Good evening, this is the Chorus Call Conference Operator. Welcome, and thank you for joining the Geox first nine months 2024 sales results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. 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 thanks for joining our call today. This is Luca Amadini speaking. Let me introduce you to today's call speakers, the Geox Group CEO, Mr. Enrico Mistron, and the CFO, Mr. Andrea Maldi. Mr. Mistron wi ll start by providing you a brief overview, and then Andrea will delve deeper into today's results of our first nine months. Following that, Enrico and Andrea will be happy to take your questions. I would like to remind you that the presentation may contain statements that do not reflect reported financial results or other historical information. Any forward-looking statements are based on the group's current expectations and projections concerning future events. Forward-looking statements involve risks, uncertainties, and other factors that may cause our results to differ significantly from what is expressed or implied. Many of these factors are beyond the group's control or estimate.
Let me now hand over to our CEO, Mr. Enrico Mistron.
Good evening, everyone, and thank you for joining us to discuss our performance over the first nine months of 2024. Third-quarter sales confirmed the trends we observed in the first half of the year as we continue to face challenges in market conditions. Comparable sales in our direct channels, both physical and digital, have shown healthy performance, benefiting from a strong late August and September. This was driven by higher store and website traffic compared to the same period of last year and a positive increase in our conversion rate. The wholesale channel, however, remains under pressure. During the third quarter, most of the Fall/Winter 2024 collection was invoiced to our multi-brand customers. As mentioned in our previous call, we have implemented specific actions aimed at reducing our cost base and adapting it to the new market environment and a new revenue level.
In line with these efforts and with the network optimization initiatives we have already undertaken, management has launched an additional review of our distribution model to better meet current and future market demands. As part of this initiative, the group has started the process of winding down direct operations in China and in the United States, with the goal of replacing our existing distribution model with more effective, locally adapted solutions. It is important to note that operations in this market have not been profitable in recent years, and their contribution to the group's sales has been marginal. Nevertheless, Geox remains committed to streamline its presence in this market through a new strategic partnership. In particular, we are pleased to highlight that the partnership agreement is currently being finalized in China with a prominent international player in this important market.
As previously announced, we were scheduled to present the new business plan this fall. We confirm that the work has been substantially completed, but we have decided to postpone the presentation to next year. This additional period will allow us to further consolidate our expectations for 2025, a year that appears complex and challenging and represents the first year of our industrial plan. Thank you very much. I will hand over to our CFO, Andrea Maldi.
Thank you, Enrico, and good evening, everybody, and thanks for joining our call. I tried to, during the conversation, I would try to give you a deep dive on the numbers on the first nine months and set a bit of expectation for the year-end, so if we start from page five of the presentation, we can highlight the main figures. The performance of the period in the first nine months reflects the trends observed in the previous quarter, with the wholesale facing complexities and difficulties on the market, while retail is essentially in line with the previous year, and worth to note is that we have an excellent outcome from online channels, including both direct web and marketplace.
Having said that, we are setting the net sales of the nine months at EUR 525 million, which is 9.7% lower than the previous year, and our net working capital is sitting at EUR 163 million, which is 24.7% of our revenue. If we look at the net debt, the net debt is closed at EUR 145 million, mainly with a bank debt of EUR 138 million and the fair value of hedging instruments negative in that period of about 7.4. If we look at the pure net debt, I think that the key message is that we are pretty much in line with the previous year, EUR 138 million compared to EUR 139 million in 2023. A quick look at the current trading, we can confirm that the performance of the direct channel, physical one, brick-and-mortar, and online is confirming the positive trend.
We are now, on a year-to-date, at a week 43 in the range of + 1% on the physical and + 11.6% on the digital channel. If we move a bit into a drill down of the sale, in page seven, we can see that our decline from September 2023 to September 2024 is mainly driven by three factors. The first one, we are incurring on an FX effect of about EUR 5 million, which is mainly driven by our revenue coming from the Russian market, and this is due to the fact that the ruble value compared to last year has been on average in the nine months at the value of 98 ruble compared to 90 last year, therefore 90 this year, sorry, 90 last year. The second effect is the so-called perimeter.
