Natuzzi SpA Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Kanen - Kanen Wealth Management LLC - Analyst : Hi, guys. Are you able to hear me?

Question: David Kanen - Kanen Wealth Management LLC - Analyst : Okay. Well, First, I'd like to, in way congratulate you on some of the green shoots that I'm seeing. I think there are a lot of encouraging signs in the financial results that you reported. And I'd like to just drill down a little deeper to gain a greater understanding. I'm encouraged by the improvement in the gross margin as well as the management of operating expenses. It sounds like you have a number of growth initiatives underway expanding your network of DOS stores in North America. But what seems new is you called out this agreement with galleries in both North America and in Europe. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 24, 2024 / 2:00PM, NTZ.N - Q1 2024 Natuzzi SpA Earnings Call So if you could speak to the incrementality of these galleries in Europe and North America. And then also, you spent a little time talking about the JV in China. Is that an area despite the, let's call it, furniture depression that we're in right now, is that an area where also you expect to see some growth before the, let's call it, the reduction in interest rates and normalization in housing. So there's a lot I gave you there. I'll let you respond.

Question: David Kanen - Kanen Wealth Management LLC - Analyst : Well, if you could provide more detail on the gallery business in North America and Europe. In the press release, you specifically called out 29 new gallery agreements in North America and then 92 in the rest of the world. So should we view this as investors as this is incremental that the gallery business should grow year over year with this incremental distribution? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 24, 2024 / 2:00PM, NTZ.N - Q1 2024 Natuzzi SpA Earnings Call

Question: David Kanen - Kanen Wealth Management LLC - Analyst : Can you hear me?

Question: David Kanen - Kanen Wealth Management LLC - Analyst : Okay. And then here's a question for Carlo. We know that at some point, the housing market is going to improve. Here in North America last year, I believe, just over 4 million homes sold. When you look at the long-term average, it's around 5.5 million. So about 28% fewer homes sold and there's a direct correlation between furniture sales and housing transactions. They almost correlate, 1:1. So at some point, things are going to normalize, and the Fed is going to cut rates. It seems with some of the incremental distribution, the new stores and a recovery kicking in maybe in the next 12 to 24 months that we should be able to get back over EUR100 million in revenue. So my question for Carlo is, at EUR100 million of revenue, will gross margin exceed 40% with some of the measures that you've taken?

Question: David Kanen - Kanen Wealth Management LLC - Analyst : Antonio, if you could answer the question, and then I'm going to go back into queue regarding the joint venture in China. It seems as though you now have greater autonomy and influence over the JV. Could you talk a little bit about that and the effect that you expect to see over the next 12 months in China if these changes will contribute growth year over year?

Question: Corey Pinkston - Waterways Capital Advisors LLC - Analyst : Great. Good afternoon. Can you hear me?

Question: Corey Pinkston - Waterways Capital Advisors LLC - Analyst : Great. Well, I think to echo what David said, and obviously, I've been a supporter and continue to be for a while here. Just quickly the leadership of you and the support and leadership of Pasquale and really the execution of the team is incredibly impressive with the macro headwinds that everybody in your industry faces. But the operating leverage that you're creating and your transparency, it's one thing to execute on these, but when you start to talk about the gross margins getting to 40% and then giving us clarity around the breakeven targets, we all think long term as to what David said, which is the power in this brand is it's pretty strong. One comment that, as you said, you walk through the retail initiatives that against all of the transformation and turnaround of the operating side and getting that to where you want to have it. Clearly, the environment right now puts some constraints on the, as you said, the full retail expansion. But when I listen to this call and I read your results and you talk about what you're doing on the retail the design, the gallery, the trade business that you're developing, what I'll call the commercial business with contractors. While you're not able to potentially expand the footprint or some of the other things, it -- as an investor, it doesn't really feel that you're having to be disciplined or more disciplined around the CapEx, et cetera, as to what you might do but it really doesn't feel like you're missing on where you want to invest for the turn, as David mentioned, whether it's 12 months or 18 months as we get to a more normalized environment. So can you just expand on that a little bit because while you're not able to maybe put the CapEx you might in a normal environment, it doesn't seem like you're missing a lot for the turn.

Question: Corey Pinkston - Waterways Capital Advisors LLC - Analyst : No. Actually, I'm not asking that. I actually applaud you to the fact that you're taking advantage of this situation to not only rationalize your operating footprint and get that to where we want to have it because the power of that operating leverage drives to the bottom line when we get the turn. I guess I'm not asking why not more CapEx. It seems like you're able, through your choices you're having to make on the retail side and the sales channels that you're getting -- you're able to continue to support the areas where you're going to drive the greatest growth now in --

Question: Corey Pinkston - Waterways Capital Advisors LLC - Analyst : No, you did. And from our -- just the balance and clearly, the team working on the trade-offs between cash management and the investments, it's just the observation is in a difficult environment, you're continuing to be able to push those areas where you see the ability to get traction in retail across the board without having to compromise or with being able to keep some of that CapEx or restructuring. And I'm not going to ask specifically what you anticipate, but I would assume that you are providing for the additional restructuring here and there that you may continue to need to take those charges. So we won't ask specific numbers. One last question, and I apologize if I had stepped away, but you do refer to the raw material cost and the hyperinflation that we've seen there. And I'm not sure if you covered it earlier in the call, but -- are you seeing -- is that alleviating or softening somewhat? How do you see the trends on that side?

Question: Corey Pinkston - Waterways Capital Advisors LLC - Analyst : Thank you. That's helpful. Thank you, guys.

Question: Kirby Newburger - Benjamin F. Edwards & Co - Analyst : Sure. Gentlemen, can you hear me?

Question: Kirby Newburger - Benjamin F. Edwards & Co - Analyst : Okay. Antonio, when we spoke a week or two ago, one of the things that was jumped out at me was that -- and maybe it was just in the United States, but over a period of time, your average sale has gone up by 10 or 20 fold and we talked about -- a little bit about the customers that are hotels and country clubs and the airport lounges or whatever. Are those mainly customized? And do they have a higher margin than the non-customized.

Question: Kirby Newburger - Benjamin F. Edwards & Co - Analyst : That answers a lot of my question, but I would still like to know a little bit about -- and maybe the numbers are here, and I don't -- a breakdown of what percentage of sales is the Natuzzi Italia and what percentage of sales is this new contract business.