) $(1.42) $1.09 $(0.63) $(1.15)
For the 13-week period ended April 2, 2022, total consolidated revenue increased by $21.7 million or 10.9% to
$220.7 million compared to $199.0 million for the 14-week period ended April 3, 2021. This increase was driven by the par-
tial rebound of the retail channel compared to the prior year which was partially impacted by retail closures.
The Company recognized a net loss of $23.4 million for the 13-week period ended April 2, 2022 ($0.84 basic net loss
per common share), compared to a net loss of $39.5 million ($1.42 basic net loss per common share) in the prior year. The
Company recognized its highest fourth quarter retail and online merchandise margin rates since fiscal 2018, despite the impact
of increased freight costs in the current year. Further contributing to the improved results were reductions in both cost of
operations and selling, general and administrative expenses, despite lower COVID-19 support received in the current year.
Overview of Consolidated Balance Sheets
Assets
As at April 2, 2022, total assets increased $9.9 million to $809.4 million, compared to $799.5 million as at April 3, 2021.
This was primarily driven by an increase in inventories, partially offset by decreases in capital assets and accounts receivable.
Inventories increased by $58.7 million which was driven by measured inventory purchasing in the prior year, in response to
uncertainty surrounding spending patterns and in anticipation of government mandated lockdowns. This was furthered by an
expanded general merchandise assortment as the Company aims to continue driving meaningful growth to its general mer-
chandise business. Net capital assets decreased by $40.7 million, as depreciation outpaced capital investments, a result of a
more conservative capital asset investment program since the onset of the COVID-19 pandemic. This was furthered by lease
modifications recognized that decreased the carrying value of the right-of-use assets. Accounts receivable decreased by
$10.0 million, primarily driven by outstanding amounts receivable from COVID-19 support programs that were not yet
collected in the prior year.
18
Management ’s Discussion and Analysis
Liabilities
As at April 2, 2022, total liabilities increased $4.6 million to $781.5 million, compared to $776.9 million as at April 3, 2021.
This was primarily driven by increases in net accounts payable, unredeemed gift card liabilities and deferred revenue, partially
offset by a net decrease in lease liabilities. Net accounts payable and accrued liabilities increased $31.9 million, driven prima-
rily by the increase in inventory purchasing in the fourth quarter of fiscal 2022 compared to the prior year.This was furthered
by an increase of $4.6 million in unredeemed gift card liabilities, as activations lifted over the past year on the recovery of the
Company’s retail network, and an increase of $4.2 million of deferred revenue driven by plum® PLUS membership sign ups.
These increases were partially offset by the net decrease in lease liabilities of $33.1 million which reflects the impact of prin-
cipal and interest repayments over the past year, and lease modifications recognized.
Equity
Total equity at April 2, 2022 increased $5.2 million to $27.8 million, compared to $22.6 million as at April 3, 2021, driven prim -
arily by the net earnings of $3.3 million recognized over the past four quarters. This was furthered by an increase of $1.0 mil-
lion in accumulated other comprehensive income, primarily due to the change in fair value of outstanding cash flow hedges.
The weighted average number of common shares outstanding for fiscal 2022 was 27,771,387 compared to 27,664,268
in the prior year. As at June 2, 2022, the number of outstanding common shares was 27,349,711 with a book value of
$227.1 million.
Working Capital and Leverage
The Company reported working capital of $58.3 million as at April 2, 2022, compared to $46.1 million as at April 3, 2021.
The increase in working capital compared to the prior year was driven by the discussed increase in inventories, partially offset
by a decrease in accounts receivables and increases in net accounts payable, unredeemed gift card liabilities and deferred revenue.
Overview of Consolidated Statements of Cash Flows
Cash and cash equivalents increased $1.5 million for the 52-week period ended April 2, 2022 compared to a decrease of
$35.5 million in the prior year. The increase in cash flows in the period was driven by cash flows generated from operating
activities of $81.3 million, partially offset by cash flows used in financing activities and investing activities of $66.1 million
and $13.5 million, respectively.
Cash Flows From Operating Activities
The Company generated cash flows of $81.3 million from operating activities in the 52-week period ended April 2, 2022
compared to generating cash flows of $37.7 million in the prior year, a change of $43.6 million. This was primarily a result
of the $60.8 million increase in adjusted EBITDA recognized in the current year. This improvement was partially offset by a
decrease in cash generated from working capital of $12.5 million, which was mostly driven by the discussed increase in inven-
tories, partially offset by the associated increase in accounts payable, and by a decrease in accounts receivable relating to
amounts outstanding in the prior year from COVID-19 support programs.
Cash Flows Used for Investing Activities
The Company used cash flows of $13.5 million for investing activities in the 52-week period ended April 2, 2022 compared
to using $12.4 million of cash flows in the prior year, a change of $1.1 million. Since the onset of the COVID-19 pandemic,
the Company decided to execute a smaller capital investment program, which has continued throughout fiscal 2022.
Investment has been focused on its digital ecosystem as the Company embarked on a transformation strategy in fiscal 2022
to fully re-design a connected shopping experience and modernize its ecommerce technology.
Annual Report 2022 19
Cash was used for capital projects as follows:
52-week 53-week
period ended period ended
April 2, April 3,
(millions of Canadian dollars) 2022 2021
Furniture, fixtures, equipment, and leasehold improvements, net 1.9 1.8
Intangible assets (digital application software and internal development costs) 12.1 9.2
Technology equipment 1.4 2.3
Total 15.4 13.3
Cash Flows Used for Financing Activities
The Company used cash flows of $66.1 million for financing activities in the 52-week period ended April 2, 2022 compared
to using cash flows of $62.2 million in the prior year, a change of $3.9 million. This was driven by higher repayments on the
Company’s IFRS 16 lease obligations, a direct impact of rent concessions recognized in the prior year.
Liquidity and Capital Resources
The Company has a highly seasonal business that generates a significant portion of its revenue and cash flows during the hol-
iday season. The Company has minimal accounts receivables and the majority of book products are purchased on trade terms
with the right to return to suppliers at full credit. The Company’s main sources of capital are cash flows generated from oper-
ations and cash and cash equivalents. Cash flows from operating activities could continue to be negatively impacted by
decreased demand for the Company’s product offerings, which could result from factors such as, but not limited to, adverse
economic conditions resulting from the COVID-19 pandemic and associated changes in consumer preferences, by the impact
of social distancing policies and general public health sentiment on retail store traffic, and the Company’s ability to safely fulfill
orders through its online distribution network.
The contractual maturities of the Company’s current and long-term liabilities as at April 2, 2022 are as follows:
(millions of Canadian dollars) Less than 1 year 2-3 years 4-5 years After 5 years Total
Total obligations 247.7 120.7 90.6 238.6 697.6
Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known to date, including
the currently known impacts of COVID-19, it is expected that the Company’s current cash position and future cash flows
generated from operations will be sufficient to meet its working capital requirements for fiscal 2023. However, the Company’s
ability to fund future operations will depend on its operating performance, which could be affected by risks associated with
the COVID-19 pandemic, as discussed.
During the year, the Company entered into a $25 million related party revolving line of credit to enhance its liquidity in
response to uncertainty surrounding the pandemic’s financial impacts. As at April 2, 2022, this facility had expired without
any amounts withdrawn by the Company. Subsequent to April 2, 2022, the Company entered into a new $25 million related
party revolving line of credit with similar commercial terms. The Company can seek to raise additional funding should a sig-
nificant risk to liquidity arise, as it currently has no outstanding debt financing, and can reduce capital spending if necessary.
However, the COVID-19 pandemic may create a number of additional risks to obtaining such funding, such as the ability to
access capital at a reasonable cost. Also, a long-term decline in capital expenditures may negatively impact the Company’s rev-
enue and profit growth.
For additional discussion surrounding risks and uncertainties related to COVID-19, refer to the “Risks and Uncertainties”
section in this MD&A.
20
Management ’s Discussion and Analysis
Accounting Policies
Critical Accounting Judgments and Estimates
The discussion and analysis of Indigo’s operations and financial condition are based upon the consolidated financial statements,
which have been prepared in accordance with IFRS. The preparation of these consolidated financial statements in conformity
with IFRS requires the Company to undertake a number of judgments and estimates about the recognition and measurement
of assets, liabilities, revenues, and expenses. These judgments and estimates are based on management’s historical experience
and other assumptions which the Company believes to be reasonable under the circumstances. The Company also evaluates
its judgments and estimates on an ongoing basis. Methods for determining all material judgments and estimates are consistent
with those used in prior periods, except as noted. Actual results may differ from the judgments and estimates made by man-
agement, and actual results will seldom equal estimates. The critical accounting judgments and estimates and significant
accounting policies of the Company are described in notes 3 and 4 of the consolidated financial statements.
The following items in the consolidated financial statements involve significant judgment or estimation.
Use of judgments
Information about judgments that have the most significant effect on recognition and measurement of assets, liabilities, rev-
enues, and expenses are discussed below.
Impairment
An impairment loss is recognized for the amount by which the carrying amount of an asset or a cash-generating unit (“CGU”)
exceeds its recoverable amount. Impairment losses are reversed if the recoverable amount of the asset, CGU, or group of
CGUs exceeds its carrying amount, but only to the extent that the carrying amount of the asset does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
The Company uses judgment when identifying CGUs, when assessing for indicators of impairment or reversal, and when esti-
mating the recoverable amount for its assets and CGUs in impairment testing.
Intangible assets
Initial capitalization of intangible asset costs is based on the Company’s judgment that technological and economic feasibility
are confirmed and the project will generate future economic benefits by way of estimated future discounted cash flows that
will be generated.
Leases
The Company assesses whether a contract is or contains a lease at inception of a contract. The Company recognizes a right-of-
use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases, the Company
recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised. The Company has the option under many of its leases
to lease the assets for additional terms of five years, and applies judgment in evaluating whether it is reasonably certain to
exercise the option to renew. The Company considers all relevant factors that create an economic incentive for it to exercise
the renewal, including store performance, expected future performance and past business practice. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew (i.e. a change in business strategy).
Annual Report 2022 21
Deferred tax assets
The recognition of deferred tax assets is based on the Company’s judgment. The assessment of the probability of future taxable
income against which deferred tax assets can be utilized is based on management’s best estimate of future taxable income that
the Company expects to achieve from reviewing its latest forecast. This estimate is adjusted for significant non-taxable income
and expenses and for specific limits to the use of any unused tax loss or credits. Deferred tax assets are recognized to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry -
forward of unused tax losses and unused tax credits can be utilized. If estimates of future taxable profit change, unrecognized
deferred tax assets can be recognized again in a future period. The recognition of deferred tax assets that are subject to certain
legal or economic limits or uncertainties are assessed individually by the Company based on the specific facts and circumstances.
Use of estimates
Information about estimates that have the most significant effect on the recognition and measurement of assets, liabilities, rev-
enues, and expenses are discussed below.
Impairment
To determine the recoverable amount of an impaired asset, the Company estimates expected future cash flows and determines
a suitable discount rate in order to calculate the present value of those cash flows. In the process of measuring expected future
cash flows, the Company makes assumptions about certain variables, such as future sales, gross margin rates, expenses, capital
expenditures, and working capital investments, which are based upon historical experience and expected future performance.
Determining the applicable discount rate involves estimating appropriate adjustments to market risk and to Company-specific
risk factors.
Inventories
The future realization of the carrying amount of inventory is affected by future sales demand, inventory levels, and product
quality. At each balance sheet date, the Company reviews its on-hand inventory and uses historical trends and current inventory
mix to determine a reserve for the impact of future markdowns that will take the net realizable value of inventory on-hand
below cost. Inventory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete mer-
chandise. The Company reduces inventory for estimated shrinkage that has occurred between physical inventory counts and
each reporting date based on historical experience as a percentage of sales. In addition, the Company records a vendor settle -
ment accrual to cover any disputes between the Company and its vendors. The Company estimates this reserve based on his-
torical experience of settlements with its vendors.
Property, plant, equipment, and intangible assets (collectively, “capital assets”)
Capital assets are depreciated and amortized over their useful lives, taking into account residual values where appropriate.
Assessments of useful lives and residual values are performed on an ongoing basis and take into consideration factors such as
technological innovation, maintenance programs, and relevant market information. In assessing residual values, the Company
considers the remaining life of the asset, its projected disposal value, and future market conditions.
Leases
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the Company’s incremental borrowing rate (“IBR”). The Company cannot readily determine the interest
rate implicit in the lease; therefore, it uses its IBR to measure lease liabilities.
The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
22
Management ’s Discussion and Analysis
The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation when no observable rates are
available or when they need to be adjusted to reflect the terms and conditions of the lease. The Company estimates the IBR
using observable inputs (such as market interest rates) when available and is required to make certain entity and asset-specific
estimates (such as the subsidiary’s stand-alone credit rating).
Revenue
The Company recognizes revenue for the estimated value of gift cards that are not expected to be redeemed by customers
(“gift card breakage”) in proportion to the pattern of rights exercised by the customer. The resulting gift card breakage rev-
enue is recognized over the estimated period of redemption based on historical redemption patterns commencing when the
gift cards are sold.
Indigo’s plum® loyalty program, which includes the plum® and plum® PLUS membership tiers, allows customers to earn
points on their purchases. The allocation of transaction price to the plum® loyalty obligation, which is the estimated reward
tier value of a future redemption net of points management expects will go unredeemed (“plum® breakage”), is based on a rel-
ative stand-alone selling price basis. The Company continues to monitor trends in redemption patterns (redemption at each
reward level), historical redemption rates (points redeemed as a percentage of points issued) and net cost per point redeemed.
Share-based payments
The cost of equity-settled transactions with employees is based on the Company’s estimate of the fair value of share-based
instruments and the number of equity instruments that will eventually vest. The Company’s estimated fair value of share-
based compensation is calculated using the following variables: risk-free interest rate; expected volatility; expected time until
exercise; and expected dividend yield. The risk-free interest rate is based on Government of Canada bond yields, while all
other variables are estimated based on the Company’s historical experience with its share-based payments.
Accounting Standards Implemented in Fiscal 2022
Amendment to IFRS 16 Leases – COVID-19-Related Rent Concessions
In March 2021, the IASB extended the IFRS 16 practical expedient to cover rent concessions on payments due on or before
June 30, 2022. The amendment becomes effective for annual reporting periods beginning on or after April 1, 2021, with earlier
application permitted. The Company is applying the practical expedient and has accounted for any eligible change in lease
payments resulting from a COVID-19-related rent concession in profit or loss in the period the deal was executed.
Costs Necessary to Sell Inventories (IAS 2) Agenda Decision
At its June 2021 meeting, the IFRS Interpretations Committee finalized an agenda decision about the costs an entity includes
as the ‘estimated costs necessary to make the sale’ when determining the net realizable value of inventories. The Committee
concluded that when determining the net realizable value of inventories, an entity estimates the costs necessary to make the
sale in the ordinary course of business, which requires the exercise of judgement. The Company assessed the impact of this
agenda decision, and it does not have a material impact to its results of operations, financial position or disclosures.
New Accounting Pronouncements
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current, which amends IAS 1 Presentation of Financial
Statements. The narrow scope amendments affect only the presentation of liabilities in the statement of financial position and
not the amount or timing of its recognition. It clarifies that the classification of liabilities as current or non-current is based on
rights that are in existence at the end of the reporting period and specifies that classification is unaffected by expectations
about whether an entity will exercise its right to defer settlement of a liability. It also introduces a definition of ‘settle ment’
Annual Report 2022 23
to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services.
The amendments are effective for annual reporting periods beginning on or after January 1, 2022. Earlier application is per-
mitted. The Company is assessing the potential impact of these amendments.
Changes in Accounting Policies and Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued amendments to IAS 8 Accounting Policies, Changes to Accounting Estimates and Errors, to introduce
a new definition of accounting estimates. This was endorsed by the Accounting Standards Board of Financial Reporting &
Assurance Standards Canada on June 1, 2021. The amended standard explains how entities use measurement techniques and
inputs to develop accounting estimates and states that these can include estimation and valuation techniques. To provide addi-
tional guidance, the amended standard clarifies that the effects on an accounting estimate of a change in an input or a change in
a measurement technique are changes in accounting estimates if they do not result from the correction of prior period errors.
The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is
permitted. The Company is assessing the potential impact of these amendments; however, does not anticipate to implement
the amended standard using a retrospective application methodology as the IASB Board concluded that the benefits of doing
so would be minimal, and have not made such application required.
Risks and Uncertainties
COVID-19 Risk
The COVID-19 pandemic introduced a number of risks and uncertainties for the Company’s business, which could signifi-
cantly impact the Company’s results of operations going forward and the forward-looking statements made herein.
The duration and severity of the COVID-19 pandemic remains uncertain as does its adverse impact on the Company. Any
estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly esti-
mates of the extent to which the COVID-19 pandemic may, directly or indirectly, materially and adversely affect the Company’s
operations, financial results and condition in future periods are also subject to significant uncertainty.
