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

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Geox Full Year 2023 Financial Results Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Luca Amadini, Investor Relations Manager of Geox. Please go ahead, sir.

Good evening, everybody, and thank you for joining our call today on Geox's Full Year Results 2023. This is Luca Amadini speaking. Let me introduce you today, the call speaker, Mr. Andrea Maldi, Geox Group CFO. I need to remind you that this presentation may contain certain statements that made or report financial results nor other historical information. Any forward-looking statements are based on the group's current expectations and projections about future events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that could cause results to differ even materially from those expressed in or implied by these statements, many of which are beyond the ability of the group to control or estimate. Let me now hand over to our CFO, Mr. Andrea Maldi.

Good evening, everybody, and thanks for joining our financial year 2023 results. I think that we will use our standard presentation to drive you to the results and the main highlights of the achievement that we have in 2023. I would suggest to move Page 5 with our executive summary where we can get the highlights of the financial 2023 results. First of all, we are moving in a range of net sales at EUR 720 million, which are a little bit down 2.2% compared to last year and we will see during the presentation, but we need to take into consideration the strong impact of the perimeter reduction that has been determined by rationalization of our retail stores together with an effect which is coming from the FX rate, which is still quite important because it is in the range of EUR 17 million. On the upside, the gross margin, which is set at 50.7% with a nice increase compared to the 47% for the year 2022. The EBIT raises from -- raised to EUR 15.6 million, 2% of the net sales starting from the 2022 in which it was set at EUR 4.3 million. Good news is still connected to the net financial position, which is moving at EUR 93.1 million. If we look at the financial position from the net bank debt is EUR 90.1 million. The difference of EUR 3 million is basically determined by the fair market value of the derivatives and the net working capital, which is now stable in the range of EUR 116 million set at 16.2% of the net sales. A quick snapshot of the current trading, which is mainly referred to our DOS performance to our retail network, which is doing pretty well, giving us a lot of strong results in the first 2 years of 2024 with an average of 9.4% compared to 2023. The quick flash on the guidance, which, as you know, during today's session of the Board of Directors, we have been working around the approval of the budget for 2024. We're outlining a macroeconomic scenario market, which is driving us to use a lot of prudence in our forecast for 2024. We believe to be quite flat compared to the year 2023, mainly related to the sales, but at the same time, we will be able to deliver further improvement in our industrial margin, gross margin in the range of the 50 basis points. If we -- I would start to the business update in Page 7. We've look at our market condition, market environment, with the slide on Page 7, we would like to provide you with a quick snapshot of the main market trends. In order to have a comparison based to Geox performance that we present later on this presentation. First of all, the high inflation rate and the interest rate environment experienced in the recent years, deeply influenced families' spending power. Source from the association of : Assocalzaturifici, our domestic reference market delivered a significant decline, driven by a reduction of spending in terms of shoes by more than 3%, you can see that in the graph on the right side of the page. In addition, we would like to highlight that also in the Italian shoes in the export, we have been impacted by a double-digit decrease along with a peak of 21% in bimester September, October. So the last part of the year 2023. So clearly, it's evident that market condition are experiencing a deterioration and the purchasing power of the family, which is forecasted to be in 2024, doesn't seems to get better. If we move to Page 9, quick snapshot on sales. As we already mentioned, despite we have a decrease on the sales moving from EUR 736 million in 2022 to EUR 720 million in 2023, we have been able to deliver a strong industrial margin with a strong improvement of our EBIT. The EBIT moved from EUR 4.3 million which was the result of 2022 to EUR 15.6 million in 2023. This means that we have been able to drive our P&L with an efficiency improvement, mainly coming from our industrial margin, but also through the cost control that we have applied during the year 2023. Still worth to remind that the decline in sales has been affected by a strong perimeter effect is EUR 18.7 million and out of which EUR 17 million is coming from the DOS retail perimeter and EUR 1.7 million is coming from the franchising structure. At the same time, we have also experienced a negative currency impact by EUR 18 million as well. So clearly, 2 important, let me say, consideration when we look at the sales volume that are important to consider the fact that out of this kind of consideration, we would have been better than the results of 2022 sales. If we move to Page 11. And we start to have a deep dive on the sales. First of all, we have a sort of a segmentation between physical, brick and mortar and online. The brick-and-mortar is substantially flat. We clearly, within wholesale that experienced a good performance of plus 5.7% in 2023 compared to 2022, while franchising and DOS has been underperforming respectively by 5.3% and 6.7%. The online channel despite -- if we look at the e-commerce seems to be negative 4.3%, but we have 2 kind of speed because we have suffered quite an important decrease in the wholesale business which is 7.1% given the fact that, as you know on the market, there's been a lot of platform that collapse and they are underperforming compared to their own expectation. At the same time, we are pretty, let's say, pretty proud of the delivery of the results coming from our web DOS online, which is outperforming by 4.2% and is continually -- we are experiencing this kind of poor performance even in the current rate of the first 2 months of 2024. I would now move to the deep dive on the sales on the business side, looking more at the sales by channel, as you usually -- where we are trying to report our sales between Wholesale, Franchising and DOS. As you can see, the Wholesale is pretty much flat compared to the