Natuzzi SpA (NTZ) 2024 Q2 法說會逐字稿

Welcome to the Natuzzi's conference call for 2024 2nd quarter conference call, financial results.

(Operator Instruction)

Joining us on today's call are Mr Antonio Achille, Natuzzi's CEO, Mr Pasquale Natuzzi, founder and executive Chairman, Mr Carlo Silvestri, CFO and Piero Direnzo, IR. As a reminder, today's call is being recorded. I now like to turn the conference over to Piero. Please go ahead.

Thank you, Kevin and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2024 2nd quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States Securities Law.

Obviously actual results by different materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial conditions.

Please refer to our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission for a complete review of those risks.

The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's Chief Executive Officer, please Antonio.

Thank you, Kevin and thank you Piero.

Good afternoon for the listener joining from Europe and good morning from the one that is joining from US where our Chairman is.

I would like to start with a brief introduction to what has been the 2nd quarter in terms of sales, as you have seen, we reported sales is slightly increasing versus the same period of the 2023 which is not something we are particularly excited about, but definitely need to be put in a contest where not only our sector is being, you know, very soft and to our knowledge, most of our direct competitors actually are reporting negative comps. But in general, the durable and consumer spending are very much depressed. I believe that one of you is following what's happening to another interesting industry, the automotive where there is serious double digit decrease in orders.

So we interpret the fact that we have been able to defend our top line. And then if you look at the brand sales actually has been 3% above last year as a sign of resilience of our company. And also as a testament that our brand journey is very much appreciated and understood by our partner and increasing by new partner like real estate developers.

I would like to highlight a few elements of our strategy which has been very much consistent through the cycle. The first element is our effort to continue improving the way we reach our consumer. As you know, you know, Nattuzi has taken this titanic, you know, gigantic task of turning from a manufacturer to a brand retailer. And one key element is improving the quality of the relationship that we have with our final customers, which can only happen in an environment where we can control the customer experience.

Here, retail, which is of course the channel where this customer experience can be better controlled is now becoming very important. Roughly 70% of total sales are happening through retail being the DOS, of DOS up to 45% in 2019, which still is a good year to compare before the pandemic. So, it's an increase of 23% percentage point, which I believe is very significant, which not only speaks about the fact we are a better way to reaching our customers, but also speaks about the very, very intense and deep work we have been doing to transform our competencies, because clearly, it's a very different job to be a producer than to be a retailer. So, there's been a lot of effort over the last few months, Mr. Pasquale, myself, and the organization has been doing to equipped Natuzzi with competencies in the area of retail, retail design, merchandizing, customer experience, which are totally new competencies for the group just 4 or 5 years ago.

As part of the, the sales retail, I would like me to, oh, wait, you can see me. Yes. Yes, you can see.

I would like to; I like the performance of our directly operated stores which have been growing 6% versus last year. And in particular, the performance of our directly operated stores in the US, which have been growing roughly 33% versus last year. Again, this is a clear confirmation of what we have been repeatingly in this conference call, which the US is central to our strategy and retail in the US is central to our strategy. As part of that, I'm pleased to announce that we eventually open a new (US store) in Denver is a location which has been very carefully scouted for, is in Downtown, First Avenue, very close to other furniture brand that we consider right, right affinity for Natuzzi Italia, which includes Roche Bobois, Restoration Hardware, West Elm, Crate & Barrel, Room & Board. Again, because our experience is very important to be part of a district populated with the brand with a similar position.

With this new opening, we now have 23 stores of which 18 are directly operated and 4 are in franchised in the US. And again, this remains a priority for us both in terms of organic growth and in terms of potential new opening.

Let me switch to another geography which is central to our strategy, which is China. As you know, more than half of the total store we have are in franchising in China. We don't consolidate line by line because we are in a minority joint venture with KUKA.

But we have been over the last few months, increasingly supporting our partner in China on an operational level. So, we're really teaming up with a different department to support the JV team to take the right choices at merchandizing retail marketing level.

Personally, been more than 5 times since the few last month. Every time really being very much immersed in the reality, last visit was in August, and I was very pleased to witness the christening of a new project. The Hang Zhou store, as you know, Hang Zhou is a city one hour north of Shanghai, very beautiful city, we wanted to make sure that the Hang Zhou store become a flagship, fully controlled in terms of design by our team, which is a total newness because despite being in partnership, our partner has been somehow quite autonomous in some choices when it comes to retail. In the spirit now, to create a very high consistency of the representation of Natuzzi Italia globally, we agreed with our partner that a significant opening in Hang Zhou need to be integrated with what we are working. What does it mean that the full layout, the merchandizing the design of the store and actually been done by our newly created retail excellent division.

The Hang Zhou event opening event has been a success. There's been some 40 dealers joining more than under architect now it's still very early. But it's encouraging to see that after nine weeks from operation, the Hang Zhou stores is facing a double speed of the other remaining directly operated store in China, which encourage us to say we now have learned the job. We've done a lot of investment in term of codifying what should be and we call it internally the brain retail religion, which means very strict guidelines in terms of execution of brand merchandizing retail, and we feel the legitimacy to guide more strictly the choice of our partners because we believe that it is not a sign of authority, but it is a sign of business legitimacy because as I'm so sure when you do the right things then you have a very good payoff.

