Indigo Reports Q1 Results – Strong revenue growth continues Same Store Sales grow by 7.7% TORONTO, ON – August 9, 2016 -- Indigo Books & Music Inc. (TSX: IDG), Canada’s largest book, gift and specialty toy retailer reported 4.4% growth in revenue for its first quarter ended July 2, 2016. Revenue for the quarter was $193.1 million, up $8.2 million from last year, despite operating one less superstore and three fewer small format stores. On a comparable store basis, Indigo and Chapters superstores posted 7.7% growth, while Coles and Indigospirit small format stores increased by 7.8%. Sales from Indigo’s online channel, indigo.ca, grew by 3.8%, despite cycling over a significant vendorfunded promotion in the same period last year. Revenue growth was driven mainly by the continued double digit growth of key general merchandise categories. On a comparable store basis, the Print business also experienced growth. Margin rate improved by 50 basis points compared to the same period last year despite continued pressure from a weaker Canadian dollar. Commenting on the results, CEO Heather Reisman said, “We are pleased that the strong revenue momentum we experienced last year has continued into the new fiscal. All key metrics remain positive which allows us to feel confident about our ability to drive continued revenue growth, improved profitability and further customer affection for our brand.” The net loss for the 13-week period ended July 2, 2016 was $9.0 million (net loss per common share of $0.34), compared to a loss of $9.0 million (net loss per common share of $0.35) for the period ended June 27, 2015. However, on a comparable basis, when excluding the impact of a one-time benefit from a lease disposition, net loss reduced by $4.5 million. The improvement in underlying earnings relates to higher revenues at improved margin rates and improved tax recovery, partially off-set by higher operating costs. During the quarter, Indigo opened its first cultural department store at CF Sherway Gardens in Toronto. The Sherway store is a 30,000 square foot haven for booklovers as well as providing inspiration for the best gifts and an enhanced IndigoKids experience. Sherway is the first Indigo store designed and built to reflect the extended product assortment and incredible customer experience. The new store is performing very well and above expectations. The Company plans to roll out the cultural department store concept to more stores across the portfolio in the near future. Also during the quarter, the Indigo Love of Reading Foundation granted an additional $1.5 million to 25 high-need elementary schools across the country, bringing the total committed by the Foundation, since its inception in 2004, to $23.5 million.

Forward-Looking Statements Statements contained in this news release that are not historical facts are forward-looking statements which involve risk and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. Among the key factors that could cause such differences are: general economic, market or business conditions in Canada; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company. Non-IFRS Financial Measures The Company prepares its unaudited interim condensed consolidated financial statements in accordance with International Financial Reporting Standards and International Accounting Standards 34, “Interim Financial Reporting.” In order to provide additional insight into the business, the Company has also provided non-IFRS data, including comparative store sales growth, in the press release above. This measure does not have a standardized meaning prescribed by IFRS and is therefore specific to Indigo and may not be comparable to similar measures presented by other companies. Comparative store sales growth is a key indicator used by the Company to measure performance against internal targets and prior period results. This measure is commonly used by financial analysts and investors to compare Indigo to other retailers. Comparable store sales are defined as sales generated by stores that have been open for more than 12 months on a 52-week basis. About Indigo Books & Music Inc. Indigo is a publicly traded Canadian company listed on the Toronto Stock Exchange (IDG). As the largest book, gift and specialty toy retailer in Canada, Indigo operates in all provinces under different banners including Indigo Books & Music; Indigo Books, Gifts, Kids; Indigospirit; Chapters; and Coles. The online channel, indigo.ca, offers a one-stop online shop with a robust selection of books, toys, home décor, stationery, and gifts. Indigo founded the Indigo Love of Reading Foundation in 2004 to address the underfunding of public elementary school libraries. Every year the Love of Reading Foundation makes grants to high-needs elementary schools so they can transform their libraries with the purchase of new books and educational resources. To date, the Love of Reading Foundation has committed over $23.5 million to 2,600 elementary schools, benefitting more than 750,000 students. To learn more about Indigo, please visit the Our Company section at indigo.ca. For further information please contact: Janet Eger Vice President, Public Affairs 416 342 8561 [email protected]

Consolidated Balance Sheets

(thousands of Canadian dollars) ASSETS Current Cash and cash equivalents Accounts receivable Inventories Income taxes recoverable Prepaid expenses Derivative financial instruments Total current assets Property, plant and equipment Intangible assets Equity investment Deferred tax assets Total assets LIABILITIES AND EQUITY Current Accounts payable and accrued liabilities Unredeemed gift card liability Provisions Deferred revenue Current portion of long-term debt Total current liabilities Long-term accrued liabilities Long-term provisions Long-term debt Total liabilities Equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive income Total equity Total liabilities and equity

As at July 2, 2016

As at June 27, 2015

As at April 2, 2016

176,790 11,800 217,232 25 12,429 245 418,521 62,526 16,344 473 54,829 552,693

176,711 13,370 205,528 25 5,627 401,261 52,897 15,536 219 44,241 514,154

216,488 7,663 217,788 25 11,290 453,254 60,973 16,506 1,421 51,836 583,990

147,703 51,545 30 13,674 33 212,985 2,919 102 216,006

145,599 48,470 745 13,560 144 208,518 2,661 99 33 211,311

171,112 50,969 34 13,232 53 235,400 4,483 109 239,992

210,545 10,874 115,089 179 336,687 552,693

206,118 10,170 86,555 302,843 514,154

209,318 10,591 124,089 343,998 583,990

Consolidated Statements of Loss and Comprehensive Loss

(thousands of Canadian dollars, except per share data) Revenue Cost of sales Gross profit Operating, selling, and administrative expenses Operating loss Interest expense Interest income Share of loss from equity investment Loss before income taxes Income tax recovery Net loss Other comprehensive income Items that are or may be reclassified subsequently to net earnings (loss): Net change in fair value of cash flow hedges (net of tax of $35; 2016 -$0) Reclassification of net realized loss to inventory (net of tax of $31; 2016 - $0) Other comprehensive income Total comprehensive loss Net loss per common share Basic Diluted

13-week period ended July 2, 2016

13-week period ended June 27, 2015

193,099 (107,226) 85,873 (97,898) (12,025) (17) 497 (511) (12,056) 3,056 (9,000)

184,894 (103,510) 81,384 (90,219) (8,835) (2) 391 (507) (8,953) (8,953)

95

-

84

-

179

-

(8,821)

$ $

(0.34) $ (0.34) $

(8,953)

(0.35) (0.35)

Consolidated Statements of Cash Flows 13-week period ended July 2, 2016

13-week period ended June 27, 2015

(9,000)

(8,953)

3,863 2,131 1 402 108 (3,059) 295 (28,686) 17 (497) 511 (33,914)

3,584 2,454 659 332 111 439 (21,641) 2 (391) 507 (22,897)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Addition of intangible assets Distributions from equity investment Interest received Cash flows used for investing activities

(5,417) (1,969) 437 127 (6,822)

(2,253) (1,404) 227 (3,430)

CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term debt Interest paid Proceeds from share issuances Cash flows from financing activities

(20) (15) 1,000 965

(51) (17) 204 136

73

(260)

(39,698) 216,488 176,790

(26,451) 203,162 176,711

(thousands of Canadian dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net loss Add (deduct) items not affecting cash Depreciation of property, plant and equipment Amortization of intangible assets Loss on disposal of capital assets Share-based compensation Directors' compensation Deferred tax assets Other Net change in non-cash working capital balances Interest expense Interest income Income taxes received Share of loss from equity investment Cash flows used for operating activities

Effect of foreign currency exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents during the period Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period