previous year with plus 0.6%. And the Franchising is instead experiencing decline where we have already commented the fact that we moved from EUR 64 million to EUR 60 million and the perimeter effect in this kind of evaluation has been quite important because we're looking at about EUR 1.7 million due to the loss of DOS into the Franchising channels. At the same time, we are experiencing a kind of light decline of 4.9% in the year-on-year performance in the DOS. And clearly, we have again to consider mainly on the DOS side, the perimeter effect, which is impacting by EUR 17 million, almost 6.7%. On the other side, we have another speed on the online, which has been positive by 4.2%, which is clearly coming from a strong -- very strong performance in the second part of the year and mainly in the last quarter of 2023. We now would like to report to you on Page 13 to breakdown of the sales by region. As you can see, clearly, Italy is still one of our main market, which is a currently almost 30% of our business. Italy delivered quite a good progress, 3.1% in a different context in the environment of market. And this 3.1% is coming from a double-digit positive from the Wholesale and at the same time been impacted negatively, but we have been able to offset clearly by the reduction of the perimeter of our DOS and Franchising businesses. When we look at Europe, clearly, we have been suffering a little bit. Our performance has decreased by 7.1%. That's been an important market, which is mainly the DACH market, the German, Austria and Switzerland, which is clearly down compared to our expectation and down compared to last year, clearly impacted by the perimeter as well, but also by the collapse of the important line of Wholesale business, which in this country were quite strong in the past. We have been able to deliver quite a flat or consistent I have to say, in the case, better than previous year results in terms of sales in the rest of the world. We are in the kind of world have been able to close many agreements with new countries, mainly with the licensing opportunities, which are clearly driving for us the improvement of the doors, the number of doors and the number of possibility to expand our business in geographic areas, which are clearly difficult to penetrate from the very beginning, but our strong of the -- our brand positioning together with our proposition to work broadly in the foreign market is helping us to position Geox in the best way in this kind of area, which are, as we said, not quite, say, is not so easy to penetrate this kind of market. Last but not least, I will move to Page 14, where we have clearly, we can experience our breakdown of sales in between footwear and apparel. Substantially, the break between the 2 lines is pretty similar, pretty consistent with last year. We are still in the range of 10% of apparel businesses and despite the 2023 has been an year of stable sales and the kind of line, this has represented for us an opportunity because we believe that Apparel business is going to represent an opportunity for growth in the future. I think that -- it's almost all for the business review. I will move to Page 16. In Page 16, we have a detailed break of the P&L from sales to the bottom line, EBITDA and EBIT. We already commented deeply the sales EUR 720 million compared to the EUR 735 of year 2022. I think that it's quite important to align here they improve that we did in our margin. As you can see, we moved to -- from 47.5% of the previous year to 50.7% in 2023, which has been -- we have been able to deliver this kind of improvement to the rationalization, optimization of the supply chain and transportation costs, which are a kind of key areas in which we have opportunity for improvement even in the next future. If we look at the cost structure, the cost structure despite it seems to increase from 46.9% to 48.5%, has been made a strong control and strong focus mainly if you look at the difference between line by line, we can highlight the fact that we have been investing a little bit more in to the marketing costs which are up from 4.1% to 4.6% from EUR 30 million to EUR 32.8 million, we consider this kind of investor strategical for our proposition and brand announcement in the year. That's why we are representing an increase on that line. The EBIT still worth to remind that has been a very successful story moving from the 2022 results of EUR 4.3 million to EUR 15.6 million. Again, an improvement in our capability to be efficient and enhancement of our activity. If we look at -- I would suggest to move directly into Page 18. And there is clearly a summary of the main important points of our balance sheet. As we already commented our net financial position, which has been already disclosed in our previous Board with the previous communication is moving at EUR 93 million, and EUR 90 million is the real net debt from banks, which is slightly higher compared to previous year, which was set at EUR 75 million. As you can see, this is mainly coming from the fact that in 2023, we have been able to realign our supply chain normal trend in terms of purchasing and the lever of the collection, spring/summer and fall winter. So we have been able to realign the normal trend payment. This has resulted in increase of payment in 2023, we should have to clearly regain the confidence that in the 2023 collection at the same time, closing of our payments on the last pay -- 2022. This has clearly impacted our working capital, which has been moving from -- which moved from 77.1%, 10.5% of the net sales to EUR 116.7 million, which is much better, stable and much sustainable working capital compared to the previous year and setting probably Geox to be quite in line with the benchmark and with the best performing in terms of percentage of working capital against sales. A quick snapshot on Page 20, on our '24 target. We do believe that 2024 will be a near steel stabilization for Geox. We will be focused on maintaining our market position, setting the aspect we having an expectation of sales pretty flat compared to the year 2023. At the same time, we will focus our attention and start driving internal efficiency and improving further our gross margin mainly focusing on our supply chain. We are expecting to be -- to have an improvement of 50 basis points. We will continue, as we did in the past with a strong focus on our cost structure, seeking for further opportunities and trying to deliver a good bottom line, but we do not expect significant change compared to the year 2023. I think that from my point of view, we have completed our presentation. We gave you the flavor of 2024 and a good analysis on sales and the cost structure for 2023. And we welcome your Q&A session.

