Natuzzi SpA Q2 2024 Earnings Call Transcript

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

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

Question: David Kanen - Kanen Wealth Management - Analyst : 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.

Question: David Kanen - Kanen Wealth Management - Analyst : Yeah, let, let's start. Let's start with that.

Question: David Kanen - Kanen Wealth Management - Analyst : Am I still mute?

Question: David Kanen - Kanen Wealth Management - Analyst : 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?

Question: David Kanen - Kanen Wealth Management - Analyst : 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.

Question: David Kanen - Kanen Wealth Management - Analyst : Okay, you answered the question.

Question: George Melas - MKH Management - Analyst : 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.

Question: George Melas - MKH Management - Analyst : Great. Thank you.

Question: Steve Emerson - Emerson Investment Group - Analyst : 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.

Question: Steve Emerson - Emerson Investment Group - Analyst : Yes. The High Point sale. How much is net cash coming back to the company?

Question: Steve Emerson - Emerson Investment Group - Analyst : 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.

Question: Steve Emerson - Emerson Investment Group - Analyst : Okay, and is High Point of sale lease back or actually excess property that you don't need?

Question: Steve Emerson - Emerson Investment Group - Analyst : Okay? So maybe our rent will go up what $100 thousand, 200 thousand a year?

Question: Steve Emerson - Emerson Investment Group - Analyst : 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?

Question: David Kanen - Kanen Wealth Management - Analyst : Okay, thank you guys. I guess the first a couple more questions. Could you sketch out for? Can you guys hear me?

Question: David Kanen - Kanen Wealth Management - Analyst : 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?

Question: David Kanen - Kanen Wealth Management - Analyst : 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 3:00PM, NTZ.N - Q2 2024 Natuzzi SpA Earnings Call

Question: David Kanen - Kanen Wealth Management - Analyst : 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?

Question: David Kanen - Kanen Wealth Management - Analyst : 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 3:00PM, NTZ.N - Q2 2024 Natuzzi SpA Earnings Call

Question: David Kanen - Kanen Wealth Management - Analyst : Okay. So, it's something that's on your radar or to do a.

Question: David Kanen - Kanen Wealth Management - Analyst : 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.