Geox Q1 Profit Slips

Geox SpA reported its net profit slipped 4.3 percent in the first quarter due to weakness in Europe. Revenues were down 4.5 percent.
 
Net profit totaled €41.5 million compared with €43.4 million for the same period last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) slipped to €72.3 million from €79.2 million. Sales fell to €330 million from €345.5 million.

Mario Moretti Polegato, Chairman and founder of Geox
commented: “2012 will be a year for prudence in Europe, which
is our domestic market. Here, the macroeconomic environment
remains uncertain, which is why we have adopted policies to
limit business risk. They slightly penalize sales but help
the gross margin and cash generation, which at the end of
March came to 67 million, well up on last year. This cash
solidity allows us to invest, even during this phase of the
market, opening new monobrand stores and upgrading the
commercial structures in Eastern Europe, Russia and Asia.
Indeed, this year we are planning to inaugurate a flagship
store in Hong Kong and open 10 new shops in China and another
10 in Russia, in addition to the 90 already open in these
areas. This will allow us, in the future, to take advantage
of the significant growth potential of these emerging
countries where the Group's presence is still limited,
but rapidly expanding. In our monobrand stores, comparable
sales for the Spring/Summer season are up 5% in the first
quarter of 2012, which confirms the quality of the work that we have
performed and of our investments in marketing and product
development. It also highlights our level of consumer
appreciation, especially on the part of women, as we now
offer them a product that combines style with technology”.

THE GROUP'S
ECONOMIC PERFORMANCE

Sales

First quarter 2012 consolidated net sales decreased by 4%
(-5% at constant exchange rates) to Euro 330.0 million.
Footwear sales represented 87% of consolidated sales,
amounting to Euro 286.0 million, with a 5% decrease compared
to the same period of 2011. Apparel sales accounted for 13%
of consolidated sales equal to Euro 44.0 million, with a 4%
decrease.

(Thousands of Euro) I quarter I quarter

2012 % 2011 % Ch. %

Net sales 330,010 100.0% 345,377 100.0% (4.4%)

1

Sales in Italy, the Group's main market, which accounted for
40% of sales (40% in the first quarter of 2011) amounted
to
Euro 131.6 million (137.3 million in the first quarter of
2011) showing a 4% decrease.

Sales in Europe, which accounted for 42% of sales (43% in the
first quarter of 2011) declined by 6% to Euro 138.7 million,
compared to Euro 148.1 million in the first quarter of
2011.

North American sales decreased by 12% at Euro 13,5 million
(-15% at constant exchange rates). Sales in the Other
Countries increased by 3% (+1%% at constant exchange rates).

(Thousands of Euro) I quarter I quarter

2012 % 2011 % Ch. %

Net sales 330,010 100.0% 345,377 100.0% (4.4%)

(*) Europe includes: Austria, Benelux, France, Germany, UK,
Iberia, Scandinavia, Switzerland

Analyzing sales by distribution, the Geox Shop channel
(franchising and Directly Operated Stores – DOS) increased
by
11%. This channel represented 42% of sales (36% in the first
quarter of 2011).

The sales of directly operated stores (DOS) that have been
open for at least 12 months (comparable stores sales)
increased by 5% during the first quarter of 2012. Comparable
store sales related to the Spring/Summer 2012 collections
only (i.e. from February 27th to May
6th) increased by 7%.

The increase in DOS net sales of 6% is mainly due to the
increase of comparable stores sales and the new openings made
during the last 12 months.

Franchising channel reported an increase of 14% in the first
quarter of 2012.

Multibrand, the Group's main distribution channel, which
accounted for 58% of sales (64% in the first quarter of
2011)
declined by 13%.

*Directly Operated Stores.

2

As of March 2012 the overall number of Geox Shops was 1,145
of which 254 DOS. During the first quarter of 2012, 37 new
Geox Shops were opened and 32 have been closed. New openings
include shops in Barcelona, Reims, Granada, Moscow,
Vancouver. As of April 2012 the overall number of Geox Shops
was 1,162.

