Chapters Inc. Reports a 9.3 percent Increase in Net Earnings From Third Quarter Operations and a 25.8 percent Increase in Net Earnings for its Year-To-Date.

TORONTO--(BUSINESS WIRE)--Jan. 23, 1997--(TSE CHP.) Chapters Inc., Canada's largest book retailer, today reported earnings of $14.1 million, or $2.34 per share, on revenues of $153.5 million for the 13 weeks ended December 28, 1996, a 9.3 percent increase over earnings of $12.9 million, or $2.44 per share, on revenues of $144.8 million for the same period last year.

The weighted average number of shares outstanding during the 13 week period ended December 28, 1996 was 6.0 million compared with a weighted average of 5.3 million shares outstanding during the same period last year, due to the company's initial public offering of common shares on December 4, 1996.

For the 39 weeks ended December 28, 1996, Chapters posted a 25.8 percent increase in net earnings to $7.5 million, or $1.35 per share, on revenues of $301.1 million compared with net earnings of $5.9 million, or $1.12 per share, on revenues of $299.2 million for the same period last year.

The weighted average number of shares outstanding in the first 39 weeks of the current fiscal year was 5.5 million shares, compared with a weighted average of 5.3 million shares during the corresponding period last year.

During the 13 weeks ending December 28, 1996, the company opened six Chapters book superstores, for a total of eleven superstores at the end of the period. The company operated 349 traditional bookstores during the 13 week period and no traditional bookstores were opened or closed during this period.

"Our Chapters book superstores turned in a strong performance. Sales in our eleven superstores exceeded expectations and drove the increased earnings," said Larry Stevenson, President and Chief Executive Officer.

"While comparative store sales in our traditional bookstores, which still account for the bulk of our revenues, grew by 1.6 percent over the same period last year, revenues for the period were not up to our expectations" said Stevenson. "Despite strong sales in the early part of the period, momentum in our traditional stores dropped off in late November and continued to be weaker than expected throughout December. The decline was indicative of lower than expected shopping centre traffic, most notably in Western Canada."

As a result of the Christmas selling season, the company has revised its revenue and earnings forecast for the 52 weeks ending March 29, 1997. The revenue forecast for the fiscal year has been revised downward by $7.8 million, to a total of $388.0 million. The earnings forecast for the period has been revised from $5.7 million to $4.9 million , or $0.80 per share (based upon a weighted average number of shares outstanding of 6.2 million shares). The revised earnings forecast represents a 142 percent increase over net earnings of $2.0 million for the 52 weeks ended March 30, 1996.

"The closure of 67 traditional bookstores since the merger of SmithBooks and Coles in April, 1995 resulted in a decrease in revenues from this segment of our business during the 39 week period ending December 28, 1996 compared with the same period last year. Revenues from Chapters book superstores, on the other hand, increased substantially during the period, resulting in a slight increase in consolidated revenues" Stevenson said.

"With the expected opening of 12 - 15 new Chapters book superstores during 1997, and a planned slower pace of traditional bookstore consolidation, we anticipate growing the company at an accelerating pace," Stevenson said.

Chapters Inc. is the largest book retailer in Canada and the third largest in North America, operating bookstores in all provinces in Canada. The company sells books and book-related products such as newspapers, magazines, audio books and educational and entertainment-oriented software on CD-ROM. The company operates a total of 360 bookstores across Canada under the names Chapters, Coles, SmithBooks, The Book Company, and the World's Biggest Bookstore. -0-

                      CHAPTERS INC.
            CONSOLIDATED STATEMENTS OF EARNINGS
                       (UNAUDITED)
              (in thousands except share data)

                          13 WEEKS ENDED        39 WEEKS ENDED
                        DEC. 28,  DEC. 30,     DEC. 28, DEC. 30,
                          1996      1995        1996      1995
Revenue
 Superstores            $29,494     $13,112    $51,380   $29,189
 Traditional bookstores 118,965     129,256    243,676   265,343
 Other                    5,052       2,409      6,076     4,678
                          -----       -----      -----     -----
                        153,511     144,777    301,132   299,210

Cost of product,
 purchasing, selling
  and administration    123,838     117,292    275,217   275,589
                        -------     -------    -------   -------
                         29,673      27,485     25,915    23,621

Depreciation and
 amortization of
  fixed assets            2,499       2,261      7,000     6,707
Amortization of
 pre-opening
  store costs               235          23        413        23
Amortization of goodwill    109         133        359       399
                            ---         ---        ---       ---
Earnings before interest
 and income taxes        26,830      25,068     18,143    16,492

Interest on
 long-term debt             977       1,275      2,845     3,778

Interest on short-term debt 304         575      1,316     1,586

Earnings before
 income taxes            25,549      23,218     13,982    11,128

Income tax expense       11,438      10,310      6,514     5,190
                         ------      ------     ------    ------
Net earnings for
 the period             $14,111     $12,908     $7,468    $5,938
                        -------     -------     ------    ------
                        -------     -------     ------    ------
Earnings per
 common share             $2.34       $2.44      $1.35     $1.12
                        -------     -------     ------    ------
                        -------     -------     ------    ------
Weighted average number
 of common shares
  outstanding         6,031,885   5,290,127  5,537,380 5,290,127

CONTACT: Chapters Inc.

Harry Yanowitz, 416/ 243-3138, Ext. 411