[Operator Instructions] The first question comes from Andrea Bonfa of Banca Akros.

Andrea, I've been -- I just read that I mean Livio is not anymore the CEO of the company and you'll just be on board for a couple of months or more or less. But I would like to have your skin sensation, what are the first action that you want to let's say, take in order to improve the profitability of Geox in a context where top line will not likely help you in '24, just a strategic idea or a kind of an initial direction, if it's possible.

Okay. Thank you, Andrea, for your question. So first of all, you are driving your attention to one of the key points of the matter of today's Board of direction, which has clearly been the fed that leave you our historical CEO as I agree with the company to create the role. At the same time, we are onboarding, as you can see a new Managing Director, which is going to be in place since today. I think that the first activity that we will be focused on will be the preparation of a new business plan. The new business plan will address the period of 2024 to 2026 plus probably an outlook of '27 and '28. And we do believe that this kind of plan will be focused on the internal efficiency. This is giving me the chance to start answering to your second question, which is how do we think to -- with the flat sales to drive. We do believe that we have some chance to improve our profitability in the supply chain together with our logistics structure. Clearly, this will be an area that we would think to take all from the very beginning. I'm not expecting to completely deliver performance in 2024. But we do expect it to set a trend, which is going to deliver results in 2025, '26 and '27. Clearly, it's a very complex area, the logistics and supply chain. I think that we have a significant portion of our cost allocated to the area and the improvement of the supply chain is one of the key pillars of the thing that we'll focus on 2024 and we'll be able to drive efficiency. As well, this will go in parallel with the simplification of our structure -- internal structure where we review our processes. We will focus on the brand proposition. We do seem to continue investing strongly in our brand. So we are not thinking to cut our investment on brand and marketing because we believe that is strategic for the growth for 2024 results. And -- but we do believe that we have opportunity in our internal processes mainly related to the production and merchandising proposition.

The next question comes from Oriana Cardani of Intesa Sanpaolo.

I've got 3 questions, if I may. The first one is on the order intake for the fall/winter '24 collection. So can you provide some color on the trend that you see? My second question is about logistic cost. Some companies say that they expect logistic cost to increase in first quarter of this year. So are you seeing a similar pressure? And what trend do you factor in your guidance of gross margin. And finally, I have got a question regarding Penélope Cruz, which is part of your brand's repositioning strategy towards the premium segment. I was wondering if in Q4 of last year, there was an increase in the weight of women's collection on total sales and what level it reached.

Thank you for your question, I will try to address the point in order. The first one, I think that you are referring to the black log of the orders on our fall/winter collection. So far, we are going to close our sales campaign in the next couple of weeks, close to the end of March, and we are now -- we are now thinking to have a forecast, which is quite good because we are thinking to move in the range of the minus 5% compared to the previous year results. I know that clearly, this is not representing a growth, but it's still representing a strong positioning, maintaining our position in a market condition that we have set at the very beginning of this call is not going to be easy in 2024. From the logistic point, the logistic cost, clearly, this is an area in which we are all experiencing in the industry significant issues. The main one is, as you know, is the issue that we have with Suez. As you know, we are thinking that this can -- might represent in our supply chain cost, an increase that is in the range of the 30, 40 basis points, which is an average of EUR 3 million and is mainly going to be potentially affected the fall/winter inbound cost given the fact that the spring summer has been already delivered. So this is, for us, an area still of opportunity. We are monitoring carefully the actual situation. But at the same time, we have already provided contingent approach on the fall/winter proposition in our budget 2024. The fourth one, I think, that is the -- on the first question, we are referring to our results and the investment on the gender, our gender mix. As you know, we have been focusing a lot with Penélope Cruz investment as our ambassador, which is giving us a lot of very good and positive results. On the retail side, we are moving on the like-for-like. So when you look at our performance from 3% or 7% of the growth of the women collection improvement compared to the other genders. And the Wholesale -- on the Wholesale side, on the mix, the women collection wait is improving from 41.6% of our previous year result sales to better position 33%. Clearly, this kind of improvement on the different wait on the Wholesale is also -- it has to be read also connected to the fact that the Wholesale business is still suffering, as we know, in the fall/winter and spring/summer collection.