So, on closing on retail, franchising and direct operated stores, we now have 681 stores. We believe that this is a very solid platform to regain growth as market conditions are stabilized.

I don't seen Pasquale. Pasquale is with us?

Yeah.

Okay. Sorry, you just disappear for second. Okay.

So, in parallel to retail, there's been another significant effort in the direction of improving the quality of our gallery, we call it the remaining gallery because it's been really recreated the concept from its fundamental. As you remember, gallery is a shopping shop experience. They go anywhere from 1,000 square feet to 3,000 square feet, 4,000 square feet, in some geography in Europe, even larger. But they are a shopping shop experience.

Again, in the search of delivering a great experience, which is immersive. There's been a dedicated team that has been re-designed the layout, the merchandizing so that they can convey the experience of the brand, at the same time being very modular and very cost effective for our partners, they need to coinvest in this format.

This is the format for instance, which is as you know, now there is I point market which is one of the opportunities we offer to our partners. They want to invest in Natuzzi or in some location for Natuzzi Italia where the potential does not sustain a full-scale store.

This new concept is being extremely well received. We open some 43 new galleries. 25 is being reengineered, and this is an effort we're going to be progressively rolling out to the 600 galleries we have globally.

Antonio, I'm sorry, Antonio, I'm sorry, but we opened the door 47 or 48 in the store in 2024.

So here is the number of opening and closing. The balance number is pretty much stable.

Anyway, we opened the 47 new stores in 2024 with kind of a business environment. I mean, you know, and these are the, I mean, we just opened one store in Denver in Colorado as a direct operating store, but all the others are Franchising.

Yeah. Okay. All right.

Yes, that's correct. Thank you for, for.

No, no I'm sorry.

Thank you.

So, in imagine the journey of Natuzzi or visualizing the journey of Natuzzi, you really have to understand the distance that Natuzzi has been covering, which is significant because is still operating for very few selective relationships in a way in which just display the product. But other than those relationships which are chiefly with large, few large retailers in the US. The remaining way that the customer can get in contact with Natuzzi is through a very qualified distribution channel where the brand and the merchandizing can fully express their potential.

A second direction where we are very excited by the generation is trading contract.

Let me clarify first, what we mean by each of you to the trade and contract. So, trade is the business that we do mostly to our stores, chief in Natuzzi Italia where the final buyer rather than be an individual consumer is an architectural designer which is working for the final consumer. That's a very interesting part of business because it is exactly the place where we can deploy our strategy, which is for Natuzzi Italia, not to sell product but to sell project. We believe we have the legitimacy now to step in and house and do a full project for the living room, for the bedroom, for the full house. And this is increasingly happening. And in the US, for instance, this part of business represents some 20% of the revenue sources which is incremental versus the revenues we do with the retail consumer.

And this business is channeled mostly to our stores.

The second company contract is I would say pretty new for our company. But it's very important for several of the Italian brands that Natuzzi Italia compete with. For contracts, we mean the business where the buyer is a business operator, typically a retail sorry, a real estate developer, a hotel chain. So, this is a completely different dynamics because the single contract can be significant, the contract can involve it in a couple of circumstances for us, even the design of the outside building can definitely involve the design of the units can involve supplying beyond our upholstery which remains central, also fixed furniture. So it's a very interesting and new arena for us.

There is a significant and robust trend in the market for brand real estate where the real estate developer tried to build a layer of additional value by introducing a brand. It started of course with the you know fashion brands, Armani, Bulgari, but those brands not necessarily then they have the design competencies, they have the strength of the brand, but they don't have the design competencies. Natuzzi can fulfill this opportunity, bringing the full breadth of these design companies, competencies. And it happened for instance in one of these projects which is still under confidentiality agreement but will be publicly announced on the 12th of November, so we will have a specific press release on it.

So this new area of business already delivered 3 major projects, two in Middle East, the one in Central America, they are very meaningful in terms of size, but I would say they are even more meaningful because they constitute a strong qualification and a testament, and Natuzzi can play the game, in a game where you need to have competencies, design capability, you need to have a project management capability, the ability to aggregate other partners for fixed furniture. So, it's a game where very few people can actually play. To support and accelerate that business, we just established an individual business unit that will be managing trade and contractor. I speak about business unit because it will be assigned the target in terms of growth and marginality. But of course, it would be fully leveraging our let's say platform in terms of capability, R&D and product.

So moving from top line to the structure of our P&L, I want to discuss their work we have done on margins. I must say that I'm particularly proud of what our team has achieved because compared to 2019, we increased by 11% points, 11% point, the gross margin. In a context that could not have been more turbulent because we went through years like 2001, 2021 and 2022 with hyperinflation with scarcity of access to materials. More recently, we witnessed a spike in transportation from one geography to the other. So I believe those years have been really challenging for many companies that wanted to maintain the historical margin. And our group has been able to increase it by 11% points.

