Stock analysis: Geox spa - the breathing shoe's corporation - part 2

Let's continue our analysis by looking at the company reclassified cash flow statement:



Cash flow from operations contracted 28,5% to 83,557 m from 116,758 m, mainly due to reduction in other non cash items and an increase/decrease in other current asset/liabilities.

This contraction, coupled with heavy net Cap Ex (94 m - a record for the company) mainly allocated to new store openings (especially flagship stores in key strategic locations), caused the free cash flow to turn negative to -10,74 m from 74 m in 2007.

The negative free cash flow and the 62 m the company payed in dividends had a considerable impact on company's net financial position, which was partially mitigated by the gains in the fair-value of derivative contracts used to hedge against currency fluctuations.

The surplus in the net financial position decreased to 58,2 m from 106,7 m. This actually isn't bad news since keeping a lot of cash for long periods of time without investing it or distributing it destroys value for the shareholders. For 2009 Geox has decided to reduce the Cap Ex to around 45 m and to keep the dividend unchanged in order to maintain a solid financial profile.

The increase in the net operating working capital (NOWC = inventories + accounts payble - accounts receivable) soaked up 42 mln of cash flow. The net revenues/NWC ratio increased to 22,9% from 21,7% , this impacted negatively the ROA. The increase in the ratio is caused by inventories growing more than net revenues:





Looking at the balance sheet we can observe that inventories grew 22,3%, accounts receivable 15,3% and accounts payable 17% against an increase of 16% in sales.

PROFITABILITY:

As a result of reduced profit margins and invested capital expanding more than revenue Geox profitability fell in 2008:

- ROA2008 26% vs ROA2007 32,7%
- ROE2008 27,5% vs ROE2007 34,5%
- OCF2008/PN2008 vs OCF2007/PN2008 32,7% (OCF = operating cash flow)

Although it's slowing due to the recession and it's effects on consumer spending, profitabilty remains on very high levels. In fact high retuns on capital invested and efficient capital allocation is one of the things i like about the company.



As a final consideration we can observe by looking at these figurest that Geox autofinanced it's exceptional growth in the past five years with it's solid cash flows while managing to mantain a solid financial position and good returns on invested capital during the years. This isn't a so common thing in the italian corporation scenery, and is a good testament to the company and it's management.