Geox showed convincing signs in the third quarter that its turnaround strategy is working, pushing the group's share prices up by nearly 12 percent on the day of its quarterly financial release and generating a string of positive comments from financial analysts. The revenues reported by the company were only slightly ahead of market expectations, but its operating results were 10 percent higher than forecast before amortization (Ebitda) and 18 percent higher after amortization (Ebit).

Geox Consolidated Income Statement

(Million Euros, Six Months Ended June 30)





Footwear Sales




Apparel Sales




Total Net Sales




Cost of Goods




Gross Profit




Selling & Distribution




General & Administrative




Advertising & Promotion




Net Interest
















The group posted Ebitda of €25.6 million and Ebit of €15.5 million in the quarter on sales of €268.2 million. The company confirmed its guidance on full-year sales of about €800 million and a return to breakeven results at Ebit level. The consensus of financial analysts' estimates is now in line with the group's expectations.

Driven by the company's directly-operated stores (DOS), Geox' sales went up by 8.1 percent in euros and by 8.8 percent at constant currency rates in the first nine months of the year, reaching €668.4 million. Wholesale revenues were down by 0.6 percent to €290.1 million, with a 0.1 percent increase in local currencies.

In the first half of the year, the wholesale division was hit by weak sales in Italy, Spain and Portugal, the cancellation of orders made by customers in financial difficulty and a general decline in orders as clients sought to reduce their inventories. In the third quarter, however, the wholesale segment recovered, rising by more than 13 percent virtually erasing the negative performance in the first part of the year, partly thanks the good reception of the autumn/winter collection.

Sales to the group's franchisees rose by nearly 13 percent in the quarter, cancelling a negative trend of the first half deriving from the closure of non-performing locations and the conversions of some shops to DOS. In the first nine months of the year, the franchise channel posted a 2.4 percent increase to €125.6 million, up by 3.8 percent on a currency-neutral basis.

Comparable store sales grew by 4.4 percent at the franchised stores for the nine-month period, a remarkable improvement from flat sales in the first half. In fact, the franchised store network delivered a same-store increase of 12 percent in the third quarter, matching the performance of the DOS network, as the group started applying the same retail strategy in both channels. To boost sales and profitability, the group has brought forward deliveries of the new collections and introduced in-season management techniques with weekly merchandise flows and automatic replenishment.

Sales generated by DOS totaled €252.6 million in the first nine months of this year, up by 24.1 percent in euros and by 24.2 percent at constant exchange rates, thanks to the addition of new stores stemming from the conversion of franchises, combined with a 9.4 percent increase in same-store sales.

Coinciding with the retail launch of the autumn/winter collection, comparable store sales between Aug. 25 and Nov. 9 were only up by 1.5 percent due to warm weather in Europe at the end of September and the first three weeks of October. This lowered the group's overall comparable store sales growth to 7.9 percent for the 45 weeks to Nov. 9. In the 45-week period. same-store sales were up in all geographies, with Italy and the rest of Europe up by high single-digit rates, North America up by a mid single-digit rate, Asia-Pacific rising by a low single-digit rate and the rest of the world growing by a double-digit rate.

At the end of September, Geox had 1,248 mono-brand stores worldwide against 1,299 units at the end of 2013, after closing 119 store closures and 68 openings over the first nine months of the year. The number of DOS was up to 467 from 450.

In the nine-month period, Geox' sales of footwear items rose by 8.7 percent to €585.4 million, up by 9.4 percent at constant currencies, while apparel increased by 4.6 percent to €83.0 million, growing by 5.1 percent at constant foreign exchange rates. Shoes benefited from additional floor space in mono-brand stores after the group downsized its apparel product range to jackets.

In the third quarter alone, footwear sales rose by about 19 percent. Women, junior and kids were the main beneficiaries of the additional available floor space. Comparable sales of shoes from the autumn/winter collection were up by 7.0 percent in Geox's DOS, led by a surge of more than 25 percent in children's shoes.

The company's overall sales rose by 13.6 percent in Italy to €225.9 million in the nine-month period, lifted by gains in all channels and double-digit growth at its DOS. Geox pointed out that shoe consumption has been falling since 2008 in Italy and has gone down sharply so far in 2014.

Group sales in the rest of Europe were up by 8.5 percent in euros, and rose by 8.4 percent at constant rates, reaching €294.8 million. The growth was led by France, Iberia and the U.K. Germany was up by a mid-single digit rate while sales in Switzerland and Scandinavia were weak. In a conference call, Giorgio Presca, Geox's chief executive, said he did not notice any signs of improvement in the European macroeconomic environment justifying the increases, which he attributed to the group's new commercial strategy and the resulting gains in market share.

In North America, revenues decreased by 1.0 percent to €40.4 million, but were up by 1.2 percent in dollars, driven by the Canadian market. Sales in the rest of the world rose by 0.6 percent to €107.2 million, but the rate of increase reached 3.6 percent at constant exchange rates, lifted by double-digit growth in Russia and a 5.1 percent currency-neutral increase in Asia-Pacific, despite lower consumption in China. Conversely, sales performance was weak in Ukraine due to the country's economic and political difficulties.

In the first nine months, Geox' gross margin widened to 47.4 percent from 46.3 percent a year earlier. The company said that the 1.1 percentage point improvement is in line with its target of boosting the gross margin by 1.9 points for the full year compared with 2013.

The Ebitda margin widened to 6.9 percent in the nine months from 5.0 percent a year earlier and the Ebit margin was a positive 2.3 percent compared with a negative 0.7 percent. The group swung to a net profit of €4.5 million from a net loss of €8.5 million.

The cash burn rose to €72.1 million from €54.2 million a year earlier, although net investments were trimmed to €19.9 million from €27.5 million. Geox suffered from an increase in operating working capital to €306.9 million from €238.6 million a year earlier, as inventories jumped to €242.2 million and receivables rose to €180.0 million. The company explained that its working capital requirement increased with the sharp rebound in sales to the wholesale and franchising channels in the third quarter.

The company added that it was already generating cash in October and that cash flow will be positive in the fourth quarter. This will enable the group to cut its net debt to €50-60 million at the end of 2014 from €71.6 million at the end of September. Geox expects that improvements in the timing of the production, delivery and payment of the forthcoming spring/summer and autumn/winter collections will further bolster cash flows next year.

Geox said that spring/summer orders were up by a high single-digit rate compared with the previous year, with footwear growing by a high single digit and apparel down at a mid-teen rate. Apparel orders are still being hit by the streamlining of the product range. On a comparable basis, apparel orders enjoyed growth in the low 20s. Wholesale orders were higher in all channels, with independent accounts up by a mid-single-digit rate, key accounts up by a low-teen rate and web accounts growing by a mid-teen rate.

Orders were up by a low-teen digit in Italy. Sales in the rest of Western Europe increased by a high single-digit, with Germany up by a low-teen figure, France and Spain up by a high single number and Scandinavia up a mid-single digit. North America orders rose by a mid-single-digit rate, driven by Canada. In the rest of the world, orders were up by a high single figure, with Eastern Europe offsetting difficulties in Turkey and Latin America. The gross margin generated by the spring/summer collection improved by 1.5 percentage points compared with the previous year, according to Presca.

The company confirmed its target of an Ebit margin of about 4 percent in 2015 and 7 percent in 2016, driven by an improvement in sales per square meter at its mono-brand stores. It added that it would close some under-performing DOS in 2015. Geox believes that it can beat the targets if it manages to exploit the potential offered by the wholesale channel, especially in Northern and Eastern Europe.