Even in this quarter that we are discussing, we continue the trajectory because we reported 38.1% gross margin compared to 36.4% or one years ago. So, 1.7% point increase in just 12 months, this in a context where we had the, for our specific accounting, severance that got accounted negatively in the gross margin, without the debtor, the severance in a sense is an investment for the future. Without that, the gross margin in the 1st quarter would have been up 39.3%. So almost 3% point percent point above the quarter of last year, which I believe is quite significant.

This is a contest where especially our Italian factory, they have a low saturation given the scale we are operating. So, if we would consider a proper saturation, you should be adding 3% or 4% point more in the margin.

And this is the blended growth margin, then when we look at the integrated growth margin or retail, then here we go in the range of more of 65%, 68% percentage, because of course, there we sum the margin of the retailers and the margin of a producer.

So moving on the 4th point, I wanted to alight is something which has been discreetly managed in the sense you didn't read anything about Natuzzi laying of people, which I believe is an achievement per ssy because we work in a highly unionized market. When it comes to workforce, what we have, we have been achieving a lot. Because if you take a midterm perspective, we've been reducing almost by 900 people, our workforce, some 20% reduction in 3 years. If we just look at these first 6 months of the year, reduced by 170 unit, our workforce, this has been planned even I would say before the negative economic market we are facing, because it is a natural consequence of the evolution of Natuzzi.

Natuzzi moved from being a volume company to be a value company. So we needed the lower production, we need a new competency and needed to change the shape of us of these, let's say workforce. So, this has been a planned, is continuing to be a focus. We continue to do this in the most ethical and respectful way, but it is also part of our midterm plan.

Just to give you a single number, even as you know, we are not operating at the scale we want in terms of top line, the revenue per employee from 2021 increased by 30%, because we've been reducing our workforce. So, a significant improving of productivity per employee by 30%.

Last point, I want to mention before talking about I thought it's something we are proud of because we continue the quality to our leadership team. I mentioned before how interesting and challenging is to transform a company that for 5 decades now has been working as a vertical integrated manufacturer to transform it with the, to transform it into a brand retail company, which has been the vision Pasquale some 20 years ago, but it is accelerating now.

Clearly talent plays a specific role at all levels, definitely in the store. But in new areas like merchandizing, retail, marketing, all areas where the company needs to learn to fly while flying in a sense.

As part of the of continuing elevating our capability in the retail and consumer space, we've been very pleased to have Nicola Internullo joining us, who is Nicola Internullo, and what will do in our company, Nicola Internullo is a veteran of the luxury industry, I've been working with him even in my previous life in McKinsey, he's been working a Loro Piana, LVMH, in L’Oréal, lastly was the HR Director for Burberry for North America, a region that you know, is very central to our development, and join us really with the task of helping us to celebrate this transformation into a retail and branded company. He will closely team up with Mario which remain as our group director, which has really a deep knowledge in transformation and structuring. So we believe that this kind of teaming is really fit to our new challenges.

So having commented more on the, let's say ordinary matter, let me comment on a point. As you know, I announced in agreement with our board, our decision to invest in our strategic asset as part of a strategy to become a more agile company and free up resources to reinvest in the business.

One of those assets which has been identified as not strategic in the sense, which is strategic for us as a location for our showroom and it will continue being but not strategic for us owning it as we don't own the store where we sell goods is High Point. High Point has been on the market basically since 2019, then there's been acceleration in 2021 where we appointed two of the major real estate brokers specializing in commercial real estate.

The very high interest rate did not help to close some of the discussion we had for potential buyers in the US. We've been more recently receiving an interest from our inside shareholders, Pasquale.

We been you know, really at the core of the origin of this building, which is a very conic building designed by Mario Bellini, one of the most respected and still alive architects globally, who asked for a potential transaction.

We do have within our governance, a committee that is tasked to assess transaction that might involve related parties is composed by 3 independent board members, Giuseppe D'Angelo, who is a senior manager from Ferrero, Gilles Bonan, who has been the CEO, a long-time standing CEO of Roche Bobois, and Marco Caneva, which is a former partner of Goldman Sachs. So, 3 high standard individuals, they perform all the requested activity by the committee including requiring our company to ask for independent evaluation of the building. And after that, they concluded the transaction at the price and the condition proposal by the insider shareholder were at market value.

During the last board we had last week given this was highly consistent with our strategy of disposal, no strategic asset, myself and the board agreed for the sales which has been in the approved is still let's say in the process because you can know that some procedural steps to be taken. But in principle, unless there is any, let's say constraint in this step that could happen within the, within the year, the amount of the the gross amount for the transaction is of $12.1 million.

Of course, there will not be commission fee involved. The sales are configurated a dry sale. In the past, we also explore sales back option which were not very positive, seen by myself and the board because they will require a quite significant liability midterm.

So, if you comment also the point which I believe was due, I stop here for the opening of the debate and question and I thank you for your attention, I believe this time have been a bit longer than usual, but I wanted to justify the work that our team is doing at the quarter in the region, and in the store which I can assure you is very significant. Our team is very coactive is working very hard and you know, we are strengthening the company in a phase of strong wings, and I believe that this can only be helping us when the conditions will normalize. Thank you, Kevin. You may open for question.