Investors should also refer to the Company’s description of certain impacts and a number of evolving operational risk
management strategies undertaken to manage the ongoing pandemic described above under “Statement on COVID-19”.
Economic Environment
Traditionally, retail businesses are highly susceptible to market conditions in the economy. Economic conditions, both on a
global scale and in particular markets, may have significant effects on consumer confidence and spending. The inflationary
pressures present in the Canadian economy as at April 2, 2022 and anticipated to continue in fiscal 2023 could curtail con-
sumer spending. A decline in consumer spending, especially during the third quarter holiday season, could have an adverse effect
on the Company’s financial condition. Pandemics, such as the current COVID-19 pandemic, and the related governmental,
private sector and individual consumer responses could reduce retail traffic and consumer spending, result in temporary or
permanent closures of stores, offices, and factories, and could disrupt the material flow of goods, which could have an adverse
effect on the Company’s financial situation. Other variables, such as unanticipated increases in merchandise costs, higher labour
costs, increases in shipping rates or interruptions in shipping service, foreign exchange fluctuations, political uncertainty, dis-
ruptions in international trade, the impact of natural disasters, geopolitical events or acts of terrorism, or higher interest
rates, inflation, or unemployment rates, could also unfavourably impact the Company’s financial performance.
Competition
The retail industry is highly competitive and continues to experience fundamental changes in a rapidly evolving environment.
The Company competes in the book category with specialty and independent bookstores, other book superstores,
regional multi-store operators, mass merchandisers, supermarkets, retail pharmacies, warehouse clubs, online booksellers,
publisher direct-to-consumer operations and other retailers who sell physical book offerings, often at substantially discounted
24
Management ’s Discussion and Analysis
prices. Many of these competitors, as well as other retailers, also offer e-reading options, which compete for share of the cus-
tomer’s discretionary book and entertainment budget.
The general merchandise retail landscape also features significant competition from established retailers and emerging
disruptive digital retail options, and there can be no assurances that the Company will be able to gain market share. The
Company competes with specialty, mass, local, regional, national, and international retailers and direct-to-consumer com -
panies that sell lifestyle and specialty toy products through both physical and digital platforms. New competitors frequently
enter the market and existing competitors may increase market presence, expand merchandise offerings, add new sales chan-
nels, or change their pricing methods, all of which increase competition for customers.
Many of the Company’s current and potentially future competitors are global, have greater brand recognition, greater
online presence and access to greater financial, marketing and other resources. The size and resources of such competitors
may allow them to compete more aggressively, which could adversely impact Indigo’s revenue, market share and operating
margins. In addition, increased efforts by such competitors, including the introduction of new and innovative products and
services as well as aggressive expansion, merchandising or discounting by competitors, could reduce the Company’s revenue,
market share, and operating margins.
Consumer Trends
The Company’s success largely depends on its ability to anticipate and respond to shifts in consumer trends in an agile manner.
The general merchandise business is particularly susceptible to changing consumer preferences that cannot be predicted with
certainty. If the Company is unable to adequately respond to changing consumer trends or forecasts sales that do not match
customer demand, it could experience higher inventory markdowns or an inventory shortage, both of which would have an
adverse effect on sales and profitability. This risk is mitigated by the Company’s focus on building an assortment of innovative
products which resonate with consumers, including through its proprietary brands, and by the breadth of the Company’s
product range across diversified categories.
Strategic Initiatives and Growth Strategy
The retail industry is constantly changing and management is committed to the Company’s continued growth and success.
The Company will continue to change and modify its strategy based on its economic environment and there can be no assur-
ances that Indigo’s strategy will be successful.
The Company may be subject to growth-related risks as it undertakes its strategic initiatives; expansion into new mar-
kets, or the launch of new initiatives could place a significant strain on the Company’s management, operations, technical per-
formance, financial resources, and internal financial control and reporting functions. The ability of the Company to manage
growth effectively will require it to continue to implement and improve its operational and financial systems and to expand,
train and manage its employee base. The inability of the Company to deal with growth may have a material adverse effect on
the Company’s financial condition, results of operations and prospects.
Corporate Reputation
The Company’s corporate reputation and those of its brands are very important to Indigo’s success and competitive position.
The Company’s reputation and, consequently, its brand, may be negatively affected by the various risk factors described herein,
some of which may be outside of Indigo’s control.
The use of social media platforms and other forms of Internet-based communications that provide individuals with access
to a broad audience of consumers and other interested persons is omnipresent. The availability and impact of information on
social media platforms is virtually immediate and many social media platforms publish user-generated content without filters
or independent verification as to the accuracy of the content posted. The opportunity for dissemination of information,
including inaccurate information, is effectively without limit and may negatively impact the Company’s reputation and future-
oriented prospects.
Annual Report 2022 25
The Company’s business could be adversely affected by social reform movements seeking to change business practices by
bringing public awareness to issues through store protests and/or social media campaigns. Ineffective action or perceived
inaction pertaining to the Company’s industry and business could adversely affect its reputation.
Other adverse events may also damage the Company’s reputation and brands at the corporate or retail level. Should neg-
ative factors materialize and diminish Indigo’s brand equity, there could be a material adverse effect on the Company’s oper-
ations and financial condition and performance.
Culture
Failing to build and maintain a unique values-based culture that promotes trust, collaboration, dignity, mutual respect, entrepren -
eurial spirit, accountability, engagement, operational excellence, and high performance amongst and by the Company’s employ-
ees may negatively affect its operational performance, adversely impact its ability to satisfactorily execute on strategic initiatives
and adversely damage the Company’s reputation. The strength of Indigo’s brand is sustained, in part, through its culture.
Key Business Relationships
Indigo relies heavily on suppliers in order to sell books and general merchandise on acceptable terms and within agreed upon
timelines. These suppliers are impacted by, among other things, increases in labour and input costs, availability of raw mate-
rials, inflation, labour disputes and disruptions, regulatory changes, political or economic instability, natural disasters, geopo-
litical risks, trade restrictions, tariffs, currency exchange rates, transport costs, and other factors, including the closure of
national borders and disruption of merchandise deliveries due to the effects of the COVID-19 pandemic. Collectively and
individually, these factors are beyond the Company’s control and a failure to maintain favorable terms and relationships with
these suppliers, or the absence of key suppliers, may affect the Company’s ability to compete in the marketplace. As Indigo
continues to source a greater portion of its products from overseas, events causing disruptions to imports, changes in trade
restrictions and tariffs, or currency fluctuations could negatively impact the Company’s revenues and margins. To date, the
Company has not experienced any significant difficulty in obtaining merchandise and considers its sources of supply to be ade-
quate, however, the Company’s flow of merchandise could be affected by the COVID-19 pandemic.
The Company is also reliant on third parties to provide services essential to daily operations. Any disruption to these
third-party services could have an unfavourable impact on the Company’s performance and reputation, including significant
negative impact in areas such as supply chain logistics, software development and support, transaction and payment processing,
and other key processes. The Company cannot make any assurances that it would be able to arrange for alternate or replacement
contracts, transactions, or business relationships to mitigate the impact of disruptive events related to key service providers.
As ecommerce continues to become a larger component of the Company’s omni-channel business, Indigo relies on third-
party logistics partners to fulfill sales transactions with its customers in a dependable and timely manner. Changes in geo-
graphic coverage, service levels, capacity levels, and labour disruptions at the Company’s logistics partners, including as a result
of COVID-19, may adversely affect Indigo’s business and financial results.
Workplace Wellness, Health and Safety
The failure of the Company to create a healthy and safe workplace for all employees, to adhere to appropriate health and safety
procedures and to ensure compliance with applicable laws and regulations could result in employee injuries, productivity loss,
and liabilities to the Company.To reduce the risk of workplace incidents, the Company has health and safety programs in place
and has established policies and procedures aimed at ensuring compliance with applicable legislative requirements.
As the Company navigates the COVID-19 pandemic, Indigo continues to prioritize the health and safety of the Company’s
customers, employees, and communities in the face of evolving workplace risks and practices. This includes the unprece-
dented stress caused by the social isolation resulting from the pandemic, constraints on people’s ability to work, and the
adverse impact this has on mental health. The Company has put in place, evolved and employed extensive health and safety
26
Management ’s Discussion and Analysis
measures across all of its operations based on the guidance and direction from public health authorities and increased the
coverage available through its wellness programs. If the Company is unable to meet current or future health and safety laws,
regulations and industry standards related to COVID-19, or despite the Company’s efforts and precautions, employees are
significantly exposed to and infected by the COVID-19 virus, it could have an adverse effect on the Company’s ability to operate
its stores, distribution centres, or reopen its head office, all of which could have an adverse effect on the Company’s opera-
tions, corporate reputation and financial performance.
Remote Work
The Company has adopted a hybrid work model for most of its head office roles which allows for some portion of employee
work to be conducted remotely from their homes or other locations. Remote work introduces certain additional risk factors
that may negatively impact the Company’s ability to perform its operations efficiently, securely and without interruptions,
including increased cybersecurity threats; increased dependence on telecommunication links such as Internet access in
employees’ homes; decreased efficiency due to the change in equipment and network speeds used for data processing and use;
and the timely dissemination and exchange of information in a remote workforce environment.
Talent
The Company’s continued success will depend to a significant extent upon securing and retaining sufficient talent in manage-
ment and other key areas. In the course of their employment, employees develop specialized skills and an in-depth knowledge
of the business. Failure to effectively attract and retain talented and experienced employees or failure to establish adequate
succession planning could result in a lack of requisite knowledge, skill and experience. If the Company does not continue to
attract qualified individuals, train them in Indigo’s business model, support their development, and retain them, the Company’s
performance could be adversely impacted and growth could be limited.The loss of the services of key personnel, particularly
the Chief Executive Officer, could have a material adverse effect on the Company. To mitigate the risk of personnel loss, the
Company has implemented a number of employee engagement and retention strategies.
Labour Relations
The majority of the Company’s employees are not subject to a collective bargaining agreement. Unions may attempt to organ-
ize and represent the Company’s employees and if a significant number of employees were to become unionized, the resulting
collective agreements could have adverse consequences for the operational or financial conditions at the impacted location(s).
Additionally, the maintenance of a productive, engaged and efficient labour environment cannot be assured and a failure to
maintain such an environment, or a failure to successfully negotiate collective agreements, could lead to labour disputes, dis-
ruptions or work stoppages involving some or all of the Company’s employees which could adversely affect Indigo’s reputa-
tion, disrupt its operations, reduce its revenues and/or increase its costs related to resolving such a dispute.
Inventory Management
The Company must manage its inventory levels to successfully operate the business. Inventory purchases are based on several
variables, such as market trends and sales forecasts. An inability to respond to changing customer preferences or sales forecasts
which do not match customer demand may result in an inventory shortage or excess inventory that must be sold at lower
prices. While the majority of the Company’s book purchases are eligible for return to suppliers at full credit, the evolution
of the Company’s product assortment, namely general merchandise items, means the Company has an increasing amount of
non-returnable inventory.The Company engages with certain vendors on drop ship fulfilment terms, mitigating the inventory
management risk and offering the Company greater flexibility to respond to changes in consumer demand. The Company
monitors the impact of customer trends on inventory turnover and obsolescence, but inappropriate inventory levels could
negatively impact the Company’s revenue and financial performance.
Annual Report 2022 27
Product Quality and Product Safety
The Company sells products produced by third-party suppliers and manufacturers and relies on vendors to provide quality
merchandise compliant with all applicable laws. Some of these products may expose the Company to potential liabilities and
costs associated with defective products, product handling, and product safety. As part of its general merchandise assortment,
the Company also sells food and personal care products and is subject to the distinctive risks associated with those products.
These product quality and product safety risks could result in harm to the Company’s customers and could expose Indigo
to product liability claims, damage the Company’s reputation, and lead to product recalls. Liabilities and costs related to prod-
uct quality and product safety may also have a negative impact on the Company’s revenue and financial performance. The
Company has policies and controls in place to manage these risks, including maintaining liability insurance and offering prod-
uct safety guidance to third-party manufacturers, but there can be no assurance that these measures can fully eliminate the
negative impact of such risks.
Ethical Sourcing
Products that are sourced from factories in countries for which there is a high level of public scrutiny pertaining to working
conditions and labour regulations, introduces a heightened level of reputational and brand risk. In order to mitigate these
risks, the Company works with its suppliers to ensure that products are sourced, manufactured, and transported according
to the standards outlined in its Vendor Code of Business Conduct. This Code is based on the United Nations Universal
Declaration of Human Rights, International Labor Organization Conventions and Recommendations and other internation-
ally accepted standards.
Supply Chain
The Company is dependent on three distribution facilities, including two co-located at the same leased facility in Brampton,
Ontario, to fulfill inventory requirements for its retail network, and the majority of online channel sales. If one or more of
the Company’s distribution facilities becomes inoperable, capacity is exceeded or if operations are disrupted, Indigo’s business,
financial condition and operating results could be negatively affected. The Company depends on the orderly operation of the
receiving and distribution process, which relies on adherence to shipping schedules, sufficiently planned capacity, and the timely
performance of services by third-party logistics providers, among other effective distribution centre management practices.
A substantial portion of the Company’s product assortment is sourced from foreign suppliers, lengthening the supply
chain and extending the time between order and delivery. Accordingly, the Company is exposed to potential supply chain dis-
ruptions due to foreign supplier failures, pandemics, extreme weather events, geopolitical risk (including the downstream
impacts of the Russia-Ukraine conflict), raw material and component shortages, labour disruption or insufficient capacity at
ports, and risks of delays or loss of inventory in transit. Rising costs associated with inbound freight and the courier services
used by the Company to last mile ship may also adversely impact the business and its ability to operate profitably.
In addition, as described above in the “Key Supplier Relationships” risk factor, carrier interruptions and delays as a result
of the COVID-19 pandemic could impact the Company’s ability to deliver orders to customers in a timely manner, adversely
impacting customer retention and future financial performance.
Liquidity Risk
Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. Liquidity
risk is managed by continuously monitoring actual and projected cash flows, taking into account the historical seasonality of
the Company’s revenue and working capital needs.
However, cash flows from operating activities could be negatively impacted by decreased demand for the Company’s
product offerings, which could result from factors such as, but not limited to: adverse economic conditions resulting from
the COVID-19 pandemic and associated changes in consumer preferences; the impact of social distancing policies and general
public health sentiment on retail store traffic; and the Company’s ability to safely fulfill orders through its online distribution
28
Management ’s Discussion and Analysis
network. Operating cashflows could also be negatively impacted by increased expenses, and although the Company has a
greater ability to alter its cost structure in response to such event, the effectiveness and timing of which cannot be guaranteed.
Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known to date, including
the currently known impacts of COVID-19, it is expected that the Company’s current cash position and future cash flows
generated from operations will be sufficient to meet its working capital requirements for fiscal 2023. However, the Company’s
ability to fund future cash requirements will depend on its future operating performance, which could be affected by the risks
discussed. The Company could seek to raise additional funding in the event it fails to maintain sufficient liquidity, as it cur-
rently has no outstanding debt financing, and reduce capital spending if necessary. The COVID-19 pandemic continues to intro-
duce additional risks such as the negative impact on debt and equity capital markets, including the ability to access capital at a
reasonable cost and the trading price of the Company’s securities, which could impact future capital raising efforts if required
by the Company. A long-term decline in capital expenditures may negatively impact the Company’s revenue and profit growth.
Credit Risk
Indigo is exposed to credit risk resulting from the possibility that counterparties may default on their financial obligations to
the Company. Credit risk primarily arises from accounts receivable, cash and cash equivalents, and derivative financial instru-
ments. The Company is also exposed to operational risk from adverse impacts on fluctuations in its own credit risk, which
may hinder its ability to negotiate commercially favourable purchase terms.
Accounts receivable primarily consists of receivables from financial institutions for the Company’s sales by credit card
tender, recoveries of credits from suppliers for returned or damaged products, tenant allowances receivable from landlords
for renovations and lease inducements and receivables from other companies for sales of products, gift cards, and other services.
Credit card payments have minimal credit risk and the limited number of corporate receivables is closely monitored.
The Company limits its exposure to counterparty credit risk related to cash and cash equivalents, and derivative financial
instruments by transacting only with highly-rated financial institutions and other counterparties and by managing within spe-
cific limits for credit exposure and term to maturity.
Foreign Exchange Risk
The Company’s foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars.
Decreases in the value of the Canadian dollar relative to the U.S. dollar could negatively impact net earnings since the pur-
chase price of some of the Company’s products are negotiated with vendors in U.S. dollars, while the retail price to Indigo’s
Canadian customers is set in Canadian dollars. The Company also has a U.S. retail store that earns revenue in U.S. dollars and
incurs U.S. dollar expenses. The Company maintains a hedging program to mitigate foreign exchange risk, but there can be
no assurance that this program can fully eliminate the negative impact of such risk.
