Geox' revenues declined by 11.2 percent to €264.5 million in the first quarter, missing market expectations by more than €13 million, due to store closures, fewer discounted sales and poor weather conditions. At constant currency rates, sales slipped by 10.0 percent.
The group said that it has already recovered about €5 million in sales that stemmed from a delay in shipments but warned that it could lose “a couple of million” euros in potential reorders even though it has been enjoying “quite aggressive” reorders, especially from internet clients, since the weather started to improve in its major markets in mid April.
Geox' management expressed a “certain degree of prudence” about its sales projections for the full financial year, but confirmed a goal to improve the gross margin by more than 1.5 percentage points thanks to efforts on the product, the channel and price and measures taken to boost efficiency.
No specific figures were released about the company's profitability in the quarter. The financial analysts' current consensus is for 2018 sales of around €893 million, up from €884.5 million in 2017, and a pre-tax profit of about €45 million, compared with €26.8 million.
On the other hand, an investment broker, Equita, agreed that the results are likely to improve, but cut its forecast for Geox' Ebitda to €84 million from €90 million and its prediction for net earnings to €30 million from €33 million, citing uncertainties regarding the top line and possible extraordinary marketing investments. In 2017, Geox posted a reported Ebitda of €64.0 million, or €74.0 million on an adjusted basis, while the bottom line was €15.4 million.
In the first quarter of this year, Geox' footwear revenues totaled €239.9 million, down by 10.3 percent at actual currency rates and by 9.2 percent at constant rates. Apparel sales fell by 19.3 percent to €24.6 million, with a currency-neutral drop of 8.9 percent.
The company's total sales in Italy fell by 16.6 percent to €83.2 million, representing 31.4 percent of the total turnover. In the country, the net number of Geox stores declined by 12 units during the quarter, following a reduction of 48 doors in 2017. Comparable store sales in the country were in line with the global average.
In the rest of Western Europe, the turnover dropped by 9.7 percent to €113.9 million, with currency-neutral sales down by 9.5 percent. In the region, Geox closed a net 10 stores in the first quarter on top of 36 net closures in 2017. Bad weather conditions hit mainly central and northern European countries.
Sales decreased by 18.3 percent to €11.8 million in North America. At constant currency rates, the decline was limited at 11.8 percent, driven by the clean-up of the wholesale channel to focus “only on partners properly reflecting” the group's brand enhancement program. The number of Geox stores in the region fell by six units in 2017 and by a further two in the latest quarter. Comparable sales at directly-operated stores (DOS) were positive.
In the rest of the world, sales reached €55.6 million, down by 3.5 percent in euros, but they were up by 0.2 percent in local currencies. Wholesale revenues were affected by a different timing in deliveries. Same-store sales at DOS were positive.
By channel, the company's wholesale revenues represented 54.1 percent of total sales at their level of €143.0 million. They were down from the year-earlier period by 9.7 percent in euros and by 8.6 percent in local currencies.
With revenues of €42.3 million, store franchising suffered sales declines of 21.0 percent in euros and 20.8 percent in local currencies, after the group trimmed the store network by about 15 percent in 2017 and during the first quarter through closures and conversions to DOS. Net store closures totaled about 60 units in 2017 and 30 in the first quarter of 2018. Same-store sales were down in this channel as the same rate as in the DOS network.
DOS revenues sank by 7.8 percent to €79.2 million, mainly due to less promotional activity in January and February, following a decision to reduce inventories for the past autumn/winter collection and a late start to the sell-out of the spring/summer collection, due to poor weather conditions in March coupled with a scarcity of autumn/winter goods. Comparable store sales at DOS were still down by 4.5 percent in the 19 weeks to May 13, but they marked a sharp improvement from the 8.9 percent decrease registered in the first three months of the year thanks to almost double-digit growth in the last two weeks of April and the first two weeks of May.
At the end of March, Geox had 1,058 stores operating worldwide under its own banner, including 436 DOS, compared with a door count at the end of 2017 of 1,095 stores, including 439 DOS. During the quarter, the group closed 47 locations and opened 10, resulting in a decrease of 37 units.
At the end of March, Geox had 60 shops upgraded to its new X Store format against 33 at the end of 2017. X Stores are experiencing higher customer traffic and comparable store sales than traditional shops, according to Geox.
The management indicated that the reorganization of the company's DOS network is “substantially” completed, while stores managed by third parties will “still be subject to a certain degree of rationalization during the year,” at a less intense than in the past quarters. It forecast 9-10 net closures for franchises during the balance of the year.
Geox pointed out that orders from wholesale clients for the autumn/winter collection were up by 3 percent, driven by footwear. They were up by a low single-digit rate on average for Europe, the Middle East, Africa and North America, but were slightly negative for Italy. They increased by a double-digit pace in Asia-Pacific, with China “particularly positive.” Orders taken over the internet rose by more than 15 percent. Geox noted that the year-on-year improvement in the gross margin on incoming orders is in line with its full-year guidance.