(Operator Instruction)

David Kanen.

Can you hear me?

Please proceed, sir.

Yes.

You can hear me. Okay. Thank you for taking my questions and congratulations on selling the building. Congratulations to you, Pasquale. I hope it works out very well. I'm pleased with the outcome. I have a number of questions. I'm going to get halfway through them and then I'll go back in queue because I don't want to completely monopolize.

But could you speak a little bit about first, the capital that you're going to receive from the disposition of High Point and how you're going to deploy that capital? In the past, we spoke about continuing to fill in white space in North America with Natuzzi Italia stores. I'm hopeful that that's going to be the continued strategy.

So if you could expand upon that, I'd appreciate it.

Okay. So you want me to do question by question? Okay. I thought you had a longer list if you want to go question by question.

Yeah, let, let's start. Let's start with that.

Okay.

So, the discussion we had in the board when we decided in 2021 to start this process of selling most of the asset has been very clear.

The proceeding, if any of these disposals happen as it happened today, we go on structural improvement basically in 2 areas, one is restructuring and the probe of restructuring is very predictable because as you know, Dave when you have cost that is independent from market contest or other conditions. So restructuring is still an area, we will prioritize in using those additional resources, and when you talk restructuring is laser focus restructuring, I will not disclose here too many details because there is trade union involved but for our area where evolution of our business model require restructuring. So it's not like you know, a flat bond restructuring.

The second dimension, you're absolutely right, is retail.

The fact that we have money doesn't mean that we're going to be rushed in opening retail, why that? First because for 3 reasons first, because we still have plenty of opportunity to growth organic. 2nd, even the most recent opening like Denver testify that it is very, very delicate to find the right location in the right place in the right condition. So we're going to be continuing looking for retail opportunity but always with a very structured approach. We don't want to jump in. The retail, it will be predominantly when we talk about retail of Natuzzi Italia in North America, there might be other selective opportunity in other geography, but retail will be predominantly North America for Natuzzi Italia. So, long answer to say what the proceeding of Natuzzi of a point would be safeguarded and reinvested for restructuring and retail I, I'm using this order because also in this contest that I believe the structuring also zoom for you shareholder offer a more predictable return in the short term, which doesn't mean we will not open stores. But I'm saying those two levers maybe in this phase will be used in this sequence.

No, you're muted, I believe or when you are muted.

Am I still mute?

No, no, no, I can hear you.

Okay. So I should have commented at the beginning. I was pleasantly surprised with the operating results in light of the fact that we're in really a very severe furniture recession due to very low turnover of homes in North America, and I'm hopeful that when interest rates are lower, we'll see a reversion to the mean and, you know, implicitly, I think there's probably 20% to 25% organic upside from where we are.

But when I do my own math on the adjusted gross margin at 39.3% and then also some of the pre-opening expenses and one-time expense that were in SG&A, I come up with a kind of an adjusted if you will if you were a US company, non-GAAP operating profit of $2 million, which I'm very pleased with and I congratulate you and your team on it and I'm happy that you continue to look for ways to be more efficient. So, I look forward to when we get the reversion to the mean in, in sales and opening up more stores, it seems like we're positioned to do very well. So, congratulations and thank you for your hard work in that Antonio and team.

So, my next question is on China, I know that China has been very soft, and you're levered to that with your JV, with KUKA. However, I've been doing my own proprietary work on it and the Chinese government has aggressively been lowering interest rates to stimulate demand in housing. And we have been tracking furniture sales over the last month or so, and we see a clear inflection. Now, we don't, we do not have data in particular on KUKA or Natuzzi, but we do see that in mainland China, there has been an inflection. Now, I'm not saying it's it's off to the races, but are you guys seeing a turn or an inflection there most recently as well?

Thank you, Dave, for the positive notes and for the long term trust in our work.

On commenting on margin for we move on China, not, you know, dreaming, sky dreaming, but if you think 400 as a natural, let's say revenue potential of this company without you know, progression, 11% point of gross margin is almost translated in 20 to 30 EBIT number, no. Because then the fixed cost are paid. So, I believe that if there is a rebound in retail in real estate, which is a primary driver for our industry. The company now is set to generate a much higher return on the investments

On China, the market is very soft as you know, and just drawing analogy with other sector, you see clearing posting, you know, yesterday result, 11% shares down 20% is down in China. And we're talking about, I think that yes a luxury but compared with our price point, you know, they are one seat of the price of one seat of a three seater sofa. So the market is very tough.

We are lucky to have a pattern which is robust. As you know, the government has announced this stimulus package because the situation is so severe that they had to step in as somehow the fed had to step in. In the US when there was the COVID crisis, the impact of that still need to be visible because it's very recent. But everyone is hoping and we are between those ones that this would be gradually the situation which has been extremely, extremely difficult. I've been, as I mentioned in Shanghai in August last time, restaurants were empty, the farmers store were empty, the stairs, bring me to the second floor where somehow stop to save energy. And I'm not talking about Furniture Mall, I'm talking about Fashion Mall. Then if you go to the department Furniture Mall, the situation was even worse. So, to say, I hope it will provide the as the intention of the government is a positive acceleration. Yet the situation is quite difficult.

