Edited Transcript of GEO.MI earnings conference call or presentation 5-Mar-20 4:40pm GMT

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Okay. Thank you, Enrico. I would absolutely reinforce the factor that Mr. Polegato is doing well and keeping well on our business. So we have the pleasure to have our Deputy Chairman introducing the conference call. Good morning. I’m Livio Libralesso. So we are here today to discuss ’19 results. We have already disclosed the top line trend last January the 16, so I will just give a quick overview to the top line information in order to focus on profit and loss, balance sheet, current trading and the rationalization plan of our network for 2020, and on the impact of coronavirus outbreak.

Let’s start with Slide 2, the highlights. Total sales at EUR 806 million, minus 2.6%. This drop is mainly explained by a negative perimeter in wholesale and franchising, and this has been partially offset by the positive performance in Q4, up 5%, a double-digit growth in the e-commerce channel, up 29%, a good performance in Russia and Eastern Europe that is performing double-digit still today. And encouraging signs from the ready-to-wear that is performing up 11% in our stores.

Gross margin adjusted at 49.8%, more or less in line with last year. EBIT adjusted at a loss of minus EUR 3 million. The adjusted net loss is EUR 10 million. Here, it is important to underline that it has been also penalized by the nonrecognition of approximately EUR 4 million of deferred tax assets relating to subsidiaries. The reported net loss is EUR 25 million after the recognition of EUR 15 million of special items referring to EUR 10 million of impairment and EUR 5 million to other reorganizational costs.

Moving to Page 3. You will find the breakdown by channel. Wholesale is down 2.6%. The reduction experienced in wholesale normal account is due to the pressure of the online channel. In addition, some difficulties in Italy and in Europe, impacting — are impacting key account business. There are also some geopolitical turmoils regarding countries in Middle East, Indonesia, in Lebanon, in Chile and in Turkey. Last but not least, we agreed and physiological reduction in orders from the Chinese distributors in view of the contract expiring date at the end of 2020. You may remember that we disclosed this kind of difficulties on the initial backlog, both for spring-summer and fall-winter, but they were at minus 9%. So why minus 2.6%? Due to the good performance of the last quarter, but also due to a positive in-season management that enabled an improvement compared to the initial order collection and also the important cleanup of inventory with no impact on the margin experienced in 2019.

Franchising is down minus 14% due to a negative perimeter effect of minus 10%, and the rest is due to like-for-like negative mid-single digit. DOS is slightly positive as a consequence of minus 2.4% like-for-like that has been more than compensated by a positive perimeter effect and by the double-digit growth of the online channel, plus 29% like-for-like.

Move to Page 4 to comment current DOS like-for-like and the current trading. As I said, the like-for-like DOS brick-and-mortar at the end of 2019 was minus 2.4%, and it improved in the last quarter. You can also see the ramp-up of the online channel performance, close to 30% like-for-like in full year ’19. Regarding the current trading, coronavirus outbreak weakened the positive trend experienced in January that was low to mid-single digit. And today, at the end of week 9, it is negative mid-single-digit with Italy slightly negative year-to-date, Europe is flat. It was a 5% positive in January. And Asia Pacific is strongly impacted by coronavirus at minus 50%. That is the average between a positive January and the negative February at minus 85%. We will comment coronavirus outbreak more in details later. Current trading for the online channel continues to remain very strong and healthy at 25% year-to-date week 9. Also, Russia is continuing to deliver a strong result, double-digit in all the channels year-to-date week 9.

Next slide, Page 5, net sales by region. Italy and Europe have more or less the same trend. Italy is due — is down minus 4.7%, and the Europe is down minus 2.9%. The reason are the same. These regions have been mainly impacted by wholesale and franchising channels optimization. And like-for-like in 2019 has been slightly negative. The total network has been rationalized of 14 store closure regarding Italy and 15 store closure in Europe. Moving to North America. It reported a EUR 46 million of sales, minus 8.6%, mainly due to the negative performance of the wholesale channel, which is — which has been subject to a careful review of partners with a focus on players more in line with the group’s plan and strategy to improve brand perception.