Interest Rate Risk
The Company’s interest income is sensitive to fluctuations in Canadian interest rates, which affect the interest earned on
Indigo’s cash and cash equivalents. The Company does not currently have any debt and all interest expense recognized in fiscal
2022 relates to its retail lease liabilities. The Company has minimal interest rate risk and does not use any interest rate swaps
to manage its risk.
Commodity Price Risk
The Company is exposed to increases in the prices of commodities in operating its stores and distribution networks, in its
commitments to invest in information technology and digital infrastructure, as well as to the indirect effect of changing com-
modity prices on the price of consumer products. Rising commodity prices could adversely affect the financial performance
of the Company.
Annual Report 2022 29
Specifically, the Company’s financial performance can be affected by fluctuations in the commodity cost of oil, because
of its exposure to fuel costs in its supply chain. The wholesale price of gasoline is subject to global oil supply and demand con-
ditions, domestic and foreign political policy, commodity speculation, global economic conditions, and potential supply chain
disruptions from natural and human-caused disasters, geopolitical events like the Russia-Ukraine conflict, or health events such
as pandemics.
As the Company invests in strengthening its information technology and digital infrastructure it is increasingly exposed
to global supply shortages for semiconductors. Semiconductors are an essential component of electronic devices and they are
made of pure elements. Supply and production capacity has been adversely impacted by the COVID-19 variants experienced
in fiscal 2022 and the geopolitical unrest stemming from Russia, the world’s largest producer of palladium and high-grade
nickel, potentially further escalating supply chain disruptions.
Real Estate
The Company leases all of its retail locations and while it attempts to renew these leases as they come due on favourable terms
and conditions, it is susceptible to volatility in the market for supercentre and shopping mall space. Unforeseen increases in
occupancy costs, or costs incurred due to unanticipated store closings or relocations, could also unfavourably impact the
Company’s performance.
As a result of the COVID-19 pandemic, the Company has experienced significant government mandated retail store clo-
sures and capacity constraints, materially affecting operations. The Company continues to negotiate with its landlords to abate
certain rent expense in response to the financial impact of rolling COVID-19 store closures; however, there can be no assur-
ance that such negotiations will be successful and there are additional risks associated with these suspensions. Any dispute
under these leases may result in litigation with the relevant landlord.
The Company subleases space in its retail store network to café vendors, exposing the Company to certain risks inherent
in the commercial real estate business. This business has been greatly impacted by COVID-19 temporary store closures and
capacity restrictions, and adverse impacts to the Company may include an increase in re-leasing timelines, potential delays in
lease-up of vacant space and the market terms at which such subleases can be executed.
Investors should also refer to the Company’s description of certain impacts of the ongoing pandemic described above
under “Statement on COVID-19”.
Insurance Coverage
The Company maintains insurance customary for businesses of its size and nature, including liability insurance, property and
business interruption insurance, directors’ and officers’ insurance, crime insurance and cyber insurance, with deductibles,
self-insured retentions, limits of liability and similar provisions. However, there is no guarantee that the insurance coverage
will be sufficient, or that insurance proceeds will be paid out on a timely basis. In addition, there are types of losses the
Company may incur but against which insurance cannot be procured or which is not economically reasonable to insure. If the
Company incurs these losses and they are material, the business, financial condition and results of operations of Indigo may
be adversely affected.
Information Technology and Digital Platforms
The Company increasingly depends on the proper operation of its information technology platforms and those of third parties
to successfully conduct daily business functions, including point-of-sale processing at stores, the operation of its ecommerce
channel, maintain its competitive position in the marketplace and enable its growth strategy. The increased adoption of
ecommerce has heightened the potential impact of various risk events including website downtime and other technical failures
that could adversely impact revenues and affect the Company’s ability to grow its digital channels.
30
Management ’s Discussion and Analysis
The Company uses third party cloud-based and traditional data centre facilities to support its technology infrastructure.
The continuous availability of its products depends on the operations of these facilities, on a variety of network service
providers, on third party vendors and on data centre and cloud operations staff. In addition, the Company depends on the
ability of its third-party facility provider to protect the facilities against damage or interruption from natural disasters, power
or telecommunications failures, criminal acts and similar events. If there are any lapses of service or damage to the facilities,
the Company could experience lengthy interruptions in its services as well as delays and additional expenses in arranging new
facilities and services.
As described above in “Description of the Business – Information Systems”, the Company continues to invest in new tech-
nologies to expand its competitiveness and customer experience. Customers expect innovative concepts and a positive cus-
tomer experience, including a user-friendly website, customer offerings that are integrated with the Company’s loyalty
program, reliable data, safe and reliable processing of payments and a well-executed merchandise pick-up or delivery process.
Any failure in the implementation of these solutions, the operation of current information technology systems, platforms or
third-party cloud-based processing could result in a significant disruption to the business, potentially negatively impacting
revenue or damaging the Company’s reputation. Furthermore, the Company continues to rely on legacy technologies and
systems and any failure to maintain and support these legacy systems or migrate to new technology systems could impact
Indigo’s operational effectiveness. If systems are damaged or cease to function properly, capital investment may be required.
The rapid and exponential growth of cloud computing and ecommerce has resulted in the emergence of a global ecosystem
of digital tools and applications that have been increasingly adopted by the Company and its peers. These cloud-based solutions
promote competitiveness while offering the flexibility to respond to evolving business initiatives and have been increasingly
adopted by the Company. Migration to cloud-based providers has increased reliance on third-party technology providers and
the associated exposure to risks of such service providers ceasing business operations, changing their business models, reduc-
ing functionality or experiencing cyber-attacks or system outages. The Company is also vulnerable to the risks associated with
infrastructure complexity, vendor lock-in, and people risks associated with knowledge management and skills change.
Cybersecurity
A failure, or breach of the Company’s information technology, operational or procedures, security systems, physical infra-
structure, or those of Indigo’s third-party vendors, cloud-based service providers, including as a result of cyber attacks, could
disrupt the business, and result in the unintended disclosure or misuse of confidential or proprietary information, damage
Indigo’s brand and reputation, lead to temporary or permanent loss of data, increase the Company’s remediation costs and
legal liabilities, and impact its financial position and/or ability to achieve its strategic objectives.
Cyber threats continuously increase in sophistication, and may become more difficult to anticipate, and detect on a timely
basis. A lapse in cybersecurity, or successful cyber attack, may defeat the Company’s security measures or those of its cloud-
based service providers or third-party vendors. This includes the risk that the Company’s website and digital platforms may
be subject to distributed denial of service (DDoS) attacks in the future, a technique used by hackers to take an Internet service
offline by overloading its servers.
Techniques used to obtain unauthorized access change frequently, ranging from distributed denial of service (DDoS) to
social engineering. Ransomware attacks are increasing exponentially while phishing attempts remain a constant industry
threat. Since techniques used to obtain unauthorized access change frequently, the Company may be unable to implement ade-
quate preventative measures or stop the attacks while they are occurring. A data loss or security breach stemming from one
of these attacks could delay or interrupt service to the Company’s customers. In addition, any actual or perceived cyber attack
or security breach could damage the Company’s reputation and brand, expose the Company to a risk of litigation and possible
liability and require the Company to expend significant capital and other resources. These collective risks have been height-
ened since the onset of the pandemic as threat actors have notably taken concerted efforts in the retail industry and the
broader market to take advantage of disruptions associated with the COVID-19 pandemic and other previously unreported
flaws in third-party software as widely reported in the media.
Annual Report 2022 31
While the Company relies on technology, training and robust processes to create secure technology systems, Indigo
places specific reliance on technology to ensure the secure transmission of information from its customers, such as credit and
debit card numbers or any other form of payment or loyalty program data. The Company also receives, transmits and stores
a large volume of personally identifiable information from current and potential customers, which is exposed to this risk.There
are also federal, provincial and foreign regulations regarding privacy and the storing, sharing, use, disclosure and protection
of personally identifiable information and sensitive data; please see the “Compliance with Privacy Laws” Risk Factor below.
Although Indigo has business continuity plans, business interruption and cyber insurance coverage, robust information
security procedures, employee security awareness training, and other safeguards in place, the Company’s business operations
may be adversely affected by significant and widespread disruption to its physical information technology infrastructure, net-
works, and cloud-based service providers. As the cyber threat landscape evolves, the Company may be required to expend
significant additional resources to modify or enhance its protective measures to protect against, among other things, security
breaches, computer viruses and malware, ransomware, phishing, hacktivism, cyberterrorism, denial-of-service attacks,
credentials compromise, or to investigate and remediate any information security vulnerabilities. Additionally, please see the
“Remote Work” Risk Factor above.
Disaster Recovery and Business Continuity
Weather conditions, as well as events such as political or social unrest, natural disasters, disease outbreaks such as the COVID-19
pandemic, or acts of terrorism, could have a material adverse effect on the Company’s operations and financial performance.
Moreover, if such events were to occur at peak times in the Company’s business cycle, the impact of these events on operating
performance could be significantly greater than they would otherwise have been. The Company has procedures in place to
reduce the impact of business interruptions, crises, and potential disasters, but there can be no assurance that these proce-
dures can fully eliminate the negative impact of such events.
Intellectual Property
The Company depends on its continued ability to use its intellectual property to increase brand awareness and further develop
brands and products. Infringement of the Company’s intellectual property could negatively affect the Company’s revenue,
profitability and reputation. While the Company is not currently aware of any infringement or material challenges to the use
of its trademarks and domain names in Canada or the United States, the Company has a strategy and processes in place to
protect and vigorously defend its intellectual property, but there can be no assurance that these measures can fully eliminate
the negative impact of such risks.
The Company may also face claims from third parties asserting that the Company’s use of intellectual property infringes
on such third party’s ownership or use rights. The defence of any such claims or litigation could result in substantial expense
and diversion of resources. There is no guarantee that the Company will be able to resolve such claims and disputes to its sat-
isfaction, and if the Company is unable to successfully defend itself against these claims, it could adversely affect the Company’s
reputation, operations and financial condition and performance. Please see the “Legal Proceedings” Risk Factor below.
Legal Proceedings
In the normal course of business, Indigo becomes involved from time to time in litigation and disputes. The outcomes of reg-
ulatory investigations, litigation and arbitration disputes are inherently difficult to predict, which creates the risk that an
unfavourable outcome in any of these matters could negatively affect the Company’s reputation, operations and financial con-
dition and performance. Regardless of the outcome, litigation may result in substantial costs and expenses to the Company
and significantly divert the attention of the Company’s management. While the final outcome of such claims and litigation
pending as at April 2, 2022 cannot be predicted with certainty, management believes that any such amount would not have a
material impact on the Company’s financial position.
32
Management ’s Discussion and Analysis
Regulatory Environment
The Company’s operations and activities are subject to a number of laws and regulations in Canada, the United States and in
other countries. Changes to statutes, laws, regulations or regulatory policies, including tax laws, accounting principles, labour
and employment standards, and environmental regulations, or changes in their interpretation, implementation or enforce-
ment, could adversely affect the Company’s operations and performance. The Company may incur significant costs in the
course of complying with any such changes.
The Company is also subject to continuous examination of its regulatory filings by various securities regulators, tax
authorities, and environmental stewards. As a result, authorities may disagree with the positions and conclusions taken by the
Company in its filings, resulting in a reassessment or requiring a restatement. Reassessments or restatements could also arise
from amended legislation or new interpretations of current legislation. Any reassessment or restatement could adversely
affect the Company’s financial performance.
Failure to comply with applicable regulations could also result in judgment, sanctions, or financial penalties that could
adversely impact the Company’s reputation and financial performance. The Company believes that it has taken reasonable
measures designed to ensure compliance with applicable regulations, but there is no assurance that the Company will always
be deemed to be in compliance.
Throughout the COVID-19 pandemic, federal, provincial, state and municipal government authorities have introduced
new legislation and regulations, as well as applied existing laws and ordinances in novel ways, in order to mitigate the impacts
of the virus. The Company has actively monitored and analysed these government actions, assessed their impact on the
Company’s operations, and, where necessary or prudent, implemented changes to the Company’s business practices and
operations. The imposition of additional regulations or the enactment of any new or more stringent legislation in response to
the COVID-19 pandemic could have a material adverse impact on the Company’s business and results of operations.
The sourcing and importation of books into Canada is governed by the Book Importation Regulations to the Copyright
Act (Canada). Any changes to the existing regulatory framework may impact the Company’s ability to secure and maintain
favorable terms and access to essential products, which could negatively impact the Company’s revenues and margins and its
ability to compete in the marketplace. As well, the distribution and sale of books is a regulated cultural industry in which for-
eign investments to acquire control of an existing cultural business are subject to review under the Investment Canada Act.
There is no assurance that the existing regulatory framework will not change in the future or that it will be effective in pre-
venting foreign-owned retailers from competing in Canada or by acting as a constraint on the acquisition by foreign investors
of Canadian retailers involved in a cultural business. An increased number of competitors could have an adverse effect on the
Company’s financial performance. Please see the “Competition” Risk Factor above.
Compliance with Privacy Laws
A number of Canadian federal and provincial statutes, as well as corresponding U.S. federal and state statutes, govern the pri-
vacy rights of the Company’s employees and customers. These privacy laws create certain obligations regarding the Company’s
handling of personal information, including obtaining appropriate consent, limitations on use, retention, and disclosure of
personal information, and ensuring appropriate security safeguards are in place. In the course of its business, the Company
maintains records containing sensitive information identifying or relating to individual customers and employees. Although
the Company has implemented systems and processes to comply with applicable privacy laws in connection with the collec-
tion, use, retention, and disclosure of such personal information, if a significant failure of such systems was to occur, the
Company’s business and reputation could be adversely affected. Furthermore, the imposition of additional regulations or the
enactment of any new or more stringent privacy legislation may cause the Company to incur significant costs in the course
of complying with any such changes.
Annual Report 2022 33
Climate Change and the Environment
Environmental risks relating to the global transition to a net-zero economy and the physical impacts of climate change affect
Indigo. Governments are moving to introduce climate change legislation and treaties at the international, national, state/
province and local levels. Regulation relating to emission levels (such as carbon taxes) and energy use and efficiency is becoming
more stringent. This trend could lead to an increased cost of compliance over time, the impact of which is not currently known.
In addition, the physical risk of climate change could also have an adverse effect on the Company’s operations.These risks
include extreme weather and other weather-related events that could have an impact on store operations and supply chain
and delivery logistics.The Company can provide no assurance that efforts to mitigate the risks of climate change will be effec-
tive and that the physical risks of climate change will not have an adverse effect on its operations.
The Company assesses its sustainability profile and environmental impact on a consistent basis, resulting in the release of
its own Net Zero Roadmap and ‘Write the Future’ campaign and the allocation of resources dedicated to sustainability efforts
to achieve these impact goals. However, environmental regulation is subject to change and these changes and the Company’s own
initiatives with respect to environmental and sustainability could result in material additional costs to the business over time.
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reason-
able assurance that all material information relating to the Company is gathered and reported on a timely basis to senior man-
agement, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), so that appropriate decisions
can be made by them regarding public disclosure.
As required by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings,” the CEO
and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of such disclosure controls and
procedures. Based on that evaluation, they have concluded that the design and operation of the system of disclosure controls
and procedures were effective as at April 2, 2022.
Internal Controls over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with IFRS.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation
and presentation. Additionally, management is necessarily required to use judgment in evaluating controls and procedures.
As required by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings,” the CEO
and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of such internal controls over
financial reporting using the framework established in the Internal Control – Integrated Framework (“COSO Framework”)
published in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, they
have concluded that the design and operation of the Company’s internal controls over financial reporting were effective as at
April 2, 2022.
34
Management ’s Discussion and Analysis
Changes in Internal Controls over Financial Reporting
Management has also evaluated whether there were changes in the Company’s internal controls over financial reporting that
occurred during the quarter and year ended on April 2, 2022 that have materially affected, or are reasonably likely to mater -
ially affect, the Company’s internal controls over financial reporting. The Company has determined that no material changes
in internal controls over financial reporting have occurred in this period.
However, the Company implemented a new payroll system in its second quarter, which required the redesign of process
level transactional controls. Management performed testing over the system migration and has implemented internal controls
around the processing of payroll and financial reporting to adequately mitigate the related risks of this change.
Cautionary Statement Regarding Forward-Looking Statements
The above discussion includes forward-looking statements. All statements other than statements of historical facts included
in this discussion that address activities, events, or developments that the Company expects or anticipates will or may occur
in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by the
Company in light of its experience, analysis, and its perception of historical trends, current conditions, and expected future
developments as well as other factors it believes are appropriate in the circumstances. The extent to which the impacts of the
COVID-19 pandemic affect the factors described herein depend on future developments, which are highly uncertain and cannot
be predicted. Whether actual results and developments will conform to the expectations and predictions of the Company is
subject to a number of risks and uncertainties, including the general economic, market, or business conditions; competitive
actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this discussion are qualified by these cautionary state-
ments and there can be no assurance that results or developments anticipated by the Company will be realized or, even if sub-
stantially realized, that they will have the expected consequences to, or effects on, the Company.