In the meantime, we are working on what we can control. As I mentioned, we have been intensively worked with the JV to bring them closer to us, to make sure the retailer and the merchandizing marketing choices are taking fully leverage our knowledge so that we are preparing our operation to intercept this positive rebound of the market, which I cannot predict it will happen next month or in the first part of 2025. Definitely, I believe we are closer to what is the bottom, because you know, if the government step in situation can only improve.

No, your mute.

Okay. Can you hear me?

So, after this question, I'm going to go back in queue and then probably have a few follow ups.

But in particular, your initiatives in the wholesale/gallery business. Going forward, are you, do you have net new doors that you will be in, or is it down the same? I know you're restructuring, refreshing. You know, you're trying to come up with ways to drive organic growth at the doors you're in. But could you give me an idea? Are there net increases or decreases in doors.

For gallery? There is an increase of 43, new answer and we plan to have additional 25 by the end of the year.

So, this is a method, a lot of venue, relies not only in the net addition but in the upgrading of the gallery. Because gallery, it has been historically quite a broad concept. They were partner which were really aligned with the brand they were representing, well, the brand having right merchandizing, right, let's say customer experience, how they were using it more tactically, more in the like manner. We are elevating the banner, of course gradually, because we also recognize that our partner also facing difficulty in investing. But we want to show them that by doing the right things at the gallery level, they can have higher returns and our expectations are increasing in terms of what is the minimum level of investment and customer experience a gallery should give.

So, to your question, 43 new openings, 25 by the expected by the end of the year. But there is a massive job in upgrading the existing one because a part of it, especially in the US, we are quite loose implementation of what is the new gallery concept we have.

Okay, you answered the question.

Just one and I will link back to, and I will link back to what? Also, Pasquale, our chairman said on China, I can tell you that there's not a lot of happening in China, not a lot of happening in China cross sector. It's very very quiet the market.

We had 16 dealers visiting the Milan Design Week. So, 16 dealer which operate Franchising visiting our Milan Design Week, almost half of them decide they need to open a new store or to run new stores. So, first of all, I want to recognize how brave they are because investing in this circumstance in China is very brave. At the same time, and I say in humble manner is also a result of the hard work we have done in showing what the strengths of it can be. So I challenge you to find other brands which are open store right now in China. I don't want to quote but even the larger fashion group, French luxury group, they mentioned they will not open anything more before 2026. So I think this is again, talks a lot about the potential strengths of this group that you only see partially today in the top line numbers.

Kevin, I think Dave has been very kind as usual to leave space for other questions from other participants. Maybe you want to quickly check if there's people in queue.

(Operator Instruction)

George Melas, MKH Management

Hi, good afternoon, everybody.

Thanks for taking my question.

It's just a simple question. I don't know if it's a simple question but on the, the US retail results so far you, you have opened new stores, you have invested a fair amount of money and focus on the US operation. Tell us a little bit more about it, about the performance of the stores, the variability in the performance of the stores and kind of what you've learned.

And also, if you've sort of been able to, to leverage the presence that you already have in galleries and elsewhere in the US with those stores.

Thank you, George.

Our head of Global Retail Excellence was actually invited to the call and I'm sure he would have addressed the question much more effective I would do, but he is busy with some meeting in a point. So, we'll start addressing it and then I will wait for him maybe to get more specific. So first let me talk about the performance of our store.

Piero, you can keep me honest because we use those data a few years press release ago.

So, on average, our store before the COVID in 2019 was generating sales in the range of 1.81, 0.9 per store. I'm you know, mentioning that by heart, so I might be off a bit. But meanwhile, we're streaming the data. Now the average is more in the range of 4, even though you know, is not clearly the best year for retail furniture within the US. So, on average, we improved a lot. Even said that to your question, there is still a significant variability among stores, that variability depends on many factors.

First one is location, we have to recognize that the brand evolved, some stores have been opened a few years ago. So not necessarily they are in the location today, we would open a Natuzzi Italian store considering where the collection has moved. So, location has an impact, and we are of course looking at the detail of stores where we believe location maybe is not the good one, which doesn't mean it's not in the right city. But you know, retail really change if you change the two blocks is a really different environment. So location is first thing is affecting our performance.

The second element is the team quality. We have codified what is the DRT. As I mentioned, Natuzzi learned the way retail because it was a new job for, for the group. And we recognize that the team in the store need to have specific characteristics. So first of all, we need to have a store manager which is really a manager, which means that is accountable, is entrepreneurial, can build the a strong team around him or her. So, the store manager needs to really respond to some very specific characteristic.

Second, we need to have in the stores, at least one if not more people which have a design background. Because if you have a great seller in the car industry or in the equipment, not necessarily, you are able to engage with a designer or an architect to develop a project. So we also are investing on that dimension. \So the quality of the quality team is very important. So, we are assessing our team and making sure we have the right quality.

