Geox turns around in H1

Continuing its progress, Geox reported yesterday a 6.7 percent increase in turnover to €426.9 million in the first half of this year, attributing it to the successful introduction of innovative products. Sales went up by 4.0 percent in local currencies. In terms of euros, footwear sales rose by 10.7 percent, representing 91.4 percent of the total revenues. Apparel sales were off by 23.0 percent, but they still showed an 8.7 percent increase excluding product lines that have been discontinued.

The group stressed that same-store sales rose by 6.6 percent during the full-price spring selling period between Feb. 23 and June 8, with footwear booking a 10 percent increase. Geox's chief executive, Giorgio Presca, said that product innovation drove sales growth, adding that the new Nebula shoe range was “by far the best-seller” in terms of volumes and sell-through at full price.

Indicating a good momentum, sales accelerated in the second quarter, rising by 11 percent in euros, with comparable store sales up by 8 percent from the year-ago period. The order backlog is 8 percent higher than last year, due to generally strong performance in Italy and key European markets such as France, Germany, Spain and the UK, offsetting a certain weakness in the company's wholesale business in Asia.

The good progress in the first six months led the Italian company to post a net profit of €1.1 million for the period against a loss of €3.9 million in the first half of 2014, as the gross margin increased by 1.6 percentage points to 51.8 percent and operating earnings improved. The gross operating margin (Ebitda) moved up to 6.2 percent of sales from 5.2 percent, thanks in part to a reduction in advertising and promotion expenses to 4.5 percent of sales from 5.0 percent. After amortization, Ebit increased to €7.4 million from €0.1 million. However, the adverting and promotion budget should go up again to around 5 percent of sales.

Also, the company generated strong cash flow of €55 million after capital investments of €20 million. Its net cash position turned positive at €27.6 million, compared with a negative value of €13.0 million at the end of 2014, because of a significant improvement in the management of working capital, which fell to 23.1 percent of annual sales from 30.7 percent a year earlier. The company beat its own year-end objective of lowering working capital to 25 percent of 12-month sales.

The improvement on working capital was achieved through a 6.2 percent year-on-year reduction in inventories to €266.8 million at the end of June. Geox claims to have “practically solved” the issue of unsold stocks. It claims to only have leftovers from the spring/summer 2014 and autumn/winter 2014/15 collections, which have been partially offset by a reduction in production for the 2015 spring/summer line. The group also limited the increase in accounts receivables at 7.8 percent of sales. Geox cancelled some orders from Greece and Ukraine to protect itself from possible overdue payments.

The company's directly operated stores (DOS) generated 43 percent of group revenues in the first six months of the year, up from 40.9 percent in the comparable 2014 period. Their sales went up by 12.5 percent in euros, thanks to new openings and a 6.4 percent increase on a same-store basis. While opening new corporate stores, the company closed down a larger number of DOS, reducing the door count to 454 units from 477 a year ago. In the second quarter, same-store sales accelerated to 7.9 percent in the DOS network. The company said it plans to have 15 additional DOS by the end of the year.

Franchised stores contributed 5.7 percent less than in the previous year to the total turnover. The share of total revenues generated by franchised Geox stores went down to 16.5 percent in the first half of this year from 18.6 percent a year earlier. However, the sales at the remaining stores jumped by 7.9 percent on a comparable store basis, with an uptick of 8.0 percent in the second quarter.

Including franchised stores, but excluding 157 units run under a license agreement, the total number of Geox shops around the world amounted to 1,165 at the end of last June, 60 fewer than in June 2014. Only 54 new stores were opened in the first of 2015, while 114 were closed in the framework of an ongoing rationalization plan.  Italy bore the brunt of the store closures with 60 units shuttered. Geox noted that 41 of the closures were small total-look concessions that had become obsolete after the group's decision to downsize its apparel offer. The group aims to add a net seven franchised stores in the second half of the year.

The Italian market represented 33.3 percent of Geox' revenues in the first half of this year. Domestic sales went up by 6.3 percent. They rose by only 3.4 percent in the rest of Europe, resulting in a lower 42.8 percent share of the total turnover. Sales increased by 18.6 percent to €28.8 million in North America, but they went up by only 3.4 percent in constant currencies. In other countries, Geox made 11.8 percent better in euros and 2.6 percent better in local currencies. 

Further progress in sales and profits is expected for the balance of this year. Profits should increase in line with market expectations, the management said. The consensus of financial analysts' forecasts is for sales to reach about €885 million this year, with an Ebitda margin close to 8 percent, an Ebit margin of 3.5 percent and net profit of around €17 million.