Geox S.p.A. (GEO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Geox Group First Half 2023 Results Conference Call. [Operator Instructions]. The call is served by Geox, Vice Chairman; Enrico Moretti Polegato; and the CEO, Mr. Livio Libralesso. Now I would like to turn the conference over to Mr. Enrico Moretti Polegato. Please go ahead, sir.

Welcome, everybody. First half of 2023 results show growth primarily driven by [indiscernible] sale or the portfolio related to the street summer collection. But the good performance was partially offset by slowdown observed in May, which was affected by bargain in usual weather conditions that negatively impacted sales in our buyer stores and colding seasonally orders by wholesaling in our key markets. Comparable sales from our network, Geox in franchising, increased both compared to '22 and '19, thanks to the strong rebound in June and we gain performance on line handed in the second quarter. This growth however, did not fully compensate the factors adding from the rationalization of the network carried out in the last 12 months and now nearing completion. July is on track with a strong performance in all markets in the sale period, showing excise growth compared to 2022 and 13 compared to '17, along with a significant reduction in discounts. The supply chain is now regaining the arability with end market service DFS and a significant reduction in transportation costs. [indiscernible] together led to sales growth by approximately 4% of significant improvement in the industrial gross margin and different mandates to positive operating results. Therefore, we observed our first half '23 with close results, thee are certain international geopolitical and macroeconomic situation. The result of a insencertainty and oraticontext, give even more value to the past will we have taken by allowing us to be forward with the needing and long-term prospects of our brand. Thank you. Now let me hand over the conference to the CEO, Mr. Livio Libralesso.

Thank you. Good morning, and good afternoon. Thank you for joining us today to discuss the first half 2023 results. Current trade and some trends expected for year 2022. Lets start with slide #3 will be adaptive summary. Net sales were at EUR 354 million, up 4% on June '21, driven by wholesale. Gross margin was above guidance at 51%, with an increase of 300% basis points, primarily driven by the reduction in discount and from higher-than-expected efficiency repeal. EBITDA repair positive at EUR 3.6 million, it was negative minus EUR 11 million in during next year. Net working capital amounted to EUR 150 million or to a financially sound 15% on last government sales, EUR 94 million at June 2022. The adjusted net financial position before lease liabilities was minus EUR 89.5 million in December last year, it was minus EUR 50. Current revenue is positive. Like-for-like year-to-date week 29 is up 3.6%, both in 2022 and in 2019. Delivering also a relevant improvement in the grounds in the region of 160 basis points. For winter '23 wholesale deliveries are in progress with the excellent level of sales already experienced in the summer. Support chain also is well on track in terms of spinoff production spend and on the reduction of freight and testation costs on the lead time. In the next page, there is the status of the optimization of the brick-and-mortar retail network. During the last 12 months, we closed approximately 60 stores, affecting sales about EUR 6.9 million, however, remain impact on our profitability. Today, the network is composed by 678 stores, out of which 277 RDS. This optimization will be almost completed within 2023, with the remaining 25 [indiscernible]. Please go to chart #5 to comment the growth. The total sales arrived at EUR 353.6 million, recording a growth of EUR 50 million or 4%. This growth is totally due to brick-and-mortar, while digital sales, including our direct economy on the other we periods in flat. The trend in digital is absolutely aligned with the market trend and reflects the stabilization of volumes after of overperformance due to the severe lockdown in the market. Total digital sales however represent 26% in total turn over in line with the practice in net. Please go to Page 9 to comment on top line speed by channel. The general context is that our industry experienced the bit trend in April than May has been real tough due to the heavy unusual weather condition. The key message is that our direct service was positively plus 1%, then negatively minus 8%. Geox experienced the fast rebound in June, plus 6% and an acceleration in July targeting a double-digit growth for this week. This is also due to the fact that in current countries same period has been shift at a list of 1 week. And consequently, July will be stronger. Also was up 10% despite the issue of that load that was up 17%. This rolldown the performance is due to a material decrease in key season reorders, both full price and promo influenced by -- mainly by the weather condition and mean EUR 50 million less than last year. The franchising channel was almost stable at EUR 28 million versus 2019, like-for-like is the positive low single digit, and this like-for-like has not been able to compensate the perimeter effect and a different timing in deliveries or the fall in onto '22 during the day. The next one is slightly negative minus 2%. This is due to 3 reasons. Like-for-like in recent delivered a mid-single-digit positive growth but partially offset the negative perimeter due to the 6-month closure down in the last 12 months. Online is down 3.5%. The good news is that the second quarter rebounded and up high single digits, offsetting below double-digit performance delivered in Q1. On Page 7, there is a very quick overview to net sales by region. Italy was up 6.6%, supported by a double-digit growth on OCE. Franchising is negative and the DOS like-for-like fully compensated the terms. Europe is down mid-single digit, suffering a lower urge from the degen players like Amazon and Zalando. And also our website suffered jointly with our brick-and-mortar, especially in Germany, Switzerland and Poland, the part closer to the Ukraine. Moreover, thanks to the wholesale and the digital that are growing double digit and fully compensated the optimization of brick and motor in Canada. As of the world is positive on in total. And it is a combination of performance is very positive and different by geography and a Pacific finally fully recovered and deliverable growth of 50% in Middle East and North Africa, a growth of 26% and Eastern Europe countries continued to be positive, plus 15%. In Egypt, there is the pace of the net sales by product. Just to say that the growth is driven by a footprint that grew certainly 4%, while Rental is still down 11%, impacted by the short digital product industry period in January and February due to the fire event on September last year. Please go to Page 9 for the profit and loss. Since we are at EUR 354 million as already commented, with an increase of EUR 30 million. Gross margin was EUR 180 million in 51% of sales. It is over expectation with an increase of 370 basis points. #10, the response are due to the lower market balance in U.S. channel coming 260 basis points due to the supply inefficiencies, especially on transportation costs. The total operating costs were EUR 176 million or 60% on so. It is 60 basis points of slightly better than during last year. It is a combination of 100 basis points of lower incidents, partially reinvested in 40 basis points of our advertising promotion it is now at EUR 17 million or reaching 4.9% on sales. EBITDA is back to positive of EUR 3.6 million versus minus EUR 119 million last year. EBITDA reported is at EUR 40 million versus EUR 25 million last year. EBITDA before IFRS 16 is EUR 40 million and water line in last year. Finally, I would like to drive your attention to net financial expenses that increased by EUR 8 million as a result of our cost of debt due to the increased rate, coupled with higher leverage of have a higher level of overages. This amount is EUR 2.5 million. And then there is a negative exchange rate differences on London, it is no longer eligible for edge activities since the outbreak of the Ukraine invasion. On this amount at EUR 4.9 million. Our subsidiary in Russia, we buy the product in Europe. And consequently, it is suffering from the devaluation of ruble. Further integration, we have increased the price in Russia, and this is also an explanation of the higher margin that we delivered at June. Now for the second half, we have again increased the prices using an exchange rate of EUR 100. So we believe to be able to lose Russia also in the second half. Please go to Chart 10 to comment on balance sheet. The invested capital is EUR 431 million with an increase of EUR 40 million. This increase is potentiating to key capital ties and one utilities. Net debt is EUR 80 million is liabilities. Please go to Chart 11 to comment the working capital and net financial position evolution. Bank net debt as of June 23 amounts to EUR 100 million to an increase of EUR 25 million in comparison to December '22. The positive fair value of the derivatives amounted to EUR 11 million and consequently the negative net financial position before IFRS 16 equals to EUR 81.5 million. The cash absorption is totally driven by the expected and hence net working capital dynamics, it is finally back to healthy 15% over the last 12 months in line with [indiscernible] in the market. Please go now to Page 16 for the cash flow statement, we can link directly so a point. We can look directly to the last 2 problems on before IFRS 16. You can see that the cash flow from economic is positive EUR 5 million. Net working capital absorbed EUR 35 million, and this effect is partially mitigated by the control of other current assets and liabilities. The cash flow from operation is the rate of EUR 50 million. CapEx are EUR 8 million and consequently, exceeding cash flow into EUR 23 million. We believe that this level of bank debt, I mean 100 million will be ma0intained hopefully improved also at the year-end with no additional cash absorption. Please now to Page 13. As another factor we confirm the guidance regarding the full year sales, up 4% to 6% in this [indiscernible]. We are a little bit improving, increasing the gross margin guidance, 40 basis points for the full year in Rianne response of improvement for the second half. There is to be a little bit better in case we will be able to maintain the -- this level of reduction of this cut. We are quite satisfied in July with the trend in the same period the first 3 weeks are high single digit. This week is delivering double digits. So we are targeting to deliver for July and increased double-digit in our like-for-like. For winter '23 deliveries are fully in progress, we are not expecting additional conciliation of our material cancellation. In September, we will announce we have a stronge marketing project. And consequently, we believe that in the second half, Geox, reorders and digital performance a bit better than what we experienced in the second -- in the first half of this year. So let's say, growth in top line full year 4% to 6% and every the gross margin improvement. We are now ready to open the Q&A session and to take your questions.