Like-for-like sales performance for DOS recorded a decrease that was greater than the group’s average performance. The number of stores in the network are remaining unchanged compared with the end of 2018. In June ’19, the direct e-commerce channel was successfully insourced. And also in North America, both U.S. and Canada, the group is recording a very sustained growth more than 30%. Rest of the world reported EUR 187 million of sales with double-digit growth in sales for DOS operated in Russia and in Eastern Europe. As far as the Asia Pacific region is concerned, the reduction of the wholesale channel is mainly linked to reduction in orders — initial orders from a number of distributors who need to get rid of a temporary excess of inventory. And two, the agreed slowdown in purchases made by the Chinese distributors in view of the contract expiration date at the end of 2020. Directly operating stores recorded a negative performance, being affected by the protests in Hong Kong and by the reorganization of the direct e-commerce channel in China.

Let’s move to Slide 6. Net sales by product. Very briefly, I want to underline the positive performance for the Apparel, plus 11% in our stores, thanks to really a positive performance and perception by the customers of the new collection. And thanks to this performance, Apparel has also slightly increased its weight on total sales at 11%.

Let’s move to Page 7, where we can appreciate some of our sustainability initiatives. Sustainability represents one of the core values of our group — of our DNA. Geo means earth and x means technology. So Geox aims to be really a sustainable company and a sustainable brand that is increasing the efforts to deliver to our customers sustainable products. In this slide, we have a brief picture of our commitment on environment and products and people and on coalition and associations.

For the environment, we have reached relevant result, such as 100% agreement energy in Italy from renewable sources. The Forest Stewardship Council certification, FSC, for all its packaging. And finally, our partnership with the Formula E with the Geox Dragon team ’20 Ferrari (inaudible). In terms of products, we have a — we have an important collaboration with WWF, with a strong attention to materials, recycled cotton, recycled rubber, and a deeper attention to social items, thanks to donation of EUR 2 for every pairs sold under WWF brand as a support to their wildlife conservation efforts. It is also very important the Leather Working Group certification that we have obtained for our leather products. On the top right, we have also the picture of the sustainable version of some of our heroes project like NEBULA. All this helps circular economic thanks to the use of recycled bottles.

Geox people represent the most important assets for our company. Here, you can see also some relevant initiatives on this side. And finally, regarding coalition and association, we have to underline that we joined the Fashion Pact last year. And then another important collaboration with WAMI to support the water needs in some African countries. Finally, a collaboration with the Italian podologist association that witnesses our relevant attention to quality for our first steps.

Let’s go to Slide 9 — Slide 8, sorry, Geox shops network. During 2019, we continued the rationalization of the stores that were showing below target profitability. The net reduction in 2019 is 41 stores, mainly driven by the decrease in franchising stores. It is also important to underline that at the end of December ’19, we have 222 X store, I mean, the new innovative concept store with advanced multimedia and digital content. The entire network will continue to undergo a refining process to improve the profitability.

Let’s move to Page 9. There is the 3-year store rationalization plan announced last January. More specifically, you can see the total 80 stores at the end of 2022. EUR 40 million of less sales and an improvement in the footfall contribution of EUR 5 million.

And more specifically, the main actions to be taken have been identified as follows: a substantial withdrawing from physical retail in the United States, maintaining only 2 stores and a strong optimization of the network in Canada, closing 7 stores. We are also optimizing the physical store in Japan with the closure of 7 stores in areas that are considered to be of minor importance. Our aim is to focus the group presence in the area around Tokyo. We are also adopting a more prudent approach in the area of Hong Kong and Macau with 3 closures at these date — planned at this date. Adopting also a more selective approach in China with 4 closures foreseen at this date. However, as you can see, the vast majority of the optimization is in Europe with the closure of around 50 stores. And this is due to the fact that the high level of brand recognition is really boosting the importance of the role being played by the digital channel. So we have decided to shut down the nonstrategic stores, having in mind that the e-commerce is performing really well and balancing this kind of reduction. Rest of the world, just fine-tuning, 5 stores to be closed in 2020. Obviously, this decision has led to the write-downs for asset impairment being recorded for approximately EUR 9.4 million.

