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 First Half 2024 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 First Half 2024 Results. This is Luca Amadini speaking. Let me introduce you to today, our speakers, the Geox Group CEO, Mr. Enrico Mistron; and the CFO, Mr. Andrea Maldi. Mr. Mistron will start by providing you a brief overview of our first half performance and then Andrea will delve deeper into financial results. Following that, Enrico and Andrea will be happy to take your questions. I need to remind you that this presentation may contain certain statements that are made as reported financial results nor other historical information. Any forward-looking statements are based on the group's current expectations and projections about the future events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that could cause result to differ even materially from those expressed or implied in these statements, many of which are beyond the ability of the group to control or estimates. Let me now hand over to our CEO, Mr. Enrico Mistron.

Hello, everybody. Thanks for joining us in this first half 2024 results. Just a few comments from my side. The first half of 2024, consistent with, we have seen in the first month of the year, has proven extremely challenging due to the persistence of complex market condition. Sales for the first 6 months of 2024 shows a contraction of 9.4% compared to the first half of the previous year. These results have been impacted primarily by the wholesale spring-summer '24 sale campaign that had been sold in last years and invoiced this year, partially offset by, I would say, 3 elements that are good news, in my opinion. Number one, a good level of reorders in line with the previous years. That means that the product, the sell-through product in our wholesale stores has been good, and customers reorders at the same level last year, the reorders. It's a positive thing. Number two, the direct digital e-commerce channel in the second quarter has been positive. Number three, there's a slight improvement in the second quarter of the direct brick-and-mortar channels, our direct operating stores. Despite 3 months of the second quarter that overall has been very challenging for any operators in these sectors. Additionally, sales were also impacted by the negative -- still negative perimeter effect, primarily related to the closure of certain direct operated stores and franchise stores that were not profitable, no worries about that. This is a process that's been -- that started a few years ago. And we have to say that the actual footprint is right one. And most of them, I would say, 99% of them are nowadays profitable. And we are ready for thinking about the futures, how to and where to grow the network of our direct operated stores. During the first month of the -- of the 6 months of the year, we implemented also specific actions aiming to reduce the cost base and adapt it to a new context, a new level of revenues. And these actions help us to maintain certain levels of profitability that was quite evident, especially in the second quarters of this year. Thanks to the adoption of this measure, it's also our crucial in perspective, the overall performance of the period effect at the EBIT level was contained and amounted to 5.5 years -- EUR 5.5 million negative. Last but not least, as previously announced in the last conference call, all the management is working on the preparation of the new strategic plan for 2025, 2027 period. That will be presented to you into the financial community for sure, by the end of this year, probably during the month of October. The plan is also finished. We have to fine-tune certain numbers and certain actions. Conceptually is a plan of 2 plus 3 years. The first 2 years are the 2 years in which we have to be resilient and rebuild the machine and be ready for a new 3 years of growth, but more than growth of profitability and cash. So we are excited to come back to you in -- during the month of October, November. Let us give the time to finalize it, but we will come to you. That's it from my side. Thank you.

