Indigo Books & Music Annual Report 2023

FY2023 Annual Report · Indigo Books & Music

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ANNUAL REPORT FOR THE 52-WEEK PERIOD ENDED APRIL 1, 2023

our 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

38. Independent Auditor’s Report

42. Consolidated Financial Statements and Notes

75. Corporate Governance Policies

76. Executive Management and Board of Directors

77. Five-Year Summary of Financial Information

78. Investor Information

79. Indigo’s Commitment to Communities Across Canada

report of the ceo

To Our Shareholders
I am pleased to share Indigo’s fiscal 2023 financial results, which reflect a rollercoaster year in the face of
significant external pressures. We delivered another year of $1B annual revenue but were challenged by
diminishing consumer confidence due to double-digit inflation, and an unprecedented ransomware attack.
Despite these challenges, we have remained steadfast in our commitment to delivering exceptional value to our
customers and driving sustainable growth.

The macro-economic climate and ransomware attack withstanding, we are proud to have delivered
merchandise sales growth. Merchandise sales, the total of retail and online revenue and excluding other
revenues grew $4.6M or 0.5% over the prior year.

On the Ransomware Attack
In early February of 2023, we experienced a ransomware attack that disrupted internal operations and
caused service disruptions to both of our sales channels and drove a material detrimental impact to our
sales and profitability. Our ecommerce channels were temporarily shut down, with the website being fully
restored after four weeks. Our retail stores were unable to process payments for roughly three days and we
also experienced other operational challenges that limited our ability to fulfil demand.

I am proud of our team’s swift response and perseverance throughout the ransomware attack. Our
amazing recovery is a testament to the unwavering dedication and hard work of our talented team across
the country. Through all of this, Indigo customers continued to show their loyalty to our brand. We learned
that anyone can be vulnerable to attacks of this nature, and in the face of this extraordinary challenge,
we did not waver. I believe we have come out of this incident stronger, together.

Our Channels
We saw customers continue to rebound to our retail channel, achieving growth above pre-pandemic levels
in Q2 and delivering a record-breaking Boxing week. Our strong retail performance led to a sales channel
mix shift, which along with the cybersecurity incident drove the year-over-year decline in our online sales
channel. Up to January, our ecommerce channels saw sales growth of 71% to pre-pandemic levels in fiscal
2020. We continue to see the importance of our online channels as a lever for expansion and for investment.
In addition, our plum® PLUS loyalty program has increasingly become a strategic vehicle for the Company to
meaningfully engage with its most loyal customers.

We often hear from our customers that Indigo is their “happy place”, and we strive to maintain this legacy

through all touchpoints in the customer journey.

We have continued to evolve our store experience to respond to shifts in consumer behaviour with the
reimagined Indigo ‘Store of the Future.’ This year, we opened our first iteration of the modernized ‘Store of
the Future’ concept at CF Rideau Centre in Ottawa. This store keeps books at its core whilst highlighting our
lifestyle assortment and creates a community atmosphere by introducing both centralized and dispersed
seating, and playable kids fixtures. In addition, we also launched a new small format concept in Medicine
Hat, Alberta, which to date, is showing significant double-digit growth on its predecessor.

We have had an ecommerce business for over 20 years, and our platforms are designed to deliver a
seamless omnichannel experience. Over the last year, we continued to invest in our online channel technology
systems, re-platforming our marketing technology stack and launching the first phase of our new digital platform.
We are excited to continue to drive momentum in fiscal 2024 with the full launch of the new digital

platform in the late summer and our new flagship store at The Well in Toronto, in September.

ANNUAL REPORT 2023 3

Books Remain at Our Core
Books are the heartbeat of our organization and remain the central inspiration for all other products we offer.
While we continue to focus on maintaining our already strong Canadian market share, we also believe there
is available growth in that market.

Over the past year, we have continued to lean into the global phenomenon “#Booktok”—a hugely
popular subcommunity on the TikTok platform—to capitalize on a resurgence of interest in books and engage
a new generation of readers to fuel future upside. We launched a TikTok x Indigo Book Club, and have
evolved our social media, customer communications, and in-store merchandising to speak directly to the
“#Booktok” community, to great success.

We continue to offer customers access to over 12 million books online and tens of thousands of titles
in-store, with localized assortments that reflect the communities where we operate. We offer distinct value
to customers through thoughtful, human curation, reliable inventory management, and consistent and
exceptional customer service.

Our Brand Platform
We have set the foundations for an exciting future with the introduction of our new brand platform: life, on
purpose™, la vie, décidément™. We celebrated Indigo’s 25th anniversary this past fall with the launch of this
new platform via a national marketing campaign celebrating iconic Canadian authors and culture shapers,
highlighting how they live their lives with intention. As part of the celebration, we created an exclusive
capsule collection of books and general merchandise products, and hosted special events and experiences
all month long to inspire customers to connect with what matters most to them.

Sustainability
Sustainability underpins all the work we do at Indigo, and we remain committed to moving quickly and
with determination towards a sustainable future. In 2023, we released our first annual Climate Report to
demonstrate the progress we’ve made towards our goals and commitments. Indigo’s net-zero journey focuses
on minimizing the operational impacts from its facilities, waste, and logistics. We also aim to reduce its
emissions through sourcing and advocacy initiatives that will encourage suppliers and publishers to prioritize
sustainable materials and responsible production practices.

Indigo Love of Reading Foundation
We are committed to continuing to address the literacy crisis in Canada and educational inequality with
the Indigo Love of Reading Foundation. With the support of Indigo, its customers, employees, and suppliers,
the Foundation has committed over $35.0 million to more than one million students across Canada since
2004. The Foundation is dedicated to giving back to communities in need, while at the same time raising
awareness about the critical importance of children’s literacy in Canada.

Final Thoughts
With our strong brand platform with books at our core, commitment to innovation, and a talented workforce,
I believe we are well-positioned for the future.

4 REPORT OF THE CEO

management’s responsibility
for financial reporting

Management of Indigo Books & Music Inc. (the “Company”) is responsible for the preparation and integrity
of the consolidated 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 management’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 assurance 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 financial 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.

Peter Ruis
Chief Executive Officer

Craig Loudon
Chief Financial Officer and
Executive Vice President, Supply Chain

ANNUAL REPORT 2023 5

management’s discussion and analysis

The following Management’s Discussion and Analysis (“MD&A”) is prepared as at June 27, 2023 and is
based primarily on the consolidated financial statements of Indigo Books & Music Inc. (the “Company” or
“Indigo”) for the 52-week periods ended April 1, 2023 and April 2, 2022. 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, home, wellness, fashion, paper, baby and kids 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 subsidiary, operating
one retail store in Short Hills, New Jersey. The retail network includes 87 superstores (2022—88) under the
Indigo and Chapters names, as well as 84 small format stores (2022—85) 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 2023, the Company employed an average of approximately 5,000 people (on a
full-time, part-time, and casual basis) and generated annual revenue of $1,057.7 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”).

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 provides resources including new books and learning materials, training,
and year-round curation support to high-needs elementary schools and children across the country, through
donations from Indigo, its customers, its suppliers, and its employees.

Ransomware Attack Update
On February 8, 2023, Indigo was the victim of a ransomware attack, resulting in internal operational
disruptions and service disruptions to both the ecommerce and retail channels. Upon discovery, the Company
immediately engaged third-party experts to assist Indigo in investigating and resolving the situation. As part
of the remediation work, Indigo proactively shut down some of its systems to prevent data from being
improperly accessed and has been working with third-party experts to strengthen its cybersecurity practices,
enhance data security measures and review existing controls. Through the investigation, Indigo determined
that its network was illegally accessed by criminals who deployed ransomware software known as “LockBit”.

6 MANAGEMENT’S DISCUSSION AND ANALYSIS

As a result of the attack, the Company’s digital platforms were temporarily unavailable for customers.
On February 17, Indigo launched a temporary website, which first acted as a browsable-only online home,
and on February 22 was updated to offer the sale of select books. This platform was used until March 8,
when Indigo restored its full website, including its traditional online product assortment. In store, the most
significant impact was to Indigo’s electronic payment processing capabilities, which were shut down for
approximately three days.

Indigo’s investigation of the ransomware attack did not find any indication that customer data was
improperly accessed, although the employee data of some employees was found to have been affected.
Law enforcement was notified of the issue, and current and former employees were notified that their
personal information may have been affected. Indigo retained the assistance of one of Canada’s leading
consumer reporting agencies to offer two years of credit monitoring and identity theft protection services at
no cost to the impacted employees. The Company continues to work closely with Canadian and U.S. law
enforcement in response to the attack.

The complete and long-term financial impact of the ransomware attack cannot be reasonably estimated
at this time; however, it has had a material impact on the Company’s fiscal 2023 financial results. The Company
maintains cyber insurance coverage, and is in the process of working with its insurer to make claims under
the policy. However, due to the complexity of cyber insurance coverage, there will be a time lag between
the business interruption and response and remediation costs, and the recovery of insurance proceeds, the
extent of which management cannot reasonably predict. Furthermore, management cannot predict the future
costs expected to be incurred in fiscal 2024 to complete remediation, as well as the impact of any residual
changes to consumer behaviour as a result of the incident.

Statement on COVID-19
On March 11, 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization.
The Company, and the retail industry, continue to navigate the impacts of the COVID-19 pandemic, which
have included government imposed restrictions such as closures, quarantine policies and social distancing
measures, as well as the indirect impacts to the global economy. All of these impacts had, and can continue
to have, negative effects on the Company’s retail operations, distribution centres, head office operations and
supply chain.

Since the pandemic began, the Company has experienced rolling closures and capacity restrictions
to its retail network, as directed by local governments and public health authorities. This notably included
Canada-wide closures that negatively impacted the Company’s retail operations. All stores remained open
throughout fiscal 2023, while 93 retail locations were closed for part of the first quarter in the prior year.
The Company also implemented mandated government capacity restrictions in the third and fourth quarters
of the prior year, which adversely affected retail traffic in the Company’s store network, particularly during
critical holiday selling weeks in the month of December.

In fiscal 2023, the Company recognized $1.0 million of external COVID-19 support, all in the form of
occupancy expense abatement. In the prior year, the Company recognized $12.9 million of external COVID-19
support; $7.7 million of occupancy expense abatement, $2.3 million from the Canada Emergency Wage
Subsidy (“CEWS”) and $2.9 million from the Canada Emergency Rent Subsidy (“CERS”). The CEWS and
CERS programs ended in fiscal 2022. The Company did not qualify for COVID-19 subsidies under any
newly introduced programs in fiscal 2023.

The COVID-19 pandemic has introduced volatility to the economy and financial markets on a global
scale, impacted consumer spending and disrupted supply chains, the extent of which will depend on future
developments that are highly uncertain and cannot be reliably forecasted. 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. Investors should also refer to the risks described below under “Risks and Uncertainties”.

ANNUAL REPORT 2023 7

The Company’s top priority remains the health and safety of its customers, employees and communities,

and safeguarding the financial strength of the business.

General Development of the Business
Since 1997, Indigo has been its customers’ self-declared “happy place”—a next-generation cultural concept
store, where worlds are illuminated with stories, ideas, and things that bring joy.

Indigo’s mission is to inspire reading and to simplify its customers’ journey to live with intention. Anchored
by books and complimented by a curated general merchandise assortment, the Company endeavors to
empower its customers to actively identify what they value most and to support them in living in alignment
with those values; in living a life, on purpose™ lifestyle. Through thoughtful curation of products that fill hearts
and homes, delivering content that encourages reflection and inspiration, and by building connection in
communities served, Indigo seeks to bring tremendous value to the Canadian retail landscape.

As this landscape has shifted over the past twenty-five years, Indigo continues to evolve in its differentiated
and rich omnichannel shopping experience, aligning to the changing needs of its customers, employees, and
the communities it serves. The Company’s top priorities over the past three years and key strategies moving
forward include refining its assortment of thoughtfully-curated merchandise, developing Indigo’s store of the
future, reimagining Indigo’s digital presence, generating profitable growth, enhancing customer connections,
and fostering high performing teams.

In September 2023, Indigo celebrated its 25th anniversary with the launch of its new brand platform: life,
on purpose™, la vie, décidément ™. The national marketing campaign celebrated iconic Canadian authors and
culture shapers, highlighting how they live their lives with intention. As part of the celebration, Indigo created
an exclusive capsule collection of books and general merchandise products, and hosted special events and
experiences all month long to inspire customers to connect with what matters most to them.

Refine Merchandise Assortment
Indigo connects people to discovery, ideas and inspiration. Products are made to move you and shape you.
To fill hearts, and homes. They are designed for real life and made for real people.

Books are at Indigo’s core, offering customers access to over 12 million books online and tens of thousands
of titles in-store, with localized assortments that reflect the communities in which the Company operates. Indigo
has focused on maintaining strong Canadian market share against value retailers. This has been achieved
through thoughtful curation and reliable inventory management, strong brand awareness, extraordinary
convenience, consistent customer engagement and a constant focus on providing exceptional customer service.
Indigo’s print business is complemented by a curated general merchandise assortment comprised of
coveted proprietary and third-party brands. Over the past three years, the Company successfully expanded
its proprietary brand portfolio, which now includes OUI STUDIO™ and OUI™ Design (collectively “OUI”),
LOVE & LORE®, CARTA™, Auria®, NÓTA™, Wonder Co.™, Mini Maison™ and The Littlest™. The merchandise
is developed in-house by the Company’s design, global sourcing and merchandising teams, and the brands
extend across the Home, Wellness, Fashion, Paper, Kids and Baby categories. The focus is to continue
developing merchandise with compelling product margin rates that differentiate Indigo’s assortment and build
brand affinity.