At Page 10, we have finally, the income statement. I’m going to comment 2019 figures adjusted, I mean, excluding IFRS 16 impact and special items in order to allow for a core comparison with the previous year. So top line, EUR 805 million, with a decrease of EUR 22 million compared with last year. Gross margin adjusted, substantially stable, minus 20 bps due to higher promotional sales done in 2019 that more than absorbed the improvement derived and excepted from the specific measures on supply chain efficiency and on the channel mix. EBIT adjusted at minus EUR 3 million. Selling and distribution costs, the incidence is, comparing with last year, at the same level, 5.7%. G&A trend reflected mainly the higher cost related to DOS perimeter and to the increase in logistics costs. Taxes at EUR 4.2 million, and it is important to underline that the group did not recognize approximately EUR 4.1 million of deferred tax assets. Net result adjusted is a loss of EUR 10.6 million. In this slide, you have also the details of the impact regarding IFRS 16, line by line.

And also, the EUR 15 million of special item already announced last January. Mainly related to the impairment and to — for EUR 1 million also for the severance of the previous CEO; and 2.5 million relates to an additional devaluation of our inventory due to the rationalization of the stores in North America. And the fact that the weak — let’s say, the weak performance in like-for-like in Hong Kong and then during the sales period for coronavirus suggested to be more prudent in the valuation provision regarding inventory.

Let’s move to Page 11, where there is the working capital evolution. Net operating working capital as a percentage of revenues was equal to 22.7% compared to 25%. This is really an important result because inventories are absolutely healthy and under control. We have been able to clean up the excess of inventory of 2018 using our really good outlet network that we are also going to complete during 2020. And also the, let’s say, the joggers and the stock sales and promotional sales that we did during 2019 have been with no impact on the profitability given the fact that the provision recorded in 2018 was enough to cover eventually the discount.

The improvement on top of the working capital is mainly due to a relevant decrease in inventory mainly thanks to the higher sales of stock from previous season and positive performance from the — our outlet network that delivered positive like-for-like compared with last year. We have also reduction in trade receivable, mainly linked to sales performance. But here, I want to underline that our receivable portfolio is healthy and mostly insured and consequently, we’re not suffering bad debt losses from this, let’s say, tough market environment. There is also reduction in trade payables, but this is in line with the timing of purchases of finished products.

Let’s move to Page 12. We have the balance sheet. We can notice the solid position of the group with the positive net financial position before IFRS of EUR 6 million and net equity is above EUR 300 million. So we are completely financing the invested capital.

Let me move to Page 13 for the cash flow statement. The operating cash flow was very positive, EUR 56 million, mainly thanks to the strict control over the operating working capital. The group then spent EUR 33 million in CapEx last year. And the main investments has been on new openings and restyling of the Geox stores for EUR 18 million and the information technology project of EUR 8 million. Then in May 2019, the company paid EUR 5 million for dividend and in November ’19, the group concluded a buyback program for EUR 5 million.

Let’s move to the final part on coronavirus outbreak and some thoughts regarding 2020. Page 14, we have some details about our exposure on areas more impacted in this moment by coronavirus. So first of all, supply chain issue. Geox purchases approximately 4% of its products from China, mainly apparel, and it uses Chinese suppliers for some of the raw materials required for manufacturing in other areas over the Far East. The authorities forced all manufacturing activities to shut down for the 2 weeks after Chinese New Year until 24th of February. After this shutdown, production activities began to gradually recover. And today, 100% of Geox suppliers are now operational, albeit not at full speed due to the ongoing restriction on people mobility. The situation is being constantly monitored. However, no significant impacts on the group’s production activities and supply chain are currently expected. Based on information currently available, there may, eventually and potentially, be that some limited and specific delays regarding the initial deliveries in May and at the beginning of June in relation to 2020 autumn-winter collection. Having said that, the situation is constantly evolving. And at the moment, it is not possible to make more precise estimates and assumption.