Third element is having the right assortment. So, two things, he's doing a great job on a upholstery on you know, dining and accessory, we definitely have opportunity of improvement and to go the extra mile, that is an area we need to work on because to elevate the average ticket, of course, that also play a role.

In telling you how big is the (inaudible). So, we have top performing store like Costa Mesa that are more in the range of $6 million and above the per year. And the retail stores which are well below the average. The reason why we introduced the Retail Excellent Division is really because we want to codify best practice and to help the store moving aligning more on the average because steel is quite widespread. That's also the reason going back to the question of the where that, that makes us, I wouldn't say cautious but prioritizing this completion of retail excellence journey before opening massively because we want to open stores when we feel we are very predictable in the results. Now, we feel much stronger than a few years ago. But still we want really to complete this retailing excellent program so that we will open a store. We know that it can be 5% or 10% below the average but cannot be necessarily a surprise.

So, I hope that address your question again. I hope that we can connect you with Diego Babbo. We can also have a separate call so that you can also be more specific on individual store performances.

Great. Thank you.

And Piero, did you retrieve the data from the press call? The last press caller.

No, I did not. But if you want, I can provide him with data.

Steve Emerson, Emerson Investment Group.

Well, first of all, congratulations and thank you to the whole team to come to a stable point, cut the losses in this very tough retail environment.

Thank you. Thank you in that.

Please go ahead.

Yes. The High Point sale. How much is net cash coming back to the company?

Okay, Carlo, I'll leave that to you.

So let's say I say that the process is still in, you know, in arresting.

We have received from our major shareholder is $12.1 million, I can't disclose right now the net book value, but the offer is above the net book value we're going to have. So, and we're going to all the cash will be net cash from these sales that come in our accounts. So, all the sales are of $12.1 million is all cash.

Excellent.

Will this cash then enable a fairly rapid expansion in the US? Once conditions stabilize, we will, what kind of growth in new openings do you expect in North America? Let's assume furniture sales and housing start having reasonable growth.

So thank you for the question. As we address it somehow before with Dave, we definitely are committed to spend Natuzzi particular Natuzzi Italia presence through stores.

We just completed 5 opening because 4 last year and 1 this year. So we want to make sure those to become a regime, but we might look again at new opening in 2025.

Definitely, we see potential for additional directly operated store in the US.

And this is, as I mentioned, one of the potential areas where the proceeding of a point will be, will be going. So definitely this is a; to confirm we're not changing our strategy. I hope you understand that this market and the fact we just opened 5 new stores advise us to be gradual, because opening right store is great, opening wrong stores because you don't have the right team or wrong location is one of the worst investment, worst legacy you can add because then you are committed.

Okay, and is High Point of sale lease back or actually excess property that you don't need?

So is a, is not a sales lease back in the, in the meaning that when we were considering sales is back to our brokerage agency, they were requiring the potential buyer for some 12 years,14 years of commitment of a minimum lease, which was very significant and which would have caused us to increase by 20 million, our liability in correspondence of that obligation. So, this is absolutely not the case. And that's the reason also why our board and myself, we're looking at those sales lease back opportunity quite with the skepticism. This is a dry sale, as they say technically. So, it's just selling the building. The new owner might consider renting us space at the market venue since we are still using the space for our showroom, but there won't be long term obligation that will force us to accrue any liability for. That is a dry, dry sales is a dry sales.

Okay? So maybe our rent will go up what $100 thousand, 200 thousand a year?

I am it would be a market calculation but in doing that, remember that right now, we were yearly spending some alpha million and maintenance cost. So that will of course, will not be any more on our book. So, I would say definitely that would be compensating for our rent. Right now, I cannot say what would be our final decision in terms of how many square feet we will ask to a potential release. It will be quite an easy deal because we have a very clear what is the market value for leasing office, the last space and showroom at the first floor. So it won't be, I would say complicated decisions to be made, but I will not, I are not able to give you the precise figure just in the question, remember that yes, we might have some active, some lease to pay, some rent to pay. But at the same time, we won't have any more the maintenance.

And finally, now that you will have the proceeds, cash proceeds, would you think that a share buyback would be in the best interest, the best investment you can make now?

So that is an interesting question and it's a material different for our board. I definitely see what could be the rational of a buyback. As we mentioned, there is many opportunity that will also could be a good direction where to invest this proceeding. So we have not taken otherwise, we would have announced it any decision on share buyback. I understand it's a legitimate question. But I also believe there is a very good opportunity from our operation at this moment.

(Operator Instruction)

David Kanen, KWM.

Okay, thank you guys.

I guess the first a couple more questions. Could you sketch out for? Can you guys hear me?

Yeah, we do.

Okay.

Could you sketch out on trade? What, what your, let's call it? You know, we focus strategy is you know, I understand like designers generate, you know, a lot of business and they can grow sales in your, in your four walls. What are you guys doing differently? Can you share with me? I'm pleased to hear it. How are you going to execute it? What's a little bit different now versus, you know, over the last couple of years in terms of your trade initiative and how you're going to grow that?

Yeah.

So, to cut it short, I would say pretty much everything is different in the sense we now have a very, the can you maybe mute? There is some rebound, sorry.