The Company believes that its merchandising strategy, of both coveted proprietary and third-party
brands, is a pillar to driving customer demand. In fiscal 2022, Indigo partnered with Canadian technology
start-up, Convictional Commerce Inc., to accelerate its growth of third-party inventory by refining the Company’s
dropship seller experience, delivering curation at scale on its digital platforms. In fiscal 2023, management
continued enhancing its merchandising practices and onboarding toolset to accelerate the growth of Indigo’s
general merchandise assortment. This included further expansion in categories including tech, plants, gourmet
foods, arts and crafts, record and fan shops, tween, wellness and baby. New third-party brands were introduced

8 MANAGEMENT’S DISCUSSION AND ANALYSIS

in all product categories. Management drove an omnichannel merchandising strategy to employ a holistic
view of selection and allocation through the optimization of existing retail space and allocating more space
to faster turning merchandise, and by broadening and growing product breadth and depth by leveraging
inventory management models such as dropship and consignment.

Indigo is continually focused on maintaining a coveted merchandise assortment while upholding strong
merchandising practices, including effective promotional strategies and elevated buying techniques, all of
which drive customer demand, lift full-priced sell through, and ultimately generate profitable growth.

Develop Indigo’s Store of the Future
Indigo retail stores reflect the Company’s transformation from a bookstore to a next-generation cultural concept
store; a physical and digital meeting place inspired by and filled with books, music, art, ideas, and beautifully
designed lifestyle products, all aimed at simplifying its customers’ journey to Living with Intention.

The distinction between physical and digital retail has evolved, and customers expect to have a seamless
experience with the Indigo brand, regardless of channel. Recognizing this, the Company continues to focus
on providing an omnichannel shopping experience with exceptional customer service, flexible access to
inventory and evolving digital innovation. In fiscal 2021, the Company invested further in its express pick-up
solution, which allows customers to order online and pick up in store within the same day.

In fiscal 2022, the Company began reimagining the function of its café spaces, with a focus on a market-
by-market, and sometimes store-by-store approach, to offer customers regional relevance and support local
businesses. The Company renegotiated its partnership with Starbucks Coffee Canada, Inc. (“Starbucks”),
and 36 cafés continue to operate as Starbucks within Indigo stores, while the remaining cafés located in
the Company’s superstores are being reimagined under the evolving Indigo brand retail experience. The
Company announced a partnership with Good Earth Cafes Ltd. to bring their Coffeehouse experience to
select locations across communities in Canada, and five Good Earth Cafes Ltd. were opened in fiscal 2023.
One Tunnel Espresso café and one Second Cup café were also opened within Indigo locations in the year.
The focus of Indigo’s reimagined café offering is on exceptional customer experience, delicious food and
drink, and partnering with like-minded, values-based organizations across the country.

The Company is constantly assessing how the physical retail landscape evolves with fundamental shifts in
consumer behaviour, to reimagine Indigo’s ‘Store of the Future.’ In fiscal 2023, the Company opened its first
iteration of a modernized ‘Store of the Future’ concept at the CF Rideau Centre in Ottawa. This store keeps
books at its core, highlights lifestyle assortment, and creates a community atmosphere by introducing both
centralized and dispersed seating, as well as playable kids’ fixtures. The Company plans to open another
new concept store in fiscal 2024 in downtown Toronto at The Well, one of the largest retail, corporate and
residential developments in Canada. The Company looks to continue reimagining the role and experience
of its physical store locations.

Reimagine Indigo’s Digital Presence
Indigo has created an omnichannel shopping experience, which provides customers a seamlessly integrated
physical and digital next-generation cultural concept store. Today, Indigo’s online channel offers customers
access to over 12 million book titles, along with an enhanced assortment of general merchandise, all designed
to help customers connect to the things that matter most to them.

Over the past several years, the Company has built a strong social media presence across Facebook,
Instagram, LinkedIn, Pinterest, Twitter, and TikTok with over 585,000 followers on Facebook and over 440,000
on Instagram. Some locations in the Company’s retail network have their own community social profiles. These
platforms further enhance customer engagement by building connection within communities, and with Indigo
as a whole.

ANNUAL REPORT 2023 9

In fiscal 2021, Indigo kicked off a comprehensive modernization strategy with the objective of evolving
its digital technology stack, dropship 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
digital acceleration experienced globally during the pandemic. Indigo’s Buy Online Pick Up In-Store (BOPIS)
experience was optimized to unlock further omnichannel functionality and roll out a seamless experience of
product pick-up in as little as two hours across the Canadian retail store network.

This strategy was furthered in fiscal 2022, when the Company embarked on a journey to fully re-design
a connected shopping experience and modernize its ecommerce technology. This included Indigo entering
into an agreement with Salesforce, Inc. for its market-leading commerce cloud solution to function as a critical
pillar of Indigo’s new digital architecture, offering personalized and tailored digital experiences. These efforts
continued in fiscal 2023 and are expected to continue in fiscal 2024, as the Company focuses on building
the evolved indigo.ca site experience. The modernized website will deliver an innovative and agile platform
that will allow the Company to further capitalize on the potential of the ecommerce opportunity unlocked
by accelerated adoption during the pandemic.

Generate Profitable Growth
Indigo is focused on the constant evolution of its business model, to generate profitable growth and ongoing
value for investors.

The macro-economic environment has created many challenges over the past several years, which have
impacted consumer behaviour and traffic patterns in retail locations, increased costs and caused volatility in
the retail industry as a whole. Indigo has weathered each of these challenges by maintaining brand strength,
constantly evaluating its current operating model, and focusing on driving efficiency. In the current year, the
Company focused on prudent expense management, including cost-reduction initiatives within its head office
operations and streamlining supply chain functions.

Moving into fiscal 2024, the Company expects to implement a new best-in-class retail labour model, built
in partnership with external advisors, to create efficiencies in store operations and adapt to the changes in
the physical retail landscape. Indigo is focusing on investments that drive high levels of return for the business
to optimize capital spending. The Company will continue focusing on creating operational efficiencies that
will increase free cash flow generation and strengthen profitability.

The Company is evaluating entering into a revolving line of credit facility to finance the working capital
and operational needs of the Company. As of the date hereof, no agreements have been entered into in
respect thereof.

On June 27, 2023, the Company received a binding commitment with respect to a revolving line of credit
facility with Trilogy Retail Holdings Inc. (“Trilogy”), as lender (the “Credit Facility”). Trilogy is controlled by
Mr. Gerald W. Schwartz, who is the controlling shareholder of Indigo. The Credit Facility is for an aggregate
principal amount of up to $45.0 million and, with the consent of Trilogy, the amount may be increased by up
to $10.0 million. The Credit Facility, which matures on December 31, 2023, has an interest rate of the Royal
Bank of Canada prime rate +1%, and will be used to finance the seasonal working capital and operational
needs of the Company. It will be issued on reasonable commercial terms, and will not be convertible, directly
or indirectly, into equity or voting securities. The Credit Facility will be subject to the terms and conditions of the
credit agreement anticipated to be entered into between the Company and Trilogy on or before July 31, 2023.

Enhance Customer Connection
At Indigo, customers are the heroes of the brand’s story. With stores in communities from coast to coast, its
customers are as diverse as the landscape. Embedding a deep customer understanding throughout the
organization is essential to the brand.

10 MANAGEMENT’S DISCUSSION AND ANALYSIS

The Company has spent the past several years reimagining its customer loyalty programs with a focus
on engaging in a two-way relationship with customers, connecting more deeply and communicating with
purpose. The Company has a two-tiered loyalty program: plum®, a free points-based tier; and plum® PLUS,
an annual fee-based tier. The foundation of these programs is to drive further customer value, while providing
the Company with analytics to equip teams in making customer-centric business decisions.

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
embrace a life, on purpose™ lifestyle, by unlocking access to experiences and benefits that extend beyond
their shopping journey. The Company aims to engage members with richer and more relevant products,
content, experiences and offers.

The plum® PLUS program has grown beyond the milestone of 600,000 members and is increasingly
becoming a strategic vehicle for the Company to meaningfully engage with its most loyal customers. 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 continued to build its customer-first culture by strengthening its capabilities to personalize each
member touch point, providing a rich omnichannel shopping experience.

Foster High Performing Teams
A key priority at Indigo has always been its people. With a focus on fostering engagement and high
performance, Indigo strives for an environment that encourages employees to bring their best selves to work.
The intention is to make diversity, equity and inclusion embedded in how employees work every day, to
create a culture where everyone feels like they can be their authentic self, and communities feel represented
and welcomed with joy.

The Company’s ambition is to be the best rewarding retail employer, not only in pay, but in a holistic
view of the employment relationship that includes a sense of purpose, meaningful relationships, benefits,
and flexible work opportunities. This Company-wide initiative focuses on driving engagement, and operational
excellence, while removing inefficiency from the Company’s work processes. By empowering teams with focused
roles and responsibilities, and fostering a culture that supports a true overall quality of life, Indigo seeks to
enable productivity, maintain stabilization of the workforce, and drive overall employee engagement. This
work involves partnerships across all areas of the Company and is expected to continue to evolve over the
next several years.

The success of this strategy is evidenced by ongoing record-high employee engagement. In the past
three years, the Company has maintained high employment engagement scores, increasing from 87% in
2021 to 90% in 2023. Indigo was recognized as a leading employer by Forbes “Canada’s Best Employers”
in 2022 and again in 2023, and has been recognized in the Globe and Mail’s Report on Business magazine’s
Women Lead Here awards. The resilience and hard work of the Indigo teams has allowed the business
to successfully respond to the ever-evolving challenges of the macro-economic environment over the past
several years.

ANNUAL REPORT 2023 11

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 1, 2023, 52-week period ended April 2, 2022 and 53-week period
ended April 3, 2021.

Key elements of the consolidated statements of earnings (loss) and comprehensive earnings (loss) for the

periods indicated are shown in the following table:

(millions of Canadian dollars)

Revenue
Cost of sales
Cost of operations
Selling, general and administrative expenses
Depreciation of right-of-use assets
Finance charges related to leases
Adjusted EBITDA1
Depreciation of property, plant and equipment
Amortization of intangible assets
Loss on disposal of capital assets
Net interest income
Impairment loss from equity investment
Gain on sale of equity investment
Expenses from ransomware attack
Earnings (loss) before income taxes

52-week
period ended
April 1,
2023

1,057.7
(641.5)
(262.8)
(106.9)
(41.4)
(25.6)
(20.5)
(15.7)
(9.9)
(0.1)
1.4
—
0.2
(5.2)
(49.8)

52-week
period ended
April 2,
2022

1,062.3
(619.2)
(245.7)
(104.3)
(36.1)
(24.5)
32.5
(16.0)
(11.9)
0.0
0.8
(2.0)
—
—
3.3

%
Revenue

100.0
60.7
24.8
10.1
3.9
2.4
1.9
1.5
0.9
0.0
0.1
—
0.0
0.5
4.7

%
Revenue

100.0
58.3
23.1
9.8
3.4
2.3
3.1
1.5
1.1
0.0
0.1
0.2
—
—
0.3

1 Earnings before interest, taxes, depreciation, amortization, asset disposals, income from equity investment, impairment, and certain non-recurring or unusual amounts, 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”.

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 information regarding this metric, refer
to “Non-IFRS Financial Measures”.

12 MANAGEMENT’S DISCUSSION AND ANALYSIS

Selected financial information of the Company for the last three fiscal years is shown in the following table:

(millions of Canadian dollars, except per share data)

Revenue
Superstores
Small format stores
Online
Other

Earnings (loss) before income taxes
Income tax recovery (expense)
Net earnings (loss)

Total assets
Lease liabilities (including current portion)
Working capital

Basic earnings (loss) per common share
Diluted earnings (loss) per common share

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

53-week

period ended
April 3,
2021

653.0
108.8
253.1
42.8
1,057.7

(49.8)
0.2
(49.6)

738.1
497.4
4.1

$(1.78)
$(1.78)

595.5
93.1
321.7
52.0
1,062.3

3.3
—
3.3

809.4
517.2
58.3

$0.12
$0.12

439.8
72.6
370.0
22.3
904.7

(56.9)
(1.0)
(57.9)

799.5
550.3
46.1

$(2.09)
$(2.09)

Selected operating information of the Company for the last three fiscal years is shown in the following table:

Stores Opened
Superstores
Small format stores

Stores Rebranded, Relocated, or Renovated
Superstores
Small format stores

Stores Closed
Superstores
Small format stores

Number of Stores Open at Year-End
Superstores
Small format stores

Selling Square Footage at Year-End (in thousands)
Superstores
Small format stores

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

53-week

period ended
April 3,
2021

1
—
1

1
1
2

2
1
3

87
84
171

2,044
235
2,279

—
—
—

9
—
9

—
4
4

88
85
173

1,941
222
2,163

—
1
1

—
—
—

—
20
20

88
89
177

1,941
231
2,172

ANNUAL REPORT 2023 13

Revenue
Total consolidated revenue for the 52-week period ended April 1, 2023 decreased $4.6 million or 0.4% to
$1,057.7 million from $1,062.3 million for the 52-week period ended April 2, 2022.

Merchandise sales, the total of retail and online sales and excluding other revenues, increased by $4.6 million
or 0.5% to $1,014.9 million for the year ended April 1, 2023, compared to $1,010.3 million in the prior year.
This growth was generated despite the headwinds of a challenging macro-economic environment. Sales
momentum halted in the fourth quarter, after the Company became victim to a ransomware attack which
shut down ecommerce platforms for several weeks, and limited payment processing in the retail network for
approximately three days. This had a material impact on sales in the fourth quarter and in the fiscal year.

The Company’s general merchandise business generated growth of 5.8% compared to the prior year.
This was fueled by double-digit growth in the paper, baby and wellness product categories. Paper was
positively impacted by the easing of COVID-19 restrictions, allowing for the continuation of celebrations and
the lift of giftable paper products including cards, gift wrap and party accessories. Both baby and wellness
were product categories in which the Company focused on expanding assortment, seeing the growth potential
in the Canadian market. The print business declined by 3.7%, negatively impacted by system limitations during
the ransomware attack which affected the ability to replenish inventory.

