Natuzzi Shareholder Letter and Financial Results 2024 – First Quarter Results
Natuzzi S.p.A. (NYSE: NTZ) has reported its unaudited financial results for the first quarter of 2024. The company achieved overall invoiced sales of €84.5 million, nearly matching the previous year's performance. Sales from directly operated stores (DOS) climbed 13.6% year-over-year, with North American DOS sales increasing by 29.8%. The gross margin improved to 36.9% from 35.6% a year earlier, and the company recorded an operating profit of €0.6 million, reversing the previous year's operating loss of (€0.9) million. Net finance costs were (€2.2) million, impacted by high interest rates. The company continued its restructuring process, reducing its workforce by 94, and invested €1.6 million in capital expenditures. As of March 31, 2024, Natuzzi held €29.7 million in cash. However, the market remains challenging, affecting the full realization of retail expansion efforts. The company remains committed to adapting its cost structure and achieving its mid-term growth objectives.
- Sales from directly operated stores (DOS) increased by 13.6% from 1Q 2023.
- North American DOS sales grew by 29.8% year-over-year.
- Improved gross margin to 36.9% in 1Q 2024, up from 35.6% in 1Q 2023.
- Recorded operating profit of €0.6 million, compared to an operating loss of (€0.9) million in 1Q 2023.
- Net finance costs reduced to (€2.2) million from (€3.4) million in 1Q 2023.
- Invested €1.6 million in capital expenditures, enhancing retail and factory upgrades.
- Held €29.7 million in cash as of March 31, 2024.
- Overall invoiced sales decreased slightly to €84.5 million from €86.1 million in 1Q 2023.
- Net finance costs remained high at (€2.2) million due to persistent high interest rates.
- Operating cash flow was negative, with a net cash outflow of (€5.2) million.
- Total headcount reduction of approximately 18% compared to 2021, indicating continued restructuring challenges.
- Revenue from Natuzzi Italia decreased to €29.5 million from €31.6 million in 1Q 2023.
- Wholesale channel sales declined to €27.7 million from €32.2 million in 1Q 2023.
Insights
The first quarter financial results for Natuzzi present a mixed bag of data. The company reported revenue of €84.5 million, slightly down from €86.1 million in 1Q 2023. This minor decline, while reflective of the challenging market conditions, isn't as alarming given the overall economic climate. However, a notable positive is the increase in gross margin to 36.9%, up from 35.6% in the same period last year. This improvement can be attributed to better material consumption efficiency, successful renegotiation of supplier terms and a reduction in raw material costs.
The operating profit also turned positive at €0.6 million compared to a loss of (€0.9) million in 1Q 2023. This indicates successful cost management, albeit the company still faces high net finance costs of (€2.2) million, impacted by prevailing high interest rates.
Despite the restructuring efforts and reduction in headcount by approximately 18% since 2021, which should ideally position the company for better future performance, the cash flow situation is somewhat concerning. Operating activities used net cash of (€5.2) million and the total cash and cash equivalents declined to €29.7 million from €33.6 million at the end of 2023.
For a retail investor, this indicates that while the company is making strides in cost management and efficiency, the persistent high finance costs and declining cash reserves are areas to watch closely. The investment in CapEx, especially towards upgrading Italian factories and US DOS, signifies a commitment to long-term growth but also contributes to the short-term cash strain.
Natuzzi's strategy to bolster its direct retail operations appears to be yielding results, particularly in North America where Directly Operated Stores (DOS) sales grew by 29.8% from 1Q 2023. This shift aligns with the broader retail industry trend towards direct consumer engagement to better control brand experience and margins. The company's focus on leveraging its brand strength in the US, China and Europe is prudent, given the high brand awareness reported in these key markets.
Despite the 1.9% decline in overall revenues, the performance in Greater China with a 31.3% increase in sales is noteworthy, although the market remains difficult. The re-imagined gallery concept and new Natuzzi Italia store format are strategic moves to enhance customer experience and drive sales, yet their full impact will unfold over the longer term.
Retail investors should be encouraged by Natuzzi's clear strategy and brand positioning, particularly in markets where they're seeing growth. However, the ongoing challenges in the wholesale channel and the broader economic environment remain risks. The commitment to maintaining and enhancing brand value through new collections and marketing investments is positive but should be balanced against the need for continued operational and financial prudence.
