Geox’ sales results for the first nine months of the year and its Spring/Summer 2008 orders confirm that its growth momentum is strong and will at least last until the middle of next year. The ongoing development of its apparel line, which will eventually represent half of overall sales, and the planned launch next Spring of a new line of sports shoes, starting at its own stores, should help to keep the sales momentum going for several years.
The company plans to present a new technology for its sports shoes next February, and to test it initially in Italy, France, Germany and Spain. The goal is to sell as many pairs of sports footwear as those of the many other types of shoes that are currently in its ample product range. Another previously stated goal, following the recent launch of a new line of breathable and waterproof apparel, is to get as much turnover from clothing as from footwear.
The company is also looking for the acquisition of a retail chain that would help it to obtain good locations for its stores – in Europe or in the USA – but nothing suitable has yet been found. The company, which is targeting larger premises to help accommodate its new clothing line, is considering such a move to avoid overpaying prime retail space in view of the current competition among fashion groups for exclusive locations. The management forecasts that the group’s cash pile will reach about €100 million at the end of the year, compared with €74.6 million end-September. By adding debt, Geox could boost its acquisition firepower to above €300 million.
Overall group sales rose by 26 percent to €693.8 million in the nine months to Sept. 30, and they would have risen 27 percent at constant currency rates. Beating the forecasts made by financial analysts, Geox’ operating income before amortization and depreciation (EBITDA) was up by 34 percent to €210 million. Profit before interest and tax (EBIT) increased by 37 percent to €195.4 million, and net profit rose by 41 percent to €129.7 million. The gross margin rose to 55.0 percent of sales compared with 52.9 percent a year earlier, and it is still expected to reach 56 percent for the full year.
The breakdown per product showed that footwear represented 93.2 percent of 9-month sales, down from 94.0 percent last year, as apparel rose to 6.5 percent against 5.5 percent. The company indicated that apparel will represent about 7.0 percent of total sales by the end of the year. Footwear sales rose by 25.5 percent to €646.9 million and apparel increased by 48.6 percent to €45.1 million.
By region, sales rose by 11.7 percent to €259.6 million in Italy and by 28.2 percent to €319.3 million in the rest of Europe. They increased by 36.8 percent to €20.2 million in the USA and rose by 79.1 percent to €94.7 million in the rest of the world. At stable currency rates, U.S. sales rose by 47.9 percent, while sales in the rest of the world increased by 83.7 percent.
Wholesale revenues fell to 74.6 percent of total turnover from 76.7 percent as Geox continued to develop its own retail network. Directly-operated stores (DOS) increased their share of sales to 10.1 percent from 8.6 percent and franchised stores rose to 15.3 percent from 14.7 percent. The size of its retail channel represented 25.4 percent of total sales, compared with 23.3 percent a year earlier.
DOS had comparable store sales growth of 17 percent in the first nine months and they continued to grow at a similar pace recently. Same-store sales were up in Italy up by 16 percent, driven in part by Geox’ new apparel line. The growth was above 20 percent in the rest of Europe and by around 10 percent in the USA. There were 669 Geox stores worldwide at the end of September, of which 135 were DOS. This compares with year-ago scores of 481 stores and 96 DOS.
The company opened 152 single-brand stores in the first nine months of the year and a further 50 openings have been planned for the fourth quarter. One of these is a new 350-square-meter company-owned store in Frankfurt that is described as the biggest one in Europe and the 60th one in Germany, including franchises. Geox expects to open at least another 200 units in 2008. The group plans to spend €40 million in capital expenditure this year, of which about 60 percent has been earmarked for store openings, and €45 million next year.
Geox plans to produce more than 27 million pairs of shoes this year, up from 21 million pairs in 2006. The volume was only 9 million pairs in 2003. However, while the group’s long-term target is to improve operating margins, no significant change is expected in 2008 due to its investment plans. The group’s strategy is to grow faster through its retail channel than through wholesale sales, but the DOS business will be limited to a maximum of 20 percent of sales through single-brand stores.
By next year, Geox’ sales in Italy will likely be evenly split between the retail and wholesale channels and apparel will be a strong driver for growth. Other European countries are expected to follow the same pattern. Geox’s best performing stores are in Germany, where the group currently has 22 mono-brand shops, and further openings there are expected to be accompanied by strong growth.
Geox’ order backlog for the Spring/Summer 2008 collection is up by 25 percent from a year earlier, at the top end of analysts’ expectations of a 23-25 percent rise. About 97 percent of the orders for the available volumes have already been booked as the order campaign is over, except in Italy. In Italy, the backlog is up by 19 percent from a year earlier. It rose by 22 percent in Europe, by 45 percent in the USA and by 58 percent in the rest of the world. By product, orders are up by 23 percent for shoes and by 77 percent for clothing.
In 2008, Geox will spend the equivalent of 8.0-8.5 percent of sales in advertising and promotion, as compared to a 2007 budget of 8.2-.8.3 percent.
Geox continues to spend a lot of money on research and development. It has 35 patents in its portfolio that are not yet used, but it is sure to get some competition. Notably, Clarks is said to have developed a new technology that will be unveiled next year, ensuring waterproofing and breathability on the shoe upper.