A different situation is faced by retail. Having a look at China, Hong Kong and Macau, in 2019, Geox recorded retail sales of approximately EUR 26 million in this area, 3.2% of total group revenues, 2.1% generated in China alone through a network of 65 directly operated stores, out of which 48 in China. Sales performances was — were positive for the first weeks of January. Then in February after the virus outbreak around 20 stores, 18 in China and 2 in Macau, remained closed for an average of 2 weeks as per instruction received from the related shopping malls. Today, just one outlet remains closed, but performances for the entire February has been really affected by the closure and by the general drop in footfall, close to 90% drop in footfall caused by this restrictive measure.

So the like-for-like performance suffered in February, minus 85%, and as of week 09, the aggregate year-to-date like-for-like sales for this region were negative, reaching almost minus 50%. Retail sales performances in Italy and in Europe. On 21st of February, coronavirus emergency also hit Northern Italy, mainly the region of Lombardy and then Veneto and Emilia Romagna. And on the 24th of February, the Italian authorities introduced measures including the closure of 35 directly operated stores in Lombardy last weekend out of a total of 47. Consequently, last week, I’m just talking about the last week, like-for-like sales in Italy were negative with the lowest figure being recorded obviously in Lombardy due to the closures. And also the other region in Italy have nonetheless been affected by the drop in footfall and by the general level of, I would say, concern among consumers, which is, in turn, reducing their propensity to make purchases. Overall, in week 9, Italy recorded a negative like-for-like sales at minus 44% causing aggregated like-for-like year-to-date for Italy to also become slightly negative. A similar dynamics have been recorded in the rest of Europe, albeit to a lesser extent. And the last week, the group did not close any stores in Europe, but footfall fell by 20%, with like-for-like sales dropping accordingly. In Europe, like-for-like year-to-date at the end of week 9 is in line. So it is flat compared with last year.

So the final slide, some thoughts on 2020. Considering the seriousness of the current situation linked to the spread of the new coronavirus and the uncertainties regarding the duration and the geographical areas that will be affected by the epidemic, it is currently extremely difficult to make a prediction about 2020. However, I wanted to share with you the trends for each channel that would have otherwise been summaries as follows before coronavirus outbreak. Wholesale, the initial order collection for 2020 spring/summer that there — has already been completed, and the 2020 autumn/winter collection that is ongoing, have confirmed the excellent performance and the increasing important role being played by the wholesale e-commerce players as well as highlighting substantial stability in terms of initial orders regarding the rest — the other channels. So 2020 performance would therefore, have been determined by in-season reorders, which are becoming increasingly important in defining the overall contribution of this channel.

What about franchising. This channel was expected to show a continuing tendency towards store network rationalization, albeit with less intensity compared with the previous year, minus 5%, including a limited number of conversions into DOS. This result would have been accompanied by like-for-like sales performance.

DOS, the combined effect of the announced rationalization plan, 50 to 55 closures during the year and a number of selected opening in Russia, where double-digit growth is being recorded across all channel still today. And in Europe, to complete the network of outlets was set to result in an overall negative network effect, at the end of the year, minus 5%. However, our expectation for the overall sales — were expected to increase, also thanks to positive like-for-like performance. The ongoing store planning — store restyling plan will also continue, aimed at improving performance with introduction of a new window display, new assortment strategies and new policies for in-store visual.

