Geox' footwear sales sank by 15.6 percent to €293.7 million in the first quarter of 2010. The company blamed the performance on a drop in footfall due to the harsh economic situation, especially in the European market, as well as some delivery delays.

Overall, the group's turnover fell by 13.3 percent to €333.1 million, underpinned by a 9.0 percent increase in apparel sales to €39.4 million. At constant exchange rates, total revenues decreased by 13.2 percent.



The first three months of the year are the company's most important along with the third quarter. The company experienced some improvement in the sales trend in April and the year-on-year decline narrowed to 11 percent as deliveries picked up. But it warned that the decline in first-half sales could remain roughly in line with the first quarter because of an ongoing weak retail climate in its main markets and a slow intake of re-orders. Re-orders represent about 5 to 10 percent of the group's total backlog.

Geox indicated that the order backlog is up by 2 percent following completion of the sales campaign for the faqll/winter collection. The data do not include re-orders but are usually a fairly reliable proxy of expected sales in the second half of the year. However, the company warned that the final backlog data could worsen. So far, the level of footwear orders has been flat compared as compared with a year earlier, while orders for apparel have been up by nearly 20 percent.

Orders from Austria, Scandinavia and the U.K. were up by double-digit percentage points at the end of the quarter. The order intake from Iberia and France increased by high single digits, while orders from Germany were stable. Italian orders were slightly negative and U.S. orders booked a small increase. The Far and Middle East sharply increased their intake, according to Geox.

The group forecast that full-year revenues could fall by ?a mid to high single digit? in percentage compared with 2009, and that the gross operating margin (Ebitda) could narrow by 4.0 to 5.0 percentage points. In 2009, Geox's turnover already declined by 3 percent to €865.0 million and the Ebitda margin fell to 19.8 percent from 22.4 percent in 2008.

The group's first-quarter results were weaker than expected by financial analysts and its guidance for the balance of the year was worse than the sales decline of about 1 percent forecast by the financial markets. Analysts were largely expected to significantly cut their forecasts after the company's sales and profit warning. Centrobanca is now forecasting the group's 2010 sales to be down by 7.5 percent at €801 million and Ebitda margin to recede by 4.4 percentage points. A string of analysts, including heavyweights such as Deutsche Bank and Exane BNP Paribas, have also downgraded the company. On Friday, the day of the release of the results, Geox's share price collapsed by nearly 11 percent to €4.41, albeit in a very weak market.

In the quarter, the group's revenues decreased in all markets; by 9.0 percent to €125.8 million in Italy, by 17.6 percent to €152.4 million in the rest of Europe, by 13.6 percent to €14.6 million in North America and by 8.9 percent in the rest of the world. At constant currency rates, North American sales sank by 17.0 percent.

Wholesale revenues plummeted by 18.7 percent to €232.2 million, sales to franchises increased by 0.6 percent to €60.8 million and turnover at its directly operated stores (DOS) was up by 4.7 percent to €40.1 million.

The group claimed that the decline in retail turnover was due only to a fall in traffic, because other retail indicators such as client conversion and the average selling price were higher.

At the end of March, the group had 1,015 mono-brand stores, of which 251 were DOS, compared with 1,008 shops, 244 of them directly operated, at the end of 2009. During the quarter, Geox opened 29 stores and closed 22 points of sale. At the end of April, the retail network had increased to 1,021 shops.

Geox trimmed its target for the expansion of its store network to around 50 net openings for the full year, comprising 85 openings and 35 closures, from an initial 85 net openings, or 100 openings and 15 closures.

The bulk of the closures was already achieved in the first quarter and the remaining shutdowns include three stores in Germany, three in the U.S., two in Hong Kong and a couple in France.

Comparable store sales fell by 5.7 percent at DOS stores in the first quarter. The trend seems to have improved in the period running from March 1 to May 9, when comparable store sales for the spring/summer collection only dropped by 2 percent. The company did not release an overall comparable store sales figure.

The company was upbeat about the performance of its 13 largest DOS, which booked a 3 percent increase in comparable sales for the spring/summer collection.

The group's profitability withered with the weak top line. The gross profit margin was trimmed to 50.5 percent of sales from 51.7 percent a year earlier due to greater use of air freight for deliveries. The Ebitda margin fell to 28.1 percent from 32.5 percent and the Ebit margin narrowed to 25.1 percent from 30.3 percent. Operating profits were hit by an increase in general and administrative costs to €60.1 million from €56.0 million a year earlier largely due to the expansion of the DOS network.

But the net profit margin only fell to 16.1 percent from 18.8 percent thanks to lower income tax, which amounted to €28.1 million compared with €40.7 million a year earlier.

The company continued to show financial and commercial discipline by reducing inventories to €107.6 million at the end of March from €135.2 million a year earlier, and cutting its operating working capital to €293.9 million from €356.2 million. It also trimmed net capital expenditures to €8.2 million, of which €6.3 million was spent on the store network, from €10.7 million. Nevertheless the cash burn increased, with free cash flow reaching a negative €40.8 million in the quarter against €22.4 million a year earlier. Consequently, Geox's cash pile shrank to €68.8 million as of March 31 from €102.6 million at the end of 2009. Analysts still expect the group to be cash-generative this year and see the cash rising to around €90 million by December.

The company forecasts that it will invest a total of about €45 million during the whole of 2010, of which €30-35 million will go toward its stores and the remainder toward information technology and the development of molds.

Geox said that the current exchange rate of about $1.25 to the euro is not affecting its procurement policy. But it could review its sourcing strategy if the euro/dollar rate drops to 1.10.