Geox closed the sales campaign for the base collection of the 2012 spring/summer collection with an order backlog unchanged from a year ago. Orders were underpinned by a high-single-digit growth rate for apparel, while shoes dipped by a low-single-digit rate.

Orders from wholesale clients were down by a mid-single-digit rate but were up by a high-teen rate for franchisees, as the group continues to expand its network. Geox has already secured 50 new franchisees for early 2012 that have placed orders for the spring/summer collection.

The order backlog was flat in Italy and slightly negative for the rest of Western Europe. Among leading European markets, orders from Spain were down by a high-single-digit rate, German orders fell by a mid-single-digit rate and France grew by a mid-single-digit figure.

The order rate was down by the mid-teens in North America and up by the high teens in the rest of the world, led by Russia, Eastern Europe, China, Hong Kong and Japan, which all booked double-digit figures. Orders from the Middle East were up by a mid-teen number. Greece was the only negative market in the “rest of the world” category.

A priority for the group is to grow in Eastern Europe, including Russia, and in Asia. These areas represent 4.8 percent and 4.5 percent of overall revenues respectively.

Geox stressed that the uncertain business environment has prompted retailers to reduce the level of initial orders and focus more on re-orders. For this reason, the order backlog is losing its importance as an indicator of future sales.

The company said that it has improved its distribution service to respond to replenishment needs and has reviewed its sourcing agreement with suppliers to have the flexibility to respond to re-orders and propose a “never out of stock program” without having to carry extensive inventories.

The new sourcing policy, which is limited to footwear, has started with the spring/summer collection and will be reinforced in the coming months. Geox's management noted that 50-60 percent of its sales are composed of evergreen products, and a significant share of these shoes are made with black leather. The company estimates that, if it can secure black leather supplies, it could place production re-orders on a monthly basis leading to three to four production runs per season for its core products.

For the time being, the group has only ordered 3-4 percent more than the order backlog for the spring/summer collection and will rely on additional manufacturing runs to satisfy re-orders.

Offering products more in line with market requests will also enable the company to reduce mark-ups offered to retailers. The management said that its American experience taught it that it is better to offer a fast-moving product with a lower mark-up than propose higher mark-ups on slower moving goods.

Other pillars of Geox' recovery strategy are greater reliance on sales through its own stores and a higher percentage of sales coming from apparel.

At Mapic, the international exhibition for retail real estate developers held in Cannes a few days ago, where he was crowed “Personality of the Year,” the company's president, Mario Moretti Polegato, pointed out that Geox' sales are expected to register higher growth in the second half of this year than in the first half, where they were hit by the economic crisis. However, the figures released by the company for the first nine months were not yet indicative of a full turnaround.

In the nine-month period, Geox registered a 4.4 percent increase in sales to €768.7 million. At constant foreign exchange rates, sales were up by 4.7 percent. Footwear sales were up by 2.6 percent to €655.5 million and apparel increased by 15.9 percent to €113.2 million. At constant foreign exchange rates, turnover rose by 2.9 percent for footwear and by 15.9 percent for apparel.

Geox Consolidated Income Statement

(Million Euros, Nine months ended Sept. 30)





Footwear Sales




Apparel Sales




Total Net Sales




Cost of Goods




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Selling & Distribution








Advertising & Promotion




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However, the new selling season has not started out well. Comparable sales of the fall/winter collection in company-run stores were flat in the period between Oct. 3 and Nov. 6. The trend is disappointing compared with the group's previous expectations of a 2 percent increase in same-store sales for the fall/winter collection. In the period running from January to Nov. 6, comparable store sales were up by 2 percent. In the third quarter, same-store sales dropped by a mid-single-digit rate.

By region, sales were up by 6.8 percent to €303.6 million in Italy and rose by 1.5 percent to €321.6 million in the rest of Western Europe. Sales dropped by 4.0 percent in Spain. Excluding Spain, European sales were up by 3.7 percent. Revenues fell by 3.1 percent to €41.7 million in North America and surged by 10.1 percent to €101.8 million in the rest of the world, led by China, Hong Kong, Eastern Europe and Russia. In terms of local currencies, sales were up over the nine months by 1.0 percent in Europe, excluding Italy; up by 0.3 percent in North America; and up by 12.9 percent in the rest of the world.

By channel, nine-month revenues fell by 2.8 percent to €441.3 million for wholesale, rocketed up by 26.4 percent to €171.1 million for franchising and grew by 6.3 percent to €156.3 million for directly operated stores (DOS). On a currency-neutral basis, turnover was down by 2.5 percent in wholesale, up by 26.4 percent for franchising and up by 6.8 percent for DOS.

Geox' net store openings totaled 60 worldwide in the first nine months of the year; 29 took place in Italy, 13 in the rest of Western Europe and 23 in the rest of the world. In North America, the number of stores fell to 46 from 50 a year ago. The group also saw the number of shops under license agreements drop to 168 from 169. Licensed shops are not included in the franchising channel and are located in the Middle and Far East.

Geox expects 40 net openings, almost half of them in Italy, in the last quarter of the year, bringing the full-year total to 100. The company explained that some of its Italian multi-brand clients are becoming franchisees as they realize that Geox offers a full range of shoes and apparel. It is seeing the phenomenon occurring even in relatively small towns. Many of the franchise openings are taking place in towns with 50,000-120,000 inhabitants. Geox anticipates finishing 2011 with about 400 mono-brand stores in Italy compared with 373 at the end of September. Worldwide, the group had 1,099 Geox shops as of Sept. 30, of which 263 were directly operated.

The group will pursue its policy of opening directly operated flagship stores. At the end of September, it opened a DOS on Oxford Street, London, after a four-year effort. The location has already become one of its top-ranking stores and the group is confident it will generate £3 million (€3.5m-$4.7m) in sales in its first year of activity.

Geox's gross margin slipped to 45.6 percent from 48.8 percent a year earlier as production costs rose by 11.0 percent to €418.5 million. The Ebitda margin slipped to 17.1 percent from 19.5 percent and the Ebit margin dropped to 13.4 percent from 15.4 percent. Net profit was trimmed to €63.2 million from €72.4 million.

The cash pile narrowed to €56.9 million at the end of September from €92.1 million at the end of 2010. During the period the group invested €26.5 million, €16.3 million of it in the retail network.

Geox forecast that full-year sales will reach around €880 million and confirmed that Ebitda margin will be lower, falling by 2.0-2.5 percent points from a year earlier.

As expected, the profit margin has improved by 2.0 percent points year-on-year with the 2012 spring/summer collection. Higher raw material and labor costs continue to weigh on profit margins, diluting them by 3.2 percentage points. However the drag is offset by a positive impact of 3.5 percentage points stemming from favorable foreign exchange fluctuations and a 1.0-point boost thanks to price increases.

The withdrawal at the end of March of anti-dumping duties on leather shoes from China and Vietnam will enable the company to shift production to those countries from higher-cost regions and contribute to a 0.7-point improvement of the operating margin. The European Union introduced the duties at the end of 2006.