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

Geox spa is one of my favourites blue chips on the Italian stock market. Geox creates, produces, promotes and distributes patented shoe and apparel products all over the world. It operates in the men's, women's and children's classic, casual, sports and fashion business.


Geox main competitive advantages are:

1. Technology: constant focus on the product with the application of innovative and technological solutions developed by Geox and protected by patents.
2. Focus on the consumer: cross-market positioning for products, with a vast range of shoes for men, women and children in the medium to medium/high price range (family brand).
3. Brand recognition: strong recognition of the Geox brand thanks to an effective communication strategy and its identification by the consumer with the "breathing" concept.
4. Internationalization: a growing presence on international markets thanks to easy replication of a business model already tried and tested in Italy.
5. Distribution: a network of monobrand Geox Shops in Italy and abroad which has been developed according to each country's distribution structure and calibrated to the widespread network of multibrand clients. The goal of both networks is to optimize market share and, at the same time, to promote the Geox brand to end-consumers on a consistent basis.
6. Supply chain: a flexible delocalized business model with considerable outsourcing, capable of efficiently managing the production and logistics cycle while the Company maintains control over critical phases of the value chain, so as to ensure product quality and timely deliveries.
   

Geox is the 1st shoe brand in Italy and the 2nd in the world. Since the start of 2008 the company is a member of the S&P/MIB index, the leading blue chip's index for the Italian stock market.

Let's take a look at Geox 2008 results (the images are taken from Geox 2008 financial statements):



Net sales were up 16% thanks to new store openings. Comparable DOS (directly operated stores opened for at least 1 year) sales were up 3%.
The rise in sales was not enough to offset the strong increase in general and administrative expenses, caused mainly by new store openings, especially flagship stores.
As a result EBIT margin contracted to 19,1% from 23,4%.
Net profit margin contracted less to 13,2% from 16% thanks to a lower tax rate (29,2% in 2008 vs 31% in 2007) due to a one time fiscal item.
EBIT and net income were also negatively affected by asset impairments by 2 mln and 5,9 mln respectively. Diluted EPS were 0,45 in 2008 vs 0,48 in 2007, a contraction of 6,25%.

Let's take a closer look at sales:



Geox is trying to further expand it's sales by selling apparel equipped with it's breathing technology in addiction to shoes. Due to it's high growth rate apparel is becoming increasingly more important as a source of revenue for Geox. In 2008 it generated 9,4% of net revenues as opposed to 6,7% in 2007, with a grow rate of 62,5% compared to 12,5% for shoes.

Geox main market is it's home market, Italy, which generated 37,3% of it's sales in 2008. In the last years the company successfully expanded in other European countries like Germany, France, Spain, Austria, in the US and in emerging markets (rest of the world). If you look at past balance sheets you can see than the company is progressively expanding the percentage of revenue generated outside Italy. In 2008 it continued to purse this strategy with important Cap Ex (capital expenditures) - roughly 94 mln euro - committed to opening new DOS (especially flagship stores) all over the world.

As you can see in the image the percentage of sales generated in DOS sales has increased in the last year, increasing to 15,8% from 13,1%, while the percercentage of revenue generated in franchising stores remained stable at 16%.

...to be continued...