Retail revenue, which is inclusive of orders fulfilled through omnichannel store pick-up, increased by
$73.2 million or 10.6% to $761.8 million for the 52-week period ended April 1, 2023 compared to
$688.6 million in the prior year. Customers’ desire to shop in-store fueled a rebounding retail channel,
which in the Company’s second quarter drove sales above pre-pandemic levels and in the third quarter
delivered a record-breaking Boxing week.1 However, the Company also felt the downward pressures of a
challenging macro-economic environment which affected consumer behaviour, along with the impacts of the
ransomware attack, which limited store operations including the inability to process credit card payment for
approximately three days. Stores were open without any COVID-19 restrictions throughout the fiscal year,
compared to the prior year when the retail channel was challenged by closures and capacity restrictions.

Online revenue decreased by $68.6 million or 21.3% to $253.1 million for the 52-week period ended
April 1, 2023 compared to $321.7 million in the prior year. This decline was partially a result of a shift
in channel demand, as the retail network recovered from COVID-19 rolling store closures and capacity
restrictions in the prior year. Compared to fiscal 2020 pre-pandemic levels, the online channel sustained
year-to-date sales growth of 71% through January, demonstrating its importance as a lever of expansion
and investment for the Company. In February, the online sales channel was temporarily shut down by the
ransomware attack, which had a material impact on online sales in the fourth quarter. The full website was
restored after four weeks.

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 constraints 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”), e-book revenue sharing with Rakuten Kobo Inc. (“Kobo”) and other non-merchandise
revenue. Revenue from other sources decreased $9.2 million or 17.7% to $42.8 million for the 52-week
period ended April 1, 2023 compared to $52.0 million in the prior year. In the prior year, the Company
benefited from a one-time payment of $17.0 million from the renegotiation of its partnership with Starbucks.
In the current year, the Company benefited from higher plum® PLUS revenue form the growth of the
membership program and elevated breakage income related to a change in redemption patterns.

1 Historical data referencing 2013 onwards

14 MANAGEMENT’S DISCUSSION AND ANALYSIS

Revenue by channel is highlighted below:

(millions of Canadian dollars)

Superstores1
Small format stores1
Online (including store kiosks)
Other 2
Total

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

653.0
108.8
253.1
42.8
1,057.7

595.5
93.1
321.7
52.0
1,062.3

% increase/
(decrease)

9.7
16.9
(21.3)
(17.6)
(0.4)

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, sublease revenue, Kobo revenue share and a one-time payment from Starbucks.

Revenue by product line is as follows:

Print1
General merchandise2
Other3
Total

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

51.9%
44.1%
4.0%
100.0%

53.6%
41.5%
4.9%
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, subleases revenue, Kobo revenue share and a one-time payment from Starbucks.

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 $22.3 million to $641.5 million for the
52-week period ended April 1, 2023, compared to $619.2 million in the prior year. As a percent of total
revenue, cost of sales increased to 60.7% compared to 58.3% in the prior year.

Excluding the impact of online shipping costs, cost of sales increased by $28.1 million to $588.9 million
for the 52-week period ended April 1, 2023, compared to $560.8 million in the prior year. As a percent of
total revenue, cost of sales excluding the impact of online shipping costs increased to 55.7% compared to
52.8% in the prior year. Cost of sales was negatively impacted by the current macro-economic environment,
including the increased cost of inventory and a greater penetration of promotions compared to peak
pandemic, when full-priced sell-through was elevated. This was furthered by higher international freight
costs, which compared to the prior year were an incremental $5.5 million and $20.3 million compared
to pre-pandemic fiscal 2020 levels. As seen industry-wide, the Company was challenged by higher shrink
levels in the current year, costing an additional $10.3 million. In the prior year, the Company also benefited
from a one-time payment of $17.0 million from the renegotiation of its partnership with Starbucks, which had
a positive impact on cost of sales as a percent of total revenue. The increase in cost of sales was partially
offset by a higher proportion of sales from the retail channel, which typically has a higher margin profile,
and a one-time adjustment related to the settlement of aged payables in the current year.

ANNUAL REPORT 2023 15

Online shipping costs decreased by $5.8 million to $52.6 million for the 52-week period ended April 1,
2023, compared to $58.4 million in the prior year. While the increased cost of fuel negatively impacted the
variable rate of shipping, the absolute cost decreased compared to the prior year, driven by the discussed
reduction in online sales.

Cost of Operations
Cost of operations includes all store, store support, online, and distribution centre costs. Cost of operations
increased by $17.1 million to $262.8 million for the 52-week period ended April 1, 2023, compared to
$245.7 million in the prior year. As a percent of total revenue, cost of operations increased to 24.8%
compared to 23.1% in the prior year. The increase in cost of operations was primarily driven by reduced
external support received in the current year. The Company received $1.2 million of funding recognized
against cost of operations, from COVID-19 occupancy expense abatement and the Canada Book Fund,
administered by the Minister of Canadian Heritage (“Canada Book Fund”). In the prior year, the Company
recognized a total of $10.8 million of external COVID-19 support through CEWS, CERS, and occupancy
expense abatement. Cost of operations was further impacted by increased labour costs incurred to support
technological advances to the online sales channel.

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. Selling, general and administrative expenses increased
$2.6 million to $106.9 million for the 52-week period ended April 1, 2023, compared to $104.3 million in
the prior year. As a percent of total revenue, selling, general and administrative expenses increased to 10.1%
compared to 9.8% in the prior year. This was driven by increased strategic spending associated with the
modernization of the Company’s ecommerce technology, furthered by additional marketing initiatives after
a softer marketing program in the prior year. These additional costs were partially offset by a reduction in
incentive compensation.

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 increased by $6.4 million to $67.0 million for the 52-week
period ended April 1, 2023, compared to $60.6 million in the prior year. Lease modifications recognized in
the prior year resulted in a lower amortization balance, which drove the year-over-year variance. The current
period amortization is more reflective of a normalized expense.

Adjusted EBITDA
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, asset disposals,
share of loss from equity investment, impairment, and certain non-recurring or unusual amounts, and includes
IFRS 16 right-of-use asset depreciation and associated finance charges. The impact of events that are non-
recurring or unusual in nature, that the Company believes are not otherwise reflective of ongoing operations
and which would make comparisons of underlying financial performance between periods difficult, are
excluded from the calculation of Adjusted EBITDA.

Adjusted EBITDA decreased by $53.0 million to a loss of $20.5 million for the 52-week period ended
April 1, 2023, compared to earnings of $32.5 million in the prior year. Adjusted EBITDA, as a percent of total
revenue, was a loss of 1.9%, compared to earnings of 3.1% in the prior year. The ransomware attack caused
an interruption to the Company’s operations, including the temporary shut down of ecommerce platforms.
The full website was restored after four weeks. While the complete financial impact cannot be reasonably
estimated at this time, it had a material detrimental impact on fiscal 2023 Adjusted EBITDA. Adjusted EBITDA
was also adversely impacted by the headwinds of the current macro-economic environment. The Company

16 MANAGEMENT’S DISCUSSION AND ANALYSIS

incurred $5.5 million of incremental international freight, along with increased cost of inventories and a greater
penetration of promotions compared to peak pandemic, when full-priced sell-through was elevated. As
seen industry-wide, the Company was also challenged by higher shrink levels, which totaled an incremental
$10.3 million in the current year. Additional costs were incurred on enabling infrastructure to support a
modernized ecommerce technology, as well as additional amortization of the Company’s right-of-use assets,
impacted by lease modifications recognized in the prior year. This was furthered by a reduction in total
government grants and COVID-19 support payments, which were $4.0 million in the current year, compared
to $12.9 million in the prior year.

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 1, 2023 decreased $2.3 million to $25.6 million compared to $27.9 million in the prior year.
The decrease was primarily driven by reduced intangible asset amortization, a result of intangible assets
reaching full amortization in the prior year. The majority of intangible asset additions in the current year are
not ready for use, and therefore are not yet being amortized.

Capital expenditures in fiscal 2023 totaled $27.4 million compared to $15.4 million in the prior year,
and were primarily to support the Company’s strategic plans for ecommerce growth. Capital expenditures
included $24.0 million for digital application software and internal development costs, $2.3 million for
furniture, fixtures, equipment and leasehold improvements, net of tenant allowances, and $1.1 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, increased $0.6 million to $1.4 million for
the 52-week period ended April 1, 2023, compared to $0.8 million in the prior year, a result of increased
interest rates. The Company nets interest income against interest expense.

Equity Investment
The Company historically used the equity method to account for its share of earnings and losses from its equity
investment in Unplug Meditation, LLC (“Unplug”). During fiscal 2023, the Company sold its investment for
proceeds of $0.3 million, resulting in a gain on disposition of $0.2 million.

Ransomware Attack Costs
As at April 1, 2023, the Company had incurred $5.2 million of costs associated with the ransomware attack,
including breach response legal and professional fees, data remediation costs, hardware and software
restoration and incremental inventory scrap, amongst others.

In addition, the ransomware attack resulted in internal operational disruptions and service disruptions in
both sales channels. The Company’s ecommerce platform was heavily impacted, with the full website being
restored after four weeks. Furthermore, the retail network was unable to process electronic payments for
approximately three days. The financial impact associated with this business interruption cannot be reasonably
estimated at this time; however, it has had a material impact on the Company’s fiscal 2023 financial results.
Indigo maintains cyber insurance coverage, and is in the process of working with its insurer to make
claims under the policy. However, due to the complexity of cyber insurance coverage, there will be a time
lag between the business interruption and response and remediation costs, and the recovery of insurance
proceeds, the extent of which management cannot reasonably predict.

ANNUAL REPORT 2023 17

Income Taxes
The Company recognized a non-cash deferred income tax recovery of $0.2 million for the 52-week period
ended April 1, 2023, compared to recognizing no income taxes in the prior year. Income taxes recognized
were impacted by the movement in cash flow hedges. Since fiscal 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 operating losses and uncertainty surrounding future taxable profit being available against
which they can be utilized. In the prior year, the Company recognized no income tax expense on net
earnings due to the offsetting deferred income tax recovery from the re-recognition of deferred tax assets.

The Company’s effective tax rate was 0.4%, compared to 0% in the prior year.

Net Earnings (Loss)
The Company recognized a net loss of $49.6 million for the 52-week period ended April 1, 2023 ($1.78
net loss per common share), compared to net earnings of $3.3 million ($0.12 net earnings per common
share) in the prior year, a change of $52.9 million. The ransomware attack caused an interruption to the
Company’s operations, including the temporary shut down of ecommerce platforms. The full website was
restored after four weeks. While the complete financial impact cannot be reasonably estimated at this time,
it had a material detrimental impact on the fiscal 2023 net loss position. Furthermore, the headwinds of
the current macro-economic environment impacted consumer behaviour and adversely affected costs. The
Company incurred incremental international freight, increased cost of inventories and a greater penetration
of promotions compared to peak pandemic, when full-priced sell-through was elevated. The Company was
also challenged by higher shrink levels, consistent with current industry trends, and incurred additional costs
associated with its ecommerce modernization. The change in net earnings (loss) was furthered by reduced
government grants and COVID-19 support payments received in the current year.

Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of gains and losses related to hedge accounting and the
Company’s foreign currency translation adjustments. The Company has a formal hedging policy to
mitigate foreign exchange risk, entering into contracts 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.

As at April 1, 2023, the Company had an unrealized net gain of $0.7 million and remaining contracts in
place representing total notional amounts of C$14.1 million, compared to an unrealized net loss of $0.6 million
and total notional amounts of C$67.1 million as at April 2, 2022.

For the 52-week period ended April 1, 2023, the Company recognized other comprehensive income of
$1.1 million from the Company’s cash flow hedges, compared to other comprehensive income of $1.0 million
in the prior year.

The Company also recognized an other comprehensive loss of $0.2 million from foreign currency
translation adjustments on consolidation of its foreign subsidiaries for the fiscal year ended April 1, 2023,
compared to an other comprehensive gain of below $0.1 million in the prior year.

These resulted in total other comprehensive income of $0.9 million for the 52-week period ended April 1,

2023, compared to total other comprehensive income of $1.0 million in the prior year.

18 MANAGEMENT’S DISCUSSION AND ANALYSIS

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 performance 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.

Q4
Fiscal
2023

Q3
Fiscal
2023

Q2
Fiscal
2023

April 1, December 31,
2022

2023

October 1,
2022

FISCAL QUARTERS

Q1
Fiscal
2023

July 2,
2022

Q4
Fiscal
2022

Q3
Fiscal
2022

Q2
Fiscal
2022

April 2,
2022

January 1,
2022

October 2,
2021

Q1
Fiscal
2022

July 3,
2021

194.2
(42.5)

422.7
34.3

236.2
(15.9)

204.6
(25.4)

220.7
(23.4)

430.7
45.1

238.8
3.5

172.1
(21.9)

$(1.53)

$1.23

$(0.57)

$(0.91)

$(0.84)

$1.62

$0.13

$(0.79)

$(1.53)

$1.22

$(0.57)

$(0.91)

$(0.84)

$1.60

$0.13

$(0.79)

(millions of Canadian dollars,
except per share data)

Revenue
Net earnings (loss)
Basic earnings (loss)
per common share
Diluted earnings (loss)
per common share

For the 13-week period ended April 1, 2023, total consolidated revenue decreased by $26.5 million or
12.0% to $194.2 million compared to $220.7 million for the 13-week period ended April 2, 2022, primarily
a result of the ransomware attack which led to internal operational disruptions and service disruptions in
both sales channels. The Company’s ecommerce platform was heavily impacted, with the full website being
restored after four weeks. Furthermore, the retail network was unable to process electronic payments for
approximately three days.