Direct e-commerce channel. Here the expectation is good. The channel — the e-commerce channel is less affected by external events, and it is expected to continue to grow at a strong pace and may also benefit from a number of advanced CRM tools that have been launched thanks to the investment we made last year, both in infrastructure and in internal expertise. However, having said that, I have also to underline that the considerable amount of uncertainty regarding market condition has, however, dramatically and drastically reduced visibility of the future results. So the — we — what I have said are just a mere indication of the trends that were expected before the outbreak of the coronavirus.

As a reaction Geox’s management team believe that it is fundamentally important to react to this change in market condition by implementing the extremely decisive and appropriate measures to mitigate the negative effects of this scenario on the year-end results. And in particular, we are obtaining and renegotiating substantial rent reduction for stores in the areas affected by closure at — and by the drop in the footfall. I mean 100% waiver of the rents in China for the stores affected by closures and at least 50% reduction, both in China, Hong Kong and Macau regarding the other stores. We are also trying to — we’re also working towards making HR cost flexible in relation to the opening hours and turnover of each stores, where possible. We are postponing investments in advertising, aimed at increasing the in-store footfall, until a more favorable moment in time.

We are also further analyzing the profitability of the store network and implementing all the other strict and aggressive cost control measures necessary. We are generally preparing to adjust the intensity of this rationalization plan based on the close monitoring of the situation as it evolves. It is also, I would say, appropriate to confirm the validity of the strategies included in the business plan presented in November ’18. Geox is, therefore, implementing the projects that it believes to be essential for the evolution of its business model with the aim of perfectly integrating physical and digital stores. As well as the warehouse for the various channels. And for this reason, the group has already completed and shall continue to make all the important investments in digital infrastructure in its omnichannel approach in merchandising and buying projects in business intelligence and consumer insights and retail excellence with the aim of focusing even more on customer centrality and becoming the increasing consumer-oriented. The message of the group believes that it needs to minimize very aggressively the impact of this situation in the short term, whilst we remain positive about medium-term outlook for both Geox and the industry.

We are now ready — sorry for this long speech, we are now ready for — to take your Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Mr. Marco Baccaglio of Kepler.

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Marco Baccaglio, Kepler Cheuvreux, Research Division – Deputy Head of Research, Italy [2]

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I have a question about the use of cost-cutting measures you are implementing to react to the shortfall in revenues. Should you give an idea of — in terms of what would be the mitigation and impact in terms of profits and in terms of lost sales? Should we assume that — what is the fall-through of lost sales on your margin? Can — is it fine to assume 20% to 25% or is it too cautious?

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Livio Libralesso, Geox S.p.A. – CEO & Director [3]

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Sorry, I didn’t catch what you mentioned when you said 20% to 25%.

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Marco Baccaglio, Kepler Cheuvreux, Research Division – Deputy Head of Research, Italy [4]

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So if you lose EUR 100 million as an example, is it fair to assume that the fall-through in terms of lost profits is EUR 20 million, EUR 25 million? Or is it too cautious to guess as an assumption?

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Livio Libralesso, Geox S.p.A. – CEO & Director [5]

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First of all, I would like to avoid to speak about EUR 100 million, I’m talking — I know that this is a — an example. We are planning — if we look at today, the current situation in China and Hong Kong and Macau, and we discuss with our local team and also with experts and consulting firm in that areas — in those areas. They believe that this kind of program will be — will have an impact similar to the one experienced in 2003 with SARS. I mean additional 8 weeks of really strict measure to block the expansion of the virus with the similar, let’s say, trend in sales. I mean, we are assuming March and February, minus 85%, minus 90%. And then signs of recovery after this remaining 8 weeks. So May, minus EUR 60 million; June, minus EUR 30 million; and then full recovery, starting from July.

This is not my expectation, this is, let’s say, a shared view of investment banking, of consulting — of the leading consulting firm that we are in discussion with. So for sure, as we have said, if I look at the DOS turnover in that region is EUR 26 million, half year is EUR 40 million, if we plan to — we consider, let’s say, an average drop of 70% — or sorry, less than 70% because June was positive and then May, minus EUR 60 million and June minus EUR 30 million, I would say that we are discussing about EUR 8 million, EUR 9 million, maximum EUR 10 million of turnover.