03-31-2012 12-31-2012 1 Quarter 2012

Geox of which Geox of which Net

Shops DOS Shops DOS Openings Openings Closings

Total 1,145 254 1,140 262 5 37 (32)

(*) Europe includes: Austria, Benelux, France, Germany, UK,
Iberia, Scandinavia, Switzerland. (**) Sales by the
franchising channel do not include those of the shops in
these countries.

Cost of sales and Gross Profit

Cost of sales, as a percentage of sales, was 53.2% compared
to 55.8% of the first quarter of 2011, producing a gross
margin of 46.8% (44.2% in Q1 2011). The expected increase in
gross profit, compared to the first quarter of 2011 is
explained by the increased profitability in the directly
operated stores, the steps taken in terms of product mix,
channels, prices, which offset unfavorable trends in raw
material prices and labor costs increases in supplier
countries.

Operating expenses and Operating income (EBIT)

Selling and distribution expenses as a percentage of sales
was 4.9%, substantially in line with the first quarter of
2011 (5.0%).
General and administrative expenses were equal to Euro 62.0
million, compared to 57.7 million of the first quarter of
2011. General and administrative expenses, as a percentage of
sales, were 18.8%, compared to 16.7% of the first quarter of
2011. The increase, in line with management expectations, is
explained by:
• costs of opening and running of directly operated stores
(DOS), mostly Flagship stores;
• investments in management and operations for the start up
of new subsidiaries.
Advertising and promotions expenses were equal to 4.0% of
sales compared to 2.5% of the first quarter of 2011. This
increase is explained by the anticipation of commercial
campaign due to the different timing of Easter compared to
the same period of last year.
The Group's operating result was Euro 62.9 million, 19.0% as
a percentage of sales, compared to Euro 68.9 million of the
first quarter of 2011 (19.9% as a percentage of sales).

EBITDA

EBITDA was Euro 72.3 million, 21.9% of sales, compared to
Euro 79.2 million in the first quarter of 2011.

Income taxes and tax rate

Income taxes were equal to Euro 19.9 million, compared to
23.7 million of first quarter 2011, with a tax rate of 32%
(35%
of the first quarter of 2011).

THE GROUP'S
FINANCIAL PERFORMANCE

The Group balance sheet shows a solid net cash position of
67.4 million.
The ratio of net working capital on sales was 33.9% compared
to 32.9% of the first quarter of 2011. The slight increase is
due to:
• the increase of receivable mainly due to the extending
payment terms granted to some clients;
• the increase of inventories of next season Fall/Winter 2012
and to the Spring/Summer 2012 stock season currently on
sales.
During the quarter capital expenditures were Euro 13.9
million of which 10.5 million for new store openings and
store refurbishment.

FORECAST FOR OPERATIONS AND SIGNIFICANT SUBSEQUENT
EVENTS

In early 2012, the macroeconomic and financial environment
has become increasingly difficult in Europe, especially in
the Mediterranean area, with the introduction of growing
austere fiscal policies, restrictions on access to credit for
commercial distribution and a deterioration in consumer
expectations. In this context, management decided to adopt
prudent policies with a view to containing business risk,
rationalization of the wholesale accounts, maintaining strong
control over working capital and focus on margins. This led,
among other things, to lower promotions during the sales
period and selective cancellations of orders of multi-brand
customers in financial difficulty. For these reasons,
management is of the opinion that consolidated revenues for
the first half will decrease compared to the previous year by
a percentage in line with that seen in the first quarter.

Considering the general expectation that these problems will
continue in the second half of the year and the fact that, in
certain geographical areas, the distribution network is
holding stocks of products from the previous Fall/Winter
collection, which is resulting in a weak trend in orders for
the 2012 Fall/Winter season. Management is convinced that it
has to look with considerable caution and prudence also at
the sales forecast for the entire year, which is likely to
see an overall decrease slightly higher to the percentage
expected for the first half.

Given the current situation, the Geox Group has reacted with
measures aimed to generate cash and boost gross margins,
which are confirmed by the orders book in terms of product
mix, channels and prices.

Furthermore, significant
investments related to new shop openings, management hiring
and commercial structure improvements in Russia, Eastern
Europe and Asia will allow us to achieve the important
potential growth opportunity in these markets, where the
Group's presence is still limited, but rapidly
growing.

These investments will however lead to pressure on operating
margins, in 2012 fiscal year, if sales will be lower than
expected.