The Company recognized a net loss of $42.5 million for the 13-week period ended April 1, 2023, ($1.53
basic net loss per common share), compared to a net loss of $23.4 million ($0.84 basic net loss per common
share) in the same period in the prior year. The change in the current year was driven by the impacts of the
ransomware attack. This included significant business interruption that had a material impact on sales, along
with an additional $5.2 million of expenses incurred, including breach response and remediation costs.

Overview of Consolidated Balance Sheets
Assets
As at April 1, 2023, total assets decreased $71.3 million to $738.1 million, compared to $809.4 million as at
April 2, 2022. This was primarily driven by decreases in inventories, cash and cash equivalents, net capital
assets, and prepaid expenses. Inventories decreased by $29.8 million; while the Company was strategically
rightsizing inventory to further align with evolving customer demand, the ransomware attack also caused system
limitations which impacted replenishment abilities. Cash and cash equivalents decreased by $21.4 million,
which was primarily driven by the net loss recognized over the year. This was partially offset by increased
cash generated from working capital, positively impacted by the reduction in inventories on hand. Cash was
further impacted by higher capital investment in digital infrastructure. Net capital assets decreased by $13.2 million,
as the above-mentioned capital investment and year-to-date lease modifications were outpaced by total
depreciation and amortization. Prepaid expenses decreased by $6.7 million due to the timing of rent payments,
impacted by differing year end dates.

ANNUAL REPORT 2023 19

Liabilities
As at April 1, 2023, total liabilities decreased $23.4 million to $758.1 million, compared to $781.5 million
as at April 2, 2022. This was primarily driven by net decreases in lease liabilities and accounts payable and
accrued liabilities, partially offset by an increase in unredeemed gift card liabilities. Lease liabilities had a net
decrease of $19.7 million, which reflects the impact of principal and interest repayments over the past year,
less lease modifications recognized. Accounts payable and accrued liabilities decreased by $8.3 million,
driven primarily by the above-noted slowdown in inventory purchasing in the fourth quarter of fiscal 2023
compared to the prior year. This was partially offset by an increase of $4.2 million in unredeemed gift card
liabilities, impacted by higher activations over the past year on the recovery of the Company’s retail network,
as well as system limitations on gift card usage in the fourth quarter after the ransomware attack.

Equity
Total equity at April 1, 2023 decreased $47.8 million to a deficit of $20.0 million, compared to equity of
$27.8 million as at April 2, 2022, driven primarily by the net loss of $49.6 million recognized over the past
four quarters.

The weighted average number of common shares outstanding for fiscal 2023 was 27,814,444 compared
to 27,771,387 in the prior year. As at April 1, 2023, the number of outstanding common shares was
27,352,711 with a book value of $227.1 million. As at June 27, 2023, the number of outstanding common
shares was 27,497,711.

Working Capital and Leverage
The Company reported working capital of $4.1 million as at April 1, 2023, compared to $58.3 million as at
April 2, 2022. The decrease in working capital compared to the prior year was primarily driven by the
discussed decrease in inventories and cash and cash equivalents, partially offset by a decrease in accounts
payable and accrued liabilities.

Overview of Consolidated Statements of Cash Flows
Cash and cash equivalents decreased $21.4 million for the 52-week period ended April 1, 2023 compared
to an increase of $1.5 million in the prior year. The decrease in cash in the period was driven by cash flows
used in financing activities and investing activities of $71.8 million and $25.6 million, respectively. This was
partially offset by cash flows generated from operating activities of $77.8 million. For more information, refer
to the “Consolidated Statements of Cash Flows” in the Company’s consolidated financial statements.

Cash Flows From Operating Activities
The Company generated cash flows of $77.8 million from operating activities in the 52-week period ended
April 1, 2023 compared to generating cash flows of $81.3 million in the prior year, a change of $3.5 million.
This was primarily a result of the $53.0 million decrease in Adjusted EBITDA recognized in the current year,
mostly offset by an increase in cash generated from working capital of $46.5 million. The increase in cash
generated from working capital was impacted by the reduction in inventory levels, furthered by lower
prepaid expenses due to the timing of year end dates. This was partially offset by the associated reduction
in accounts payable.

Cash Flows Used for Investing Activities
The Company used cash flows of $25.6 million for investing activities in the 52-week period ended April 1,
2023 compared to $13.5 million in the prior year, a change of $12.1 million. This was driven by investment
in the Company’s digital ecosystem as it embarked to fully re-design a connected shopping experience
and modernize its ecommerce technology. For more discussion on Indigo’s digital investments, refer to the

20 MANAGEMENT’S DISCUSSION AND ANALYSIS

“General Development of the Business”, specifically under “Reimagine Indigo’s Digital Presence” in this MD&A.
Cash was used for capital projects as follows:

(millions of Canadian dollars)

Furniture, fixtures, equipment, and leasehold improvements, net
Intangible assets (digital application software and internal development costs)
Technology equipment
Total

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

2.3
24.0
1.1
27.4

1.9
12.1
1.4
15.4

Cash Flows Used for Financing Activities
The Company used cash flows of $71.8 million for financing activities in the 52-week period ended April 1,
2023 compared to using cash flows of $66.1 million in the prior year, a change of $5.7 million. This was
driven by higher repayments on the Company’s IFRS 16 lease obligations.

Liquidity and Capital Resources
The Company has a highly seasonal business that generates a significant portion of its revenue and cash
flows during the holiday 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 operations and cash and cash equivalents.

The contractual maturities of the Company’s current and long-term liabilities as at April 1, 2023 are as follows:

(millions of Canadian dollars)

Less than 1 year

2-3 years

4-5 years

After 5 years

Total obligations

240.9

115.4

129.0

185.7

Total

671.0

This is inclusive of the Company’s IFRS 16 lease liabilities, which represent $497.4 million of the obligations

listed above.

For additional discussion surrounding risks and uncertainties related to liquidity, refer to the “Risks and

Uncertainties” section in this MD&A.

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 the 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

ANNUAL REPORT 2023 21

made by management, 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, revenues, 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 estimating 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).

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

22 MANAGEMENT’S DISCUSSION AND ANALYSIS

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, revenues, 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 merchandise. 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
settlement accrual to cover any disputes between the Company and its vendors. The Company estimates
this reserve based on historical 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
Lease liabilities are 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. 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).

ANNUAL REPORT 2023 23

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 the relative stand-alone selling price. 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.

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 ‘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, 2023. Earlier
application is permitted. 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 additional 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, will
not implement the amended standard using a retrospective application methodology as the IASB concluded
that the benefits of doing so would be minimal, and have not made such application required.

Risk Factors
The Company is exposed to a variety of risk factors and has identified the principal risks inherent in its
business. The relative severity of these principal risks is impacted by the external environment and the
Company’s business strategies and, therefore, will vary from time to time.

The Company cautions that the following discussion of risk factors that may affect future results is not
exhaustive. The Company’s performance may also be affected by other specific risks that may be highlighted

24 MANAGEMENT’S DISCUSSION AND ANALYSIS

from time to time in other public filings of the Company, which are available on the Canadian securities
regulatory authorities’ website at www.sedar.com. When relying upon forward-looking information to make
decisions with respect to the Company, investors and others should carefully consider these factors, as well
as other uncertainties, assumptions, global macro-economic and geopolitical events (including war, acts of
terrorism and civil disorder), industry, and Company-specific factors that may adversely affect future results. The
Company assumes no obligation to update or revise previously filed public documents to reflect new events
or circumstances, except as required by law.

Public Health Crises
The Company could be negatively affected by the adverse impacts of any outbreaks of epidemics, pandemics,
or other public health crises, including the ongoing impacts of the COVID-19 pandemic.

As a result of the COVID-19 pandemic, to protect the health and safety of its customers and employees,
the Company complied with government-mandated rolling store closures and store capacity restrictions,
which negatively impacted retail revenues. Changes in consumer behaviour and preferences, global supply
chain disruptions, and fluctuating commodity prices, amongst other impacts, further affected the Company’s
operations and financial results.

Any future health crises, along with any ongoing impacts of the COVID-19 pandemic, may directly or
indirectly materially and adversely affect the Company’s operations and financial results in future periods. The
full extent depends on developments which cannot be predicted. Investors should also refer to the discussion
in the “Statement on COVID-19”.

Economic Environment
Traditionally, retail businesses are highly susceptible to market conditions. 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 1, 2023 and anticipated to continue in
fiscal 2024 could curtail consumer spending. A decline in consumer spending, especially during the third
quarter holiday sales season, could have an adverse effect on the Company’s financial condition. Pandemics,
such as the 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, disruptions 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 ongoing 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 prices. Many of these competitors, as well as other retailers, also offer
e-reading options, which compete for share of the customer’s discretionary book and entertainment budget.
The general merchandise retail landscape also features significant competition from established retailers
and disruptive ecommerce 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 companies that sell lifestyle and specialty toy products through both physical and

ANNUAL REPORT 2023 25

digital platforms. New competitors frequently enter the market and existing competitors may increase market
presence, expand merchandise offerings, add new sales channels, or change their pricing methods, all of which
increase competition for customers.

Many of the Company’s current and potential future competitors are global, have higher brand recognition,
larger online presences 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, at accessible price points, as well as aggressive expansion,
merchandising or discounting, 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 consumer 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
however, there can be no assurances that Indigo’s strategy will be successful.

The Company may be subject to growth-related risks as it undertakes its strategic initiatives, such as
expansion into new markets or the launch of new initiatives. Undertaking such initiatives could place a
significant strain on the Company’s management, operations, technical performance, financial resources,
and internal financial control and reporting functions, as well as the inability to realize said initiatives. 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.
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.

26 MANAGEMENT’S DISCUSSION AND ANALYSIS

Other adverse events may also damage the Company’s reputation and brands at the corporate or retail
level. Should negative factors materialize and diminish Indigo’s brand equity, there could be a material adverse
effect on the Company’s operations and financial condition and performance.

Culture
Failing to build and maintain a unique values-based culture that promotes trust, collaboration, dignity, mutual
respect, entrepreneurial spirit, accountability, engagement, operational excellence, and high performance
amongst and by the Company’s employees and leadership team 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 its print and general merchandise suppliers to deliver merchandise within agreed
upon timelines and on acceptable commercial terms. These suppliers are impacted by, amongst other things,
increases in input costs, availability of raw materials, inflation, labour disputes and disruptions, regulatory
changes, political or economic instability, natural disasters, geopolitical risks, trade restrictions, border
restrictions, tariffs, currency exchange rates and transport costs. Collectively and individually, these factors are
beyond the Company’s control and a failure to maintain competitive terms and strong relationships with these
suppliers, or the absence of key suppliers, may affect the Company’s ability to compete in the marketplace.

A significant portion of the Company’s general merchandise assortment is purchased from overseas
suppliers. As such, events causing disruptions to imports, changes in trade restrictions and tariffs, or currency
fluctuations could negatively impact the Company’s revenues and margins. The Company does not enter into
long-term contracts with overseas suppliers and generally operates without assurances of continued supply
or stable commercial terms. To date, the Company has not experienced any significant difficulty in sourcing
merchandise and considers its supply base to be adequate. The Company has continued to experience
fluctuations in timelines and costs associated with overseas shipments as the global supply chain continues
to recover from the effects of COVID-19 and the Russia-Ukraine conflict.

The Company is also reliant on third parties to provide services which are 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 business 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.

Indigo is in the process of modernizing its digital operations, including a complete redevelopment of the
Company’s website and omnichannel technology. This digital transformation effort has resulted in a greater
dependence on third-party technology and cloud computing providers to ensure that critical business and
consumer facing systems are functional and secure. Disruptions to the reliability of these systems could lead
to a negative impact on the Company’s performance and reputation.

Indigo relies on third-party logistics partners to fulfill sales transactions with its customers in a dependable
and timely manner for its ecommerce business. Changes in geographic coverage, service levels, capacity
levels, financial stability and labour disruptions at the Company’s logistics partners, 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,

ANNUAL REPORT 2023 27

the Company has comprehensive health and safety programs in place and has established policies and
procedures aimed at ensuring compliance with applicable legislative requirements. In addition, the Company
continues to monitor the status of the COVID-19 pandemic.

Remote Work
The Company has adopted a hybrid work model for most of its head office roles which allows for some
portion of work to be conducted remotely from employees’ 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 management, on the Company’s Board of Directors, and other key areas. Throughout 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 at all levels of the Company could result in a lack of requisite knowledge, skill and
experience. If the Company does not continue to attract qualified individuals, adequately 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.
The Company may be negatively impacted by the loss of the services of key personnel and challenges in
connection with management team and Board transitions, including but not limited to the changes discussed
under “Indigo Team” in the Annual Information Form. Any of such events could have a material adverse effect
on the Company.

Labour Relations
The majority of the Company’s employees are not subject to a collective bargaining agreement. Unions may
attempt to organize 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, disruptions or work stoppages
involving some or all of the Company’s employees which could adversely affect Indigo’s reputation, 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.

28 MANAGEMENT’S DISCUSSION AND ANALYSIS

The Company engages with a growing number of vendors on dropship fulfillment terms, mitigating the
inventory management risk and offering the Company greater flexibility to respond to changes in customer
demand. The Company also works with general merchandise vendors to negotiate promotional and markdown
support to aid in the successful exit of non-returnable products. 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.

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 product 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 product 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 introduce 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 internationally 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 processes, which
rely 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 disruptions 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 courier services used by the Company
to last mile ship may also adversely impact the business and its ability to operate profitably.