So, there is a very well understanding of what it takes to win, and this is in course of being implemented and there are several new aspects, and I will mention some.

First of all, collection. We recognize that the traditional strength on Natuzzi, which is still very important. And we actually, we have doubled down on that for the consumer, this idea of comfort, which we branded into Comfortness. It is very important to talk and have a dialogue with the consumer things. For instance, about America, where we discuss a lot, the consumer recognizes Natuzzi and actually reward Natuzzi for this idea of confidence.

But if you want to talk with the designer, you need to have within the collection, a different kind of project as well. So that's the reason why we partner with some of the most renowned architect globally. I'm talking about Marcel Wanders, I'm talking about you know, Paola Navone, Mauro Lipparini. So really people which sit on the top of the pyramid which have been reinterpreting with humble approach, the style or not to say make it more design oriented. And we came up with a very incredible project.

I would be pleased to show some of you like last collection. We have a project from Karim Rashid is an Iranian designer who lives in New York, very visionary but ample enough to understand what the Natuzzi mean and design this project Memoria, really as a tribute to the curve shape of Natuzzi, which then is taken by the Natuzzi R&D to make it a product because then they are very strict, you know, are in the element that need to be taken.

So, first of all we have now a different collection. An architect enter in our store can find material to furnish a penthouse in New York or to furnish a Dubai penthouse which didn't have before. Second, which again, I believe we should, next time we will be in US inviting you in one of our stores. We created this design studio. Design studio is a working space within our store which is really intended for design and architect where they can play with a different combination of material to define project.

Third, we have a, I would say, I would not say but digital support to the project digitally, because once you have played with the material you want to see in a 3D configuration I could look like. So now we developed a configurator which can actually bring to life. This project from CAD one dimension drawing to a 3D project.

And this again is something new.

Third element as I mentioned, is training, this sounds nice, but who can engage with the designer in New York. We need to have a designer in our store. For instance, now we have a great team in Madison Avenue because they thought the language of designer and this again was something which was not systematically happening in our store. Now, we are very clear that in the store where we want to express the full potential of trade, we need to have a designer in the store. And this is very important.

Fifth, is the engagement. We recognize that we were passive. So, Natuzzi is a great brand, some architects were entering in our stores. Now, we are much more active in reaching the design community proactively. We have just completed the Congress in San Paulo. We were doing a great job on designers and Casa Decor, which is the place to be in terms of magazine for designer was our partner, and we invited hundreds of architects to see our collection, and this has been practically.

Som and I can continue and I'm sure Pasquale can continue more than me. But just to say before, it was somehow happening because we have a great salesperson in Naples which came from that war and they could do it. Now it's happening because we have developed, in the last 12 months, not last 10 years, a well defined strategy to go hunting for this new opportunity, and we are also teaching our partner our dealer how to do it.

So in other words, Antonio or a gentleman that are asking a question, so the brand moved from product to project. So in other words, each individual project we have in our store, we can configurate for different type of consumer.

So when the many many they go to the architect, to the designer and they ask to decorate their home, they come to us, we should have in the store, people capable to manage this kind of conversation deal or business. And consequently, we have what we call also floor planner. We have all the tools we have; I mean project that allow us to design a home for a customer where the ticket become 100 thousand, 80 thousand, 150 thousand that has to do with the trade.

And we have a, I mean, some store where 30% or 35% of the business is trade. So in other words, there are consumer, they come directly in our store, they choose the product, the project that we provide to give a service to them and sell the product. But then there are designers, architects, they come in our store and buy, they asked us to design the project for the home of their client, their customer.

But there is a, I mean, Antonio, we I mean also in one of our stores in Miami, I believe a week ago or two weeks ago, we sold the number of sofa products for a hotel for $8 million. I believe just one sales of $8 million.

Okay. We have, I mean November12th in Dubai. We should promote and present in a stadium to a number of potential consumers, the Natuzzi apartment home. And we already have a contract in our hands, I believe Antonio.

For the Natuzzi Harmony Residence, for another 55 apartments. S,o there is a building which is regarding our name, Natuzzi Harmony Residence. We designed the building, we designed the apartment, we designed the furniture, everything would be just Natuzzi in Dubai. A lot of things, I mean, you know, we are certainly doing which is very much different than selling the sofa. In other words. Okay.

Absolutely. And I believe this is a completely new area we're going to be holding at least definitely a press release because some of the development we just mentioned are still under confidentiality agreement, we might have a different call.

So David, this is really, I mean, this is 65 years of history, but the last episode happening very rapidly. So some of the things we are discussing really materialized over the last six months, some over the last 12 months is really accelerating. Maybe they were happening here and there, but not in a systematic way.

Okay. Pasquale, thank you for sharing that and sketching out for us with the potential and long term opportunities in trade and construction. Essentially, I mean, it sounds like construction is almost, I mean, a new opportunity, but in terms of the traffic that comes into your four walls, you're engaging more with the customer and rather than just selling them a sofa, you're helping them design their home, which should translate to higher average order volume. That's essentially what you're saying from my interpretation. And yeah, I I appreciate.