So given the fact that we are really aggressively addressing the issue regarding the rent, and we are trying to be really flexible with the personnel and we have postponed the advertising and so on, let’s say, that just to give you a rough number in case my assumptions are correct, we are talking about the EUR 3 million, EUR 4 million of impact in that area.

So — and I prefer not to be so specific about as you said, the EUR 100 million, I prefer to immediately clarify that we are not — unfortunately, for us, Asia is not so important. But in this case, it is really a good thing. So we are talking about EUR 3 million, EUR 4 million for the first 6 months in China, Hong Kong and Macau.

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Operator [6]

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(Operator Instructions)

The next question is from Mr. Roberto Casoni of Otus Capital.

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Roberto Chiarion Casoni, Otus Capital Management Limited – Partner & Portfolio Manager [7]

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I was interested in understanding — I mean, I understand that you are able to cut some of the rents, particularly in Greater China, where landlords maybe are more flexible. Is there something that you can potentially do also in Europe. i.e., landlords are flexible enough to — in their terms to allow for a rent reduction for the periods where footfall is clearly declining because of an extraordinary event? Or those landlords are a bit more less flexible, let’s say, more rigid?

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Livio Libralesso, Geox S.p.A. – CEO & Director [8]

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Let’s say that we have just started to play. So at the beginning the answer in Hong Kong was no reduction. Then we have been able to create a sort of a coalition, putting together more than 60 brands having really a big, big, big numbers of stores in Hong Kong, and we decided to sell — to send the same letter to all the landlords saying the same thing, that is, we don’t want to breach contracts, but we believe that minimum rent are no longer due given the force majeure situation. And consequently, we are going to pay just variable rent. After this impact, obviously, all the landlords decided to sit down at the negotiation table. I will immediately, very aggressively, use the same strategy also in Italy. It is a little bit early to see — to start, because first I need to see if the closure approach — just to give you an example, today, we have been advised that just 7 stores will be closed this weekend in Lombardy compared with 35. But for sure, my position will be the same. I would like to waive the minimum rent of the contract, and I would like to pay just variable rent as the first position to sit down to a negotiation table. So I, for sure, will be able to have also reductions in Europe. Because I consider that this is a force majeure case, our legal department and our external lawyers are working on this, and I will use this kind of attitude also for other contracts because we are ready to support our network and maybe all you would have seen that travel policy has been canceled and this is for customers, force majeure reason to claim back — to call back the money. So for sure, we are waiting also for the support of Italian government and then putting all together, this kind of measure we’ll try to mitigate the impact during these 6 months.

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Roberto Chiarion Casoni, Otus Capital Management Limited – Partner & Portfolio Manager [9]

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Okay. But we could — I mean, from a contractual point of view, I know that you can push landlords to help you out and to react. When there is not a force majeure kind of issue, i.e., it’s just a fall in the free fall — in the footfall in regions which are not particularly affected by the coronavirus at the moment, such as Roma or other regions. In those areas, you just record a drop in sales because of a drop in traffic, but it’s impossible to claim back to your landlords, correct?

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Livio Libralesso, Geox S.p.A. – CEO & Director [10]

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Let’s discuss. Because minimum rent is, let’s say, based on the fact that malls guarantee the traffic. In case mall’s not able to generate the traffic, my position is that minimum rent is no longer due. So let me discuss. I will have the pleasure to inform you during the next conference call, in case, in which, let’s say, level of results that we have been able to obtain from landlords. In any case, Geox is strong in Italy consequently. Let’s say that the growth is quite important also for the malls, the chain of malls in Italy.

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Operator [11]

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Next question is a follow-up from Mr. Marco Baccaglio of Kepler.