ANNUAL REPORT 2023 29

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, impacts of the ransomware attack, general public health sentiments on retail store traffic and
associated changes in consumer preferences. Operating cash flows could also be negatively impacted by
increased expenses, and although the Company has the ability to alter its cost structure in response to such
an event, the effectiveness and timing of those actions cannot be guaranteed.

Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known
to date, it is expected that the Company’s current cash position, future cash flows generated from operations
and the Credit Facility will be sufficient to meet its working capital requirements for fiscal 2024. 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 and reduce capital spending if necessary. However, the current
macro-economic environment continues to introduce additional risks to 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.

Receivable 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 instruments.

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 are 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 counter-
parties and by managing within specific 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 purchase 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 impacts the interest
earned on Indigo’s cash and cash equivalents.

30 MANAGEMENT’S DISCUSSION AND ANALYSIS

The Company’s indebtedness under the Credit Facility will expose the Company to additional risks
associated with fluctuating interest rates. Required interest payments will create financial risks including the
need to divert funds identified for other purposes which could create additional cash demands and impact
the Company’s liquidity position. If the Company cannot generate sufficient cash flow from operations to
service outstanding debt, it may be required to obtain the necessary funds through refinancing, disposing
of assets, reducing expenditures, issuing equity, or other means. The current market volatility may adversely
impact interest rates in the future, as well as the Company’s ability to borrow under the Credit Facility.

Indigo Credit Risk
The Company is exposed to operational risk from the adverse impact of fluctuations in its own credit rating,
which may hinder its ability to negotiate commercially favourable purchase terms and debt facilities.

The Company’s indebtedness under the Credit Facility may fluctuate, up to the principal amount thereof, at
the Company’s discretion. The credit agreement in respect of the Credit Facility will contain financial covenants.
The Company’s ability to make additional borrowings under the Credit Facility will depend upon compliance
with these and other covenants. The ability to comply with these covenants and requirements may be affected
by events beyond the Company’s control. Failure to comply with obligations under the Credit Facility could
result in an event of default thereunder. A default, if not cured or waived, would prohibit the Company from
obtaining further loans under the Credit Facility and permit the lender thereunder to accelerate payment of the
loans. In addition, the lender would have the right to proceed against the collateral securing the Credit Facility,
which will consist of substantially all of the Company’s assets. If the debt is accelerated, the Company cannot
be certain that it will have funds available to pay the accelerated debt or that it will have the ability to refinance
the accelerated debt on favorable terms, or at all. If the Company could not repay or refinance the accelerated
debt, it could be insolvent and could seek to file for bankruptcy protection. Any such default, acceleration, or
insolvency would likely have a material and adverse effect on the business.

The degree of leverage held by the Company could negatively impact the Company’s operations, through
increased cash expense associated with interest, exposing the Company to debt capital market risk including
interest rate risks, limiting the ability to obtain other forms of financing, and restricting flexibility of discretion
over the operations of the business, amongst others.

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 commodity prices on the price of consumer products. Rising commodity prices
could adversely affect the financial performance of the Company.

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 conditions, 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 continues to lag
behind historical levels after being adversely impacted by the COVID-19 pandemic and the geopolitical unrest
stemming from Russia, the world’s largest producer of palladium and high-grade nickel, potentially further
escalating supply chain disruptions.

ANNUAL REPORT 2023 31

Real Estate
The Company leases all of its retail locations, distribution centres and its head offices, and is thus susceptible
to the risks associated with leasing real property. Some of these risks include the changing supply or
demand for retail premises, redevelopment or rezoning of existing leased locations, inflationary pressures on
labour and materials to construct new or renovate existing locations, a change in the mix of complementary
co-tenants in retail centres where the Company operates and shifting consumer preferences that could
negatively impact both the popularity of specific retail locations and the retail channel as a whole.

The Company enters into a variety of short, medium and long-term leases for its retail locations based on
a variety of factors, such as store performance, demographic trends and developments in the market. Deal
structures contemplate a range of financial commitments, including traditional fixed rent, percentage rent and
combinations of both structures. Although leases are closely monitored by management, and the Company
focuses on maintaining positive relationships with its landlords, there can be no assurances that the Company
will be able to extend, renew or continue to lease its existing locations, or identify and secure alternative suitable
locations on favourable terms and conditions. Unforeseen increases in occupancy costs, or costs incurred due
to unanticipated store closings or relocations, could also unfavourably impact the Company’s performance.
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, including increase in re-leasing timelines,
potential delays in lease-up of vacant space and the market terms at which such subleases can be executed.
The Company is actively working with a number of new and existing café vendors, including local, regional
and international brands, to bring those café experiences into the Company’s retail locations, however there
are no assurances that these negotiations will result in any new café locations, or that these partnerships will
materially benefit the Company’s financial position.

Insurance Coverage
The Company maintains insurance customary for businesses of its size and scope of operations, including liability
insurance, property and business interruption insurance, cargo 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, maintaining its competitive position in the marketplace and
enabling 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.

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 providers to protect their 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.

32 MANAGEMENT’S DISCUSSION AND ANALYSIS

As described above in “Description of the Business—Information Systems”, the Company continues to
invest in new technologies to expand its competitiveness and customer experience. Customers expect innovative
concepts and a positive customer 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 certain 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, reducing 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 infrastructure, 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. Indigo has invested substantially to increase its IT-security posture, however, 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 attacks in the future, a technique used by hackers to
take an Internet service offline by overloading its servers. To mitigate these risks, Indigo has reinforced its Third-
Party Risk Management (“TPRM”) process, which include deploying reputable and reliable security measures.
Techniques used to obtain unauthorized access change frequently, ranging from denial-of-service attacks
to social engineering. Ransomware attacks are increasing exponentially while phishing attempts remain
a constant industry threat. Indigo has deployed Endpoint Detection and Response (“EDR”) solutions on
all assets to reduce the risk of compromise. Since techniques used to obtain unauthorized access change
frequently, the Company has deployed multi-factor authentication requirements for any access to Indigo’s
network, along with tighter security to manage privileged accounts. A data loss or security breach stemming
from one of these ransomware or denial of service 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 heightened in
recent years 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 2023 33

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.
Indigo’s adoption of point-to-point encryption technology secures the Credit Card Primary Account Number
(PAN). The Company also receives, transmits and stores a large volume of personally identifiable information
from current and potential customers which is exposed to 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, networks, and cloud-based service providers. As the cyber
threat landscape evolves, the Company has expended 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 and “Ransomware Attack Update” in this MD&A.

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, cyber attacks, 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 procedures
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 satisfaction, 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
From time to time, in the normal course of business, Indigo becomes involved in litigation and disputes. The
outcomes of regulatory 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 condition 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

34 MANAGEMENT’S DISCUSSION AND ANALYSIS

management. While the final outcome of such claims and litigation pending as at April 1, 2023 cannot be
predicted with certainty, management believes that any such amount would not have a material impact on the
Company’s financial position.

Regulatory Environment
The Company’s operations and activities are subject to a number of laws and regulations in Canada, the
United States and 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 enforcement, 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.

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 favourable terms and access to essential products, which could negatively impact the
Company’s revenues and margins and its ability to compete in the marketplace. Foreign investments to acquire
control of Canadian “cultural businesses,” which include businesses engaged in the sale and distribution
of books, are subject to review under the Investment Canada Act. There is no assurance that the existing
regulatory framework will stay the same in the future or that it will continue to act as a potential constraint
on either (i) foreign-owned retailers from competing in Canada or (ii) the acquisition by foreign investors of
Canadian retailers involved in cultural businesses. 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 privacy 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
collection, 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.

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/provincial and local levels. Regulation relating to emission levels (such

ANNUAL REPORT 2023 35

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.

The physical risk of climate change could also have an adverse effect on the Company’s operations.
These risks include extreme 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 effective 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 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 reasonable assurance that all material information relating to the Company is gathered and
reported on a timely basis to senior management, 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 1, 2023.

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 1, 2023.

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 1, 2023 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
During the year, the Company relocated its Enterprise Resource Planning (“ERP”) system from on-premise
servers to a third-party cloud storage facility. The Company implemented additional controls during the
transition period to adequately mitigate the risks associated with the migration.

The Company has determined that no other material changes in internal controls over financial reporting

have occurred in this period.

36 MANAGEMENT’S DISCUSSION AND ANALYSIS

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. 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
ongoing impacts from the ransomware attack; future impacts of the COVID-19 pandemic; 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 statements and there can be no
assurance that results or developments anticipated by the Company will be realized or, even if substantially
realized, that they will have the expected consequences to, or effects on, the Company. See “Risk Factors”
in this MD&A for additional information about factors or assumptions that could cause actual results to differ
materially from expectations and that are applied in making forward-looking information.

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 occupancy 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. Adjusted EBITDA also excludes the impact
of certain events that are non-recurring or unusual in nature that the Company believes are not otherwise
reflective of ongoing operations and which would make comparisons of underlying financial performance
between periods difficult.

Reconciliations between Adjusted EBITDA and earnings (loss) before income taxes (the most comparable

IFRS measure) were included earlier in this report under “Results of Operations”.

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 associated with COVID-19, the Company believes comparable store sales and total
comparable sales are not currently representative of the underlying trends of the business, and as a result,
these metrics have not been reflected in this MD&A.

ANNUAL REPORT 2023 37

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 1, 2023 and April 2, 2022, and
the consolidated statements of earnings (loss) and comprehensive earnings (loss), consolidated statements of
changes in equity (deficit) and consolidated statements of cash flows for the 52-week periods then ended,
and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at April 1, 2023 and April 2, 2022, and its
consolidated financial performance and its consolidated cash flows for the 52-week periods 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 judgment, were of most significance in the audit
of the consolidated financial statements of the current period. This matter was 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 this matter. For the 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 this matter. Accordingly,
our audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The results of our audit procedures, including
the procedures performed to address the matter below, provide the basis for our audit opinion on the
accompanying consolidated financial statements.

38 INDEPENDENT AUDITOR’S REPORT

Key Audit Matter

How our audit addressed the key audit matter

Valuation of property, plant and equipment, right-of-use-assets and intangible assets (collectively, “long-lived assets”)

As at April 1, 2023, the Group has $52 million of
property, plant, and equipment, $35 million of
intangible assets and $318 million 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 impair-
ment 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 Group estimates the recoverable
amount of the CGUs or group of CGUs using a
discounted cash flow model.

Auditing management’s long-lived asset impair-
ment tests was complex, given the degree of judge-
ment 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 con-
sumer behaviour and the impacts of the COVID-19
global pandemic.

To test the recoverable amount of the Group’s
CGUs or group of CGUs, our audit procedures
included, among others, assessing the significant
assumptions discussed above and underlying data
used by the Group in its analysis. With the assistance
of our valuations specialists, we evaluated the
Group’s model, valuation methodology and certain
assumptions, including 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 manage-
ment’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 performed 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.

ANNUAL REPORT 2023 39

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 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, misrepresentations, 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 disclosures 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 disclosures 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 disclosures, 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.

40 INDEPENDENT AUDITOR’S REPORT

We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements 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, actions taken
to eliminate threats or safeguards applied.

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.

June 27, 2023
Toronto, Canada

ANNUAL REPORT 2023 41

consolidated balance sheets

As at
April 1,
2023

As at
April 2,
2022

65,113
14,069
244,063
6,830
699
1,254
332,028
52,464
318,302
35,287
—
738,081

169,860
66,887
1,879
20,129
69,161
—
327,916
1,007
851
428,284
758,058

227,094
15,463
(262,969)
435
(19,977)
738,081

86,469
12,941
273,849
13,508
—
3,246
390,013
64,319
333,767
21,171
97
809,367

178,138
62,653
472
20,699
69,100
631
331,693
1,068
702
448,084
781,547

227,090
14,618
(213,403)
(485)
27,820
809,367

(thousands of Canadian dollars)

ASSETS
Current
Cash and cash equivalents (note 6)
Accounts receivable
Inventories (note 7)
Prepaid expenses
Derivative assets (note 8)
Other assets
Total current assets
Property, plant, and equipment, net (note 9)
Right-of-use assets, net (note 10)
Intangible assets, net (note 11)
Equity investment, net (note 12)
Total assets

LIABILITIES AND EQUITY (DEFICIT)
Current
Accounts payable and accrued liabilities (note 22)
Unredeemed gift card liability
Provisions (notes 14 and 22)
Deferred revenue
Short-term lease liabilities (notes 10 and 22)
Derivative liabilities (note 8)
Total current liabilities
Long-term accrued liabilities (note 22)
Long-term provisions (notes 14 and 22)
Long-term lease liabilities (notes 10 and 22)
Total liabilities
Equity (deficit)
Share capital (note 16)
Contributed surplus (note 17)
Retained deficit
Accumulated other comprehensive income (loss) (note 8)
Total equity (deficit)
Total liabilities and equity (deficit)

See accompanying notes

On behalf of the Board:

Peter Ruis
Director

“Donald Lewtas”
Donald Lewtas
Director

42 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

consolidated statements of earnings (loss)
and comprehensive earnings (loss)

(thousands of Canadian dollars, except per share data)

Revenue (note 18)
Cost of sales (note 7)
Gross profit
Operating, selling, and other expenses (notes 9, 10, 11 and 18)
Operating profit (loss)
Net interest expense (note 10)
Share of loss from equity investment (note 12)
Impairment loss from equity investment (note 12)
Gain on sale of equity investment (note 12)
Earnings (loss) before income taxes
Income tax recovery (note 13)
Net earnings (loss)

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
Reclassification of realized loss (gain)
Foreign currency translation adjustment
Other comprehensive income
Total comprehensive earnings (loss)

Net earnings (loss) per common share (note 19)
Basic
Diluted

See accompanying notes

52-week
period ended
April 1,
2023

1,057,740
(641,529)
416,211
(442,005)
(25,794)
(24,143)
—
—
186
(49,751)
185
(49,566)

5,705
(4,559)
(226)
920
(48,646)