[Operator Instructions] The first question comes from Cardani Oriana with Intesa Sanpaolo.

The first one is on pricing. As you can explain some adjustment for pricing also for the spring summer 24 collection following the price increase that you made this year? And the second question is on current EBITDA. So can you give us some more color on what's happening in each region?

Thank you for your question. So on pricing. As you know, we have increased the prices, in summer '22, and this is being from '23. Presummer '24, the target is to be more or less in line with the prices and deliver in summer '23 because is another of fact, we are seeing that during the sales period, our sales are up a double digit. Our outlet network is really fly this year, double-digit growth. So it seems that all in all, people are really considering to be prudent in buying the full price. However, as obviously, we will be able to deliver the growth also during the full price period. But given the current macroeconomic scenario and given the fact that we will be able to deliver even an important improvement in U.S. margin want to maintain prices in 2024. Current trading regarding the sales period. So Italy, France and those other countries decided to shift to the sales period, at least for 1 week. This partially penalized June. However, in June, we'll be able to grow positive 6% like-for-like. July is doing better. Telewest in the regional 8%, 9% on the like-for-like, but this weaker level digit. France is doing very well. Italy started very well. And we are a little bit suffering in German picking countries like Germany and Austria and Switzerland and Poland because maybe in this country, the recession is a little bit tougher than what we are experiencing in the other European country. Asia Pacific, we lined 50% up, and we lease to 36% at an in Europe in general at 15%. Unfortunately, and this U.S. Unfortunately, our presence in these countries are not so wanted to materially influence the total performance of the group.

The next question comes with Francesco Brilli with Intermonte.