First Quarter 2024 Highlights
-
1Q 2024 Overall Invoiced Sales Amounted to
€84.5 Million , Substantially in Line With the Level of Activity of Last Year. -
In 1Q 2024, Sales From Directly Operated Stores Were
€20.5 Million , up13.6% From 1Q 2023 and10.0% From 1Q 2022, Confirming Our Focus on Strengthening Direct Retail. InNorth America , DOS Sales Grew29.8% From 1Q 2023 and32.4% From 1Q 2022, Highlighting Our Commitment to Regional Retail Growth, Especially for Natuzzi Italia. -
Improved 1Q 2024 Gross Margin at
36.9% , Compared to35.6% in 1Q 2023,34.3% in 1Q 2022 and30.1% Versus the Pre-COVID Level of 1Q 2019. -
1Q 2024 Operating Profit of
€0.6 Million Compared to an Operating Loss of (€0.9) Million in 1Q 2023 and (€3.0) Million Versus the Pre-COVID Level of 1Q 2019. -
Net Finance Costs of (
€2.2) Million , Compared to Net Finance Costs of (€3.4) Million in 1Q 2023. Finance Costs Negatively Affected by Persisting High Interest Rates. -
In 1Q 2024 We Continued Our Restructuring With a Reduction of 94 Headcount as Part of Our Long-Term Transformation Process to Increase Competitiveness and Enhance Margin Generation. Total Headcount Reduced by ~
18% Compared to 2021. -
In 1Q 2024 We Invested
€1.6 Million in Capex of Which€0.4 Million in DOS Located in the US and€1.2 Million Mainly to Upgrade Our Italian Factories. -
As of March 31, 2024, We Held
€29.7 Million in Cash. - The Market Remains Challenging, Delaying the Full Impact of Our Retail Expansion. We Remain Focused on Adapting Our Fixed Cost Structure as Part of Our Long-Term Transformation.
SANTERAMO IN COLLE,
Pasquale Natuzzi, Chairman of the Group, commented: “Our business is still confronting difficult market conditions alongside cautious customer behavior. Persistent high interest rates are postponing the housing market recovery, which remains a primary driver for new demand of furnishing.
In this market context, our team is efficiently allocating resources and tightly managing discretionary expenses. Our primary objective remains leveraging our brand strength to regain growth and execute our mid-term plan. We continue investing in the quality of our collections, in coherence with the DNA of our Brand, that blends design, functions, materials and colors to create harmonious living. The recent endorsement of our CEO and Board of Directors provides the competences and stability needed to navigate these challenging times. I am confident that our combined efforts will drive us towards achieving our mid-term growth objectives and enhancing the efficiency of our operating model.
Antonio Achille, CEO of the Group, commented: “We remain steadfast in the execution of the 8 key pillars of our mid-term value creation strategy:
1) Expand margins and lower Break-Even Point: Since 1Q 2019, we improved gross margin by ~7 p.p. Last year, despite a drop of business of
2) Leverage and nurture the strength of our Brand: As per April 2024 survey by an independent market research company, Natuzzi enjoys a substantial brands awareness both spontaneous and aided. Specifically:
- US: Natuzzi is the 1st brand among European brands;
-
China : Natuzzi is the 1st brand among European brands; -
UK : Natuzzi is the 1st European brand in the premium segment.
We are prioritizing marketing investments, including digital strategies, to leverage our brand strengths to increase foot traffic to our own stores and those of our partners. Additionally, we are expanding our Trade and Contract division globally, leveraging our brand awareness and design expertise to capitalize on opportunities with designers and real estate developers.
3) Retail first, focusing on Natuzzi Italia. Sales from our directly operated stores (DOS) grew by
4) Re-imagined Gallery to elevate the relationship with Wholesale. Wholesale branded today is ~
5) Collection with enhanced Brand’s DNA: Milan Design Week marked a step acceleration in term of new collection launch for Natuzzi Italia. New collections have been well received by dealers and the market. The new collections emphasized elements core to the DNA of Natuzzi, such as its iconic style, combined with unique and modern comfort. To define this, we created the word 'COMFORTNESS,' to signify its delivery of physical and mental well-being. These new collections will begin appearing in our stores worldwide in the coming weeks, significantly enhancing the customer experience and, we are confident, contributing to support sales.
6) Focus on Core Markets: While we operate in over 100 markets, leveraging the global reach of our brands, our future development and investments will focus on three core geographies: US,
- US: there are 29 Natuzzi stores, of which 18 DOS and 3 stores managed in joint venture with a local partner, as well almost 100 galleries. We consider US one of our highest priorities and a significant opportunity, given that it's where the Company is listed and where our business model has evolved.