Non-IFRS Financial Measures
The Company prepares its consolidated financial statements in accordance with IFRS. To provide additional insight into the
business, the Company has also provided non-IFRS data, including adjusted EBITDA, in the discussion and analysis section
above. Such measures are specific to Indigo and have no standardized meaning prescribed by IFRS. Therefore, such measures
may not be comparable to similar measures presented by other companies.
The Company believes Adjusted EBITDA is a useful measure of operating performance as it provides a relevant picture
of operating results. Certain effects of financing and investing activities are excluded by removing the effects of interest
(excluding those related to lease liabilities), depreciation and amortization expenses (excluding those related to the Company’s
right-of-use assets), impairment, asset disposals, share of losses from equity investments and income taxes. As retail occu-
pancy leases represent a material component of the Company’s cost structure and are managed with its operating costs, an
adjustment was made for lease-related expenses in the calculation of Adjusted EBITDA. As a result, IFRS 16 right-of-use asset
depreciation and associated lease finance costs are reflected in the key metric.
Reconciliations between adjusted EBITDA and earnings (loss) before income taxes (the most comparable IFRS measure)
were included earlier in this report.
The Company typically believes that investors would find comparable store sales and total comparable sales useful in
assessing the performance of the business. However, due to the temporary store closures and store traffic restrictions associ-
ated with COVID-19, the Company believes comparable store sales and total comparable sales are not currently representa-
tive of the underlying trends of the business, and as a result, these metrics have not been reflected in this MD&A.
Annual Report 2022 35
Independent Auditor’s Report
To the Shareholders of Indigo Books & Music Inc.
Opinion
We have audited the consolidated financial statements of Indigo Books & Music Inc. and its subsidiaries (the Group), which
comprise the consolidated balance sheets as at April 2, 2022 and April 3, 2021, and the consolidated statements of earnings
(loss) and comprehensive earnings (loss), consolidated statements of changes in equity and consolidated statements of cash
flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant account-
ing policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consoli-
dated financial position of the Group as at April 2, 2022 and April 3, 2021, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section
of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of
the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consol-
idated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated
financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on
these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results
of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit
opinion on the accompanying consolidated financial statements.
Key Audit Matter
Valuation of property, plant and equipment, right-of-use-assets and intangible assets (collectively, “long-lived assets”)
As at April 2, 2022, the Company has $64M of property, plant, and equipment, $21M of intangible assets and $334M of right-
of-use assets, as disclosed in notes 9, 11 and 10, respectively, of the consolidated financial statements. As disclosed in note 4,
these long-lived assets are assessed for impairment at the store level cash-generating unit (“CGU”), except for corporate assets
which cannot be allocated on a reasonable and consistent basis to individual CGUs which are assessed for impairment at the
corporate level. Any time an indicator of impairment exists, management assesses whether there has been an impairment loss
in the carrying value of these long-lived assets. When performing impairment tests, the Company estimates the recoverable
amount of the CGUs or group of CGUs using a discounted cash flow model.
36
Independent Auditor ’s Report
Auditing management’s long-lived asset impairment tests was complex, given the degree of judgement and subjectivity
in evaluating management’s estimates and assumptions in determining the recoverable amount of the CGUs or group of CGUs.
Significant assumptions included expected sales growth rates, earnings margins and discount rate, which are affected by
expectations about future consumer behavior and the impacts of the COVID-19 global pandemic.
How Our Audit Addressed the Key Audit Matter
To test the recoverable amount for the Company’s CGUs or group of CGUs, our audit procedures included, among others,
assessing the significant assumptions discussed above and underlying data used by the Company in its analysis. With the assis-
tance of our valuations specialists, we evaluated the Company’s model, valuation methodology and certain assumptions, includ-
ing the discount rate. We assessed the selection of the discount rate by evaluating the inputs against relevant internal and
external sources. We assessed the application of the discount rate by evaluating the mathematical accuracy of the calculation.
We assessed the historical accuracy of management’s estimates on expected sales growth rates and earnings margins
by comparing management’s past projections to actual and historical performance. We also compared the sales growth rates
and the earnings margins to current trends and market data discussing the outlook of the Canadian retail industry. We per-
formed sensitivity analysis on significant assumptions, including the sales growth rates, earnings margins and discount rate, to
evaluate the impact of the changes in the recoverable amount of the CGUs or group of CGUs that would result from changes
in the assumptions.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian
Annual Report 2022 37
generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresen-
tations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related dis-
closures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclo-
sures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclo-
sures, and whether the consolidated financial statements represent the underlying transactions and events in a manner
that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical require-
ments regarding independence, and to communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Jeremy Arruda.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
June 2, 2022
38
Independent Auditor ’s Report
Consolidated Balance Sheets
As at As at
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
ASSETS
Current
Cash and cash equivalents (note 6) 86,469 84,935
Accounts receivable 12,941 22,976
Inventories (note 7) 273,849 215,114
Prepaid expenses 13,508 12,278
Other assets 3,246 2,120
Total current assets 390,013 337,423
Property, plant, and equipment, net (note 9) 64,319 77,131
Right-of-use assets, net (note 10) 333,767 361,864
Intangible assets, net (note 11) 21,171 20,916
Equity investment, net (note 12) 97 2,156
Total assets 809,367 799,490
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities (note 22) 178,138 145,193
Unredeemed gift card liability 62,653 58,053
Provisions (notes 14 and 22) 472 2,365
Deferred revenue 20,699 16,486
Short-term lease liabilities (notes 10 and 22) 69,100 67,603
Derivative liabilities (note 8) 631 1,622
Total current liabilities 331,693 291,322
Long-term accrued liabilities (note 22) 1,068 2,090
Long-term provisions (notes 14 and 22) 702 827
Long-term lease liabilities (notes 10 and 22) 448,084 482,671
Total liabilities 781,547 776,910
Equity
Share capital (note 16) 227,090 226,986
Contributed surplus (note 17) 14,618 13,782
Retained deficit (213,403) (216,668)
Accumulated other comprehensive loss (note 8) (485) (1,520)
Total equity 27,820 22,580
Total liabilities and equity 809,367 799,490
See accompanying notes
On behalf of the Board:
Heather Reisman Anne Marie O’Donovan
Director Director
Annual Report 2022 39
Consolidated Statements of Earnings (Loss)
and Comprehensive Earnings (Loss)
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars, except per share data) 2022 2021
Revenue (note 18) 1,062,250 904,738
Cost of sales (619,212) (567,902)
Gross profit 443,038 336,836
Operating, selling, and other expenses (notes 9, 10, 11 and 18) (414,020) (368,705)
Operating profit (loss) 29,018 (31,869)
Net interest expense (note 10) (23,694) (24,784)
Share of loss from equity investment (note 12) (32) (197)
Impairment loss from equity investment (note 12) (2,027) –
Earnings (loss) before income taxes 3,265 (56,850)
Income tax expense (note 13) – (1,017)
Net earnings (loss) 3,265 (57,867)
Other comprehensive income (loss) (notes 8 and 10)
Items that are or may be reclassified subsequently
to net earnings (loss), net of taxes:
Change in fair value of cash flow hedges (639) (4,507)
Reclassification of realized loss 1,630 108
Foreign currency translation adjustment 44 (119)
Other comprehensive income (loss) 1,035 (4,518)
Total comprehensive earnings (loss) 4,300 (62,385)
Net earnings (loss) per common share (note 19)
Basic $0.12 $(2.09)
Diluted $0.12 $(2.09)
See accompanying notes
40
Consolidated Financial Statements and Notes
Consolidated Statements
of Changes in Equity
Accumulated
Other
Share Contributed Retained Comprehensive Total
(thousands of Canadian dollars) Capital Surplus Deficit Income (Loss) Equity
Balance, March 28, 2020 226,986 12,822 (158,801) 2,998 84,005
Net loss for the period – – (57,867) – (57,867)
Share-based compensation (note 17) – 666 – – 666
Directors’ compensation (note 17) – 294 – – 294
Cash flow hedges (note 8) – – – (4,399) (4,399)
Foreign currency translation adjustment (note 10) – – – (119) (119)
Balance, April 3, 2021 226,986 13,782 (216,668) (1,520) 22,580
Balance, April 3, 2021 226,986 13,782 (216,668) (1,520) 22,580
Net earnings for the period – – 3,265 – 3,265
Exercise of options (notes 16 and 17) 104 (28) – – 76
Share-based compensation (note 17) – 864 – – 864
Cash flow hedges (note 8) – – – 991 991
Foreign currency translation adjustment (note 10) – – – 44 44
Balance, April 2, 2022 227,090 14,618 (213,403) (485) 27,820
See accompanying notes
Annual Report 2022 41
Consolidated Statements of Cash Flows
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
OPERATING ACTIVITIES
Net earnings (loss) 3,265 (57,867)
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation of property, plant, and equipment (note 9) 16,006 17,158
Depreciation of right-of-use assets (note 10) 36,144 42,990
Amortization of intangible assets (note 11) 11,886 12,885
Loss on disposal of capital assets (notes 9 and 11) 29 399
Share-based compensation (note 17) 864 666
Directors’ compensation recognized in contributed surplus (note 17) – 294
Deferred income tax expense (note 13) – 1,017
Rent concessions (note 10) – (4,141)
Share of loss from equity investment (note 12) 32 197
Impairment loss from equity investment (note 12) 2,027 –
Other (328) (784)
Net change in non-cash working capital balances related to operations (note 20) (12,338) 150
Interest expense (note 10) 24,514 25,706
Interest income (820) (922)
Cash flows from operating activities 81,281 37,748
INVESTING ACTIVITIES
Net purchases of property, plant, and equipment (note 9) (3,248) (4,093)
Addition of intangible assets (note 11) (12,143) (9,245)
Proceeds from disposal of equity investment (note 23) 1,032 –
Interest received 820 922
Cash flows used for investing activities (13,539) (12,416)
FINANCING ACTIVITIES
Repayment of principal on lease liabilities (note 10) (41,641) (36,535)
Interest paid (note 10) (24,514) (25,706)
Proceeds from share issuances (notes 16 and 17) 76 –
Cash flows used for financing activities (66,079) (62,241)
Effect of foreign currency exchange rate changes on cash and cash equivalents (129) 1,371
Net increase (decrease) in cash and cash equivalents during the period 1,534 (35,538)
Cash and cash equivalents, beginning of period 84,935 120,473
Cash and cash equivalents, end of period 86,469 84,935
See accompanying notes
42
Consolidated Financial Statements and Notes
Notes to Consolidated Financial Statements
April 2, 2022
1. CORPORATE INFORMATION
Indigo Books & Music Inc. (the “Company” or “Indigo”) is a corporation domiciled and incorporated under the laws of the
Province of Ontario in Canada. The Company’s registered office is located at 620 King Street West, Suite 400, Toronto,
Ontario, M5V 1M6, Canada. The consolidated financial statements of the Company comprise the Company and its wholly-
owned subsidiaries, Indigo Design Studio Inc., Indigo Cultural Department Store Inc. (“Indigo U.S.”), and YYZ Holdings Inc.
(“YYZ”), along with its equity investment in Unplug Meditation, LLC (“Unplug”). The Company is the ultimate parent of the
consolidated organization.
2. NATURE OF OPERATIONS
Indigo is Canada’s leading book and lifestyle retailer and was formed as a result of the August 2001 amalgamation of Chapters
Inc. and Indigo Books & Music Inc. The Company offers a curated assortment of books, gifts, baby, kids, wellness and lifestyle
products that support customers by simplifying their journey to Living with Intention™. The Company operates retail stores in
all ten provinces and one territory in Canada, and also has retail operations in the United States through a wholly-owned sub-
sidiary, operating one retail store in Short Hills, New Jersey. The retail network includes 88 superstores (2021 – 88) under
the Indigo and Chapters names, as well as 85 small format stores (2021 – 89) under the banners Coles and Indigospirit. Retail
operations are seamlessly integrated with the Company’s digital channels, including the www.indigo.ca website and the mobile
applications, which are extensions of the physical stores and offer customers an expanded assortment of book titles, along with
a meaningfully curated assortment of general merchandise. The Company also offers a marketplace assortment of giftable
products, experiences, services, and subscriptions on www.thoughtfull.co.
The Company defines an operating segment on the same basis that it uses to evaluate performance internally and to allocate
capital resources. At Indigo, this is done on an enterprise level. This holistic managerial approach is reflected in the Company’s
reimagined new store concept. The new store design emphasizes a central focus on enriching the lives of book lovers with
core print and general merchandise products. Therefore, the Company reports as a single segment.
The Company supports a separate registered charity, the Indigo Love of Reading Foundation (the “Foundation”). The
Foundation provides new books and learning material to high-needs elementary schools and children across the country
through donations from Indigo, its customers, its suppliers, and its employees.
3. BASIS OF PREPARATION
Statement of Compliance
These consolidated financial statements have been prepared using accounting policies consistent with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved by the Board of Directors on June 2, 2022.
Fiscal Year
The fiscal year of the Company ends on the Saturday closest to March 31. Under an accounting convention common in the
retail industry, the Company follows a 52-week reporting cycle, which periodically necessitates a fiscal year of 53 weeks. The
year ended April 2, 2022 contained 52 weeks, while the year ended April 3, 2021 contained 53 weeks.
Annual Report 2022 43
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, significantly impacting
the Company’s operations during fiscal 2022, most notably by numerous temporary mandated store closures in its first quarter,
and the adverse impact of mandated pandemic restrictions to retail traffic in the Company’s store network during critical
holiday selling weeks in the month of December.
The impact of the outbreak on the financial results of the Company will depend on future developments, including the
duration and spread of future waves of the outbreak and its impact on the overall economy and related advisories and restric-
tions. Further or prolonged closures of the Company’s stores, or capacity restrictions, could result in the reassessment of its
significant accounting estimates, including but not limited to impairment of assets.
The Company is in negotiations with its landlords regarding rent abatement to address the financial impacts of the most
recent wave of COVID-19 related store closures.
Use of Judgments
The preparation of the consolidated financial statements in conformity with IFRS requires the Company to make judgments,
apart from those involving estimation, in applying accounting policies that affect the recognition and measurement of assets,
liabilities, revenues, and expenses. Actual results may differ from the judgments made by the Company. Information about
judgments that have the most significant effect on recognition and measurement of assets, liabilities, revenues, and expenses
are discussed below. Information about significant estimates is discussed in the following section.
Impairment
An impairment loss is recognized for the amount by which the carrying amount of an asset or a cash-generating unit (“CGU”)
exceeds its recoverable amount. Impairment losses are reversed if the recoverable amount of the asset, CGU, or group of
CGUs exceeds its carrying amount, but only to the extent that the carrying amount of the asset does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
The Company uses judgment when identifying CGUs, when assessing for indicators of impairment or reversal, and when esti-
mating the recoverable amount for its assets and CGUs in impairment testing.
Intangible assets
Initial capitalization of intangible asset costs is based on the Company’s judgment that technological and economic feasibility
are confirmed and the project will generate future economic benefits by way of estimated future discounted cash flows that
will be generated.
Leases
The Company assesses whether a contract is or contains a lease at inception of a contract. The Company recognizes a right-of-
use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases, the Company
recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised. The Company has the option under many of its leases
to lease the assets for additional terms of five years, and applies judgment in evaluating whether it is reasonably certain to
exercise the option to renew. The Company considers all relevant factors that create an economic incentive for it to exercise
the renewal, including store performance, expected future performance and past business practice. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew (i.e. a change in business strategy).
44
Consolidated Financial Statements and Notes
Deferred tax assets
The recognition of deferred tax assets is based on the Company’s judgment.The assessment of the probability of future taxable
income against which deferred tax assets can be utilized is based on management’s best estimate of future taxable income that
the Company expects to achieve from reviewing its latest forecast.This estimate is adjusted for significant non-taxable income
and expenses and for specific limits to the use of any unused tax loss or credits. Deferred tax assets are recognized to the extent
that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward
of unused tax losses and unused tax credits can be utilized. If estimates of future taxable profit change, unrecognized deferred
tax assets can be recognized again in a future period. The recognition of deferred tax assets that are subject to certain legal or
economic limits or uncertainties are assessed individually by the Company based on the specific facts and circumstances.
Use of Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires the Company to make estimates
and assumptions in applying accounting policies that affect the recognition and measurement of assets, liabilities, revenues, and
expenses. Actual results may differ from the estimates made by the Company, and actual results will seldom equal estimates.
Information about estimates that have the most significant effect on the recognition and measurement of assets, liabilities, rev-
enues, and expenses are discussed below.
Impairment
To determine the recoverable amount of an impaired asset, the Company estimates expected future cash flows and determines
a suitable discount rate in order to calculate the present value of those cash flows. In the process of measuring expected future
cash flows, the Company makes assumptions about certain variables, such as future sales, gross margin rates, expenses, capital
expenditures, and working capital investments, which are based upon historical experience and expected future performance.