The way you describe is way better than mine. And that's because of the language in Italian I would explain that they said to me.

You did well, you did well.

So the, the last two questions, Antonio, I appreciate the fact that we're, we are in a furniture recession and you want to be conservative and you're essentially, you're allocating your efforts and resources to organic growth that require little to no capital. It seems like that's what you're focusing on and you're approaching filling in the white space in North America very conservatively, but longer term, if I could ask you to address this, because I think it's helping the results, the North American stores clearly are helping results.

Am I correct in saying there's, you know, again, you want to, I want to emphasize what you're saying, which is we want to very thoughtfully and judiciously open new stores to make sure we have the right people, you know, that are trained in the right location, but longer term, 5 years, 8 years from now, can we not add 50 to 60 stores over time? Okay. Executed. Well, when I look at our competitors, when I look at our house and our and their boxes are larger than ours, you know, they're at those numbers. Is that, is, is that a realistic long term goal, you know, to open up an additional 50 or 60 stores?

I would say long term, definitely there is opportunity to double and triple our business in US, branded business, we're not going to go back to unbranded. A lot of that will happen through stores. We do believe that in some areas, the gallery which basically is a store just within a multi-brand environment is also right opportunity to reach a state which will not sustain a fully-fledged store.

But definitely the opportunity in US is massive and some a significant part of that will happen through direct operator store for Natuzzi Italia. We discussed that in the past our long-term strategy to 8, 9 years definitely is not changed.

I hope you understand that we need to be prudent first because we want to bring more organic growth also in the last 5stores we just opened and second, because retail needs to be an area where we minimize mistake in terms of location.

Okay. And then here I appreciate what you're saying. And my, my last question is on e-commerce. Many of our competitors are generating tens of millions, even hundreds of millions of dollars. Now, it seems to me that there are 2 home furnishing detailers, e-commerce companies, you know, one of them begins with a w that everybody knows that are massive. Okay. It seems to me like the, you know, it's not the right venue for Natuzzi Italia, you know, selling $10 thousand, $15 thousand sofas, but on the lower end with additions, $2000 sofas, it seems like it's a really good fit.

My question is, is does, can Divani&Divani also be sold potentially in the US at these large e-commerce home furnishing companies along with additions. And is that something that you're open to?

Because I kind of, you know, reached out to one of them and they seem to be very interested then it kind of got put on hold, they have their own unique issues they're working through, but it seems like there's interest there. Is that something that you're interested in? And then could you do both Editions and Devani&Devani there?

That is a very interesting perspective. Just a couple of let's say, point I want to make. First of all, I agree with you for Natuzzi Italia, e-commerce will be more a channel to drive traffic to the store. Because if you want to sell product, not product, it's difficult to envisage that online. There may be some post project, product like revive or other that can be actually purchased online. But otherwise, Natuzzi Italia, there will be more drive traffic to the store.

For the say the second brand. That is still an opportunity where I feel that we have not done equally well, like in other areas like the trade, for instance, because we still need to, you know, deployed carefully on the idea of Divani&Divani, there is one element I won't, you know, problem solving here, but there is one element that we need to be cautious. The Divani Divani, which is a completely different banner to a great extent the same collection.

Having said that I believe that for Natuzzi Editions the digital opportunity is something we still need to address properly, especially in the US. So I, I don't want to be defensive. I think you are right on that. I don't want to be defensive, and I take the blame on me. We are later than I wish we could be now. I think we've done a great work on retail, a great work on merchandizing on many other dimensions. A great work on margin. That was a bit later than I wanted.

Okay. So, it's something that's on your radar or to do a.

Yes, 100%. 100%.

Well, thank you guys. Congratulations on navigating a very difficult environment and again on the sale of the building and I look forward to the back half of the year. And more importantly, 2025 I think is going to be a recovery year. Interest, mortgage rates should decline and housing transactions can only go up from here. So I wish you well.

Thank you Dave and thank you all and I leave for, I leave to Pasquale for, for closing the market on my side. I really appreciate this conversation and the tone. I don't want to convey the message we are, you know, we accomplished that with what we achieved so far. There is a lot of work we need to be done. We believe the company definitely deserve higher sales we focus on the economics of the company. We focus on the retail transformation and the brand transformation. But there is still a lot that we need to do.

Thank you, Pasquale. I'll leave it to you for your final remarks.

As you know, Antonio, I'm as the founder of the company, I'm writing down the Natuzzi brand Bible, Natuzzi brand Bible gives a very clear guideline of what the Natuzzi brand stands for. Okay, I'm writing down the DNA the harmony code, a digitalizing harmony code, retailer religion. I believe that the brand is exactly like religion, and the store, the retail, the church where the brand needs to be, where the religion needs to be practiced.

We are doing a really job in this very difficult time, you know, to define clear guideline for the brand management and also for the retailer way we should manage. So, but you know, I really appreciate the way Antonio you have been describing, you know, the entire, you know, quarter and period and also all the questions you know, raised by the shareholders. They have been very constructive. I really thank you very much to everyone for the constructive approach which we need. Thank you again.

(Operator Instructions)

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