Thank you, Enrico. So good afternoon, everybody. This is Andrea Maldi speaking. I'm the Group Geox CFO. And back in the words of our CEO, I would like to give you better dive into within the financial. I suggest to run to the presentation that we have shared. We can start from the Page 7, where we have an outlook of the sales. The breakdown of the sales, as you know, is saying that we set our target in our results in the first 6 months of 2024 at EUR 320 million and this EUR 320 million is down EUR 33 million compared to last year. There is clearly an important effect coming from the perimeter, which is in the range of EUR 11 million. And this is due, as we've already seen discussed to the still reduction and fine-tuning on the number of the profitable shocks that are keen to pursue the strategy in the future year and to an FX effect given the -- we have been penalized this year in the first 6 months of the exchange of the ruble versus euro compared to last year. So this is impacting for almost EUR 5.3 million. If we sterilize these 2, let's say, aside and one-off effect and we discussed our performance, clearly, as we already mentioned, we have the wholesale business, which is down EUR 27 million and we are instead happy about the like-for-like performance of the direct-to-consumer channel, physical with a brick-and-mortar at EUR 3.7 million up than last year and digital, which is mainly driven by the marketplace together with the Geox Digital site, of our site, which is driving together, EUR 7.1 million of increase compared to the same period of 2023. If we move for a while on Page 8, this is a quick snapshot of the -- our distribution network as we can see, when we talk about the perimeter effect, we need to give support on the kind of statement. We are in the range in the first half of 2024 of 630 operated shops. We've decreased compared to December last year -- of the 2023 of about 655. And if you compare the same rationalization perimeter in June 2023, we are talking about 678. There was a shop, which means a significant decrease when we look at the first 6 months. If we look more deeply into Page 9 and we look at the split of the sales by channel, as we already discussed, we have the wholesale business. This is down 16% year-on-year. And it's worth to say that the most of this decrease is coming from the first quarter, while the second quarter has been pretty stable and pretty aligned to the results of the same period of the last year, which means that the wholesale is basically aligned to the backlog of the orders of the spring-summer '24 that has been recorded in previous years during the sales campaign period. The franchise is still suffering and is mainly affected by the negative perimeter. And while together also with the like-for-like in the pro forma in the range of minus 3.3%. If you look at it, we already discussed DOS Digital and DOS brick-and-mortar and DOS brick-and-mortar registered sales at the level of EUR 110 million, EUR 7 million lower than the same period of December 2023 while the DOS Digital, which include our website as well as marketplace, set the level of EUR 31 million, making -- registering a growth of 29.9% compared to the same period, which is clearly a good news in terms of our direct-to-consumer channels. I think that it's quite interesting on Page 11. Just to note that basically, if we look at the product split, product range, most of the drop is coming from the footwear. We've moved from EUR 325 million to EUR 292 million, while the offer is pretty stable compared to the same period, EUR 29 million flat, which is clearly an indication of whether that is coming from during the first 6 months of the year. An overview of the financial ETA is on Page 12, first thing, I think nothing new compared to what we already discussed, just the profit side with EUR 164 million we are registering an increase of 0.2 basis points, which is clearly good for the direction that we have made as a statement at year-end of profit growth. Overall, the cost went down basically in the range of the EUR 9 million, EUR 169 million compared to EUR 176 million, net of summer extraordinary costs that we have registered in the range of the EUR 2 million into the first 6 months. Clearly, the percentage we have been able to decrease the cost, but lower than the proportion -- lower than proportionally compared to the drop of the sales in 2024. The EBIT is negative for EUR 5.5 million, compared to the positive as a result of clearly of the EUR 33 million decrease in sales. At the same time, as you already commented -- at the same time, sorry, we had in the financial expense, a beneficial effect in 2024, driven by the opposite -- of the exchange rate of the ruble into the -- in terms of the balanced evaluation of payment and cash collection. The impact is about EUR 6 million, which is clearly a positive impact in our P&L. I think that if we look at Page 15, financial -- net financial position, we have a financial position -- negative financial position of about EUR 112 million with a positive effect of the fair value of the derivatives, which is in the range of EUR 3.7 million positive. And at the same time, as we already mentioned, is worth to note that the bank net debt as of June '24 amounts to EUR 112 million, increasing by EUR 22 million compared to December '23. I think that from my side, this is it. As we just want to state when we look at our forecast at year-end, we are already confirming what we already stated in the previous call. Basically, we are thinking to have a margin increase in the range of the 50 basis point and we are still working around sales forecast in the target of the mid-single-digit decrease compared to 2023. Thank you. And I -- we are going to get questions.

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

Two questions. The first one is on the expected evolution of the operative cost for this year. Is there any room for savings in the second part of this year? And the second question is on the wholesale channel for next year. Can you provide us the trend that you see considering the orders that you are collecting?

Thank you for the question. I'll try to give you my answer. We are really keen and focused on cost reduction in the second part of the year, as we already did in the range of the EUR 9 million in the first semester. However, we are forecasting a second part of the year, pretty flat in terms of cost but with a different mix because we are reducing our structural cost. At the same time, we have an increase of operational cost, which is coming from the 2 business lines, which are deeply -- strongly growing, mainly our digital channel when I think to the marketplace and when I think to the -- our website, this kind of profitable business, which are replacing a portion of our wholesale traditional business are clearly giving us a better margin, but at the same time are carrying together any operational cost. So despite you can see a flat position in the second part of the reality, there is a strong action of cost reduction in what is structural G&A, and we are trying to put boost on the costs, which are really keen and served to the top line. When we look at your second question, which I think that is connected to the spring-summer '25 campaign. I hand over for a while to Enrico Mistron, our CEO, which would like to get this portion of these questions.

Spring-summer '25 campaign, overall, I would say that is in line with 2024. It did start 4 weeks later than last year. So -- we -- overall, year-to-date, the numbers are slightly before -- slightly lower than previous year, but comparable sales like-for-like are positive. The good things that we have seen here is that in the normal accounts, we are like-for-like growing plus 6%, that is good. That means that the sales density, so the numbers of product within the -- our client is growing, is increasing. That is one of the goals and the target for the next year. We are just in the middle of the same campaign. We are positive for the second half of this campaign. Definitely, we can be more precise during the next conference call. Crossing fingers, we'll be happy to confirm volumes in line with last year's -- consistent volume in line with last year.

The next question is from Francesco Brilli of Intermonte.