We are now sitting with the level of our retail physical doors in the value of 618 shops, which is lower by about 37 units compared to the 655 of the same nine months on average of last year. This is giving us a net of about, as we said, EUR 16 million. The main clearly driver of that performance is then has to be seen in the wholesale. Wholesale is down EUR 52 million, including franchising, and this is in line, more or less, with the initial order of the campaign, both in Spring/Summer 2024 and in Fall/Winter 2024. While, as we said, we have a positive contribution of our direct channels in the region of EUR 5 million for the physical one and EUR 11 million for the doors and marketplace. If we move to page eight, we can see a drill down of our distribution.
We have, as we mentioned, we have a net in between a new opening and closing of about 37 doors less than last year, and this is clearly in line with our strategy that has been initiated years ago of streamlining our direct distribution and focusing just on the key markets and the key doors and just in shops that are profitable from an EBIT perspective. Clearly, this kind of strategy discussion can't be a better match in the words of Enrico on the decision to close the two markets, the USA and China, given the fact that so far have been quite complex markets, not significantly relevant in terms of sales for, in terms of sales, sorry, for Geox and bringing us a negative EBITDA both in 2023 and in 2024.
I suggest to look at page nine, again, a deeper deep dive on the break by channels of our sales. As you can see, wholesale on average is down 15.4% compared to last year, and this is clearly the most, the channel which is most impacted by the market condition in these nine months, and the negative performance is impacting Spring/Summer 2024 and Fall/Winter 2024, while from an in-season management perspective, we are pretty much in line with the value that we have registered last year in 2023.
As we mentioned before, we have an average at brick-and-mortar direct channel cost, which is - 4.2%, but the like-for-like sales year-to-date of the direct channel or the physical channel is positive about 2%, and the positive contribution is coming, as we said, from marketplace and e-commerce, which are two clear drivers of growth that supported, in many cases, the premiumization of the brand and the positioning of our direct sales strategy. I would like to try to have a look on page 10 at the sales by region. Clearly, from a regional perspective, all our main regions have been impacted by the decrease overall of the sales. We registered a 9.6% decrease compared to last year in Italy. Europe, the decrease is slightly better because we have a market with different speed.
In particular, we have some good reaction from the U.K. and Benelux market, while Italy, France, and Spain, despite the good position of our direct sales, are overall more impacted by the painful market condition. North America is pretty stable, but considering what we just mentioned about our strategy to review the distribution there, and the Rest of the World is significantly impacted by mainly from the vast majority of the country included in the perimeter, while the Russian region itself is performing more or less in line with the same, more or less in line with last year.
If we look at page 11 and we break the sales by, we can see that out of the EUR 525 million, basically both the footwear and apparel have been impacted more or less with the same kind of trend, 9.5% in footwear and 12% in apparel, considering also clearly the nominal value, which is different when we look at the gap. And I would like to have a look at page 13, trying to deep dive a bit more into the financial side. As we mentioned, we have a net working capital which is sitting at about EUR 164 million. I think that we took the opportunity to reduce our inventory, to use our stock of products to generate sales. We moved all our channels of the stocking, and this is producing good results.
Clearly, the percentage increase compared to the same period last year is mainly due to the fact that our revenue point is lower of about EUR 56 million compared to the first nine months of 2023. But overall, if we look at the composition of the net working capital, inventory is significantly down of about EUR 30 million. Receivables are down as well, and we have a lower value of payables in the first nine months, which is also clearly in line with the trend of the company, which is to use in the, in 2024, the stocking strategy and granting a value of sales, lowering the value of purchasing.
The result of this kind of discussion is the fact that if we look at the net debt from nine months, over the nine months or a year-end with our expectation, we can see that 2024 will be a year in which the company will sit more or less at the same level without further burning of cash. Having said all the above, taking into consideration all the discussion that we have just presented, I think that the main, when we look at the outlook for the year-end, the key point is that we are thinking to confirm the fact that we will be down in the range of the mid-single digit by year-end, which is something that we have stated in the previous call as well.
While from a margin perspective, we are achieving the increase of the 0.5 basis point, 5%, sorry, 50 basis point, which is clearly one of the targets that we have declared at the beginning of the year, and we imagine to reach that value at the year-end.
I think that from a financial point of view and a finance point of view and economic point of view, looking at the sales and the cost, the only thing that we can still comment is the fact that as a part of our strategy of reviewing our distribution, mainly focusing on markets like the U.S. and China, we are going, we will complete the kind of winding down of operation by year-end, and we are now in the process to deeply review the cost, the one-off cost that we will incur as a part of this transformation that will be needed to wind down the operation, but at the same time, in terms of representation, needs to be considered as one-off and not recurrent, and will impact year-end 2024, but we are still under assessment. Thank you. We are now open to get questions, if any. Thank you.
