Geox' sales dropped by 11.9 percent to €618.1 million in the nine months ended Sept. 30, or by 11.5 percent in constant currencies, as the rate of decline accelerated in the third quarter as compared to the first half. The group also experienced a worsening of its operating results compared with the first half of 2013 and the first nine months of 2012.

The gross margin narrowed to 46.3 percent in the nine-month period from 47.1 percent a year earlier. The Ebitda margin dwindled to 5.0 percent from 12.6 percent and the Ebit margin was a negative 0.7 percent compared with a positive 8.4 percent. Excluding non-recurrent costs, the adjusted Ebitda margin was halved to 7.2 percent from 14.3 percent and the Ebit margin narrowed to 2.3 percent from 10.1 percent. The group posted a net loss of €8.5 million for the period against a profit of €36.0 million a year earlier.

Footwear sales dropped by 10.5 percent, or by 10.1 percent in constant currencies, down to €538.8 million. Sales of apparel continued their steep slide, slumping down by 20.4 percent to €79.3 million, with a currency-neutral drop of 20.2 percent.

Geox Consolidated Income Statement

(Million Euros, Nine months ended Sept. 30)

 

2013

2012

%
Change

Footwear Sales

538.8

601.8

-10.5

Apparel Sales

79.3

99.7

-20.5

Total Net Sales

618.1

701.5

-11.9

Cost of Goods

331.8

371.2

-10.6

Gross Profit

330.3

330.3

0.0

Selling & Distribution

38.8

37.6

3.1

General & Administrative

205.4

187.1

9.8

Advertising & Promotion

27.9

34.6

-19.5

Net Interest

3.5

2.5

40.0

Pre-Tax

(7.8)

56.6

-113.8

Tax

(0.7)

20.5

-103.4

NET INCOME (LOSS)

(8.5)

36.0

-123.6

The company's sales fell by 24.1 percent in Italy to €198.9 million as the ongoing economic recession and a weak consumer environment hit both wholesale revenues and same-store sales. Sales in the rest of Europe were down by 8.2 percent, or by 8.1 percent at constant currency rates, reaching €271.8 million. Revenues decreased in North America by 0.7 percent to €40.9 million, but were up by 0.9 percent on a currency-neutral basis. In the rest of the world sales increased to €106.6 million, up by 3.9 percent in euros and by 6.0 percent in local currencies.

Overall wholesale revenues of €291.8 million were down by 18.4 percent during the nine-month period, or by 17.9 percent on a currency-neutral basis. They were weighed down by Italy, Spain, Portugal and Greece, where Geox and its retail partners underwent a significant de-stocking process. The company adopted a cautious commercial approach, cancelling orders of clients who were facing difficult financial conditions. 

Sales to franchisees decreased by 28.7 percent to €122.7 million, off by 28.6 percent in constant currencies, due to 76 store closures and the conversion into directly-operated stores (DOS) of 55 stores previously managed by third parties. The group also opened 47 new franchises. The downsizing of the franchising network contributed 20.5 percentage points to the sales drop. In its ongoing review of the franchising network, the management expects a total of about 70 openings, 90 closures and 60 conversions for the whole of 2013.

The company's DOS saw their sales rise by 18.7 percent both in actual and constant currencies, reaching a level of €203.6 million, lifted by 89 new store openings and the conversion of franchises, which offset the shutdown of 10 locations. For the full year, Geox plans 13 closures and about 100 openings in its global DOS network.

Same-store sales were down by 5.7 percent in the first nine months, an improvement compared with the first half as comparable stores only fell by 1.7 percent in the third quarter. For the current autumn/winter collections, same-store sales were off by 0.6 percent between Aug. 26 and Oct. 27 as compared to the same period a year ago.

With the DOS network growing to reach a total of 434 stores at the end of September, general and administration costs inflated to a level of 33.2 percent of sales in the first nine months from 26.7 percent a year earlier, while advertising and promotion expenses were cut to 4.5 percent of sales against 4.9 percent.

Geox booked €13.1 million in restructuring costs and €5.3 million in impairment charges for its retail network. Inventories remained high at €205.2 million at the end of September, unchanged from the end of June and €62.4 million higher than a year ago.

In the nine-month period, the group had a cash burn of €54.2 million, against positive free cash flow of €23.3 million a year earlier. At the end of September, the group had net debt of €17.0 million compared with a cash pile of €54.1 million at the end of 2012 although it has slashed dividend payments made in 2013 to €15.6 million from €41.5 million in the previous two years.