Determining the applicable discount rate involves estimating appropriate adjustments to market risk and to Company-specific
risk factors.
Inventories
The future realization of the carrying amount of inventory is affected by future sales demand, inventory levels, and product
quality. At each balance sheet date, the Company reviews its on-hand inventory and uses historical trends and current inventory
mix to determine a reserve for the impact of future markdowns that will take the net realizable value of inventory on-hand
below cost. Inventory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete mer-
chandise. The Company reduces inventory for estimated shrinkage that has occurred between physical inventory counts and
each reporting date based on historical experience as a percentage of sales. In addition, the Company records a vendor settle -
ment accrual to cover any disputes between the Company and its vendors. The Company estimates this reserve based on his-
torical experience of settlements with its vendors.
Property, plant, equipment, and intangible assets (collectively, “capital assets”)
Capital assets are depreciated and amortized over their useful lives, taking into account residual values where appropriate.
Assessments of useful lives and residual values are performed on an ongoing basis and take into consideration factors such as
technological innovation, maintenance programs, and relevant market information. In assessing residual values, the Company
considers the remaining life of the asset, its projected disposal value, and future market conditions.
Leases
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the Company’s incremental borrowing rate (“IBR”). The Company cannot readily determine the interest
rate implicit in the lease; therefore, it uses its IBR to measure lease liabilities.
Annual Report 2022 45
The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation when no observable rates are
available or when they need to be adjusted to reflect the terms and conditions of the lease. The Company estimates the IBR
using observable inputs (such as market interest rates) when available and is required to make certain entity and asset-specific
estimates (such as the subsidiary’s stand-alone credit rating).
Revenue
The Company recognizes revenue for the estimated value of gift cards that are not expected to be redeemed by customers
(“gift card breakage”) in proportion to the pattern of rights exercised by the customer. The resulting gift card breakage
revenue is recognized over the estimated period of redemption based on historical redemption patterns commencing when
the gift cards are sold.
Indigo’s plum® loyalty program, which includes the plum® and plum® PLUS membership tiers, allows customers to earn
points on their purchases. The allocation of transaction price to the plum® loyalty obligation, which is the estimated reward tier
value of a future redemption net of points management expects will go unredeemed (“plum® breakage”), is based on a relative
stand-alone selling price basis. The Company continues to monitor trends in redemption patterns (redemption at each reward
level), historical redemption rates (points redeemed as a percentage of points issued) and net cost per point redeemed.
Share-based payments
The cost of equity-settled transactions with employees is based on the Company’s estimate of the fair value of share-based
instruments and the number of equity instruments that will eventually vest. The Company’s estimated fair value of share-
based compensation is calculated using the following variables: risk-free interest rate; expected volatility; expected time until
exercise; and expected dividend yield. The risk-free interest rate is based on Government of Canada bond yields, while all
other variables are estimated based on the Company’s historical experience with its share-based payments.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
Basis of Measurement
The Company’s consolidated financial statements are prepared on the historical cost basis of accounting, except as disclosed
in the accounting policies set out below.
Basis of Consolidation
The consolidated financial statements comprise of the financial statements of the Company and entities controlled by the
Company. Control exists when the Company is exposed to, or has the right to, variable returns from its involvement with
the controlled entity and when the Company has the current ability to affect those returns through its power over the con-
trolled entity. When the Company does not own all of the equity in a subsidiary, the non-controlling interest is disclosed as a
separate line item in the consolidated balance sheets and the earnings accruing to non-controlling interest holders are disclosed
as a separate line item in the consolidated statements of earnings (loss) and comprehensive earnings (loss).
The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using con-
sistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company
obtains control, and continue to be consolidated until the date that such control ceases. Once control ceases, the Company
will reassess the relationship with the former subsidiary and revise Indigo’s accounting policy based on the Company’s remain-
ing percentage of ownership. All intercompany balances and transactions and any unrealized gains and losses arising from
intercompany transactions are eliminated in preparing these consolidated financial statements.
46
Consolidated Financial Statements and Notes
Foreign Currency
The functional currency for each entity included in these consolidated financial statements is the currency of the primary eco-
nomic environment in which the entity operates. The consolidated financial statements are presented in Canadian dollars,
which is the functional currency of the Company.
Assets and liabilities of the Company’s U.S. operations have a functional currency of U.S. dollars and are translated into
Canadian dollars at the exchange rate in effect at the reporting date. Revenues and expenses are translated into Canadian dol-
lars at average exchange rates during the reporting period. The resulting unrealized translation gains or losses are included in
other comprehensive income (loss).
Monetary assets and liabilities denominated in foreign currencies that are held at the reporting date are translated at the
closing consolidated balance sheet rate. Non-monetary items are measured at historical cost and are translated using the
exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated using exchange rates
at the date when fair value was determined. The resulting exchange gains or losses are included in earnings.
Equity Investments
The equity method of accounting is applied to investments in companies where Indigo has the ability to exert significant influ-
ence over the financial and operating policy decisions of the company but lacks control or joint control over those policies.
Under the equity method, Indigo’s investment is initially recognized at cost and subsequently increased or decreased to rec-
ognize Indigo’s share of earnings and losses of the investment, distributions received and for impairment losses after the initial
recognition date. Indigo’s share of losses that are in excess of its investment is recognized only to the extent that Indigo has
incurred legal or constructive obligations or made payments on behalf of the company. Indigo’s share of earnings and losses
of its equity investment are recognized through profit or loss during the period. Cash distributions received from the invest-
ment are accounted for as a reduction in the carrying amount of Indigo’s equity investment.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances with banks, and highly liquid investments that are readily convert-
ible to known amounts of cash with original maturities of 90 days or less at the date of acquisition. Cash equivalents of fixed
deposits or similar instruments with an original term of longer than three months are also included in this category if they
are readily convertible to a known amount of cash throughout their term and are subject to an insignificant risk of change in
value assessed against the amount at inception.
Inventories
Inventories are valued at the lower of cost, determined on a moving average cost basis, and market, being net realizable value.
Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and
condition. Net realizable value is the estimated selling price in the ordinary course of business. When the Company perma-
nently reduces the retail price of an item and the markdown incurred brings the retail price below the cost of the item, there
is a corresponding reduction in inventory recognized in the period. Vendor rebates are recorded as a reduction in the price
of the products and corresponding inventories are recorded net of vendor rebates.
Prepaid Expenses
Prepaid expenses include store supplies, software subscription fees, rent and insurance. Store supplies are expensed as they
are used while other costs are amortized over the term of the contract.
Annual Report 2022 47
Income Taxes
Current income taxes are the expected taxes payable or recoverable on the taxable earnings or loss for the period. Current
income taxes are payable on taxable earnings for the period as calculated under Canadian and U.S. taxation guidelines, which
differ from taxable earnings under IFRS. Calculation of current income taxes is based on tax rates and tax laws that have been
enacted, or substantively enacted, by the end of the reporting period. Income taxes relating to items recognized directly in
equity are recognized in equity and not in the consolidated statements of earnings (loss) and comprehensive earnings (loss).
Deferred income taxes are calculated at the reporting date using the liability method based on temporary differences between
the carrying amounts of assets and liabilities and their tax bases. However, deferred tax assets and liabilities on temporary dif-
ferences arising from the initial recognition of goodwill, or of an asset or liability in a transaction that is not a business com-
bination, will not be recognized when neither accounting nor taxable profit or loss are affected at the time of the transaction.
Deferred tax assets arising from temporary differences associated with investments in subsidiaries are provided for if it
is probable that the differences will reverse in the foreseeable future and taxable profit will be available against which the tax
assets may be utilized. Deferred tax assets on temporary differences associated with investments in subsidiaries are not pro-
vided for if the timing of the reversal of these temporary differences can be controlled by the Company and it is probable that
reversal will not occur in the foreseeable future.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respec-
tive periods of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred
tax assets and liabilities are offset only when the Company has the right and intention to set off current tax assets and liabilities
from the same taxable entity and the same taxation authority.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences and the carryforward of unused tax credits and unused tax losses can be utilized. In this
consideration, the Company evaluates forecasted earnings, future market growth, future sources of taxable income, the mix
of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies. To the extent
that uncertainty exists surrounding the probability of utilizing such deferred tax assets, they are no longer recognized.
Likewise, these assets can be recognized again should it be probable that sufficient taxable profit will be available against which
they can be utilized.
Property, Plant, and Equipment
All items of property, plant, and equipment are initially recognized at cost, which includes any costs directly attributable to
bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the
Company. Subsequent to initial recognition, property, plant, and equipment assets are shown at cost less accumulated depre-
ciation and any accumulated impairment losses.
Depreciation of an asset begins once it becomes available for use. The depreciable amount of an asset, being the cost of
an asset less the residual value, is allocated on a straight-line basis over the estimated useful life of the asset. Residual value is
estimated to be nil unless the Company expects to dispose of the asset at a value that exceeds the estimated disposal costs.
The residual values, useful lives, and depreciation methods applied to assets are reviewed based on relevant market informa-
tion and management considerations.
The following useful lives are applied:
Furniture, fixtures, and equipment 5 – 10 years
Computer equipment 3 – 5 years
Equipment under finance leases 3 – 5 years
Leasehold improvements over the shorter of useful life and lease term plus expected renewals,
to a maximum of 10 years
48
Consolidated Financial Statements and Notes
Items of property, plant, and equipment are assessed for impairment as detailed in the accounting policy note on impair-
ment and are derecognized either upon disposal or when no future economic benefits are expected from their use. Any gain
or loss arising on derecognition is included in earnings when the asset is derecognized.
Intangible Assets
Intangible assets are initially recognized at cost, if acquired separately, at fair value, or as part of a business combination. After
initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses.
Amortization commences when the intangible assets are available for their intended use. The useful lives of intangible
assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over their useful economic life.
Intangible assets with indefinite lives are not amortized but are reviewed at each reporting date to determine whether the
indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective
basis. Residual value is estimated to be zero unless the Company expects to dispose of the asset at a value that exceeds the
estimated disposal costs. The residual values, useful lives, and amortization methods applied to intangible assets are reviewed
annually based on relevant market information and management considerations.
The following useful lives are applied:
Computer application software 3 – 5 years
Internal development costs 3 years
Retail lease over the lease term
Domain name indefinite useful life – not amortized
There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the domain
name to the Company. Therefore, the useful life of the domain name is deemed to be indefinite.
Intangible assets are assessed for impairment as detailed in the accounting policy note on impairment. An intangible asset
is derecognized either upon disposal or when no future economic benefit is expected from its use. Any gain or loss arising on
derecognition is included in earnings when the asset is derecognized.
Computer application software
When computer application software is not an integral part of a related item of computer hardware, the software is treated
as an intangible asset. Computer application software that is integral to the use of related computer hardware is recorded as
property, plant, and equipment.
Internal development costs
Costs that are directly attributable to internal development are recognized as intangible assets provided they meet the defini-
tion of an intangible asset. Development costs not meeting these criteria are expensed as incurred. Capitalized development
costs include external direct costs of materials and services and the payroll and payroll-related costs for employees who are
directly associated with the projects.
Retail lease
Amounts paid as a premium to gain access to a property located in a specific location, inclusive of any associated professional
fees, are treated as an intangible asset.
Annual Report 2022 49
Leases
The Company assesses whether a contract is or contains a lease at inception of a contract. The Company recognizes a right-of-
use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases, the Company
recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another sys-
tematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised. The Company has the option under many of its leases
to lease the assets for additional terms of five years, and applies judgment in evaluating whether it is reasonably certain to
exercise the option to renew. The Company considers all relevant factors that create an economic incentive for it to exercise
the renewal, including store performance, expected future performance and past business practice. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew (i.e. a change in business strategy).
The Company performs quarterly assessments of contracts that do not take the legal form of a lease to determine whether
they convey the right to use an asset in return for a payment or series of payments and therefore need to be accounted for as
leases. As at April 2, 2022, the Company had no such contracts.
Impairment Testing
Capital assets
For the purposes of assessing impairment, capital assets are grouped at the lowest levels for which there are largely independ-
ent cash inflows and for which a reasonable and consistent allocation basis can be identified. For capital assets that can be rea-
sonably and consistently allocated to retail stores, an individual or flagship group of stores is used as the CGU for impairment
testing. For all other capital assets, the corporate level is used as the group of CGUs. Capital assets and related CGUs or
groups of CGUs are assessed for indicators of impairment quarterly and whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Events or changes in circumstances that may indicate impairment include
a significant change to the Company’s operations, a significant decline in performance, or a change in market conditions that
adversely affects the Company.
An impairment loss is recognized for the amount by which the carrying amount of a CGU or group of CGUs exceeds its
recoverable amount. To determine the recoverable amount, management applies the higher of the CGU’s value-in-use or fair
value less costs to dispose. Value-in-use calculation quantifies the present value of the expected future cash flows from each
CGU or group of CGUs based on the CGU’s estimated growth rate. The Company’s growth rate and future cash flows are
based on historical data and management’s expectations. Impairment losses are charged pro rata to the capital assets in the
CGU or group of CGUs. Capital assets and CGUs or groups of CGUs are subsequently reassessed for indicators that a
previously recognized impairment loss may no longer exist. An impairment loss is reversed if the recoverable amount of the
capital asset, CGU, or group of CGUs exceeds its carrying amount, but only to the extent that the carrying amount of the
asset does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
Equity Investments
Equity investments are assessed for indicators of impairment at each reporting date. When present, the investment is tested
for impairment on an individual basis. The carrying amount of the investment is compared to the recoverable amount, which
is the higher of value-in-use or fair value less cost of disposal. Any resulting impairment loss is allocated against the investment
as a whole. An impairment loss is reversed if the recoverable amount of the investment exceeds its carrying amount, but only
to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined if
no impairment loss had been recognized.
50
Consolidated Financial Statements and Notes
Financial assets
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are
assessed collectively in groups that share similar credit risk characteristics. Financial assets are tested for impairment when-
ever events or changes in circumstances indicate that the carrying amount may not be recoverable. Evidence of impairment
may include indications that a debtor or a group of debtors are experiencing significant financial difficulty, default, or delin-
quency in interest or principal payments, and observable data indicating that there is a measurable decrease in the estimated
future cash flows.
A financial asset is deemed to be impaired if there is objective evidence that one or more loss events having a negative
effect on future cash flows of the financial asset occur after initial recognition and the loss can be reliably measured. The
impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of the
estimated future cash flows, discounted at the original effective interest rate.The impairment loss is recorded as an allowance
and recognized in net loss. If the impairment loss decreases as a result of subsequent events, the previously recognized impair-
ment loss is reversed.
Provisions
A provision is a liability of uncertain timing or amount. Provisions are recognized when the Company has a present legal or
constructive obligation as a result of past events for which it is probable that the Company will be required to settle the obli-
gation and a reliable estimate of the settlement can be made. The amount recognized as a provision is the best estimate of the
consideration required to settle the present obligation at the end of the reporting period, taking into account risks and uncer-
tainties of cash flows. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time
value of money. Examples of provisions include decommissioning liabilities, onerous leases, legal claims and other accrued
liabilities where there is uncertainty regarding the timing or amount outstanding.
Total Equity
Share capital represents the nominal value of shares that have been issued. Retained earnings include all current and prior
period retained profits. Dividend distributions payable to equity shareholders are recorded as dividends payable when the div-
idends have been approved by the Board of Directors prior to the reporting date.
Share-Based Awards
The Company has established an employee stock option plan for key employees. The fair value of each tranche of options
granted is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model
is based on variables such as: risk-free interest rate; expected volatility; expected time until exercise; and expected dividend
yield. Expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the
expected life.The grant date fair value, net of estimated forfeitures, is recognized as an expense with a corresponding increase
to contributed surplus over the vesting period. Estimates are subsequently revised if there is an indication that the number of
stock options expected to vest differs from previous estimates. Any consideration paid by employees on exercise of stock
options is credited to share capital with a corresponding reduction to contributed surplus.
Revenue Recognition
The Company recognizes revenue when control of goods has been transferred at the amount of consideration to which the
Company expects to be entitled. Revenue is recorded net of sales discounts, estimated returns, sales tax, environmental fees
and amounts deferred related to the issuance of plum® points. Revenue is recognized when control of goods has been trans-
ferred (as described below) for each of the Company’s revenue-generating activities.
Annual Report 2022 51
Retail sales
Revenue for retail customers is recognized when the product is delivered to the customer, which for the majority of retail
transactions occurs at time of purchase.
Online and kiosk sales
Revenue for online and kiosk customers is recognized when the product is shipped to customers.
Gift cards
The Company sells gift cards to its customers and recognizes the revenue as gift cards are redeemed for merchandise. A cus-
tomer’s non-refundable prepayment to the Company gives them a right to receive product in the future. However, historically
customers do not exercise all of their contractual rights, which is referred to as breakage.
