Natuzzi SpA Q3 2023 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, good morning, guys. I appreciate you taking the questions. A follow up on the statement that you made, your focus is on, quote, accelerating the restructuring and then building out the North American DAS footprint, which makes perfect sense to me. So my question is, in order to fund and accelerate that, what do you think the timeframe is of the disposal of some of these non-core assets, in particular, High Point?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay, I have several questions, so my apologies in advance for monopolizing. But in terms of the -- you highlighted some of the new stores that were opened, Atlanta, Houston, San Diego, Manhasset. So in in the third quarter ended September, how many of these stores did not contribute, if any, and if you can quantify the revenue that we may pick up in Q4 incrementally? I'm assuming these stores, the newer stores probably have an average unit volume $4 million to $5 million, that seems to be the average on new stores. So if you could give me color there, that would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 27, 2023 / 3:00PM, NTZ.N - Q3 2023 Natuzzi SpA Earnings Call

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : (Multiple speakers) Jason, if you can help on that. I'd like to know of the new stores, how many of them did not contribute in Q3, just so I could model going forward what the incrementality is, if anything?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay. So those five stores, that was very helpful, Jason. So in your clarification, what you're saying is you're taking written orders right now, but they don't show up in revenue until five or six months later when product is shipped. Could you give us -- that's very helpful. Could you give us a flavor to quantify the written orders that you're seeing at the new stores and if they're performing up to your plan?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay. Well, that's -- it's helpful to just understand the cadence of revenue recognition and that we have a nice opportunity in front of us. And then if I could pivot to a question for Silvestri, I see -- I guess the encouraging bright spot here is on such soft revenue. The operating loss was quite small, and it appears you've done a great job of driving down selling expense and administrative expenses a little bit. Could you give me, Silvestri, a sense if and when revenues do increase? Let's say, theoretically, we increased revenues by EUR15 million back to EUR90 million, okay? How much would selling expense go up? How much is variable, if you could help me understand that of the EUR21.6 million? So on the next EUR15 million, how much does selling expense increase?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : So selling expense would increase about 20% if we had a $15 million increase in revenue, and then --

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : And administrative expense should remain flat?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay. That's helpful. So I mean, it shows that when you get that flow through on revenue, there's quite a bit of leverage in the financial model to generate profit. Okay. And then the last question, Antonio, you called out specifically that written orders have slipped to positive versus the last 15 months. Could you give us a little -- without being completely granular, could you be -- give us a little more color on what that improvement looks like in terms of percentage or magnitude?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay. On that topic, I'm cheating a little bit. I guess I'm asking more questions, but this was on my list. Cash in China, how much is in the JV right now? And what is our flexibility or optionality in accessing some of that cash?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay.

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay, and then a quick strategic question. And maybe this falls into Jason's domain, but I would like to get your thoughts on this, Antonio. When I visit your stores, it seems like you're very focused on the living room, that particular space within the home. And when I go to competitors, I see that they have a broader appeal, the dining room, the bedroom, as well as the living room. And so I guess the silver lining is this. It probably is a large opportunity for you. Could you talk in terms of the focus there? I know you're focused on building out the North American footprint, but are you also focused -- do you have your team focused on building and designing high-quality desirable Natuzzi product that goes into these other rooms so that longer term, our average unit volumes could be double or even triple where we are now? Thanks.

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay, guys. Thank you. My apologies to anyone that's waiting in queue for monopolizing the call, but thank you, guys. If I have anything to follow up with, I'll just pose another question. Thank you.

Question: Steve Emerson - Emerson Investment Group - Analyst : Thank you for taking -- hold on, let me hit video. Can you hear me?

Question: Steve Emerson - Emerson Investment Group - Analyst : Antonio, thank you very much. I met with you at the LD Micro conference last year.

Question: Steve Emerson - Emerson Investment Group - Analyst : Could you talk about some of your objectives next year, some of the metrics you hope to be at? And also, what percent of your revenues in the US are now met with fairly quick or domestic inventory?

Question: Steve Emerson - Emerson Investment Group - Analyst : Thank you. I was looking for more concrete metrics, like how many US Natuzzi stores do you expect to bill next year, et cetera?

Question: Steve Emerson - Emerson Investment Group - Analyst : Okay. Did you say eight?

Question: Steve Emerson - Emerson Investment Group - Analyst : Got it. And just follow up David Kanen's question, what percent of your revenue is living room? And what do owe to -- what's your objective in terms of percent, non-living room?

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

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

Question: Steve Emerson - Emerson Investment Group - Analyst : And your objective?

Question: Steve Emerson - Emerson Investment Group - Analyst : Thank you very much.

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Hi, guys. Yeah, on -- you guys used to give a backlog number. I know was more relevant when we had the supply chain issues during COVID. But what was our backlog as of September 30? And how does that compare with June 30?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Backlog is EUR54 million as of September. And what was it as of June 30?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : It was about EUR56 million in June, so it was about the same?

Question: David Kanen - Kanen Wealth Management, LLC - Analyst : Okay. Thanks, guys.