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Marco Baccaglio, Kepler Cheuvreux, Research Division – Deputy Head of Research, Italy [12]

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Yes. I have a question on gross margin. Assuming no virus and no issue, what was your idea about the gross margin of 2020 compared to 2019?

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Livio Libralesso, Geox S.p.A. – CEO & Director [13]

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We — our assumption is to maintain or even improve a little bit gross margin, but let’s say, now it’s quite difficult to confirm this. Why? Because — and another as a matter of fact, the sales period, both of — in — fall-winter and in spring-summer is decreasing its importance. And people are even — are more and more addressed by CRM to buy during the season and also Black Friday and Cyber Monday and also the other promotional periods during the time. So what is emerging is that sales period is decreasing the importance, and consequently, the average discount is decreasing. So gross margin has 2 main pillars. First one is the price list and the gross margin at the beginning when we do the price list, and we have planned to be in line with last year. And spring-summer ’20 has been done, fall-winter ’20 is running. So we have already decided the margin regarding this whole season. In addition, we should be able to — the reality is that sales period is decreasing and consequently the average discount should be also at least equal to last year. So for the time being, I expected to have the same gross margin or eventually a slight improvement.

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Operator [14]

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The next question is from Francesco Brilli of Intermonte.

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Francesco Brilli, Intermonte SIM S.p.A., Research Division – Research Analyst [15]

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I have 2 questions, but the first one is on the rationalization. And since you are assessing the magnitude of this rationalization to, I guess, to further extend this, have you already identified some potential number of additional stores? And if so, to which extent? Is it some few additional stores or you have a plan to increase significantly the rationalization?

And the second is — the second question is on 2020 outlook. And if you can help us to figure out the — which would be the impact on — from coronavirus on the numbers of 2020? I mean, if the impacts would stop as of today, or as of end of March. Can you give us a rough idea, which would be the result of the first impact of this?

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Livio Libralesso, Geox S.p.A. – CEO & Director [16]

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Let’s say that, as I have said, today, it’s too early to say. Let’s have a look at the development in March and April. And for sure, we have the shareholders’ meeting convened in 22nd of April. No conference call, but in the, let’s say, press release, for sure, maybe we can give some more details. And for sure, in May, we can provide appropriate guidance in 2020, I guess.

As far as the rationalization of the store network. We know very well each one of our directly-operated stores and also of our franchised stores, we had classified 100% of the stores using a sort of sports ranking: gold medal; silver medal; bronze medal; and then yellow medal, let’s say; and last, black. Black means the stores that have been deeply, deeply, deeply analyzed with a really strict approach regarding profitability, I mean, not only the — for their contribution, but also including transportation and warehousing costs. So let’s say, as a harder approach to the profitability. These kind of stores, the number is 120. It means that all the others are absolutely profitable or at a good level. Out of these 120 that have been under the impairment process.

So the first answer is that we have impaired — we have really considered under the impairment process 120 stores, out of which we decided to rationalize and to close 80. So what about the additional 40? For sure, they are stores that we consider they’re important for us that are part of really performance improvement plan from our retail division. In case the situation is really, really, really tough, maybe we can also decide to close someone of these. But today, it is too early to say because our attitude towards the future is that we have, absolutely to manage, 6 months, let’s say. And then the market will be back. And for sure, we are really proud of our financial situation, EUR 6 million of cash, inventories under control. I think that the market will suffer a lot and also players and competitors will suffer. So after these 6 months, we will be ready with a proper network and really in a strong position. Maybe we’ll benefit from — to gain market share, because we are also keeping contact with our key accounts and our customers, and we are supporting them and always this kind of approach to the market will pay once the situation will recover.

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Operator [17]

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(Operator Instructions)

Gentlemen, there are no questions registered at this time.

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Livio Libralesso, Geox S.p.A. – CEO & Director [18]

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So thank you very much for your time and feel free to contact Simone Maggi or myself for any doubt or clarification you may need help with. Keep in touch and see — keep in touch.

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Operator [19]

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Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.