Geox has reached an agreement with creditors to restructure its Canadian business. The company had previously announced plans to streamline its activities in certain countries if it could not align rent costs with market conditions.
The other countries under review are the U.S., Japan, the U.K. and Germany. According to the company, reorganization measures in the U.S., Japan and the U.K. are “at an advanced stage.”
In Canada, the Ontario Superior Court of Justice formally closed the proceedings filed by Geox Canada with the ratification of the debt settlement proposal approved by a creditors’ committee on Jan. 28, with favorable votes totaling 98 percent.
Under the agreement, 20 directly-operated stores (DOS), out of 30, are to be kept open, mainly in the areas of Toronto, Vancouver and Montreal, with a review of the contractual terms and conditions previously in force. Rents for 12 of these stores have been converted to become variable depending on sales performance, while the fixed rate has been cut by about 35 percent on average for the other eight locations.
In 2019, rent for the 20 stores amounted to a total of 3.7 million Canadian dollars (€2.5m-$3.0m). A penalty-free withdrawal clause has also been included in the contracts for all of the stores.
Geox is dropping ten stores, seven of which were already closed at the end of 2020, mainly in the towns of Calgary and Edmonton in the province of Alberta. The stores were loss-making in 2019 and the company will not have to pay penalties for closing them.
The company also struck an agreement on outstanding debt, mainly relating to unpaid rent in 2020, through a payment of approximately C$475,000 (€300,000-$380,000). For the company’s balance sheet, the deal represents the cancellation of C$3.7 million in debt.
Geox claims that the agreement enables it to “begin a new phase of healthy and sustainable growth in Canada” where it has been operating for over 15 years. It noted that online sales rose by 62 percent in 2020 and were up around 100 percent since the beginning of 2021.
In comments accompanying its full-year results, Geox said that sales in the first ten weeks of 2021 continued to be affected by temporary store closures in the main European markets. However, it has experienced positive trends in the main markets where temporary store closures were not an issue. Like-for-like sales in DOS were up by 18 percent in Russia and by 76 percent in China. The company’s direct e-commerce channel increased sales by 72 percent in the opening weeks of 2021. Geox has began rolling out digital showcases in a number of European marketplaces.
The company had already released its preliminary full-year results at the end of January. The final data showed sales of €534.9 million, down by 33.6 percent on a reported basis and by 33.0 percent at constant exchange rates.
The net loss widened to €128.2 million from €24.8 million in 2019. During 2020, investments were cut to €18.2 million from €33.4 million in the previous year, while the free cash flow was a negative €44.6 million against a positive €88.4 million.
In 2021, Geox will focus on protecting its cash flow and cutting operating costs. It pointed out that cash flows are expected to benefit from the sale of certain products from the 2020 collections which, despite being paid for, have never been presented to or seen by customers due to store closures. The products are being sold via the company’s outlets.
Geox also highlighted “very encouraging” sales for its newly launched Playkix collection for children and the adult sneaker Spherica.
The company pointed out that its supply chain is operational despite some “certain degree of instability, especially in terms of shipping” caused by the Covid-19 pandemic. Maritime transport is taking longer due to fewer departures and the higher number of stop-offs in order to make best use of the space available. Meanwhile, there are less opportunities to make up for production delays with air freight, due to the limited number of cargo and passenger flights. These factors are leading to increases in freight costs and air transport costs.
Geox also noted that some of its suppliers have part of their production in Myanmar, which is experiencing social unrest after a military coup on Feb. 1. The company is constantly monitoring the situation in the country “striking a careful balance between the need to reduce purchases, where possible, in order to mitigate risk and the need to take account of the social impact” of suddenly terminating work with local producers.
Geox has a plant in Serbia and sources products in the Far East and in the Mediterranean Basin.