Geox confirmed its projection of a rebound in sales this year, which are seen increasing to €800-805 million, and breakeven results in terms of operating profit (Ebit). It also expects the operating margin before amortization, or Ebitda, to rise to around 5 percent.

For the financial year ended last Dec. 31, Geox has reported a sales decline of 6.6 percent to €754.2 million, down by 5.6 percent at constant currency rates. The adjusted Ebitda margin was a positive 3.3 percent and the adjusted Ebit margin was negative at 2.1 percent. The company booked a net loss of €29.7 million against a €10.0 million profit in 2012.

Financial analysts are divided on whether the group will achieve its targets, but nevertheless expect Geox to improve its results as part of its turnaround efforts. The consensus is for full-year sales of less than €790 million, an Ebitda margin of over 5 percent and an operating profit (Ebit) of nearly €1 million. An equity research firm, Morningstar, believes that the group will miss its Ebit margin targets throughout its three-year business plan. Morningstar expects Ebit to be below breakeven this year, going up subsequently to 2.7 percent of sales in 2015 and 6.1 percent in 2016. Geox is aiming for an Ebit margin of about 4 percent in 2015 and around 7 percent in 2016, when sales are expected to grow to close to one billion euros.

In 2013, the group's footwear sales dropped by 5.1 percent, or by 4.0 percent in constant currencies, declining to €654.2 million. Sales of apparel slumped by 15.6 percent to €100.0 million, with a currency-neutral drop of 15.0 percent.

The company's overall sales fell by 16.1 percent in Italy to €239.9 million, hit by drops in wholesale revenues and same-store sales, with a particularly strong decline in sales to franchisees located in the poorer southern part of the country. The country's sales organization was reviewed in 2013, resulting in what was described as “meaningful” progress in the autumn/winter pre-booking campaign.

Sales in the rest of Europe went down by 3.8 percent in euros, or by 3.6 percent at constant currency rates, reaching €328.8 million. The business environment was difficult in Spain and Portugal but the sales trend was positive in France, Switzerland and the U.K. Sales in Greece and the Balkans were under pressure.

Revenues decreased in North America by 2.5 percent to €53.7 million in euros, but were up by 2.5 percent on a currency-neutral basis. In the rest of the world, sales totaled €131.8 million, up by 5.6 percent in euros and by 10.1 percent in local currencies.

Asia-Pacific, which now represents 7.0 percent of group revenues, was up by 32.0 percent. At the end of 2013, the group had 64 directly-operated stores in China, 17 in Hong Kong and two in Macau. The group will only have DOS in the countries' main cities of Beijing, Shanghai and Tianjin.

The rest of the country will be covered by its distributor, Riqing Enterprise, which has pledged to open about 400 points of sales. At the end of December, Riqing had opened 110 doors, 25 of which are franchises and 85 were shop-in-shops.

The group's overall wholesale sales dropped by 17.2 percent in 2013, or down by 16.4 percent at constant currency rates, to €323.3 million due to the weak performance in Italy, Spain, Portugal and Greece. The group cancelled orders of customers in financial difficulties and suffered from a fall in orders as clients sought to sell stock.

The franchisees' sales declined by 20.7 percent, or by 20.4 percent in local currencies, down to €145.2 million, affected by 101 closures against only 67 openings, and the conversion of 60 stores previously managed by independent retailers to DOS.

Sales generated by DOS totaled €285.7 million, up by 22.0 percent in euros and by 24.2 percent at constant exchange rates. DOS benefited from 102 openings, against 12 closures, and the conversion of franchised stores. Same-store sales were down by 3 percent for the full year, compared with a 3 percent increase in 2012.

Geox Consolidated Income Statement

(Million Euros, Year ended Dec. 31)

 

2013

2012

%
Change

Footwear

654.2

689.0

-5.1

Apparel

100.0

118.6

-15.7

TOTAL NET SALES

754.2

807.6

-6.6

Cost of Goods

402.7

419.5

-4.0

Gross Profit

351.5

388.1

-9.4

Selling & Distribution

46.6

43.4

7.4

General & Administrative

282.0

251.9

11.9

Advertising & Promotion

38.8

45.8

-15.3

Special Items

14.1

24.4

-42.2

Net Interest

3.8

2.3

65.2

Pre-Tax

34.5

17.7

94.9

Tax

8.7

(7.7)

-

NET INCOME (LOSS)

(29.7)

10.0

-

However, the management pointed out that their comparable store sales were up by 3 percent for the autumn/winter season in the last 17 weeks of 2013. Same-store sales growth even reached 5 percent in the fourth quarter and more than 15 percent in the first nine weeks of 2014, with Italy outperforming. 

In the fourth quarter, franchised mono-brand stores in contrast registered a 6.6 percent decline in same-store sales. The group explained the discrepancy by the implementation by Geox of improved local in-stock programs and product ranges - the so-called zoning concept - at its DOS between October and February. Since the beginning of this year, the franchisees managed to book positive same-store sales but continued to underperform Geox' DOS.

Geox said that its priority in the first half would be to bolster the performance of the franchisees by extending the zoning program to them at a cost of about €8,000 per store. The group has earmarked investments of €4 million to fit out 500 stores by the month of May.

At the end of 2013, the company had a global network of 1,299 mono-brand stores, of which 450 were DOS, against 1,212 at the end of the previous year, including 300 DOS. For 2014, Geox expects to have 28 net openings resulting from 96 new stores and 68 closures. The company said it is line with the targeted shutdowns and has secured 50 percent of the expected openings.

The group's strategy of bringing forward its sales campaign for the autumn/winter season has led to a doubling in the order intake compared with the same period last year. Geox expects first-half sales to be flat, with a positive performance of mono-brand stores offset by ongoing weakness at the wholesale level in Europe and North America. The wholesale channel is expected to partially recover the loss in these two regions in the second half of the year. Regarding the growing tension between Russia and Western Europe, Geox pointed out that Russia only represents 1 percent of total sales.

On the other hand, operating margins may remain under pressure. For the second half of the year, the company expects an improvement in the gross profit margin thanks to its pricing policies and limited promotional sales as well as a reduction in product costs.