Geox's directly operated stores (DOS) are enjoying strong comparable sales with its spring/summer collection thanks to good demand for women's items, especially fashion products. But the group has also registered a drop of about 15 percent in orders for the fall/winter collection. Apparently, the bulk of the decline stems from cautious buying by wholesale clients and franchisees after disappointing sales during the previous winter season, which has caused an inventory overhang. A small part of the decrease is also due to Geox's policy of reducing its exposure to some small wholesale accounts.

The backlog could be further hit by the renegotiation of a distribution deal with Belle International for China and Hong Kong. Geox is considering a direct presence in the Asian country that would modify the partnership with Belle, especially regarding the territory of Hong Kong.

On the bright side, the gross margin of the fall/winter collection is expected to improve by 1.0-1.2 percentage points thanks to favorable foreign exchange rates, price increases and improvements in sourcing conditions.

The group forecast that it will finish 2012 with a sales decline, possibly down as low as €820 million from €887.3 million last year. Comparable store sales are seen rising by mid-single digits and the gross margin is scheduled to widen by 1.5-2.0 percentage points. But ongoing investments will reduce the Ebitda margin by 2.0-3.0 percentage points, while the net margin should fall by only about 2.0 points thanks to a lower tax rate. The guidance indicates that the net profit will drop to around €30 million from €50.2 million in 2011.

In the first quarter of 2012, Geox booked a 4.4 percent decrease in sales to €330.0 million. On a currency-neutral basis, sales fell by 5.0 percent. Footwear revenues were down by 4.5 percent to €286.0 million and apparel sales decreased by 4.3 percent to €44.0 million. At constant foreign exchange rates, revenues fell by 5.2 percent for footwear and by 4.3 percent for apparel.

By region, sales were down by 4.2 percent to €131.6 million in Italy and dropped by 6.3 percent to €138.7 million in the rest of Western Europe, led by Spain, down by 13.0 percent. Revenues fell by 11.6 percent to €13.5 million in North America and rose by 3.4 percent to €46.2 million in the rest of the world, led by Eastern Europe and Russia. Greece, which is lumped in with rest of the world, experienced a double-digit drop.

On a similar currency basis, sales were down by 6.7 percent in Europe, excluding Italy. They fell by 14.6 percent in North America and increased by 1.0 percent in the rest of the world.

By channel, quarterly revenues fell by 13.3 percent to €190.2 million for wholesale, surged by 14.2 percent to €87.2 million for franchising and jumped by 6.2 percent to €52.6 million for DOS.

On a currency neutral basis, turnover was down by 14.0 percent in wholesale, was up by 14.2 percent for franchising and up by 5.2 percent for DOS. During the period running from Feb. 27 to May 6, same-store sales of the spring/summer collection were up by 7.0 percent, helped by a higher average selling price and more traffic. The group's flagship stores outperformed other DOS, booking a 13.0 percent growth.

Geox Consolidated Income Statement

('000 Euros, Quarter ended March 31)





Footwear Sales




Apparel Sales




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General & Administrative




Advertising & Promotion




Special Items




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Earnings per Shares




In 2012, Geox plans 90-100 net stgore openings, roughly in line with the 101 stores added last year. Twenty openings will be DOS and the remainder franchisees. Sixty new stores are scheduled in Western Europe, 10 in Eastern Europe, 10 in Russia, 10 in China and Hong Kong, and 10 in the Middle East and other markets. At the end of March, the group had 1,145 mono-brand stores, of which 254 were DOS. At the end of April, the tally of mono-brand stores had reached 1,162. Stores closures and openings are usually concentrated into the passage from one season to the other.

The group will continue its policy of leasing some DOS in minor Italian and Chinese towns to focus on larger stores.

At the beginning of the second half, Geox will roll out an automatic replenishment system to franchisees and selected wholesale clients. The program is already in place at the group's DOS. In a conference call, the corporate managing director, Massimo Stefanello, said he believes that the system contributed to the good performance in sales of the spring/summer collection at company-run stores.

Initially, wholesale accounts and franchisees will be informed only that they need to replenish and they will have to confirm the order. Automatic shipment will be introduced at a later stage. Geox has included 28 evergreen and basic models in its automatic never-out-of-stock (NOS) program. Thanks to increased efficiency, the group has also improved reordering services for fashion items, which have not been included in the NOS system. Stefanello noted that the best-selling product in the spring/summer collection is a colorful women's shoe that it has been advertising. As soon as the group grasped that the model was a success, it ordered an additional 70,000 pairs and was able to deliver them by the end of April to its clients and DOS.

Geox increased the gross margin to 46.8 percent from 44.2 percent a year earlier during the first quarter, thanks to higher sales at its DOS and favorable currency variations, which were only partially offset by higher raw material and labor costs.

But the improvement of the gross margin is not benefitting the Ebitda margin due to higher overheads and advertising costs. The Ebitda margin slipped to 21.9 percent from 22.9 percent. Geox booked a net profit of €41.5 million down from €43.4 million a year earlier.