Geox' first-quarter results confirmed the effectiveness of the group's turnaround strategy and its recovery in sales and profits. The group's results should be boosted further after the start-up of its new low-cost footwear factory in Serbia, which could have a positive effect on gross margins from next year, according to financial analysts.

The plant currently has two production lines open, but they are being used to train staff. Commercial manufacturing is scheduled to start in June. By the end of the year, five out of 11 production lines are due to become operational. Full production is expected to be reached in 2016. Geox anticipates that the factory will already put out half a million pairs this year. At cruising speed, the site should be able to manufacture more than 1.2 million pairs a year.

Meanwhile, Geox continues to build up its presence in China, where it currently has 50 directly-operated stores (DOS). It plans to open a further 20 this year. By the end of 2016, Geox aims to have an overall 100 DOS in Beijing and Shanghai. The rest of the country will be covered through distribution agreements.

The group announced that it has signed a distribution deal with one of China's largest multi-brand chains, specializing in children's footwear. The agreement is not exclusive and Geox can open mono-brand points of sales for kids' shoes with other partners, including corners and shop-in-shops in department stores.

Children's shoes were not covered by an existing distribution agreement with Riqing Enterprise that Geox wants to revoke for breach of contract (see Shoe Intelligence Vol. 17 n. 6+7). The Italian company believes that it will take nine to 12 months to settle the arbitration with Riqing, but claims that it already has “a free hand” in the country. It is holding talks with potential Chinese and international partners.

Geox booked a 4.7 percent rise in first-quarter sales to €281.0 million, slightly below market expectations of about €283 million. At constant currency rates, revenues were up by 2.5 percent. Footwear sales were up by 9.0 percent to €252.8 million in euros, and by 6.4 percent in local currencies. Apparel sales were down by 22.6 percent to €28.2 million, and by 22.9 percent in local currencies, due to a downsized collection. On a comparable basis, apparel revenues were up by 10.8 percent.

In Italy, sales rose by 3.2 percent to €100.5 million. The company said that it is seeing the Italian footwear market stabilizing, after a continuous decline since 2008, amid signs of economic recovery after the longest recession the country experienced since the Second World War.

Revenues in the rest of Europe also increased by 3.2 percent to €119.7 million, with positive performance in all major markets. At constant rates, sales were up by 2.6 percent in this territory. The company pointed out that the euro's depreciation against other major currencies has fuelled tourist flows to the continent. Sales in Milan are being positively impacted by the World Fair being held from May 1 to Oct. 31, for which Geox has produced special products.

In North America, sales rose by 15.8 percent to €14.2 million, lifted by the weakness of the euro against the U.S. dollar. In local currencies, revenues rose by 1.9 percent, underpinned by the Canadian market. In the rest of the world, sales were up by 8.8 percent to €46.6 million, also bolstered by the weak euro. On a currency-neutral basis, sales were up by 1.1 percent as weakness in China was offset by strong growth in other markets.

Geox Consolidated Income Statement

(‘000 Euros, Quarter ended March 31)









Europe (*)




North America




Other Countries








Cost of Goods




Gross Profit




Selling & Distribution




General & Administrative




Advertising & Promotion








Net Interest
















Earnings per Shares




(*) Europe includes: Austria, Benelux, France, Germany, UK, Iberia, Scandinavia, Switzerland

By channel, wholesale revenues increased by 4.8 percent to €139.1 million, rising by 1.7 percent at constant exchange rates. In this segment, revenues from franchisees fell by 3.9 percent to €56.3 million in euros, or by 3.3 percent currency-neutral, due to the closure of non-performing stores and the conversion of some locations into DOS.

On a comparable basis, sales were up by 7.7 percent at franchised stores in the first quarter. Same-store growth rate reached 8.7 percent when extended to May 10. During a conference call with financial analysts, Geox' chief executive, Giorgio Presca, said that the group now has a “healthy and profitable” franchising network that will be expanded. The group aims to open a further 20 stores in franchising by the end of this year, a process that will be partially offset by a few closings.

Revenues at DOS surged by 10.9 percent to €85.6 million, lifted by a larger network compared with the previous year, but with a noteworthy 4.8 percent increase in same-store sales. At constant currency rates, DOS sales were up by 8.2 percent in the quarter. The company-owned retail network recorded growth on a comparable store basis in all the geographies, but its sales rose at a double-digit rate in the rest of the world and the Asia-Pacific business areas. The best performing stores were those in Shanghai and Beijing, where sales jumped by 41 percent on a comparable basis. From the beginning of the year to May 10, the overall same-store sales growth rate went up to 5.4 percent, thanks to an acceleration in April and May.

On a comparable store basis, sales of Geox' spring/summer collections alone rose by 9.2 percent at franchisees and by 4.8 percent at DOS, which were more affected by the downsizing of the apparel segment, during the period running from Feb. 23 to May 10. The footwear part of the collections progressed by 9.0 percent at DOS.

At the end of March, Geox had 1,166 mono-brand stores worldwide, including 440 DOS, against 1,225, of which 477 DOS, at the end of 2014. It closed 75 stores and opened 16 new ones during the first quarter. The company pointed out that 41 of these closures affected small “total look” concessions that it had to discontinue after downsizing the apparel collection. The group is aiming to add 25 more DOS to the network by the end of the year - 20 in China and five in Europe.

Geox' gross margin widened to 46.9 percent in the quarter from 45.4 percent a year earlier. The 1.5 percentage point increase was in line with the group's full-year guidance, which it does not rule out beating. The operating margin before amortization (Ebitda) rose to 10.9 percent from 10.4 percent, and the Ebit margin to 7.4 percent from 6.5 percent. Net profit increased to €12.5 million from €10.0 million.

The operating cash flow was a positive €4.1 million against a cash burn of €47.9 million a year earlier. The free cash flow was still negative at €3.5 million, but down from a negative  €53.1 million, as net investments went up to €7.6 million from €5.2 million a year earlier. The group usually burns cash in the first and third quarters and generates cash in the second and fourth quarters.

Geox significantly improved its operating working capital requirements, which dipped to 33.7 percent of accumulated sales over the past 12 months, from 37.4 percent in the comparable prior period. The group's inventories were higher than a year ago but down from €287.7 million at the end of 2014, following the liquidation of 2013 products. Leftovers of the spring/summer 2014 collection are being sold in Geox outlets. The excess inventory was partially offset by a reduction of the spring/summer 2015 production.

Geox cut its net debt to €8.1 million as of March 31 from €13.0 million at the end of 2014 and €77.2 million a year earlier thanks to the adjustment of the value of foreign exchange contracts. The group expects to erase its net debt by the end of the year, possibly reaching a positive cash position.

The company reported increases in the wholesale order backlog for the autumn/winter collection of 8.8 percent in euros and 8.2 percent at constant exchange rates with an improvement of the gross margin of 1.5 percentage points. Geox said that it did not increase prices and that the improvement in order levels was generated by higher volumes.

On a currency-neutral basis, orders were up by a high single-digit rate for footwear and by a low teen rate for apparel. Overall orders increased by over 10 percent in Italy, by a high single-digit rate in the rest of Europe, at a double-digit rate in North America and by a mid-single rate in the rest of the world.

In line with its own business plan, the management expects to match market expectations for the full financial year in terms of operating profitability and net income. Financial analysts see the company's top line at nearly €880 million in 2015, Ebitda at around €72 million and net profit at €17 million. The group's own 2015 guidance is for sales of about €887 million and Ebitda of about €71 million.