The Company determines its average gift card breakage rate based on historical redemption rates. Breakage income rep-
resents the estimated value of gift cards that is not expected to be redeemed by customers and is determined in proportion
to the pattern of rights exercised by the customer. Gift card breakage is included in revenue in the Company’s consolidated
statements of earnings (loss) and comprehensive earnings (loss). Changes in estimated breakage is accounted for by adjusting
the contract liability to reflect the remaining rights expected to be redeemed.
Indigo plum® rewards program
Indigo’s loyalty program, plum®, has two tiers: plum®, a free points-based tier; and plum® PLUS, an annual fee-based tier. The
plum® program is an omni-channel program that allows members to earn and redeem points online and in-store, seamlessly. This
program engages members through mass promotions and targeted one-to-one promotional offers, as well as invitations to
exclusive events and member-only shopping experiences. The Company launched the plum® PLUS membership program in
fiscal 2020, replacing its former annual fee-based irewards® program. plum® PLUS offers its members an immediate discount
on eligible products, free shipping and the ability to earn points on almost every dollar spent at the Company’s Canadian stores,
as well as on its digital platforms.
When a plum® PLUS membership is sold, the amount is recognized in deferred revenue and amortized into revenue over
the life of the membership, based on historical usage patterns.
When a plum® member purchases merchandise, the Company allocates consideration received between the loyalty pro-
gram points and the merchandise on which the points were earned based on their relative stand-alone selling prices. The por-
tion of revenue attributed to the merchandise is recognized at the time of purchase. Revenue attributed to the points is recorded
as deferred revenue and recognized when points are redeemed.
The stand-alone selling price of the points issued is determined based on the estimated reward tier value, net of points that
management expects will go unredeemed. The Company continues to monitor trends in redemption patterns (redemption at
each reward level), historical redemption rates (points redeemed as a percentage of points issued) and net cost per point
redeemed to reduce estimation uncertainty in the consideration allocated to the loyalty contract right. Points revenue is
included as part of total revenue in the Company’s consolidated statements of earnings (loss) and comprehensive earnings (loss).
Interest income
Interest income is reported on an accrual basis using the effective interest method and included as part of net interest in the
Company’s consolidated statements of earnings (loss) and comprehensive earnings (loss).
Vendor Rebates
The Company records cash consideration received from vendors as a reduction to the price of vendors’ products. This is
reflected as a reduction in cost of sales and related inventories when recognized in the consolidated financial statements.
Certain exceptions apply where the cash consideration received is a reimbursement of incremental selling costs incurred by
the Company, in which case the cash received is reflected as a reduction in operating, selling, and administrative expenses.
52
Consolidated Financial Statements and Notes
Earnings (Loss) per Share
Basic earnings (loss) per share is determined by dividing the net earnings (loss) attributable to common shareholders by the
weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated in
accordance with the treasury stock method and is based on the weighted average number of common shares and dilutive
common share equivalents outstanding during the period. The weighted average number of shares used in the computation of
both basic and fully diluted loss per share may be the same due to the anti-dilutive effect of securities.
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of
the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset
expire. A financial liability is derecognized when it is extinguished, discharged, cancelled, or expires. Where a legally enforce-
able right to offset exists for recognized financial assets and financial liabilities and there is an intention to settle the liability
and realize the asset simultaneously, or to settle on a net basis, such related financial assets and financial liabilities are offset.
Non-derivative financial assets are initially measured at fair value and subsequently measured at amortized cost using the
effective interest method if both of the following conditions are met and they are not designated as fair value through profit
and loss (“FVTPL”):
• the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash
flows; and
• the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
All financial assets not classified as amortized cost as described above are measured at FVTPL.
Non-derivative financial liabilities are initially measured at fair value, less any directly attributable transaction costs, and
subsequently measured at amortized cost using the effective interest method.
The Company designates its derivative financial assets and liabilities under a cash flow hedge program for its foreign cur-
rency exposures on a portion of its U.S. dollar denominated cash outflows. The forward contracts used for hedging are rec-
ognized at fair value. Subsequent to initial recognition, the forward contracts are measured at fair value and changes therein
are accounted for as described in the derivative disclosure below.
Financial Asset /Liability IFRS 9 Classification and Measurement
Cash and cash equivalents Amortized cost
Short-term investments Amortized cost
Accounts receivable Amortized cost
Accounts payable and accrued liabilities Amortized cost
Derivative instruments FVTPL
Financial assets and financial liabilities are measured at fair value using a valuation hierarchy for disclosure of fair value
measurements.The determination of the applicable level within the hierarchy of a particular asset or liability depends on the
inputs used in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable)
or internally derived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset or
liability based on market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own
assumptions about market participant assumptions using the best information available.
Annual Report 2022 53
The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability to
access at the measurement date.
Level 2: Valuations based on quoted inputs other than quoted prices included within Level 1, that are observable for the asset
or liability, either directly or indirectly through corroboration with observable market data.
Level 3: Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The following methods and assumptions were used to estimate the fair value of each type of financial instrument by ref-
erence to market data and other valuation techniques, as appropriate:
(i) The initial fair values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable
and accrued liabilities approximate their carrying values given their short maturities; and
(ii) The fair value of derivative financial instruments are estimated using quoted market rates at the measurement date
adjusted for the maturity term of each instrument. The Company’s portfolio of derivative financial instruments as at
April 2, 2022 is classified as Level 2 in the fair value hierarchy.
Derivative financial instruments and hedge accounting
The Company enters into various derivative financial instruments as part of its strategy to manage foreign currency
exposure. All contracts entered into during the year have been designated as cash flow hedges for accounting purposes. The
Company does not hold or issue derivative financial instruments for trading purposes.
All derivative financial instruments, including derivatives embedded in financial or non-financial contracts not closely
related to the host contracts, are measured at fair value. The gain or loss that results from remeasurement at each reporting
period is recognized in net loss immediately unless the derivative is designated and effective as a hedging instrument, in which
case the timing of the recognition in net loss depends on the nature of the hedge relationship.
At the inception of a hedge relationship, the Company documents the relationship between the hedging instrument and
the hedged item along with the Company’s risk management objectives and strategy for undertaking various hedge transac-
tions, together with the methods that will be used to assess the effectiveness of the hedging relationship. Such hedges are
expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine
that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Accordingly, the effective portion of the change in the fair value of the foreign exchange forward contracts that are des-
ignated and qualify as cash flow hedges is recognized in other comprehensive income (loss) until related payments have been
made in future accounting periods. The Company has not made an election to exclude the time value component of forward
contracts designated as cash flow hedges from the hedging relationship. Associated gains and losses recognized in other com-
prehensive income (loss) are reclassified to earnings in the periods when the hedged item is recognized in earnings. These
earnings are included within the same line of the consolidated statement of earnings (loss) as the recognized item. However,
when the hedged forecast transaction results in the recognition of a non-financial asset, the gains and losses previously recog-
nized in other comprehensive income (loss) are transferred from equity and included in the initial measurement of the cost
of the non-financial asset. The gain or loss relating to the ineffective portion is recognized immediately in the consolidated
statements of loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
then hedge accounting is discontinued prospectively. If the forecasted transaction is no longer expected to occur, then the bal-
ance in accumulated other comprehensive income (loss) is recognized immediately in net earnings (loss).
54
Consolidated Financial Statements and Notes
Retirement Benefits
The Company provides retirement benefits through a defined contribution retirement plan. Under the defined contribution
retirement plan, the Company pays fixed contributions to an independent entity. The Company has no legal or constructive
obligations to pay further contributions after its payment of the fixed contribution. The costs of benefits under the defined
contribution retirement plan are expensed as contributions are due and are reversed if employees leave before the vesting period.
Accounting Standards Implemented in Fiscal 2022
Amendment to IFRS 16 Leases (“IFRS 16”) – COVID-19-Related Rent Concessions
In March 2021, the IASB extended the IFRS 16 practical expedient to cover rent concessions on payments due on or before
June 30, 2022. The amendment becomes effective for annual reporting periods beginning on or after April 1, 2021, with ear-
lier application permitted. The Company is applying the practical expedient and has accounted for any eligible change in lease
payments resulting from a COVID-19-related rent concession in profit or loss in the period the deal was executed.
Costs Necessary to Sell Inventories (IAS 2) Agenda Decision
At its June 2021 meeting, the IFRS Interpretations Committee finalized an agenda decision about the costs an entity includes
as the ‘estimated costs necessary to make the sale’ when determining the net realizable value of inventories. The Committee
concluded that when determining the net realizable value of inventories, an entity estimates the costs necessary to make the
sale in the ordinary course of business, which requires the exercise of judgement. The Company assessed the impact of this
agenda decision, and it does not have a material impact to its results of operations, financial position or disclosures.
5. NEW ACCOUNTING PRONOUNCEMENTS
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current, which amends IAS 1 Presentation of Financial
Statements. The narrow scope amendments affect only the presentation of liabilities in the statement of financial position and
not the amount or timing of their recognition. It clarifies that the classification of liabilities as current or non-current is based
on rights that are in existence at the end of the reporting period and specifies that classification is unaffected by expectations
about whether an entity will exercise its right to defer settlement of a liability. It also introduces a definition of ‘settlement’
to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services.
The amendments are effective for annual reporting periods beginning on or after January 1, 2022. Earlier application is per-
mitted. The Company is assessing the potential impact of these amendments.
Changes in Accounting Policies and Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued amendments to IAS 8 Accounting Policies, Changes to Accounting Estimates and Errors, to intro-
duce a new definition of accounting estimates. This was endorsed by the Accounting Standards Board of Financial Reporting &
Assurance Standards Canada on June 1, 2021. The amended standard explains how entities use measurement techniques and
inputs to develop accounting estimates and states that these can include estimation and valuation techniques. To provide addi-
tional guidance, the amended standard clarifies that the effects on an accounting estimate of a change in an input or a change
in a measurement technique are changes in accounting estimates if they do not result from the correction of prior period errors.
The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is
permitted. The Company is assessing the potential impact of these amendments; however, does not anticipate to implement
the amended standard using a retrospective application methodology as the IASB Board concluded that the benefits of doing
so would be minimal, and have not made such application required.
Annual Report 2022 55
6. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
As at As at
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Cash 83,596 84,516
Restricted cash 2,845 391
Cash equivalents 28 28
Cash and cash equivalents 86,469 84,935
Restricted cash represents cash pledged as collateral with financial institution in support of certain purchasing obligations
and credit card programs, as well as certain deposits related to utilities contracts.
7. INVENTORIES
The cost of inventories recognized as an expense during the 52-week period ended April 2, 2022 was $592.9 million (2021 –
$530.1 million). Inventories consist of the landed cost of goods sold and exclude inventory shrink and damage reserve and all
vendor support programs. The amount of inventory write-downs as a result of net realizable value lower than cost during the
52-week period ended April 2, 2022 was $9.1 million (2021 – $9.2 million). The amount of inventory with net realizable
value equal to cost was $2.8 million as at April 2, 2022 (April 3, 2021 – $5.4 million).
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, such as foreign exchange forward contracts, to manage the currency fluc-
tuation risk associated with forecasted U.S. dollar payments, primarily for general merchandise inventory purchases. These
contracts have been designated as cash flow hedges for accounting purposes. There is an economic relationship between the
hedged items and the hedging instruments as the terms of the foreign exchange forward contracts match the terms of the
expected highly probable forecast transactions (i.e. notional amount and expected payment date). Furthermore, the Company
has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign exchange forward con-
tracts is identical to the hedged risk components.
The fair values of derivative financial instruments are determined based on observable market information as well as val-
uations determined by external evaluators with experience in financial markets.
During the fiscal year ended April 2, 2022, the Company entered into contracts with total notional amounts of
C$155.7 mil lion to purchase U.S. dollar/Canadian dollar currency pair forwards (2021 – C$69.7 million). As at April 2, 2022,
the Company had remaining contracts in place representing total notional amounts of C$67.1 million (April 3, 2021 –
C$34.6 million) at an average forward rate of 1.26 (2021 – 1.32).These contracts extend over a period not exceeding 12 months.
The total fair value of the contracts as at April 2, 2022 resulted in the recognition of no derivative asset (April 3, 2021 –
no derivative asset) and a derivative liability of $0.6 million (April 3, 2021 – $1.6 million).
During the fiscal year ended April 2, 2022, the Company had losses of $0.6 million (net of no taxes) from the change in
fair value of outstanding cash flow hedges (2021 – net loss of $4.5 million, net of taxes of $1.0 million). During the same
period, the Company reclassified losses from settled contracts out of other comprehensive income (loss) to inventory and
expenses of $1.6 million (net of no taxes) (2021 – net losses of $0.1 million, net of taxes of below $0.1 million).This resulted
in other comprehensive income of $1.0 million for the 52-week period ended April 2, 2022 (2021 – other comprehensive
income of $4.4 million).
56
Consolidated Financial Statements and Notes
During the 13-week period ended September 26, 2020, the Company terminated derivative instruments with one of its
counterparties based on the counterparty’s heightened credit risk during the COVID-19 pandemic; consequently, hedge
accounting was discontinued and a gain of $0.3 million as at that date was deferred in other comprehensive income. This gain
was recognized in earnings concurrently with the related hedge transactions in future periods of that fiscal year. During the
52-week period ended April 2, 2022 there were no forecast transactions for which hedge accounting had been used in the
previous period, but which were no longer expected to occur, or hedging relationships discontinued and restarted.
Potential causes of mismatch between the hedging instrument and hedged item which would generate ineffectiveness
include changes in credit risk, a timing mismatch between the maturity of the instrument and the future transaction date,
and/or the hedged transaction does not occur. Reclassified amounts resulting from hedge ineffectiveness and realized foreign
exchange amounts as a result of derivative financial instruments were both immaterial for the 52-week period ended April 2,
2022 (2021 – $0.3 million and $0.3 million, respectively).
9. PROPERTY, PLANT, AND EQUIPMENT
Furniture,
fixtures, and Computer Leasehold
(thousands of Canadian dollars) equipment equipment improvements Total
Gross carrying amount
Balance, March 28, 2020 97,903 15,703 64,575 178,181
Additions, net 824 2,331 938 4,093
Disposals (351) (97) (62) (510)
Assets with zero net book value (9,939) (2,291) (11,277) (23,507)
Foreign currency adjustment (259) – (502) (761)
Balance, April 3, 2021 88,178 15,646 53,672 157,496
Additions, net 764 1,361 1,123 3,248
Disposals (45) (19) (32) (96)
Assets with zero net book value (3,990) (1,259) (1,147) (6,396)
Foreign currency adjustment (9) – (18) (27)
Balance, April 2, 2022 84,898 15,729 53,598 154,225
Accumulated depreciation
Balance, March 28, 2020 45,831 8,166 32,969 86,966
Depreciation 8,487 2,800 5,871 17,158
Disposals (177) (46) (29) (252)
Assets with zero net book value (9,939) (2,291) (11,277) (23,507)
Balance, April 3, 2021 44,202 8,629 27,534 80,365
Depreciation 7,949 2,939 5,118 16,006
Disposals (28) (13) (28) (69)
Assets with zero net book value (3,990) (1,259) (1,147) (6,396)
Balance, April 2, 2022 48,133 10,296 31,477 89,906
Net carrying amount
April 3, 2021 43,976 7,017 26,138 77,131
April 2, 2022 36,765 5,433 22,121 64,319
Annual Report 2022 57
10. LEASE BALANCES
The following table reconciles the change in right-of-use assets:
(thousands of Canadian dollars)
Gross carrying amount
Balance, March 28, 2020 463,134
Additions 25,765
Foreign currency adjustment (3,057)
Balance, April 3, 2021 485,842
Additions 8,134
Foreign currency adjustment (87)
Balance, April 2, 2022 493,889
Accumulated depreciation
Balance, March 28, 2020 80,988
Depreciation 42,990
Balance, April 3, 2021 123,978
Depreciation 36,144
Balance, April 2, 2022 160,122
Net carrying amount
April 3, 2021 361,864
April 2, 2022 333,767
The following table reconciles the change in lease liabilities:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Balance, beginning of period 550,274 568,617
Lease renewals included in the scope of IFRS 16 8,672 25,899
Accretion of lease liabilities 24,514 25,706
Repayment of interest and principal on lease liabilities (66,155) (62,241)
Rent concessions – (4,141)
Foreign currency adjustment (121) (3,566)
Balance, end of period 517,184 550,274
For the 52-week period ended April 2, 2022, no contracts met the criteria for recognition under the IFRS 16 practical
expedient for COVID-19 rent concessions (2021 – $4.1 million).
During the year ended April 2, 2022, the Company expensed $0.5 million (April 3, 2021 – $1.8 million) of base rent
payments relating to short-term leases for which the recognition exemption was applied, and these payments were not
included in the lease liabilities.
The Company earned income from subleases of $3.5 million for the 52-week period ended April 2, 2022 (April 3, 2021 –
$4.5 million). All of the Company’s subleases are classified as operating leases and are net against occupancy expenses.