-
China : there are 345 Natuzzi stores, of which 21 operated directly by our joint venture. We do not consolidate ourChina stores as they are part of our49% stake in the joint venture we established in 2018. We are making substantial investments to align the JV team with our modern retail strategy and to provide detailed visibility into the JV's performance within our IT systems. This enables us to support the local JV team in improving performance through strategic decisions in store layout, merchandising, branding, and customer experience. -
Europe . While concentrating on our three largest markets (UK ,Italy andSpain ), we are also reintroducing ourselves to markets such asGermany , where the Company previously experienced significant growth. We have recently signed an agreement with KHG Group for a first wave of at least 22 galleries that will be opened in the next future.
7) Modernize our factories and execute our restructuring. We continue to execute the staff restructuring, in compliance with our ethics standards and with the labor regulations of the different markets which are particularly restrictive in some geographic areas in which we operate, chiefly in
8) Free up non-strategic resources to reinvest in retail and restructuring. We are actively pursuing the sale of non-core assets to support our long-term strategic goals: Retail expansion and accelerated restructuring. Specifically, we are working to divest from non-strategic assets, such as our property in High Point, a tannery in northern
***
1Q 2024 CONSOLIDATED REVENUE
1Q 2024 consolidated revenue amounted to
Excluding “other sales” of
Revenues from upholstered and other home furnishings products are hereafter described according to the main dimensions of the Group’s business:
- A: Branded/Unbranded Business
- B: Key Markets
- C: Distribution
A. BRANDED/UNBRANDED BUSINESS
The Group operates in the branded business (with Natuzzi Italia, Natuzzi Editions and Divani&Divani by Natuzzi) and unbranded business, the latter with collections dedicated to large-scale distribution.
A1. Branded business. Within the branded business, Natuzzi is pursuing a dual-brand strategy:
i) Natuzzi Italia, our luxury furniture brand, offers products entirely designed and manufactured in
ii) Natuzzi Editions, our contemporary collection, offers products entirely designed in
In 1Q 2024, Natuzzi’s branded invoiced sales amounted to
The following is the contribution of each Brand to 1Q 2024 invoiced sales:
-
Natuzzi Italia invoiced sales amounted to
€29.5 million , compared to€31.6 million in 1Q 2023. -
Natuzzi Editions invoiced sales (including invoiced sales from Divani&Divani by Natuzzi) amounted to
€46.5 million , compared to€45.9 million in 1Q 2023.
A2. Unbranded business. Invoiced sales from our unbranded business amounted to
B. KEY MARKETS
Below is a breakdown of 1Q 2024 upholstery and home-furnishings invoiced sales compared to 1Q 2023, according to the following geographic areas.
|
1Q 2024 |
1Q 2023 |
Delta € |
Delta % |
||||
|
24.0 |
|
23.3 |
|
0.7 |
|
||
|
5.8 |
|
4.4 |
|
1.4 |
|
||
West & |
28.8 |
|
32.4 |
|
(3.6) |
( |
||
Emerging Markets |
12.7 |
|
13.2 |
|
(0.5) |
( |
||
Rest of the World* |
11.1 |
|
10.7 |
|
0.4 |
|
||
Total |
82.4 |
|
84.0 |
|
(1.6) |
( |
||
Figures in €/million, except percentage. |
||||||||
*Include South and |
||||||||
In
In
As anticipated, we are placing renewed emphasis on the wholesale segment of our business, which remain a strategic channel in several geographies including US and
C. DISTRIBUTION
During the first three months 2024, the Group distributed its branded collections in 89 countries, according to the following table.
|
Direct Retail |
FOS |
Total retail stores (March. 31, 2024) |
|||
|
21(1) |
9 |
30 |
|||
West & |
32 |
101 |
133 |
|||
|
21(2) |
324 |
345 |
|||
Emerging Markets |
─ |
76 |
76 |
|||
Rest of the World |
4 |
88 |
92 |
|||
Total |
78 |
598 |
676 |
|||
(1) Included 3 DOS in the |
||||||
(2) All directly operated by our joint venture in |
||||||
FOS = Franchise stores managed by independent partners. |
||||||
The Group also sells its branded products by means of approximately 600 points of sales located in five continents, encompassing mostly shop-in-shop galleries (including 12 Natuzzi Concessions, i.e., store-in-store points of sale directly managed by the Mexican subsidiary of the Group).