$(1.78)
$(1.78)

52-week
period ended
April 2,
2022

1,062,250
(619,212)
443,038
(414,020)
29,018
(23,694)
(32)
(2,027)
—
3,265
—
3,265

(639)
1,630
44
1,035
4,300

$0.12
$0.12

ANNUAL REPORT 2023 43

consolidated statements
of changes in equity (deficit)

(thousands of Canadian dollars)

Balance, April 3, 2021
Net earnings for the period
Exercise of options (notes 16 and 17)
Share-based compensation (note 17)
Cash flow hedges (note 8)
Foreign currency translation adjustment (notes 9 and 10)
Balance, April 2, 2022

Balance, April 2, 2022
Net loss for the period
Exercise of options (notes 16 and 17)
Share-based compensation (note 17)
Cash flow hedges (note 8)
Foreign currency translation adjustment (notes 9 and 10)
Balance, April 1, 2023

See accompanying notes

Share
Capital

Contributed
Surplus

Accumulated
Other
Retained Comprehensive
Income (Loss)

Deficit

226,986
—
104
—
—
—
227,090

227,090
—
4
—
—
—
227,094

13,782
—
(28)
864
—
—
14,618

14,618
—
(1)
846
—
—
15,463

(216,668)
3,265
—
—
—
—
(213,403)

(213,403)
(49,566)
—
—
—
—
(262,969)

(1,520)
—
—
—
991
44
(485)

(485)
—
—
—
1,146
(226)
435

Total
Equity
(Deficit)

22,580
3,265
76
864
991
44
27,820

27,820
(49,566)
3
846
1,146
(226)
(19,977)

44 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

consolidated statements of cash flows

(thousands of Canadian dollars)

OPERATING ACTIVITIES
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to cash flows from operating activities
Depreciation of property, plant, and equipment (note 9)
Depreciation of right-of-use assets (note 10)
Amortization of intangible assets (note 11)
Loss on disposal of capital assets (notes 9 and 11)
Share-based compensation (note 17)
Deferred income tax recovery (note 13)
Share of loss from equity investment (note 12)
Impairment loss from equity investment (note 12)
Gain on sale of equity investment (note 12)
Other
Net change in non-cash working capital balances related to operations (note 20)
Interest expense (note 10)
Interest income
Cash flows from operating activities

INVESTING ACTIVITIES
Net purchases of property, plant, and equipment (note 9)
Addition of intangible assets (note 11)
Proceeds from disposal of equity investment (note 12)
Interest received
Cash flows used for investing activities

FINANCING ACTIVITIES
Repayment of principal on lease liabilities (note 10)
Interest paid (note 10)
Proceeds from related party credit facility (note 23)
Repayment of related party credit facility (note 23)
Proceeds from share issuances (notes 16 and 17)
Cash flows used for financing activities

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

(49,566)

3,265

15,667
41,419
9,898
141
846
(185)
—
—
(186)
1,417
34,209
25,573
(1,430)
77,803

(3,343)
(24,015)
283
1,430
(25,645)

(46,227)
(25,573)
25,000
(25,000)
3
(71,797)

16,006
36,144
11,886
29
864
—
32
2,027
—
(328)
(12,338)
24,514
(820)
81,281

(3,248)
(12,143)
1,032
820
(13,539)

(41,641)
(24,514)
—
—
76
(66,079)

Effect of foreign currency exchange rate changes on cash and cash equivalents

(1,717)

(129)

Net increase (decrease) in cash and cash equivalents during the period
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

(21,356)
86,469
65,113

1,534
84,935
86,469

See accompanying notes

ANNUAL REPORT 2023 45

notes to consolidated financial statements

April 1, 2023

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”). 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, home, wellness, fashion, paper, baby and kids 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 87 superstores (2022— 88) under the
Indigo and Chapters names, as well as 84 small format stores (2022— 85) under the banners Coles and
Indigospirit. Retail operations are seamlessly integrated with the Company’s digital platforms, 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, called the Indigo Love of Reading Foundation (the
“Foundation”). The Foundation is committed to addressing educational inequality, and more specifically, the
literacy crisis in Canada. With the support of Indigo, its customers, employees, and suppliers, the Foundation
provides year-round curation support, training and resources to help ensure teachers, education staff, school
administrators and other key stakeholders have the tools they need to promote literacy in their communities.

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 27, 2023.

46 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

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 years ended April 1, 2023 and April 2, 2022 both contained 52 weeks. The
next 53-week period will be for the fiscal year ending April 3, 2027.

Ransomware Attack
On February 8, 2023, Indigo was the victim of a ransomware attack, resulting in internal operational disruptions
and service disruptions to both sales channels. The Company’s ecommerce platforms were completely shutdown,
with the full website being restored after four weeks. The retail network was unable to process electronic
payments for approximately three days and experienced other operational limitations that impacted the
Company’s ability to fulfil demand.

The complete and long-term financial impact of the ransomware attack cannot be reasonably estimated at
this time; however, it has had a material impact on the Company’s fiscal 2023 financial results. The Company
maintains cyber insurance coverage, and is in the process of working with its insurer to make claims under
the policy. However, due to the complexity of cyber insurance coverage, there will be a time lag between
the business interruption losses and response and remediation costs incurred, and the recovery of insurance
proceeds, the extent of which management cannot reasonably predict. Furthermore, management cannot
predict the future costs expected to be incurred in fiscal 2024 to complete remediation, as well as the impact
of any residual changes to consumer behaviour as a result of the incident.

COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.
Since the pandemic began, the Company has experienced rolling closures and capacity restrictions to
its retail network, as directed by local governments and public health authorities. This notably included
Canada-wide closures that negatively impacted the Company’s retail operations. All stores remained open
throughout fiscal 2023, while 93 retail locations were closed for part of the first quarter in the prior year.
The Company also implemented mandated government capacity restrictions in the third and fourth quarters
of the prior year, which adversely affected retail traffic in the Company’s store network, particularly during
critical holiday selling weeks in the month of December. The COVID-19 pandemic has introduced volatility
to the economy and financial markets on a global scale, impacted consumer spending and disrupted supply
chains, the extent of which will depend on future developments that are highly uncertain and cannot be
reliably forecasted. The effects of the pandemic have had, and can continue to have, a negative impact on
the Company’s retail operations, distribution centres, head office operations and supply chain, and could result
in the reassessment of its significant accounting estimates, including but not limited to impairment of assets.

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.

ANNUAL REPORT 2023 47

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).

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, revenues, and expenses is discussed below.

48 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

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.

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.

ANNUAL REPORT 2023 49

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.

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 are comprised 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 controlled 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 consistent 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 remaining 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.

Foreign Currency
The functional currency for each entity included in these consolidated financial statements is the currency of
the primary economic 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 dollars 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 (loss).

50 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

Equity Investments
The equity method of accounting is applied to investments in companies where Indigo has the ability to
exert significant influence 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 recognize 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 are recognized only to the extent that Indigo has incurred legal or
constructive obligations or made payments on behalf of the company. Any cash distributions received from
the investment are accounted for as a reduction in the carrying amount. Indigo’s share of earnings and losses
of its previously held equity investment was recognized through profit or loss during the periods.

Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances with banks, and highly liquid investments that
are readily convertible 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 permanently 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, insurance, and realty taxes. Store
supplies are expensed as they are used while other costs are amortized over the term of the contract.

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 differences arising from the initial recognition of goodwill, or of an asset
or liability in a transaction that is not a business combination, 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 provided 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.

ANNUAL REPORT 2023 51

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to
apply to their respective 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 depreciation 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 information and management considerations.

The following useful lives are applied:

Furniture, fixtures, and equipment
Computer equipment
Equipment under finance leases
Leasehold improvements

5—10 years
3—5 years
3—5 years
over the shorter of useful life and lease term plus
expected renewals, to a maximum of 10 years

Items of property, plant, and equipment are assessed for impairment as detailed in the accounting policy
note on impairment 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 (loss) 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 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 amortization methods applied to intangible assets are reviewed annually based on
relevant market information and management considerations.

52 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

The following useful lives are applied:

Computer application software
Internal development costs
Retail lease
Domain name

3—5 years
3 years
over the lease term
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 (loss) 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.

Cloud computing costs
Service fees associated with cloud computing arrangements are recognized as an expense, unless it is
determined that the terms of the service arrangement provide the Company with an identifiable asset. Costs
incurred that are directly attributable to configuration or customization of a cloud computing arrangement
are also assessed for whether they meet the definition of an asset. Configuration or customization costs not
meeting this criteria are generally expensed as incurred, but may be expensed over the contract term if they
are determined not to be distinct from access to the cloud computing arrangement.

Internal development costs
Costs that are directly attributable to internal development are recognized as intangible assets provided
they meet the definition 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.

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.

ANNUAL REPORT 2023 53

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 1, 2023, 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 independent cash inflows and for which a reasonable and consistent allocation basis can be
identified. For capital assets that can be reasonably 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. The 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 costs to dispose. 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.

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 whenever 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 delinquency in interest or principal payments, and
observable data indicating that there is a measurable decrease in the estimated future cash flows.

54 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

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 impairment 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 obligation 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 uncertainties 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 (Deficit)
Share capital represents the nominal value of shares that have been issued. Retained earnings (deficit) includes
all current and prior period retained profits and losses. Dividend distributions payable to equity shareholders
are recorded as dividends payable when the dividends 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 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 transferred (as described below) for each of the Company’s
revenue-generating activities.

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 sales
Revenue for online customers is recognized when the product is shipped to customers.

ANNUAL REPORT 2023 55

Gift cards
The Company sells gift cards to its customers and recognizes the revenue as gift cards are redeemed for
merchandise. A customer’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 represents 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 are 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 omnichannel 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. 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 program points and the merchandise on which the points were earned based on their relative stand-
alone selling prices. The portion 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.

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

56 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

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. A financial asset is 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 enforceable 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 currency exposures on a portion of its U.S. dollar denominated cash outflows. The forward
contracts used for hedging are recognized 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
Cash and cash equivalents
Short-term investments
Accounts receivable
Accounts payable and accrued liabilities
Derivative instruments

IFRS 9 Classification and Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
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.

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.

ANNUAL REPORT 2023 57

• 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 reference 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 1, 2023 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 earnings (loss) immediately unless the derivative is designated
and effective as a hedging instrument, in which case the timing of the recognition in net earnings (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 transactions, together with the methods that will be used to assess the effectiveness
of the hedge 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 whether they have achieved that objective
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 designated 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 comprehensive 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 recognized 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 statement of earnings (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 still expected
to occur, then the balance in accumulated other comprehensive income (loss) is recognized in net earnings
(loss) concurrently with the related hedge transaction. If the forecasted transaction is no longer expected to
occur, then the balance in accumulated other comprehensive income (loss) is recognized immediately in net
earnings (loss).

58 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.

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 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 ‘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, 2023. Earlier
application is permitted. 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 additional 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.

6. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:

(thousands of Canadian dollars)

Cash
Restricted cash
Cash equivalents
Cash and cash equivalents

As at
April 1,
2023

63,981
1,104
28
65,113

As at
April 2,
2022

83,596
2,845
28
86,469

Restricted cash represents cash pledged as collateral with the Company’s financial institution in support of
certain purchasing obligations and credit card programs, as well as certain deposits related to utilities contracts.

ANNUAL REPORT 2023 59

7. Inventories
The cost of inventories recognized as an expense during the 52-week period ended April 1, 2023 was
$602.0 million (2022—$592.9 million). Inventories consist of the landed cost of goods sold and exclude
inventory shrink and damage reserves 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 1, 2023
was $13.6 million (2022—$9.1 million). The amount of inventory with net realizable value equal to cost was
$4.7 million as at April 1, 2023 (April 2, 2022—$2.8 million).

8. Derivative Financial Instruments
The Company uses derivative financial instruments, such as foreign exchange forward contracts, to manage
the currency fluctuation 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 contracts is identical
to the hedged risk components.

The fair values of derivative financial instruments are determined based on observable market information

as well as valuations determined by external evaluators with experience in financial markets.

During the fiscal year ended April 1, 2023, the Company entered into contracts with total notional
amounts of C$78.6 million to purchase U.S. dollar/Canadian dollar currency pair forwards (2022—
C$155.7 million). As at April 1, 2023, the Company had remaining contracts in place representing total
notional amounts of C$14.1 million (April 2, 2022—C$67.1 million) at an average forward rate of 1.29
(2022—1.26). These contracts extend over a period not exceeding 12 months.

The total fair value of the contracts as at April 1, 2023 resulted in the recognition of a derivative asset
of $0.7 million (April 2, 2022—no derivative asset) and no derivative liability (April 2, 2022—$0.6 million).
During the fiscal year ended April 1, 2023, the Company had net gains (net of taxes) of $5.7 million from
the change in fair value of outstanding cash flow hedges (2022—net losses (net of taxes) of $0.6 million).
During the same period, the Company reclassified net gains (net of taxes) from settled contracts out of other
comprehensive income (loss) to inventory and expenses of $3.3 million (2022—net losses (net of taxes) of
$1.6 million).

During the fiscal year ended April 1, 2023, the Company terminated certain derivative instruments and,
consequently, hedge accounting was discontinued. A gain of $1.3 million (net of taxes) was reclassified out
of other comprehensive income (loss) and recognized in earnings concurrently with the related hedged
transactions, which also occurred during the fiscal year. There were no other 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 during the 52-week periods ended April 1, 2023 and April 2, 2022.
This resulted in other comprehensive income of $1.1 million for the 52-week period ended April 1, 2023

(2022—other comprehensive income of $1.0 million).

Potential causes of mismatch between the hedging instrument and hedged item that 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 were immaterial for the 52-week periods ended April 1, 2023 and April 2, 2022.
Realized foreign exchange amounts as a result of derivative financial instruments were $0.7 million for the
52-week period ended April 1, 2023 (2022—immaterial realized foreign exchange).

