Geox' management forecasts that the company's revenues will reach €880-890 million this year, up from €850 million in 2010, and confirmed that its Ebitda margin will be lower, falling by 2.0-2.5 percentage points from last year. However, profit margins are expected to stop declining with the current fall/winter collection and to start recovering with the 2012 spring/summer collection.

These comments accompanied the release of Geox' first-half results, which showed a 3.0 percent sales increase to €448.3 million. At constant foreign exchange rates, sales were up by 3.1 percent. Footwear sales were up by 1.6 percent, while apparel increased by 13.6 percent. At constant foreign exchange rates, turnover rose by 1.8 percent for footwear and by 13.6 percent for apparel.

Geox Consolidated Income Statement

(Million Euros, Six months ended June 30)

 

2011

2010

%
Change

Footwear Sales

393.7

387.4

1.6

Apparel Sales

54.6

48.1

13.5

Total Net Sales

448.3

435.5

2.9

Cost of Goods

242.8

214.9

13.0

Gross Profit

205.5

220.6

-6.8

Selling & Distribution

23.6

22.3

5.8

General & Administrative

116.4

113.8

2.3

Advertising & Promotion

24.0

25.5

-5.9

Net Interest

2.4

1.7

41.2

Pre-Tax

39.3

57.3

-31.4

Tax

14.9

19.4

-23.2

NET

24.3

37.9

-35.9

Euro/share

0.09

0.15

-40.0

By region, sales went up by 2.6 percent to €170.2 million in Italy and rose by 1.7 percent to €192.2 million in the rest of Europe, led by France, Germany, Switzerland and the U.K., while the Netherlands and Spain were slightly lower. Revenues rose by 2.3 percent to €26.5 million in North America and surged by 8.7 percent to €59.5 million in the rest of the world. Combined sales growth in Brazil, Russia, India, China, the rest of Asia and Eastern Europe reached 23.0 percent.

On a similar currency basis, sales were up by 1.3 percent in Europe, excluding Italy; grew by 5.0 percent in North America; and increased by 10.7 percent in the rest of the world.

By channel, first-half revenues fell by 5.0 percent to €255.4 million for wholesale, were up by 21.0 percent to €87.9 million for franchising and jumped by 11.7 percent to €105.0 million for directly operated stores (DOS). On a currency-neutral basis, turnover was down by 4.8 percent in wholesale, rose by 21.0 percent for DOS and increased by 11.9 percent for franchising.

Same-store sales grew by 8.2 percent for DOS in the first half. Limited to the 2010 spring/summer line over a period running from Feb. 28 to July 3, same-store sales were up by 0.3 percent.

The number of mono-brand stores increased to 1,077 at the end of June from 1,039 at the end of 2010, and among those there were 262 DOS, up from 252 six months earlier. In the first half, Geox opened 82 stores and closed 44, resulting in 38 net openings. The company aims to boost its network of Geox shops by about 100 units this year compared with the end of 2010. Italy is due to finish the year with 15 net openings, the rest of Europe 21 and the rest of the world 38. The North American network will be downsized with four closures. For 2012, the group is planning to expand the network by an additional 100 stores.

The order backlog for the fall/winter collections, stemming from the wholesale and franchising channels, rose by 8.0 percent. Orders from franchisees enjoyed double-digit growth, outpacing orders from multi-brand accounts, up by a low single digit. Shoe orders were up by a mid-single-digit rate and apparel grew a by a high-teen figure. Orders from Italy were up by a high single digit. Those from France were up by a mid-teen figure and those from the U.K., Scandinavia, Asia and Eastern Europe were up by a double digit. Meanwhile, orders from German-speaking countries were down. Geox noted that the German retail market is very concentrated with a strong focus on price. The company prefers to focus on higher-priced distribution, a policy that has led to a repositioning in Germany. The move to higher price points is expected to be helped by Geox' decision to sponsor the Red Bull Formula One team, whose leading driver, Sebastian Vettel, is German and current world champion.

Efforts to streamline the development process to collect orders and launch production earlier led to 25 percent of the fall/winter collection being shipped to clients at the end of July as compared to 16 percent a year earlier.

Geox estimates it is realistic to expect an increase of about 2 percent in comparable store sales for the fall/winter collection in its DOS.

The gross margin narrowed by 4.8 percentage points to 45.9 percent in the first half from 50.7 percent a year earlier as production costs rose by 13.0 percent to €242.8 million. The Ebitda margin slipped to 13.6 percent from 18.2 percent and the Ebit margin dropped to 9.3 percent from 13.5 percent.

In the second half, the recovery in profitability will derive from higher volumes and an expected reduction in airfreight charges thanks to earlier deliveries. The end of anti-dumping duties on leather footwear from China and Vietnam will enable the company to shift production to those countries from higher-cost regions. The European Union removed the duties on March 31 after introducing them at the end of 2006.