During 1Q 2024, Group’s invoiced sales from direct retail, DOS and Concessions directly operated by the Group, amounted to
In 1Q 2024, invoiced sales from franchise stores (FOS) amounted to
We continue executing our strategy to evolve into a Brand/Retailer and improve the quality of our distribution network. The weight of the invoiced sales generated by the retail network (Direct retail and Franchise Operated Stores) on total upholstered and home furnishings business in 1Q 2024 was
The Group also sells its products through the wholesale channel, consisting primarily of Natuzzi-branded galleries in multi-brand stores, as well as mass distributors selling unbranded products. During 1Q 2024, invoiced sales from the wholesale channel amounted to
1Q 2024 GROSS MARGIN
During 1Q 2024, we had a gross margin of
The increase in gross margin was primarily driven by enhanced efficiency in material consumption during the manufacturing process, successful renegotiation of supplier terms, and a general decline in raw material costs. Additionally, we benefited from reduced industrial costs, improved channel mix, and disciplined cost control measures.
In 1Q 2024, labor costs rose by
We intend to find further sources of efficiency, as the increase in the Group’s flexibility to enhance gross margin remains among our top priorities.
1Q 2024 OPERATING EXPENSES
During 1Q 2024, operating expenses, which encompass selling expenses, administrative expenses, other operating income/expenses, and the impairment of trade receivables, totaled (
Key drivers included a
Looking ahead, the Company remains committed to further reducing selling and administrative expenses in 2024. Strategies include renegotiating supplier contracts, optimizing staff allocation at headquarters and retail levels, and refining overall processes to enhance efficiency.
1Q 2024 NET FINANCE INCOME/(COSTS)
During 1Q 2024, the Company accounted for (
BALANCE SHEET AND CASH FLOW
During the first three months of 2024, (
-
a loss for the period of (
€1.8) million . -
adjustments for non-monetary items of
€7.5 million , of which depreciation and amortization of€5.2 million . -
(
€8.7) million from working capital change, mainly as a result of (€0.5) million from increased inventory level, (€7.1) million from increased trade receivables and other assets, and (€1.0) million for payments connected to the reduction in workforce, partially offset by€0.2 million from increased trade payables and other liabilities. -
interest and taxes paid for (
€2.2) million .
During the first three months of 2024, (
In the same period,
As a result, as of March 31, 2024, cash and cash equivalents was
As of March 31, 2024, we had a net financial position before lease liabilities (cash and cash equivalents minus long-term borrowings minus bank overdraft and short-term borrowings minus current portion of long-term borrowings) of (
*******
CONFERENCE CALL
The Company will host a conference call on Monday June 24, 2024, at 10:00 a.m.
To join live the conference call, interested persons will need to either:
-
dial-in the following number:
Toll/International: + 1-412-717-9633, then passcode 39252103#,
or - click on the following link: https://www.c-meeting.com/web3/join/3PQUFXRW48XTKQ to join via video. Participants also have option to listen via phone after registering to the link.
*******
| Natuzzi S.p.A. and Subsidiaries | |||||||||||||||
| Unaudited consolidated statement of profit or loss for the first quarter of 2024 and 2023 | |||||||||||||||
| on the basis of IFRS-IAS (expressed in millions Euro, except as otherwise indicated) | |||||||||||||||
| First quarter ended on | Change | Percentage of revenue | |||||||||||||
| 31-Mar-24 | 31-Mar-23 | % | 31-Mar-24 | 31-Mar-23 | |||||||||||
| Revenue | 84.5 |
|
86.1 |
|
-1.8 |
% |
100.0 |
% |
100.0 |
% |
|||||
| Cost of Sales | (53.3 |
) |
(55.4 |
) |
-3.9 |
% |
-63.1 |
% |
-64.4 |
% |
|||||
| Gross profit | 31.2 |
|
30.6 |
|
1.9 |
% |
36.9 |
% |
35.6 |
% |
|||||
| Other income | 1.2 |
|
1.3 |
|
1.4 |
% |
1.5 |
% |
|||||||
| Selling expenses | (23.2 |
) |
(23.8 |
) |
-2.4 |