This is the Chorus Call Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Oriana Cardani in Intesa Sanpaolo. Please go ahead.
Yes, good evening. Thank you for taking my three questions. The first one regards to wholesale channel? Can you provide us. The second question is about business in North America and China. Can you identify revenues generated in these two markets this year? The loss expected this year due to the direct presence in these two markets. And the third is on debt. Can you give us.
Sorry to interrupt you, Andrea speaking. I think that your line is breaking. Can you please repeat? We just got a few comments about U.S. and we are not getting the question. Can you please repeat? Or at least from our side.
Sure. I will repeat the three questions. Now, is my voice better now?
Yes, now it's much better.
Okay, great. So the first question is on the wholesale channel. If you can give us the trend that you see for next year. The second question is on North America and China. So can you quantify the revenues generated there and the loss expected this year due to the direct presence in these markets? And finally, I've got a question on net debt. What is your expectation for this year?
Okay, thanks, Oriana. And sorry, we have to repeat now.
It's much better, and we got the sense of your question, so I'll start from the first one, and looking at the overall wholesale and distribution channels, we do see a market condition which is not going to improve according to the industry sector and studies in 2025, and we are deeply working as a part of the new industrial plan that we are not discussing now on our new products that will be brought to the market starting from the Spring/Summer 2026, so therefore, we don't see a strong game changer in 2025, but we will think to follow basically the market condition and the consumption restriction which is characterizing the end, the first nine months of 2024.
When we look at U.S. and China, we were talking, we were speaking of about a sales impact in the region of EUR 13 million and EUR 14 million each country. This kind of sales were in China driven by some direct shops, a couple of outlets, and mainly online. When we look at U.S., we are talking about wholesale distribution. In combination, both of the countries have generated a loss, a negative EBIT of about EUR 4 million-EUR 5 million in 2023, and we are sitting at the same level in the year 2024. Therefore, clearly, from an EBIT perspective and profitability, the fact of winding down the kind of operation by the end of this year is going to improve our profitability in 2025, clearly considering the same market condition. The third question, I think, that was related to our outlook on the net debt.
As I told you, despite the many challenges and the fact that we are incurring one-off costs that we are underestimating, that we are assessing in this period, clearly, we have a 2024 in which we have been able to mitigate the cash impact, and therefore, we are not expecting to be in a net financial debt position, at least the one with the bank, so without considering the fair value of the hedging instrument, which is going to be significantly different from last year. I'm expecting to be in the region of EUR 115 to EUR 110, which is clearly a small, let's say, a slight deterioration compared to 2023.
But in terms of if we consider the fact that we are thinking to be in the region of a single digit, mid-single digit decrease of sales, you can imagine that from a cash perspective, it has been, let's say, an accurate control of cash, review of spending, winding down operation, and financing all these kinds of things without creating a strong deterioration to our net financial position.
Understood. Thank you very much.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
Okay. Thank you very much, all, for joining the call. Thank you.
We do have a question from Carmen Novel, Banca Akros. Please go ahead.
Hi, good evening, everyone. Can you hear me?
Yes, thank you.
Okay. I wanted to ask a quick question on the EBIT margin for the year. If an improvement, an expected improvement in the EBIT margin, in the annual EBIT margin could be derived from the gross margin from the below costs, like the advertising and promotion costs. And thank you.
Okay, Andrea speaking. Thank you for your question. I tried to give you the fair answer, which is clearly the improve on the gross margin of 50 basis points together with the decrease on the spending of the marketing cost, which has been strategically decided and planned at the beginning of the year, is improving itself, EBITDA margin.
But on the other side, as we try to describe during our conversation, we are trying to highlight the fact that we have taken strongly a decision on our distribution, like the closing of China and U.S., and we are incurring in transformation cost and one-off cost that will depress overall and will offset the saving done from the previous two lines, margin and saving on marketing cost. Clearly, we will introduce it by year-end, the concept of adjusted EBITDA because we need to look at the EBITDA from operation and the EBITDA impacted by one-off cost. But we would like to give you further information about the size and the impact of this one-off cost and the magnitude once we have clearly assessed the impact on the 2024. Overall, we do not expect to have a benefit on our EBIT margin in 2024.
Okay, thank you.
For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
Okay. Thank you all for joining today, and we will see for the full year financial results next year. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.