The next question is from Francesco Brilli of Intermonte.

A couple of questions from my side, a follow-up on marketing costs for 2024. We can -- is it fair to assume a similar wait on sales and marketing costs also for 2024? Or don't you adjust -- I mean streamlining a little bit on the investment on this cost line for this year and preparing for the new 3-year plan starting from 2025. And the second one is a more general one on the CapEx level envisaged in your plan. You say that you will be focusing on supply chain and logistic, I know that these 2 points were also a key focuses on the previous plan. So I think some investment have already been made during the last year. Just some color if you think that you are going into a next round of investments on these matters or it will be just a normal investment base compared to the past?

Okay. Thank you for your question. I'll start to take on the first one, which is connected to the marketing spend. We do -- we are forecasting a marketing spend with a little bit of fine tune on 2024. But we can say that consisted we are going to be flat with the same kind of investment level that we have experienced in 2023. As we said in the previous one, we do believe that this kind of costs are strategical for our brand announcement and premiumization strategy of our brand. On the investment side, starting from the CapEx, as we said from the very beginning, we do believe that 2024 is going to be another year of stabilization. We need to go through 2023, which is already done in 2024 as another year of preparation and stabilization compared to our initial plan. So we do not expect to have a significant investment, if not on the CapEx investment related to the opening of few retail DOS just in the key area. We are not going to do to a new campaign of retail repositioning, but simply, we are going to be practically approaching the opportunity that we will offer in the key city and the key areas where we see a trend of consumer goods that are going to be -- represent for us an opportunity of investment. So therefore, we do not expect to have a CapEx trend, which is going to be dramatically -- not dramatic, which is going to be flat compared to 2023. At the same time, we will take the chance to go through some of the restyling that we need in some of our DOS but again, with a very practical approach, always measuring the balance between the close of the shops for restyling, loss of sales compared to the opportunity of revamping sales in the short period. So that's our position in terms of investment. As we know, we are driving, I said the trend of driving another further improvement in our gross margin. That is one of the point that you were mentioning. And we do expect in the future plan to drive a further improvement on the margin -- on the gross margin side. Now we are thinking to have a 2024 in the area of the 50%. I think that we are improving a lot our purchasing power. We are reviewing our complexity in terms of SKUs and reference, and we are thinking to drive the profitability in that kind of area with this kind of action.

If I may, a quick follow-up on the perimeter you touched upon. Just can we consider already done just the action on the bulk of the perimeter streamlining for the next year or so.

Yes. Yes. I think that the 2023 represented the year in which we made the last strong perimeter revision. We have catered about another 60 DOS. We are still planning in our idea in 2024 further reduction, which is going to be verified in a case by case, and it's going to be very light because we consider to have finished the strong reduction. And also with the like-for-like performance that we are expecting from our retail structure in 2024, we do believe to be able to even in case of the effect, the perimeter effect for the first year. So to be overall positive within the retail channel.

[Operator Instructions]

If we don't have a further specific question on the financial, we would take a few minutes to reinforce and to better comment on our comment on the appointment of our new CEO that happened today with the Board of Directors. As you know, Enrico Mistron has been appointed today. He is a Board. He's going to be the Managing Director and the CEO of the company. Enrico is coming from Luxottica, where he has spent 25 -- almost 25 years of his career. He consolidated a lot of supply and executive role within Luxottica starting from the controllership and M&A activity more on the finance side and moving to executive role within supply chain, digitalization. These are his experiences that has been evaluated by our Board, like a key areas or key skills to be able to drive the second chapter or the new chapter of the Geox, which is going to start from today, which is going to impact the period from 2024 to 2027. So we are really -- we -- the Board -- we welcome Enrico in his new role, and we all wish him, let's say, the best for the new adventure that here he's going to take in Geox.

[Operator Instructions] Thank you, gentlemen. There are no questions registered at this time.

Thank you.

Ladies and gentlemen, Thank you for joining. The conference is now over, and you may disconnect your telephones.