Fall/Winter order backlog shows solid growth, GEOX

16 May '11

6 min read

Cost of sales and Gross Profit
Cost of sales, as a percentage of sales, was 55.8% compared to 49.5% of the first quarter of 2010, producing a gross margin of 44.2% (50.5% in Q1 2010). The expected decline in gross profit, compared with the first quarter of 2010, is explained by unfavorable trends in currencies, raw material prices and labour costs increases in supplier countries and by the higher promotional selling activities in the group's directly operated stores.

Operating expenses and Operating income (EBIT)

Selling and distribution expenses as a percentage of sales was 5.0%, substantially in line with the first quarter of 2010 (4.9%).

General and administrative expenses declined by 4% to Euro 57.7 million, compared with 60.1 million of the first quarter of 2010. General and administrative expenses, as a percentage of sales, were 16.7%, compared to 18.0% of the first quarter of 2010. The decrease is explained by the reduction of the general and administrative expenses and labor costs compared to the previous year. This decrease more than offset the increase in costs of opening and running of directly operated stores (DOS) and the amortization expenses (which rose to Euro 8.8 million of the first quarter of 2011 from Euro 8.1 million of the first quarter of 2010) mainly related to the investments in the stores network.

Advertising and promotion expenses was equal to 2.5% of sales compared to 2.4% of the first quarter of 2010. The Group's operating result was Euro 68.9 million, 19.9% as a percentage of sales, compared with Euro 83.7 million of the first quarter of 2010 (25.1% as a percentage of sales).

EBITDA
EBITDA was Euro 79.2 million, 22.9% of sales, compared to Euro 93.6 million in the first quarter of 2010.

The Group's Financial Performance

The Group balance sheet shows a solid net cash position. Before the fair value adjustment of derivatives, net cash position was 108.5 million (as of December 31, 2010), compared to 61.9 million as of March 31, 2011. After fair value adjustment of derivatives, which negatively affected first quarter 2011 for 13.8 million (16.4 million as of December 31, 2010), net cash position was equal to Euro 48.1 million as of March 31, 2011 (compared with Euro 92.1 million at the end of December 2010).

The ratio of net working capital on sales was 32.9% compared 36.1% of the first quarter of 2010 mainly due to different timing of receipt of Spring/Summer collection compared to the same period of first quarter 2010.

During the quarter capital expenditures were Euro 7.2 million of which 5.0 million for new store openings and store refurbishment.

Forecast For Operations and Significant Subsequent Events

For the Spring/Summer 2011 season, management announced a 2% growth of the backlog versus third parties, wholesale plus franchising. Trends in currencies, raw material prices and labour costs in supplier countries, on the other hand, suggest that gross margin will come under pressure in the first half of 2011.

These factors will persist in the second half of 2011, but based on the steps taken in terms of product mix, channels, prices and cost reductions, and above all based on the sales campaign for the Fall/Winter 2011 season, which is showing a growth of 8% for the third parties (wholesale plus franchising), management is confident that the gross margin of this collection will be substantially in line with the Fall/Winter 2010 season.

Geox S.p.A.

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