58
Consolidated Financial Statements and Notes
As at April 2, 2022, the Company had leases in respect of its stores and support office premises. The future undiscounted
minimum lease commitments for the Company’s leases for its premises, excluding other occupancy charges and variable lease
payments, are as follows:
(thousands of Canadian dollars) Total
2023 68,409
2024 65,810
2025 59,173
2026 48,431
2027 42,724
Thereafter 89,560
Total obligations 374,107
11. INTANGIBLE ASSETS
Computer Internal
application development Domain Retail
(thousands of Canadian dollars) software costs name lease Total
Gross carrying amount
Balance, March 28, 2020 32,316 17,036 3,387 1,207 53,946
Additions 4,837 4,408 – – 9,245
Disposals (25) – – – (25)
Assets with zero net book value (11,158) (3,907) – – (15,065)
Balance, April 3, 2021 25,970 17,537 3,387 1,207 48,101
Additions 6,680 5,463 – – 12,143
Disposals (5) – – – (5)
Assets with zero net book value (11,882) (8,009) – – (19,891)
Balance, April 2, 2022 20,763 14,991 3,387 1,207 40,348
Accumulated amortization
Balance, March 28, 2020 19,486 8,424 259 1,207 29,376
Amortization 7,449 5,436 – – 12,885
Disposals (11) – – – (11)
Assets with zero net book value (11,158) (3,907) – – (15,065)
Balance, April 3, 2021 15,766 9,953 259 1,207 27,185
Amortization 6,843 5,043 – – 11,886
Disposals (3) – – – (3)
Assets with zero net book value (11,882) (8,009) – – (19,891)
Balance, April 2, 2022 10,724 6,987 259 1,207 19,177
Net carrying amount
April 3, 2021 10,204 7,584 3,128 – 20,916
April 2, 2022 10,039 8,004 3,128 – 21,171
The useful life of the domain name has been deemed to be indefinite because there are no legal, regulatory, contractual,
competitive, economic, or other factors that limit the useful life of this asset to the Company.
Annual Report 2022 59
12. EQUITY INVESTMENT
The Company holds an equity ownership in Unplug, which operates meditation studios in the U.S., resulting in a 20% voting
interest and representation on the board of managers. The Company uses the equity method of accounting to record Unplug
results. The Company did not receive a distribution from Unplug during the period.
Changes in the carrying amount of Unplug were as follows:
(thousands of Canadian dollars) Carrying value
Balance, March 28, 2020 2,353
Share of loss from Unplug (197)
Balance, April 3, 2021 2,156
Share of loss from Unplug (32)
Impairment of investment (2,027)
Balance, April 2, 2022 97
At each reporting date, the Company assesses whether indicators of impairment exist relating to its equity investment,
in accordance with IAS 36 Impairment of Assets and IAS 28 Equity Accounting. As at April 2, 2022, the Company identified indi-
cators of impairment and accordingly the Company performed impairment testing. Management’s fair value estimate used to
determine the recoverable amount was based on an asset-based approach. Impairment losses for the 52-week period ended
April 2, 2022 of $2.0 million were taken against the Company’s equity investment, compared to no impairment loss recog-
nized in the prior year.
13. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes, and the amounts used for income tax purposes. The Company recognizes deferred tax assets
to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and
the carryforward of unused tax credits and unused tax losses can be utilized.
Significant components of the Company’s net deferred tax assets are as follows:
As at As at
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Reserves and allowances 3,908 3,216
Non-capital loss carryforwards 18,205 25,425
Capital loss carryforwards 319 319
Corporate minimum tax credit 3,379 3,379
Book amortization in excess of capital cost allowance 50,823 43,858
Lease liabilities 136,070 141,445
Cash flow hedges 167 434
Total deferred tax assets 212,871 218,076
Right-of-use assets (87,808) (92,001)
Total deferred tax liabilities (87,808) (92,001)
Net deferred tax assets 125,063 126,075
Value of deferred tax assets not recognized in the current period (125,063) (126,075)
Recognized net deferred tax assets – –
60
Consolidated Financial Statements and Notes
As at April 2, 2022, all net deferred tax assets have not been recognized (April 3, 2021 – all net deferred tax assets not
recognized). This decision was influenced by the operating losses recognized in prior periods and uncertainty surrounding
future profitability as a result of the COVID-19 pandemic, among other factors. As such, uncertainty exists surrounding the
probability of sufficient taxable income being available to utilize all deferred tax assets within the time line of management’s
forecasts. The time period of future projected taxable profits used to assess the recognition of deferred tax assets was shorter
than the expiration period of the non-capital tax loss carry-forwards, and other deferred tax assets which do not expire.
As at April 2, 2022, the Company had Canadian non-capital tax loss carryforwards of $34.7 million that expire in 2031,
$8.3 million that expire in 2039, $1.2 million that expire in 2040, and $14.4 million that expire in 2041, as well as capital
losses of $2.4 million. The Company also had $10.1 million of both U.S. federal and U.S. state non-capital losses in the states
in which it operates. The federal losses have no expiration, and the state losses expire between 2039 and 2042.
Significant components of income tax expense are as follows:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Current income tax expense – –
Deferred income tax expense
Origination and reversal of temporary differences (6,262) (10,194)
Deferred income tax expense (recovery) relating to change in
non-capital loss carryforwards 7,220 (5,158)
Adjustment resulting from a change in substantively enacted tax rates
and expected pattern of reversal (283) 122
Adjustment in deferred tax assets not recognized (708) 16,343
Other, net 33 (96)
Total income tax expense – 1,017
The reconciliation of income taxes computed at statutory income tax rates to the effective income tax rates is as follows:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 % 2021 %
Earnings (loss) before income taxes 3,265 (56,850)
Tax at combined federal, provincial and state tax rates 852 26.1 % (15,063) 26.5 %
Tax effect of expenses not deductible
for income tax purposes 273 8.3 % 374 (0.7)%
Adjustment to deferred tax assets resulting
from changes in substantively enacted tax rates
and expected pattern of reversal (283) (8.7)% 122 (0.2)%
Adjustment in deferred tax assets not recognized (708) (21.7)% 16,343 (28.7)%
Adjustment with respect to prior periods 72 2.2 % (824) 1.4 %
Other, net (206) (6.3)% 65 (0.1)%
– – 1,017 (1.8)%
Annual Report 2022 61
14. PROVISIONS
Provisions consist primarily of amounts recorded in respect of decommissioning liabilities, legal claims, environmental stew-
ardship fees and other liabilities where there is uncertainty regarding the timing or amount outstanding. The Company is sub-
ject to payment of decommissioning liabilities upon exiting certain leases. The amount of these payments may fluctuate based
on negotiations with the landlord. Legal claim provisions fluctuate depending on the outcomes when claims are settled.
Uncertainty exists surrounding the amount of environmental stewardship fees due to the timing of enactment of provincial
fee schedules.
Activity related to the Company’s provisions is as follows:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Balance, beginning of period 3,192 2,503
Arising during the year – 689
Utilized /released (2,018) –
Balance, end of period 1,174 3,192
The Company reviews the merits, risks and uncertainties of each provision, based on current information, and the amount
expected to be required to settle the obligation. Provisions are reviewed on an ongoing basis and are adjusted accordingly
when new facts and events become known to the Company.
15. CONTINGENCIES
Legal Claims
In the normal course of business, the Company becomes involved in various claims and litigation. While the final outcome of
such claims and litigation pending as at April 2, 2022 cannot be predicted with certainty, management believes that any such
amount would not have a material impact on the Company’s financial position or financial performance, except for those
amounts that have been recorded as provisions on the Company’s consolidated balance sheets.
16. SHARE CAPITAL
Share capital consists of the following:
52-week period ended 53-week period ended
April 2, 2022 April 3, 2021
Number of Amount C$ Number of Amount C$
shares (thousands) shares (thousands)
Balance, beginning of period 27,273,961 226,986 27,273,961 226,986
Issued during the period
Options exercised 75,750 104 – –
Balance, end of period 27,349,711 227,090 27,273,961 226,986
62
Consolidated Financial Statements and Notes
17. SHARE-BASED COMPENSATION
The Company has established an employee stock option plan (the “Plan”) for key employees. The number of common shares
reserved for issuance under the Plan as at April 2, 2022 is 3,602,457 (April 3, 2021 – 3,591,094). Most options granted after
2013 have a five-year term, with one third of the options granted being exercisable one year after the date of issue, and the
remainder exercisable in equal installments on the anniversary date over the next two years. Stock options granted after
August 2019 vest over a two- or three-year period, while all other outstanding options vest over the above referenced three-
year period. The vesting schedule was changed in fiscal 2020 to reward and retain plan participants. Each option is exercisable
into one common share of the Company at the price specified in the terms of the option agreement.
The Company uses the fair value method of accounting for stock options, which estimates the fair value of the stock
options granted on the date of grant, net of estimated forfeitures, and expenses this value over the vesting period. During fiscal
2022, the pre-forfeiture value of options granted was $1.7 million (2021 – $0.8 million).The weighted average fair value of
options issued in fiscal 2022 was $1.85 per option (2021 – $1.30 per option).
The fair value of the employee stock options is estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions during the periods presented:
52-week 53-week
period ended period ended
April 2, April 3,
2022 2021
Black-Scholes option pricing assumptions
Risk-free interest rate 0.5% 0.3%
Expected volatility 77.3% 64.6%
Expected time until exercise 2.5 years 2.6 years
Expected dividend yield – –
Other assumptions
Forfeiture rate 25.1% 25.7%
A summary of the status of the Plan and changes during both periods is presented below:
52-week period ended 53-week period ended
April 2, 2022 April 3, 2021
Weighted Weighted
average average
Number exercise price Number exercise price
# C$ # C$
Outstanding options, beginning of period 2,375,475 7.90 2,218,488 12.21
Granted 920,000 4.05 1,077,500 1.74
Forfeited (85,725) 4.74 (815,975) 10.10
Expired (227,450) 17.23 (104,538) 10.99
Exercised (75,750) 1.00 – –
Outstanding options, end of period 2,906,550 6.38 2,375,475 7.90
Options exercisable, end of period 1,664,700 8.84 1,157,825 13.43
Annual Report 2022 63
A summary of options outstanding and exercisable is presented below:
As at April 2, 2022
Outstanding Exercisable
Weighted
Weighted average Weighted
Range of average remaining average
exercise prices Number exercise price contractual life Number exercise price
C$ # C$ (in years) # C$
1.00 – 1.56 630,500 1.00 3.2 311,750 1.00
1.57 – 4.14 537,500 3.89 4.2 12,500 2.11
4.15 – 5.47 435,000 4.32 4.2 76,500 4.34
5.48 – 10.99 714,250 6.75 2.3 674,650 6.72
11.00 – 18.40 589,300 16.13 0.8 589,300 16.13
1.00 – 18.40 2,906,550 6.38 2.9 1,664,700 8.84
Directors’ Compensation
The Company had a Directors’ Deferred Stock Unit Plan (“legacy DSU Plan”) for Directors’ annual retainer fees and other
Board-related compensation up to the end of fiscal 2021. Pursuant to the legacy DSU Plan, participating Directors annually
elected whether to receive these fees in the form of equity-settled deferred stock units (“legacy DSUs”), or to receive up to
50% of this compensation in cash. The Company ceased issuing DSUs under this plan in fiscal 2022; however, legacy DSUs
issued and outstanding under this plan have not been modified and the number of shares reserved for issuance under this plan
continues to be 500,000. Upon the resignation of a participating director, each legacy DSU granted to such Director will be
convertible into one common share of the Company.The fair value of legacy DSUs is equal to the traded price of the Company’s
common shares on the grant date, and recorded in contributed surplus until conversion. The grant date fair value of the out-
standing legacy DSUs recorded in contributed surplus as at April 2, 2022 is $3.2 million (April 3, 2021 – $3.2 million).
The Company established a new Deferred Share Unit Plan for Cash Redemption (“New DSU Plan”) on June 1, 2021, to
grant cash-settled share-based instruments (“cash-settled DSUs”) for participating Directors’ annual retainer fees and other
Board-related compensation for fiscal 2022 onwards.When exercised, participants will receive a payment in cash equal to the
fair market value of the common shares represented by the cash-settled DSUs on the date of redemption. The New DSU Plan
continues to allow participating Directors to annually elect to receive up to 50% of their compensation in cash. Cash-settled
DSUs represent a liability, which is recorded in current liabilities on the Consolidated Balance Sheets at an IFRS 2 fair value,
determined using an option pricing model to reflect the traded price of the Company’s common shares as at each reporting
date. All changes to the fair value of the cash-settled DSUs is recorded in the Consolidated Statements of Earnings (Loss) and
Comprehensive Earnings (Loss).
All Directors’ compensation during the 52-week period ended April 2, 2022 was issued in the form of cash-settled DSUs,
with the exception of cash awards of less than $0.1 million (2021 – all legacy DSUs with the exception of cash awards of less
than $0.1 million).
The Company issued 73,043 cash-settled DSUs with a value of $0.3 million during the year (2021 – 164,979 legacy
DSUs with a value of $0.3 million). The number of cash-settled DSUs to be issued to each Director is based on a set fee
schedule. The fair value of outstanding cash-settled DSUs recorded in current liabilities as at April 2, 2022 is $0.1 million
(April 3, 2021 – not applicable). During the year ended April 2, 2022, the Company did not record any material changes to
the fair value of cash-settled DSU obligations (April 3, 2021 – not applicable).
64
Consolidated Financial Statements and Notes
The DSU Black-Scholes option pricing model has the following weighted average assumptions during the periods presented:
52-week
period ended
April 2,
2022
Black-Scholes option pricing assumptions
Risk-free interest rate 2.4%
Expected volatility 74.2%
Expected time until exercise 3.0 years
Expected dividend yield –
18. SUPPLEMENTARY OPERATING INFORMATION
Set out below is the disaggregation of the Company’s revenue from contracts with customers.
This includes a one-time payment of $17.0 million from Starbucks Coffee Canada, Inc (“Starbucks”), received during the
year ended April 2, 2022, on the renegotiation of its partnership with the Company.
The following table summarizes net revenue by product line:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Print 1 569,542 527,985
General merchandise 2 440,748 354,364
Other 3 51,960 22,389
Total 1,062,250 904,738
1 Includes books, magazines, newspapers, eReaders, and related shipping revenue.
2 Includes lifestyle, paper, toys, electronics, and related shipping revenue.
3 Includes corporate sales, plum® PLUS revenue, plum® breakage, gift card breakage, Kobo revenue share, irewards, and a one-time payment from Starbucks.
The following table summarizes net revenue by channel:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Superstores1 595,498 439,797
Small format stores1 93,081 72,597
Online (including store kiosks) 321,711 369,955
Other2 51,960 22,389
Total 1,062,250 904,738
1 Includes sales on orders placed on indigo.ca and fulfilled through store pick-up.
2 Includes corporate sales, plum® PLUS revenue, plum® breakage, gift card breakage, Kobo revenue share, irewards, and a one-time payment from Starbucks.
Annual Report 2022 65
Supplemental operating, selling, and other expenses information:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Wages, salaries, and bonuses 185,026 146,959
Short-term benefits expense 20,916 17,857
Termination benefits expense 3,534 7,138
Retirement benefits expense 1,902 1,847
Share-based compensation 864 666
Total employee benefits expense 212,242 174,467
In fiscal 2022, the Company recognized payroll subsidies from the COVID-19 Canada Emergency Wage Subsidy (“CEWS”)
program of $2.3 million (2021 – $27.4 million). These subsidies were recorded as a reduction in the associated eligible salaries
and wage expenses recognized in cost of operations and selling, general and administrative expenses.
Termination benefits arise when the Company terminates certain employment agreements.
In fiscal 2022, the Company recognized rent subsidies from the COVID-19 Canada Emergency Rent Subsidy (“CERS”)
program of $2.9 million (2021 – $1.1 million).
Contingent rents recognized as an expense during fiscal 2022 were $1.5 million (2021 – $0.9 million).
19. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated based on the weighted average number of shares outstanding during the period. In cal-
culating diluted earnings per share amounts under the treasury stock method, the numerator remains unchanged from the
basic earnings per share calculations as the assumed exercise of the Company’s stock options does not result in an adjustment
to net earnings. The reconciliation of the denominator in calculating diluted earnings per share amounts for the periods pre-
sented are as follows:
52-week 53-week
period ended period ended
April 2, April 3,
2022 2021
Weighted average number of common shares outstanding, basic 27,771,387 27,664,268
Effect of dilutive securities – stock options 507,959 –
Weighted average number of common shares outstanding, diluted 28,279,346 27,664,268
As at April 2, 2022, 2,411,050 anti-dilutive stock options were excluded from the computation of diluted net earnings
per common share. As at April 3, 2021, the Company’s stock options were anti-dilutive as the Company reported a loss and,
therefore, were not included in the diluted loss per share calculations.
