Geox posted disappointing third-quarter results, missing market expectations by about €10 million, and slightly cut its revenue growth forecast for the full year. According to an investment broker, Equita, the estimates given for spring/summer 2018 orders were also below expectations.

In the first nine months of this year, the company's revenues fell by 0.9 percent €732.7 million, despite a small increase in the wholesale business. At constant currency rates, the top line fell by 1.3 percent. Overall footwear sales decreased by 1.4 percent to €659.6 million, while apparel revenues were up by 4.0 percent at €73.2 million. On a currency-neutral basis, shoe sales fell by 1.7 percent and apparel advanced by 2.9 percent.

Geox' wholesale revenues rose by 2.0 percent to €352.7 million in the nine months, thanks to double-digit growth rates in Russia, Eastern Europe and China as well as through e-commerce, while sales were steady in Italy and Western Europe. At constant currency rates, the wholesale turnover was up by 1.5 percent in the first half of the year, but in the third quarter it fell by a low single digit due to fewer promotional sales because of lower inventories, the postponement of some deliveries and conservative credit risk management, especially in countries experiencing turmoil such as Ukraine and Thailand.

Sales to franchisees dropped by 7.3 percent to €111.0 million in the nine months, while revenues from directly-operated stores (DOS) fell by 1.8 percent to €269.1 million. In local currencies, the rates of decline were 7.9 percent and1.9 percent, respectively.

The combined sales of Geox mono-brand stores dropped by a reported 3.4 percent to €380.1 million, affected by store closures. The DOS fleet was reduced by 31 stores and the network of franchised stores by 42 units. The group had 1,095 mono-brand stores worldwide at the end of September, 66 less than in December, with the number of DOS falling to 424 from 455.

Geox accelerated the reorganization of the overall retail network with 120 closings and 54 openings. In particular, the brand significantly reduced its presence in Western Europe, whittling down the number of stores by 43 to 309 locations in Italy and by 31 to 315 in other Western European countries. There were five net closures in North America and 13 net openings in the rest of the world. Geox has planned 20 store closures and a similar number of openings in the fourth quarter, resulting in a stable global tally at the year-end.

Comparable store sales were up by 0.5 percent for DOS in the first nine months, reversing a negative trend recorded in the first half thanks to a 3.2 percent increase in the third quarter, underpinned by a high single digit growth rate in September. Geox franchisees posted low single digit growth in comparable sales during the nine-month period through September.

However, in the 44 weeks to Nov. 5, same-store sales were down by 0.2 percent at the company's DOS compared with a flat performance the previous year and the group's anticipation of a slight increase, due to unusual weather conditions in key markets and volatile store traffic in October. The trend was positive again in early November and the company is projecting flat to slightly negative scores for November and December.

Geox' overall sales in Italy were down by 3.8 percent at €222.4 million. The decline was largely due to the store closures and a slight decline in comparable store sales at DOS. In the rest of Western Europe, turnover fell by 1.4 percent at current and constant currency rates to €318.3 million, also affected by store closures. The DOS' same-store sales were up by a low single digit and wholesale revenues stable.

Sales decreased by 6.2 percent to €43.9 million in North America, due to a drop in the Canadian market. At constant exchange rates, the rate of the decline widened to 7.2 percent. Comparable store sales were steady.

In other countries, sales grew by 6.9 percent to €148.2 million, with an increase of 5.0 percent in local currencies, driven by Russia, Eastern Europe and China.

For the full year, Geox now expects to post a slight decrease in revenues rather than a slight increase as previously predicted. The decline will stem from the retail division, while wholesale sales are expected to rise by a low single digit.

Nevertheless, the management expects to post a “material” increase in profitability. It is forecasting an improvement of more than 2.0 percentage points for this year's gross profit margin, thanks to efficiency measures. In 2016, the company reached a gross margin of 47.7 and a net profit of €2.0 million on sales of €900.8 million.

Geox said that the order backlog for the spring/summer 2018 collection from wholesale clients is up by 3.5 percent compared with the previous year, with growth in almost all regions. The demand has been stable in Italy but down slightly in the rest of Europe due to problems in Austria, which is facing a tough comparison base, and in Switzerland due to a change in the distribution strategy. The U.K., Spain and France generated “healthy growth” in orders, and demand from Germany remained steady.

Orders from Eastern Europe and the Middle East were up at a double-digit rate, with Russia outperforming. North America was up slightly thanks to double-digit growth in the U.S., while orders from Asia-Pacific went up at a high single digit rate, with double-digit growth from China. Orders from e-commerce clients grew by 21 percent.

Geox anticipates that the Ebitda margin will hrow by 1.5 percentage points year-on-year for the spring/summer collection, in spite of an erosion of the gross margin from higher sales to key accounts and e-commerce clients like Amazon.

The management noted that investments in advertising and promotion (A&P) will be cut by around €10 million this year due to an optimization of expenses related to advertising and display materials for the stores. Geox is raising digital and performance marketing as well as cooperative advertising.

The company also confirmed that it will book one-off charges of about €10 million in 2017, of which €4.3 million has gone into severance fees for Geox' former chief executive, Giorgio Presca, who is now running Golden Goose. The remainder will relate to the reorganization of the retail network and other restructuring costs.