60 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

9. Property, Plant, and Equipment

(thousands of Canadian dollars)

Gross carrying amount
Balance, April 3, 2021
Additions, net
Disposals
Assets with zero net book value
Foreign currency adjustment
Balance, April 2, 2022
Additions, net
Disposals
Assets with zero net book value
Foreign currency adjustment
Balance, April 1, 2023

Accumulated depreciation
Balance, April 3, 2021
Depreciation
Disposals
Assets with zero net book value
Balance, April 2, 2022
Depreciation
Disposals
Assets with zero net book value
Balance, April 1, 2023

Net carrying amount
April 2, 2022
April 1, 2023

Furniture,
fixtures, and
equipment

Computer
equipment

Leasehold
improvements

Total

88,178
764
(45)
(3,990)
(9)
84,898
1,941
(338)
(4,472)
208
82,237

44,202
7,949
(28)
(3,990)
48,133
7,714
(214)
(4,472)
51,161

36,765
31,076

15,646
1,361
(19)
(1,259)
—
15,729
1,064
(24)
(4,977)
—
11,792

8,629
2,939
(13)
(1,259)
10,296
2,734
(13)
(4,977)
8,040

53,672
1,123
(32)
(1,147)
(18)
53,598
338
(144)
(895)
401
53,298

27,534
5,118
(28)
(1,147)
31,477
5,219
(139)
(895)
35,662

157,496
3,248
(96)
(6,396)
(27)
154,225
3,343
(506)
(10,344)
609
147,327

80,365
16,006
(69)
(6,396)
89,906
15,667
(366)
(10,344)
94,863

5,433
3,752

22,121
17,636

64,319
52,464

ANNUAL REPORT 2023 61

10. Lease Balances
The following table reconciles the change in right-of-use assets:

(thousands of Canadian dollars)

Gross carrying amount
Balance, April 3, 2021
Additions
Foreign currency adjustment
Balance, April 2, 2022
Additions
Foreign currency adjustment
Balance, April 1, 2023

Accumulated depreciation
Balance, April 3, 2021
Depreciation
Balance, April 2, 2022
Depreciation
Balance, April 1, 2023

Net carrying amount
April 2, 2022
April 1, 2023

The following table reconciles the change in lease liabilities:

(thousands of Canadian dollars)

Balance, beginning of period
Lease modifications included in the scope of IFRS 16
Interest expense on lease liabilities
Repayment of interest and principal on lease liabilities
Foreign currency adjustment
Balance, end of period

485,842
8,134
(87)
493,889
24,517
1,437
519,843

123,978
36,144
160,122
41,419
201,541

333,767
318,302

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

517,184
24,517
25,573
(71,800)
1,971
497,445

550,274
8,672
24,514
(66,155)
(121)
517,184

During the 52-week period ended April 1, 2023, the Company expensed $0.3 million (2022—$0.5 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 $5.1 million for the 52-week period ended April 1, 2023
(2022—$3.5 million). All of the Company’s subleases are classified as operating leases and are net against
operating expenses or recorded as gross sublease revenue.

62 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

As at April 1, 2023, the Company had leases in respect of its stores and support office premises. The future
undiscounted minimum lease commitments for the Company’s leased premises, excluding other occupancy
charges and variable lease payments, are as follows:

(thousands of Canadian dollars)

2024
2025
2026
2027
2028
Thereafter
Total obligations

11. Intangible Assets

(thousands of Canadian dollars)

Gross carrying amount
Balance, April 3, 2021
Additions
Disposals
Assets with zero net book value
Balance, April 2, 2022
Additions
Disposals
Assets with zero net book value
Balance, April 1, 2023

Accumulated amortization
Balance, April 3, 2021
Amortization
Disposals
Assets with zero net book value
Balance, April 2, 2022
Amortization
Disposals
Assets with zero net book value
Balance, April 1, 2023

Net carrying amount
April 2, 2022
April 1, 2023

Total

68,228
64,728
54,798
48,588
40,635
115,591
392,568

Computer
application
software

Internal
development
costs

Domain
name

Retail
lease

Total

25,970
6,680
(5)
(11,882)
20,763
20,190
(3)
(5,942)
35,008

15,766
6,843
(3)
(11,882)
10,724
5,175
(2)
(5,942)
9,955

17,537
5,463
—
(8,009)
14,991
3,825
—
—
18,816

9,953
5,043
—
(8,009)
6,987
4,723
—
—
11,710

3,387
—
—
—
3,387
—
—
—
3,387

259
—
—
—
259
—
—
—
259

1,207
—
—
—
1,207
—
—
—
1,207

48,101
12,143
(5)
(19,891)
40,348
24,015
(3)
(5,942)
58,418

27,185
11,886
(3)
(19,891)
19,177
9,898
(2)
(5,942)
23,131

10,039
25,053

8,004
7,106

3,128
3,128

—
—

21,171
35,287

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 2023 63

12. Equity Investment
The Company previously held an equity ownership in Unplug Meditation, LLC (“Unplug”), which operates
meditation studios in the U.S., that included a 20% voting interest and representation on the board of
managers. During the second quarter of fiscal 2023, the Company sold its equity investment in Unplug for
proceeds of $0.3 million, resulting in a gain on sale of $0.2 million. The Company historically used the equity
method of accounting to recognize its share of earnings and losses from Unplug.

Changes in the carrying amount of Unplug were as follows:

(thousands of Canadian dollars)

Balance, April 3, 2021
Share of loss from Unplug
Impairment of investment
Balance, April 2, 2022
Disposal of investment
Balance, April 1, 2023

Carrying value

2,156
(32)
(2,027)
97
(97)
—

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:

(thousands of Canadian dollars)

Reserves and allowances
Non-capital loss carryforwards
Capital loss carryforwards
Corporate minimum tax credit
Book amortization in excess of capital cost allowance
Lease liabilities
Cash flow hedges
Total deferred tax assets
Right-of-use assets
Cash flow hedges
Total deferred tax liabilities
Net deferred tax assets
Value of deferred tax assets not recognized in the current period
Recognized net deferred tax assets

As at
April 1,
2023

3,219
26,522
639
3,379
57,258
130,675
—
221,692
(83,615)
(185)
(83,800)
137,892
(137,892)
—

As at
April 2,
2022

3,908
18,205
319
3,379
50,823
136,070
167
212,871
(87,808)
—
(87,808)
125,063
(125,063)
—

As at April 1, 2023, all net deferred tax assets have not been recognized (April 2, 2022—all net deferred
tax assets not recognized). This decision was influenced by the operating losses recognized in the current
and recent periods. As such, uncertainty exists surrounding the probability of sufficient taxable income being
available to utilize all deferred tax assets within the timeline 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 carryforwards, and other deferred tax assets that do not expire.

64 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

As at April 1, 2023, the Company had Canadian non-capital tax loss carryforwards of $87.2 million:
$35.1 million that expire in 2031, $8.3 million that expire in 2039, $1.2 million that expire in 2040, $14.4 million
that expire in 2041, and $28.2 million that expire in 2043. Canadian capital loss carryforwards total $2.4 million.
The Company also had $11.8 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.
U.S. capital loss carryforwards total $2.4 million.

Significant components of income tax expense (recovery) are as follows:

(thousands of Canadian dollars)

Current income tax expense (recovery)
Deferred income tax expense (recovery)
Origination and reversal of temporary differences
Deferred income tax expense (recovery) relating to change
in non-capital loss carryforwards
Adjustment resulting from a change in substantively enacted tax rates
and expected pattern of reversal
Adjustment in deferred tax assets not recognized
Other, net
Total income tax expense (recovery)

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

—

(5,323)

(6,262)

(7,736)

7,220

180
12,407
287
(185)

(283)
(708)
33
—

The reconciliation of income taxes computed at statutory income tax rates to the effective income tax rates

is as follows:

(thousands of Canadian dollars)

Earnings (loss) before income taxes
Tax at combined federal, provincial and state tax rates
Tax effect of expenses not deductible
for income tax purposes
Adjustment to deferred tax assets resulting
from changes in substantively enacted tax rates
and expected pattern of reversal
Adjustment in deferred tax assets not recognized
Adjustment with respect to prior periods
Other, net
Total income tax expense (recovery)

52-week
period ended
April 1,
2023

(49,751)
(13,318)

52-week
period ended
April 2,
2022

3,265
852

26.8 %

26.1 %

307

(0.6)%

273

8.3 %

180
12,407
21
218
(185)

(0.4)%
(24.9)%
— %
(0.4)%
0.4 %

(283)
(708)
72
(206)
—

(8.7)%
(21.7)%
2.2 %
(6.3)%
— %

14. Provisions
Provisions consist primarily of amounts recorded in respect of decommissioning liabilities, legal claims,
environmental stewardship fees and other liabilities where there is uncertainty regarding the timing or
amount outstanding. The Company is subject 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.

ANNUAL REPORT 2023 65

Activity related to the Company’s provisions is as follows:

(thousands of Canadian dollars)

Balance, beginning of period
Arising during the period
Utilized/released
Balance, end of period

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

1,174
2,120
(564)
2,730

3,192
—
(2,018)
1,174

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 1, 2023 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:

Balance, beginning of period
Issued during the period
Options exercised
Balance, end of period

52-week period ended
April 1, 2023

52-week period ended
April 2, 2022

Number of
shares

Amount C$
(thousands)

Number of
shares

Amount C$
(thousands)

27,349,711

227,090

27,273,961

226,986

3,000
27,352,711

4
227,094

75,750
27,349,711

104
227,090

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 1, 2023 is 3,602,907 (April 2, 2022—
3,602,457). 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 and expenses this value over the vesting period. During
fiscal 2023, the pre-forfeiture value of options granted was $0.8 million (2022—$1.7 million). The weighted
average fair value of options issued in fiscal 2023 was $0.91 per option (2022—$1.85 per option).

66 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

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:

Black-Scholes option pricing assumptions
Risk-free interest rate
Expected volatility
Expected time until exercise
Expected dividend yield

Other assumptions
Forfeiture rate

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

3.8%
66.2%
2.5 years
—

0.5%
77.3%
2.5 years
—

24.3%

25.1%

A summary of the status of the Plan and changes during both periods is presented below:

Outstanding options, beginning of period
Granted
Forfeited
Expired
Exercised
Outstanding options, end of period
Options exercisable, end of period

52-week period ended
April 1, 2023

52-week period ended
April 2, 2022

Number
#

2,906,550
932,500
(422,300)
(222,000)
(3,000)
3,191,750
2,000,000

Weighted
average
exercise price
C$

6.38
2.09
9.81
16.14
1.00
4.12
5.00

Number
#

2,375,475
920,000
(85,725)
(227,450)
(75,750)
2,906,550
1,664,700

Weighted
average
exercise price
C$

7.90
4.05
4.74
17.23
1.00
6.38
8.84

A summary of options outstanding and exercisable is presented below:

As at April 1, 2023

Outstanding

Exercisable

Range of
exercise prices
C$

1.00—1.53
1.54—2.81
2.82—4.14
4.15—5.47
5.48—14.75
1.00—14.75

Number
#

617,500
860,000
466,250
435,000
813,000
3,191,750

Weighted
average

Weighted
average
remaining
exercise price contractual life
(in years)

Weighted
average
exercise price
C$

Number
#

1.00
2.06
3.98
4.32
8.65
4.12

617,500
2.2
—
4.6
313,750
3.2
255,750
3.2
813,000
1.1
2.9 2,000,000

1.00
—
3.98
4.32
8.65
5.00

ANNUAL REPORT 2023 67

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 outstanding legacy DSUs recorded in contributed surplus as at
April 1, 2023 is $3.2 million (April 2, 2022—$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.
The fair value of the cash-settled DSUs is equal to the grant date closing price of the Company’s common
shares on the Toronto Stock Exchange, and subsequently remeasured to the closing price of the shares on the
last trading date of the reporting period. All changes to the fair value of the cash-settled DSUs are recorded
in the consolidated statements of earnings (loss) and comprehensive earnings (loss).

All Directors’ compensation during the 52-week period ended April 1, 2023 was issued in the form of
cash-settled DSUs, with the exception of cash awards of less than $0.1 million (2022—all cash-settled DSUs
with the exception of cash awards of less than $0.1 million).

The Company issued 307,547 cash-settled DSUs with a value of $0.7 million during the year (2022—
73,043 cash-settled 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 1, 2023 is $0.8 million (April 2, 2022—$0.1 million). During the 52-week period
ended April 1, 2023, the Company recorded a change of $0.2 million to the fair value of cash-settled DSU
obligations (April 2, 2022—no material change).

18. Supplementary Operating Information
Set out below is the disaggregation of the Company’s revenue from contracts with customers.

The following table summarizes net revenue by product line:

(thousands of Canadian dollars)

Print1
General merchandise2
Other3
Total

52-week
period ended
April 1,
2023

548,506
466,407
42,827
1,057,740

52-week
period ended
April 2,
2022

569,542
440,748
51,960
1,062,250

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, sublease revenue, Rakuten Kobo Inc. (“Kobo”) revenue share and a one-time payment from

Starbucks Coffee Canada, Inc. (“Starbucks”).

68 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

The following table summarizes net revenue by channel:

(thousands of Canadian dollars)

Superstores1
Small format stores1
Online (including store kiosks)
Other2
Total

52-week
period ended
April 1,
2023

652,992
108,835
253,086
42,827
1,057,740

52-week
period ended
April 2,
2022

595,498
93,081
321,711
51,960
1,062,250

Supplemental operating, selling, and other expenses information:

(thousands of Canadian dollars)

Wages, salaries, and bonuses
Short-term benefits expense
Termination benefits expense
Retirement benefits expense
Share-based compensation
Total employee benefits expense

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

179,727
19,499
7,597
2,079
846
209,748

185,026
20,916
3,534
1,902
864
212,242

Termination benefits arise when the Company terminates certain employment agreements.
In the prior year, the Company recognized payroll subsidies from the COVID-19 Canada Emergency
Wage Subsidy (“CEWS”) of $2.3 million and rent subsidies from the Canada Emergency Rent Subsidy
(“CERS”) of $2.9 million. Both programs ended in fiscal 2022. The Company did not qualify for subsidies
under any newly introduced programs in the 52-week period ended April 1, 2023.

