Geox reported a net loss and declining sales for the past year, but posted convincing fourth-quarter results, especially for its directly-managed stores and e-commerce. The revenues of €827.2 million for the full year were down by a reported 6.5 percent and by 5.5 percent at constant foreign exchange rates, but they beat market expectations by €3.5 million. Same-store sales fell on average by 2.3 percent.
In the fourth quarter, sales went up by 2.0 percent, more than twice the pace forecast by the brokerage Equita, driven by a 3.4 percent increase in comparable store sales, in contrast with Equita's forecast of flat sales. Comparable store sales at brick-and-mortar stores rose by 2.1 percent in the quarter, while sales through the company's directly-managed website, geox.com, surged by 22.0 percent.
Overall comparable sales were particularly strong in the closing months of the year, with November up by 4.1 percent and December up by 5.3 percent. In the eight weeks to Feb. 24, comparable sales were slightly positive, again driven by sales over the internet.
The declines in the annual turnover were attributed to unusual weather, with a cold spell in March delaying the spring/summer season and warm weather until mid-October affecting the start of the autumn-winter selling season.
The company's own stores similarly suffered a fall in attendance due to the weather but also from increased competition from new players, mainly sports brands that have been moving into casual and urban styles plus e-tailers diverting clients from physical stores.
Geox pointed out that the difficult market conditions pushed retailers to offer discounts during both full-price and sales periods to cut their inventories.
The group has adopted a prudent commercial policy, cancelling orders from clients that face financial difficulties or operate in countries where the business environment has worsened, and further trimmed its mono-brand network.
For Geox' full financial year, footwear revenues totaled €744.0 million, down by 6.6 percent at actual currency rates and by 5.7 percent at constant rates. Apparel fell by 5.3 percent to €83.2 million, with constant-currency sales down by 3.8 percent. In the fourth quarter, apparel sales rose by a double-digit rate, thanks to the introduction of a new collection.
The company's total sales in Italy dropped by 6.9 percent to €239.8 million. In its home country, the number of net store closures stood at 18 units, down from 48 in 2017. Comparable sales for directly-operated stores (DOS) in the country, up by 4.8 percent in the fourth quarter, were substantially in line with the group average for the full year.
In the rest of Western Europe and Scandinavia, the turnover decreased by 7.4 percent to €354.7 million, with currency-neutral sales down by 7.3 percent, due to store closures and bad weather. In the region, Geox closed a net 25 stores in 2018. Same-store sales were roughly in line with the group's average in the full year and rose by a low to mid-single-digit rate in the final quarter.
Sales decreased by 11.2 percent to €50.5 million in North America. At constant currency rates, the decline narrowed to 7.2 percent, driven by a clean-up of the wholesale channel and five net store closures. Comparable store sales were up by a low to mid-single digit rate in both the full year and the last quarter.
In the rest of the world, sales reached €182.2 million, down by 2.7 percent in euros but up by 0.9 percent in local currencies. Geox closed a net 30 stores to 138 in these regions in 2018.
Comparable sales for the wholesale business and directly-operated-store sales were slightly positive over the full year. By channel, wholesale revenues, which represented 44.7 percent of group sales or €369.9 million, posted decreases of 7.8 percent on a reported basis and 6.6 percent at constant currency rates.
Franchising suffered a 19.0 percent sales decline to €98.3 million, with a drop of 18.3 percent in local currencies, after the group trimmed the store network by a net 55 units due to closures and, even more, by conversions into directly operated stores (DOS). Same-store sales in the franchised stores were slightly below the performances achieved at DOS.
Sales at DOS fell by 0.9 percent to €359.0 million, but they increased by 0.1 percent at constant currency rates. Geox noted that closures were more than offset by openings and conversions of franchised stores and that the decline was caused by less traffic and lower sales volumes due to the weather. In the fourth quarter, DOS sales went up by 6.9 percent thanks to the higher number of stores.
At the end of December, Geox had 1,015 mono-brand stores in operation worldwide, down from 1,095 a year earlier, but the number of DOS rose to 444 from 439. During the year, the group closed 137 mono-brand stores and opened 57, resulting in a net decrease of 80 units. At the end of December, the group had upgraded 136 locations to its X Store concept, missing its guidance of 150 units, compared with 33 at the end of 2017.
Geox' gross margin grew by 0.7 percentage points to 50.0 percent in 2018 thanks to efficiency measures and the greater incidence of DOS, which generate higher profitability. The adjusted Ebitda margin fell to 5.8 percent from 8.4 percent a year earlier but was above the group's guidance of about 5 percent. The adjusted Ebit margin narrowed to 1.8 percent from 4.5 percent.
For the whole year, Geox posted a net loss of €5.3 million compared with a €15.4 million profit in 2017. On an adjusted basis, the net profit slipped to €2.0 million from €22.8 million, excluding one-off costs of €9.8 million in 2018 and €10.0 million in 2017.
During the year, the group increased capital expenditures to €37.4 million from 30.8 million in 2017 and boosted advertising and promotion spending to €26.7 million from 22.6 million.
Geox improved its financial position to a net cash pile of €2.3 million from a net debt of 5.4 million thanks to a fair value adjustment of its derivatives, which had a positive impact of €9.1 million on its balance sheet.
The company also reduced its operating working capital to €209.1 million from €226.3 million as an improvements in receivables and payables more than compensated for an increase in inventories.
Geox slashed its full-year dividend to €0.025 per share from €0.06 the previous year.
The broker Banca Akros noted the Ebitda margin and the year-end cash position were higher than expected, indicating that Geox is on the right track, although its turnaround has just started.
As for 2019, Geox pointed out that orders for the spring/summer collection were down by 9.1 percent for wholesale clients, while the gross margin rose in line with its expectations. The group stressed that initial orders are gradually losing importance as sales tend to increase on the basis of re-orders and replenishment during the season.
The company will continue to clean up the wholesale channel but the impact on sales will be weaker than in 2018.
Geox expects that the overall number of mono-brand stores will remain steady in 2019, but the share of DOS will continue to increase thanks to new openings, especially in China, and the conversion of a limited number of franchised shops, which will more than offset the closure of underperforming stores. It anticipates that direct online sales will keep on growing at a strong pace.
The management pledged to pursue efforts to boost productivity and efficiency during the year.
On April 16, Geox's board will ask shareholders to approve a stock grant plan for the senior management. The plan involves the free issue of up to 5 million ordinary shares. The number of shares assigned to them will depend on the achievement of performance results based on the net earnings that will be accumulated between 2019 and 2021. The company will also seek shareholder authorization for an 18-month share buyback.