• Sales Growth: Brand sales increased by 3% compared to the previous year.
• Directly Operated Stores Growth: Sales grew by 6% overall, with a 33% increase in the US.
• New Store Openings: Opened a new store in Denver, totaling 23 stores in the US, with 18 directly operated and 4 franchised.
• Total Stores: 681 stores globally.
• Gross Margin: Increased to 38.1% from 36.4% year-over-year, with a potential adjusted margin of 39.3% excluding severance costs.
• Workforce Reduction: Reduced workforce by 170 employees in the first six months, a 20% reduction over three years.
• Revenue Per Employee: Increased by 30% since 2021.
• High Point Building Sale: Agreed sale for $12.1 million, pending procedural steps.

• Warning! GuruFocus has detected 2 Warning Signs with NTZ.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Natuzzi SpA (NYSE:NTZ) reported a slight increase in sales compared to the same period in 2023, demonstrating resilience in a challenging market environment.
• The company's directly operated stores in the US showed significant growth, with a 33% increase in sales compared to the previous year.
• Natuzzi SpA (NYSE:NTZ) has successfully increased its gross margin by 11 percentage points since 2019, despite facing a turbulent economic environment.
• The company is expanding its retail presence, with a focus on the US market, and has opened a new store in Denver, bringing the total to 23 stores in the US.
• Natuzzi SpA (NYSE:NTZ) is actively enhancing its brand and customer experience by transforming from a manufacturer to a brand retailer, with 70% of total sales now happening through retail channels.

Negative Points

• Sales growth was only slight, and the company expressed a lack of excitement about the increase, indicating potential challenges in achieving stronger growth.
• The Chinese market remains very soft, impacting Natuzzi SpA (NYSE:NTZ)'s joint venture with KUKA, and the company is yet to see the positive effects of government stimulus efforts.
• There is significant variability in the performance of Natuzzi SpA (NYSE:NTZ)'s stores, with some locations underperforming due to factors like location and team quality.
• The company has not fully capitalized on e-commerce opportunities, particularly for its Natuzzi Editions brand, and acknowledges being behind in this area.
• Natuzzi SpA (NYSE:NTZ) is cautious about expanding its retail footprint too quickly, which may limit growth opportunities in the short term.

Q & A Highlights

Q: Can you discuss how the capital from the sale of the High Point building will be deployed? A: Antonio Achille, CEO, explained that the proceeds will be used for structural improvements, focusing on restructuring and retail expansion. The company plans to prioritize restructuring efforts to ensure predictable returns and will cautiously explore retail opportunities, particularly in North America for Natuzzi Italia, without rushing into openings.

Q: Are you seeing any signs of recovery in the Chinese market, given the recent government stimulus efforts? A: Antonio Achille noted that while the Chinese market remains very soft, there is hope for improvement due to government stimulus. The company is preparing to capitalize on any market rebound by strengthening its operations and aligning closely with its joint venture partner, KUKA, to enhance retail and merchandising strategies.

Q: What is the current strategy for the wholesale/gallery business, and are there plans for net new doors? A: Antonio Achille stated that there is an increase of 43 new galleries, with plans for an additional 25 by year-end. The focus is not only on net additions but also on upgrading existing galleries to enhance customer experience and align with brand standards, particularly in the U.S.

Q: Can you elaborate on the performance and variability of U.S. retail stores? A: Antonio Achille highlighted that the average store performance has improved significantly since 2019, with some stores like Costa Mesa performing exceptionally well. However, there is still variability due to factors like location and team quality. The company is focused on codifying best practices and enhancing team capabilities to ensure consistent performance across stores.

Q: Is there potential for significant expansion in North America, and what is the long-term goal for store openings? A: Antonio Achille confirmed that there is potential to double or triple the branded business in the U.S. over the long term, with a significant portion of growth expected through direct-operated stores for Natuzzi Italia. The company remains cautious and strategic in its expansion approach to ensure successful store openings.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.