In the current year, the Company was granted $3.5 million from the Canadian Minister of Heritage from
the Canada Book Fund, which supports access to a diverse range of Canadian-authored books nationally
and internationally, by fostering a strong book industry that publishes and markets Canadian-authored
books. Of this amount, $3.1 million was recorded against the associated eligible expenses in cost of sales,
cost of operations and selling, general and administrative expenses. The remaining $0.4 million was net
against intangible asset additions.

Contingent rents recognized as an expense during fiscal 2023 were $2.3 million (2022—$1.5 million).

ANNUAL REPORT 2023 69

19. Earnings (Loss) Per Share
Earnings (loss) per share is calculated based on the weighted average number of shares outstanding during
the period. In calculating 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 presented is as follows:

Weighted average number of common shares outstanding, basic
Effect of dilutive securities—stock options
Weighted average number of common shares outstanding, diluted

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

27,814,444
—
27,814,444

27,771,387
507,959
28,279,346

For the 52-week period ended April 1, 2023, 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. For
the comparative period ended April 2, 2022, 2,411,050 anti-dilutive stock options were excluded from the
computation of diluted net earnings per common share.

20. Statements of Cash Flows
Supplemental cash flow information:

(thousands of Canadian dollars)

Accounts receivable
Inventories
Prepaid expenses
Other assets
Accounts payable and accrued liabilities (current and long-term)
Unredeemed gift card liability
Provisions (current and long-term)
Deferred revenue
Net change in non-cash working capital balances

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

(1,128)
29,786
6,678
1,992
(8,339)
4,234
1,556
(570)
34,209

10,035
(58,735)
(1,230)
(1,126)
31,923
4,600
(2,018)
4,213
(12,338)

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 fiscal year. The primary activities engaged in by
the Company to generate attractive returns for shareholders include refining its assortment of thoughtfully
curated merchandise, developing Indigo’s store of the future, reimagining Indigo’s digital presence, enhancing
customer connections, fostering high-performing teams and generating profitable growth. The Company’s main
sources of capital include its current cash position and cash flows generated from operations and financing

70 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

activities. In fiscal 2023, the Company entered into a secured revolving credit facility of $25.0 million with
the purpose of allowing the Company to manage the seasonal nature of cash flows in the most effective
manner. The non-interest bearing facility matured on February 1, 2023. Subsequent to year end, the Company
received a binding commitment with respect to a revolving line of credit facility with Trilogy Retail Holdings
Inc. (“Trilogy”), as lender (the “Credit Facility”). The Credit Facility will supplement the Company’s liquidity in
fiscal 2024. For additional information on the Credit Facility, see note 24 “Subsequent Events”.

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 rates, 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 prices 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 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.
In fiscal 2023, the effect of foreign currency translation on other comprehensive income (loss) was a loss
of $0.2 million (2022—gain of below $0.1 million), and the effect of foreign currency transactions on net
earnings (loss) was a gain of $2.4 million (2022—gain of $0.2 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.

As at April 1, 2023, the Company did not have any outstanding debt. The Company’s indebtedness
under the Credit Facility will expose the Company to additional risks associated with fluctuating interest rates.
Required interest payments will create financial risks including the need to divert funds identified for other
purposes, which could create additional cash demands and impact the Company’s liquidity position. If the
Company cannot generate sufficient cash flow from operations to service outstanding debt, it may be required
to obtain the necessary funds through refinancing, disposing of assets, reducing expenditures, issuing equity,
or other means. The current market volatility may adversely impact interest rates in the future, as well as the
Company’s ability to borrow under the Credit Facility.

Receivable Credit Risk
The Company 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 instruments. Fair values of financial instruments reflect the credit risk of
the Company and counterparties when appropriate.

ANNUAL REPORT 2023 71

Accounts receivable primarily consist 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 are 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 specific 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.

Management continually assesses its purchasing and operating practices to try and mitigate some of

these fluctuations.

The credit agreements in respect of the Credit Facility will contain certain covenants, requirements and

other terms that could impact, or have the potential to impact, the Company’s business.

The degree of leverage held by the Company could negatively impact the Company’s operations,
through increased cash expense associated with interest, exposing the Company to debt capital market risk
including interest rate risks, limiting the ability to obtain other forms of financing, and restricting flexibility of
discretion over the operations of the business, amongst others.

Liquidity Risk
Liquidity risk is the risk that the Company will be unable to 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
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, it is expected that the Company’s current cash position and future cash flows generated from
operations and financing activities will be sufficient to meet its working capital requirements for fiscal 2024.
The Credit Facility will also supplement the liquidity. 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 and
reduce capital spending if necessary. However, the current macro-economic environment continues to create
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.

72 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

The contractual maturities of the Company’s current and long-term liabilities as at April 1, 2023 are as follows:

(thousands of Canadian dollars)

Accounts payable and accrued liabilities
Provisions
Short-term lease liabilities
Long-term accrued liabilities
Long-term provisions
Long-term lease liabilities
Total

Payments
due in the
next 90 days

157,929
578
17,237
—
—
—
175,744

Payments
due between
90 days and
less than a year

11,931
1,301
51,924
—
—
—
65,156

Payments
due after
1 year

—
—
—
1,007
851
428,284
430,142

Total

169,860
1,879
69,161
1,007
851
428,284
671,042

23. Related Party Transactions
The Company’s related parties include its key management personnel, shareholders, defined contribution
retirement plan, subsidiaries and, in prior years, equity investments in associates. Unless otherwise noted, 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:

(thousands of Canadian dollars)

Wages, salaries, and bonuses
Short-term benefits expense
Termination benefits expense
Retirement benefits expense
Share-based compensation
Directors’ compensation
Total remuneration

52-week
period ended
April 1,
2023

52-week
period ended
April 2,
2022

6,898
737
860
70
397
696
9,658

8,018
546
—
62
784
162
9,572

Transactions with Shareholders
During fiscal 2023, 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
2023, the Company paid $0.3 million for these transactions (2022—$0.4 million). As at April 1, 2023,
Indigo had nominal amounts payable to these companies under standard payment terms (April 2, 2022—
nominal amounts payable). 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.

During the first quarter of fiscal 2023, the Company entered into a secured revolving credit facility of
$25.0 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 macro-economic environment, with its purpose to allow the Company to manage the seasonal
nature of cash flows in the most effective manner. During the second quarter of fiscal 2023, $20.0 million
was drawn from the facility. An incremental amount of $5.0 million was drawn in the third quarter of fiscal
2023, with the entire outstanding balance of $25.0 million being repaid in the same quarter. The non-interest
bearing facility matured on February 1, 2023.

ANNUAL REPORT 2023 73

Subsequent to April 1, 2023, the Company received a binding commitment with respect to a revolving
line of credit facility with Trilogy as lender, a Company controlled by Mr. Gerald W. Schwartz. For additional
information, see note 24 “Subsequent Events”.

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
During the second quarter of fiscal 2023, the Company sold its equity investment in Unplug for proceeds
of $0.3 million, resulting in a gain on disposition of $0.2 million. The Company had immaterial transactions
with Unplug during the 52-week periods ended April 1, 2023 and April 2, 2022.

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 prior year.

24. Subsequent Events
On June 27, 2023, the Company received a binding commitment with respect to a revolving line of credit
facility with Trilogy, as lender. Trilogy is controlled by Mr. Gerald W. Schwartz, who is the controlling
shareholder of Indigo. The Credit Facility is for an aggregate principal amount of up to $45.0 million and,
with the consent of Trilogy, the amount may be increased by up to $10.0 million. The Credit Facility, which
matures on December 31, 2023, has an interest rate of the Royal Bank of Canada prime rate +1%, and will
be used to finance the seasonal working capital and operational needs of the Company. It will be issued
on reasonable commercial terms, and will not be convertible, directly or indirectly, into equity or voting
securities. The Credit Facility will be subject to the terms and conditions of the credit agreement anticipated
to be entered into between the Company and Trilogy on or before July 31, 2023.

74 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 2023 75

executive management and board of directors

As at June 27, 2023

Executive Management

Board of Directors

Heather Reisman
Executive Chair

Peter Ruis
Chief Executive Officer

Andrea Limbardi
President

Gildave (Gil) Dennis
Chief Operating Officer

Craig Loudon
Chief Financial Officer and
Executive Vice President, Supply Chain

Katharine Poulter
Chief Commerical Officer

Daniel Marcotte
Interim Chief Technology and
Information Officer

Jonathan Deitcher
Investment Advisor
RBC Dominion Securities Inc.

Mitchell Goldhar
Executive Chairman and Chief Executive Officer
SmartCentres REIT and
Owner
Penguin Group of Companies

Robert Haft
Managing Partner
Morgan Noble Healthcare Partners

Andrea Johnson
Chief Executive Officer
Rally Reader, LLC

Donald Lewtas
Corporate Director

Heather Reisman
Executive Chair
Indigo Books & Music Inc.

Peter Ruis
Chief Executive Officer
Indigo Books & Music Inc.

Gerald Schwartz
Chairman
Onex Corporation

Joel Silver
Founder and Consultant
Polar Growth Partners, LLC

76 EXECUTIVE MANAGEMENT AND BOARD OF DIRECTORS

five-year summary of financial information

For the years ended
(financial information in millions of Canadian dollars,
except per share data)

SELECTED STATEMENT OF EARNINGS
(LOSS) AND COMPREHENSIVE EARNINGS
(LOSS) INFORMATION
Revenue
Superstores
Small format stores
Online
Other
Total revenue
Adjusted EBITDA2
Earnings (loss) before income taxes
Net earnings (loss)
Net earnings (loss) per common share

SELECTED CONSOLIDATED
BALANCE SHEET INFORMATION
Working capital
Total assets
Total liabilities
Total equity (deficit)
Weighted average number of
common shares outstanding, basic
Common shares outstanding at end of period

STORE OPERATING STATISTICS
Number of stores at end of period
Superstores
Small format stores

Selling square footage at end of period (in thousands)
Superstores
Small format stores

Sales per selling square foot
Superstores
Small format stores

April 1,
20231

April 2,
20221

April 3,
20211

March 28,
20201

March 30,
2019

653.0
108.8
253.1
42.8
1,057.7
(20.5)
(49.8)
(49.6)
$(1.78)

595.5
93.1
321.7
52.0
1,062.3
32.5
3.3
3.3
$0.12

4.1
738.1
758.1
(20.0)

58.3
809.4
781.5
27.8

439.8
72.6
370.0
22.3
904.7
(28.3)
(56.9)
(57.9)
$(2.09)

46.1
799.5
776.9
22.6

655.8
122.1
162.7
17.1
957.7
(7.3)
(100.3)
(185.0)
$(6.72)

85.2
883.0
799.0
84.0

711.4
144.8
175.9
14.7
1,046.8
(19.1)
(49.6)
(36.8)
$(1.35)

164.1
610.5
240.3
370.1

27,814,444
27,352,711

27,771,387 27,664,268
27,273,961
27,349,711

27,515,109 27,354,358
27,136,386
27,273,961

87
84

2,044
235

319
463

88
85

1,941
222

307
419

88
89

1,941
231

227
314

88
108

1,941
279

338
438

89
115

1,962
287

363
504

1 The Company implemented IFRS 16 Leases in fiscal 2020 using the modified retrospective approach. As a result, the Company’s fiscal 2020 and onward results reflect lease accounting

under IFRS 16 Leases, while the prior years have not been restated.

2 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 fiscal periods prior to the implementation of IFRS 16 Leases, have not been restated.

For further information, see “Non-IFRS Financial Measures” in the Company’s MD&A section of the Annual Report.

ANNUAL REPORT 2023 77

investor information

Auditors
Ernst & Young LLP
EY Tower
100 Adelaide Street West, PO Box 1
Toronto, Ontario
Canada M5H 0B3

Annual Meeting
The 2023 Annual Meeting of Shareholders
of Indigo Books & Music Inc. will be held on
August 22, 2023 at 10:00 a.m. via live audio
webcast at:
https://virtual-meetings.tsxtrust.com/1522

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
Melissa Perri
Senior Manager, Public Relations
mperri@indigo.ca
Telephone: (416) 529-6354

Stock Listing
Toronto Stock Exchange

Trading Symbol
IDG

Transfer Agent and Registrar
TSX Trust Company
100 Adelaide Street West, Suite 301
Toronto, Ontario
Canada M5H 4H1
Telephone:
(Toll Free) 1-800-387-0825
(Toronto) (416) 682-3860
Fax: 1-888-249-6189
Email: shareholderinquiries@tmx.com
Website: www.tsxtrust.com

78 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 annual national granting programs such as 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 addition, the Foundation provides resources including new books and learning materials,
training and year-round curation support to help ensure teachers, education staff, school administrators and
other key stakeholders have the tools they need to promote literacy in their communities. With the support
of the Company, its customers, employees, and suppliers, the Foundation has committed over $35.0 million
to more than 1,000,000 students across Canada since 2004. The Foundation is dedicated to giving back
to communities in need, while at the same time raising awareness about the critical importance of children’s
literacy in Canada.

ANNUAL REPORT 2023 79

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 sustain-
able 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.

We are proud to be a
company that supports
our customers to live their
‘life, on purpose’. Through
stories and ideas we
inspire connection.

F P O

Printed in Canada