66
Consolidated Financial Statements and Notes
20. STATEMENTS OF CASH FLOWS
Supplemental cash flow information:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Accounts receivable 10,035 (15,336)
Inventories (58,735) 26,698
Prepaid expenses (1,230) (6,216)
Income taxes recoverable – 138
Other assets (1,126) 200
Accounts payable and accrued liabilities (current and long-term) 31,923 (18,207)
Unredeemed gift card liability 4,600 6,380
Provisions (current and long-term) (2,018) 689
Deferred revenue 4,213 5,804
Net change in non-cash working capital balances (12,338) 150
21. CAPITAL MANAGEMENT
The Company’s main objectives when managing capital are:
• Ensuring sufficient liquidity to support financial obligations and to execute operating and strategic objectives;
• Maintaining financial capacity and flexibility through access to capital to support future development of the business; and
• Minimizing the cost of capital while taking into consideration current and future industry, market, and economic
risks and conditions.
There were no changes to these objectives during the year. The primary activities engaged by the Company to generate
attractive returns for shareholders include transforming its digital platforms and driving productivity improvement through
investments in information technology. The Company’s main sources of capital are its current cash position and cash flows
generated from operations. Cash flow is primarily used to fund working capital needs and capital expenditures.The Company
manages its capital structure in accordance with changes in economic conditions.
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s activities expose it to a variety of financial risks, including risks related to foreign exchange, interest rate, credit,
commodity prices, and liquidity.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk on foreign currency denominated transactions, monetary assets and liabilities
denominated in a foreign currency, and net investments in foreign operations located in the United States. The Company’s
foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars. Decreases in the value
of the Canadian dollar relative to the U.S. dollar could negatively impact net earnings since the purchase price of some of the
Company’s products are negotiated with vendors in U.S. dollars, while the retail price to customers is set in Canadian dollars.
The majority of the Company’s foreign currency risk is concentrated in this area, as a significant amount of the Company’s
general merchandise inventory purchases are denominated in U.S. dollars, and the Company has a New Jersey retail location
that incurs U.S. dollar expenses. The Company’s New Jersey retail location generates sales in U.S. dollars, reducing the
Company’s overall net exposure.
The Company uses derivative instruments in the form of forward contracts to manage its exposure to fluctuations in U.S.
dollar exchange rates. As the Company has hedged a portion of the cost of its near-term forecasted U.S. dollar purchases,
these costs would not be impacted by a change in foreign currency rates.
Annual Report 2022 67
In fiscal 2022, the effect of foreign currency translation on other comprehensive income (loss) was a gain of below $0.1 mil-
lion (2021 – loss of $0.1 million), and the effect of foreign currency transactions on net earnings (loss) was a gain of $0.2 mil-
lion (2021 – loss of $1.9 million).
Interest Rate Risk
The Company’s interest income is sensitive to fluctuations in Canadian interest rates, which affect the interest earned on the
Company’s cash and cash equivalents. The Company has minimal interest rate risk and does not use any interest rate swaps to
manage its risk. The Company does not currently have any debt.
Credit Risk
The Company is exposed to credit risk resulting from the possibility that counterparties may default on their financial obliga-
tions to the Company. Credit risk primarily arises from accounts receivable, cash and cash equivalents, and derivative financial
instruments. Fair values of financial instruments reflect the credit risk of the Company and counterparties when appropriate.
Accounts receivables primarily consist of receivables from retail customers who pay by credit card, recoveries of credits
from suppliers for returned or damaged products, and receivables from other companies for sales of products, gift cards, and
other services. Credit card payments have minimal credit risk and the limited number of corporate receivables are closely
monitored. In fiscal 2021, accounts receivable included material balances outstanding from the Government of Canada asso-
ciated with emergency COVID-19 support, which had been assessed to have minimal credit risk and have since been received.
The Company limits its exposure to counterparty credit risk related to cash and cash equivalents and derivative financial
instruments by transacting only with highly-rated financial institutions and other counterparties, and by managing within spe-
cific limits for credit exposure and term to maturity. The Company’s maximum credit risk exposure if all counterparties
default concurrently is equivalent to the carrying amounts of accounts receivable, cash and cash equivalents and derivative
financial instruments.
Commodity Prices Risk
The Company is exposed to increases in the prices of commodities in operating its stores and distribution networks, in its
commitments to invest in information technology and digital infrastructure, as well as to the indirect effect of changing com-
modity prices on the price of consumer products. Rising commodity prices could adversely affect the financial performance
of the Company.
Management continually assesses its purchasing and operating practices to try and mitigate some of these fluctuations.
Liquidity Risk
Liquidity risk is the risk that the Company will be unable to meet its obligations relating to its financial liabilities. The
Company manages liquidity risk by preparing and monitoring cash flow budgets and forecasts to ensure that the Company
has sufficient funds to meet its financial obligations and fund new business opportunities or other unanticipated requirements
as they arise.
Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known to date, including
the currently known impacts of COVID-19, it is expected that the Company’s current cash position and future cash flows gen-
erated from operations will be sufficient to meet its working capital requirements for fiscal 2023. However, the Company’s
ability to fund future cash requirements will depend on its future operating performance, which could be affected by risks
associated by the COVID-19 pandemic, as discussed. The Company could seek to raise additional funding in the event it fails
to maintain sufficient liquidity, as it currently has no outstanding debt financing, and reduce capital spending if necessary.
However, the COVID-19 pandemic creates a number of additional risks such as the negative impact on debt and equity capital
markets, including the ability to access capital at a reasonable cost and the trading price of the Company’s securities, which
could impact future capital raising efforts if required by the Company.
68
Consolidated Financial Statements and Notes
The contractual maturities of the Company’s current and long-term liabilities as at April 2, 2022 are as follows:
Payments
Payments due between Payments
due in the 90 days and due after
(thousands of Canadian dollars) next 90 days less than a year 1 year Total
Accounts payable and accrued liabilities 172,455 5,683 – 178,138
Provisions 55 417 – 472
Short-term lease liabilities 17,732 51,368 – 69,100
Long-term accrued liabilities – – 1,068 1,068
Long-term provisions – – 702 702
Long-term lease liabilities – – 448,084 448,084
Total 190,242 57,468 449,854 697,564
23. RELATED PARTY TRANSACTIONS
The Company’s related parties include its key management personnel, shareholders, defined contribution retirement plan,
equity investments in associates, and subsidiaries. Unless otherwise stated, none of the Company’s related party transactions
incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled
in cash.
Transactions with Key Management Personnel
Key management of the Company includes members of the Board of Directors, as well as members of the Executive Team.
Key management personnel remuneration includes the following:
52-week 53-week
period ended period ended
April 2, April 3,
(thousands of Canadian dollars) 2022 2021
Wages, salaries, and bonus 8,018 5,156
Short-term benefits expense 546 151
Termination benefits expense – 1,437
Retirement benefits expense 62 66
Share-based compensation 784 469
Directors’ compensation 162 294
Total remuneration 9,572 7,573
During fiscal 2022, the Chief Executive Officer resumed their salary after electing to forgo compensation at the onset of
the global pandemic. The Company’s executive team also filled its vacancy for the role of Chief Commercial Officer.
Transactions with Shareholders
During fiscal 2022, the Company purchased goods and services from companies in which Mr. Gerald W. Schwartz, who is
the controlling shareholder of Indigo, holds a controlling or significant interest. In fiscal 2022, the Company paid $0.4 million
for these transactions (2021 – $0.3 million). As at April 2, 2022, Indigo had a nominal amount payable to these companies
under standard payment terms (April 3, 2021 – $0.1 million). All transactions were measured at fair market value and were
in the normal course of business, under normal commercial terms, for both Indigo and the related companies.
Annual Report 2022 69
During the first quarter of fiscal 2022, the Company entered into a secured revolving credit facility of $25 million with a
company controlled by Mr. Gerald W. Schwartz. The non-interest bearing facility was issued on favourable commercial terms
to Indigo. The facility was put in place in response to uncertainty surrounding the pandemic’s financial impacts, with its purpose
to allow the Company to manage the seasonal nature of cash flows in the most effective manner. No advances were made on
the facility, which matured on February 1, 2022.
Transactions with Defined Contribution Retirement Plan
The Company’s transactions with the defined contribution retirement plan include contributions paid to the retirement plan
as disclosed in note 18 “Supplementary Operating Information”. The Company has not entered into other transactions with
the retirement plan.
Transactions with Associates
The Company had immaterial transactions with Unplug during the 52-week period ended April 2, 2022 and 53-week period
ended April 3, 2021.
During fiscal 2020, the Company sold its equity investments in Calendar Club of Canada Limited Partnership (“Calendar
Club”) and Calendar Club of Canada Ltd. (the general partner of the partnership) to Paris Southern Lights Inc. (a minority
partner in the partnership). The proceeds outstanding at the time of sale were paid in installments, with the final payments
made in the current year.
24. SUBSEQUENT EVENTS
On June 2, 2022, a secured revolving credit facility for $25 million was approved by the Company’s Board of Directors from
a company controlled by Mr. Gerald W. Schwartz, who is the controlling shareholder of Indigo.The non-interest bearing facil-
ity will be issued on favourable commercial terms, and will have a maturity date of February 1, 2023. The credit facility is not
convertible, directly or indirectly, into equity or voting securities. The purpose of this credit facility is to allow the Company
to manage its operations in the most effective manner.
70
Consolidated Financial Statements and Notes
Corporate Governance Policies
A presentation of the Company’s corporate governance policies is included in the Management Information Circular, which
is either mailed directly to shareholders or made available through the Notice and Access process. If you would like to receive
a copy of this information, please contact Investor Relations at Indigo.
Annual Report 2022 71
Executive Management and Board of Directors
As at June 2, 2022
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
Heather Reisman
Chair and Chief Executive Officer
Peter Ruis
President
Gildave (Gil) Dennis
Chief Operating Officer
Andrea Limbardi
Chief Digital Officer
Craig Loudon
Chief Financial Officer and Executive Vice President,
Supply Chain
Katharine Poulter
Chief Commerical Officer
Martin Thibodeau
Chief Technology and Information Officer
72
Executive Management and Board of Directors
Frank Clegg
Volunteer Chairman and Chief Executive Officer
C4ST (Canadians for Safe Technology)
Jonathan Deitcher
Investment Advisor
RBC Dominion Securities Inc.
Mitchell Goldhar
Executive Chairman and Chief Executive Officer
SmartCentres REIT and
Owner
Penguin Group of Companies
Howard Grosfield
Executive Vice President and General Manager
US Consumer and Global Premium Services
American Express
Robert Haft
Managing Partner
Morgan Noble Healthcare Partners
Andrea Johnson
Chief Executive Officer
Rally Reader, LLC
Anne Marie O’Donovan
President
O’Donovan Advisory Services Ltd.
Chika Stacy Oriuwa
Medical Doctor
Psychiatry Resident, University of Toronto
Heather Reisman
Chair and Chief Executive Officer
Indigo Books & Music Inc.
Gerald Schwartz
Chairman and Chief Executive Officer
Onex Corporation
Five-Year Summary of Financial Information
For the years ended April 2, April 3, March 28, March 30, March 31,
(financial information in millions of Canadian dollars, except per share data) 20221 20211 20201 2019 20182
SELECTED STATEMENT OF EARNINGS
(LOSS) AND COMPREHENSIVE EARNINGS
(LOSS) INFORMATION
Revenue
Superstores 595.5 439.8 655.8 711.4 728.6
Small format stores 93.1 72.6 122.1 144.8 143.6
Online 321.7 370.0 162.7 175.9 176.8
Other 52.0 22.3 17.1 14.7 30.6
Total revenue 1,062.3 904.7 957.7 1,046.8 1,079.6
Adjusted EBITDA3 32.5 (28.3) (7.3) (19.1) 55.2
Earnings (loss) before income taxes 3.3 (56.9) (100.3) (49.6) 30.7
Net earnings (loss) 3.3 (57.9) (185.0) (36.8) 21.9
Net earnings (loss) per common share $0.12 $(2.09) $(6.72) $(1.35) $0.82
SELECTED CONSOLIDATED BALANCE
SHEET INFORMATION
Working capital 58.3 46.1 85.2 164.1 258.8
Total assets 809.4 799.5 883.0 610.5 634.0
Total liabilities 781.5 776.9 799.0 240.3 231.6
Total equity 27.8 22.6 84.0 370.1 402.4
Weighted average number of
common shares outstanding, basic 27,771,387 27,664,268 27,515,109 27,354,358 26,849,418
Common shares outstanding at end of period 27,349,711 27,273,961 27,273,961 27,136,386 26,800,609
STORE OPERATING STATISTICS
Number of stores at end of period
Superstores 88 88 88 89 86
Small format stores 85 89 108 115 123
Selling square footage at end of period (in thousands)
Superstores 1,941 1,941 1,941 1,962 1,887
Small format stores 222 231 279 287 308
Sales per selling square foot
Superstores 307 227 338 363 386
Small format stores 419 314 438 504 467
1 The Company implemented IFRS 16 Leases in fiscal 2020 using the modified retrospective approach. As a result, the Company’s fiscal 2020, 2021 and 2022 results reflect
lease accounting under IFRS 16 Leases, while the prior years have not been restated.
2 The Company implemented IFRS 15 Revenue from Contracts with Customers, in fiscal 2019 using the full retrospective transition method. As a result, certain prior year balances
were restated.
3 In fiscal 2021, an adjustment was made for lease-related expenses in the calculation of Adjusted EBITDA. This represents a change in calculation methodology from the prior
fiscal year. Fiscal 2020 has been consistently stated, while other years, prior to the implementation of IFRS 16 Leases, have not been restated.
In fiscal 2020 and later years, Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, asset disposals, share of earnings (loss) from equity
investments, and impairment, and includes IFRS 16 right-of-use asset depreciation and associated finance charges.
In fiscal 2019 and prior years, Adjusted EBITDA was defined as earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of earnings
(loss) from equity investments.
For further information, see “Non-IFRS Financial Measures” in the Company’s MD&A section of the Annual Report.
Annual Report 2022 73
Investor Information
AUDITORS
Ernst & Young LLP
EY Tower
100 Adelaide Street West, PO Box 1
Toronto, Ontario
Canada M5H 0B3
ANNUAL MEETING
The 2022 Annual Meeting of Shareholders
of Indigo Books & Music Inc. will be held on
July 19, 2022 at 10:00 a.m. via live audio webcast at:
https://virtual-meetings.tsxtrust.com/1352
Shareholders are encouraged to attend and
guests are welcome.
Une traduction française de ce document est
disponible sur demande.
CORPORATE HOME OFFICE
620 King Street West
Suite 400
Toronto, Ontario
Canada M5V 1M6
Telephone: (416) 364-4499
Fax: (416) 364-0355
INVESTOR CONTACT
InvestorRelations @indigo.ca
www.chapters.indigo.ca/investor-relations/
MEDIA CONTACT
Madeleine Lowenborg-Frick
Director, Corporate Communications
MLowenborgFrick@indigo.ca
Telephone: (647) 326-6633
STOCK LISTING
Toronto Stock Exchange
TRADING SYMBOL
IDG
TRANSFER AGENT AND REGISTRAR
TSX Trust Company
P.O. Box 700, Station B
Montreal, Quebec
Canada H3B 3K3
Telephone:
(Toll Free) 1-800-387-0825
(Toronto) (416) 682-3860
Fax: 1-888-249-6189
Email: shareholderinquiries@tmx.com
Website: www.tsxtrust.com
74
Investor Information
Indigo’s Commitment to Communities
Across Canada
The Company supports a separate registered charity, called the Indigo Love of Reading Foundation (the “Foundation”), which
is committed to addressing educational inequality, and more specifically the literacy crisis in Canada. The Foundation runs
two annual national granting programs: the Literacy Fund Grant, which is a multi-year grant provided to high-needs schools
across the country; and the Adopt a School program, a grassroots fundraising initiative that unites Indigo, its retail stores,
Indigo’s staff, local schools, and their communities. In the wake of the COVID-19 pandemic and the unprecedented nation-
wide school closures, the Foundation committed $1.0 million to provide books to families in need. With the support of the
Company, its customers, employees, and suppliers, the Foundation has committed over $33.0 million to more than 3,000
high-needs elementary schools across Canada since 2004. The Foundation is dedicated to raising awareness about the critical
importance of children's literacy while providing essential literary support to high-needs children across Canada.
Annual Report 2022 75
Our Beliefs
• We exist to add joy to customers’ lives – when
they interact with us and, when they interact with
our products.
• Each and every person in the company should
understand how his or her work contributes to the
creation of joyful customer moments.
• We owe to each other, irrespective of role or position,
the same level of respect and caring as we would show
to a valued friend.
• We have a responsibility to create an environment
where each individual is inspired to perform to the
best of his or her ability.
• Passion, creativity and innovation are the keys to
sustainable growth and profitability. Each individual
working at Indigo should reflect this in his or her work.
Our role, as a company, is to encourage and reward the
demonstration of these attributes.
• We have a responsibility to give back to the communities
in which we operate.
“ Let the beauty of
what you love be
what you do.”
—Rumi
F P O
Printed in Canada