% |
-27.5 |
% |
-27.7 |
% |
|||||
| Administrative expenses | (8.5 |
) |
(8.9 |
) |
-4.4 |
% |
-10.0 |
% |
-10.3 |
% |
|||||
| Impairment on trade receivables | 0.0 |
|
(0.0 |
) |
0.0 |
% |
-0.1 |
% |
|||||||
| Other expenses | (0.1 |
) |
(0.1 |
) |
-0.1 |
% |
-0.1 |
% |
|||||||
| Operating profit/(loss) | 0.6 |
|
(0.9 |
) |
0.7 |
% |
-1.0 |
% |
|||||||
| Finance income | 0.2 |
|
0.1 |
|
0.2 |
% |
0.1 |
% |
|||||||
| Finance costs | (2.6 |
) |
(2.1 |
) |
-3.1 |
% |
-2.4 |
% |
|||||||
| Net exchange rate gains/(losses) | 0.2 |
|
(1.4 |
) |
0.3 |
% |
-1.7 |
% |
|||||||
| Net finance income/(costs) | (2.2 |
) |
(3.4 |
) |
-2.6 |
% |
-4.0 |
% |
|||||||
| Share of profit/(loss) of equity-method investees | (0.2 |
) |
1.1 |
|
-0.2 |
% |
1.3 |
% |
|||||||
| Profit/(Loss) before tax | (1.8 |
) |
(3.2 |
) |
-2.1 |
% |
-3.7 |
% |
|||||||
| Income tax expense/(benefit) | (0.0 |
) |
(0.1 |
) |
-0.1 |
% |
-0.2 |
% |
|||||||
| Profit/(Loss) for the period | (1.8 |
) |
(3.3 |
) |
-2.1 |
% |
-3.9 |
% |
|||||||
| Profit/(Loss) attributable to: | |||||||||||||||
| Owners of the Company | (1.7 |
) |
(3.3 |
) |
|||||||||||
| Non-controlling interests | (0.1 |
) |
(0.1 |
) |
|||||||||||
| Natuzzi S.p.A. and Subsidiaries | ||||
| Unaudited consolidated statements of financial position (condensed) on the basis of IFRS-IAS (Expressed in millions of Euro) |
||||
31-Mar-24 |
31-Dec-23 |
|||
| ASSETS | ||||
| Non-current assets | 186.3 |
188.6 |
||
| Current assets | 152.6 |
149.7 |
||
| TOTAL ASSETS | 338.9 |
338.3 |
||
| EQUITY AND LIABILITIES | ||||
| Equity attributable to Owners of the Company | 67.5 |
68.9 |
||
| Non-controlling interests | 4.4 |
4.3 |
||
| Non-current liabilities | 111.8 |
110.4 |
||
| Current liabilities | 155.2 |
154.7 |
||
| TOTAL EQUITY AND LIABILITIES | 338.9 |
338.3 |
||
| Natuzzi S.p.A. and Subsidiaries | ||||
| Unaudited consolidated statements of cash flows (condensed) | ||||
| (Expressed in millions of Euro) | 31-Mar-24 |
31-Dec-23 |
||
| Net cash provided by (used in) operating activities | (5.2) |
3.2 |
||
| Net cash provided by (used in) investing activities | (1.5) |
(7.9) |
||
| Net cash provided by (used in) financing activities | 1.3 |
(15.7) |
||
| Increase (decrease) in cash and cash equivalents | (5.4) |
(20.4) |
||
| Cash and cash equivalents, beginning of the year | 31.6 |
52.7 |
||
| Effect of movements in exchange rates on cash held | 0.3 |
(0.8) |
||
| Cash and cash equivalents, end of the period | 26.4 |
31.6 |
||
| For the purpose of the statements of cash flow, cash and cash equivalents comprise the following: | ||||
| (Expressed in millions of Euro) | 31-Mar-24 |
31-Dec-23 |
||
| Cash and cash equivalents in the statement of financial position | 29.7 |
33.6 |
||
| Bank overdrafts repayable on demand | (3.3) |
(2.0) |
||
| Cash and cash equivalents in the statement of cash flows | 26.4 |
31.6 |
||
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements included in this press release constitute forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be expressed in a variety of ways, including the use of future or present tense language. Words such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “ambition,” “objective,” “aim,” “future,” “potentially,” “outlook” and words of similar meaning may signify forward-looking statements. These statements involve inherent risks and uncertainties, as well as other factors that may be beyond our control. The Company cautions readers that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to: effects on the Group from competition with other furniture producers, material changes in consumer demand or preferences, significant economic developments in the Group’s primary markets, the Group’s execution of its reorganization plans for its manufacturing facilities, significant changes in labor, material and other costs affecting the construction of new plants, significant changes in the costs of principal raw materials and in energy costs, significant exchange rate movements or changes in the Group’s legal and regulatory environment, including developments related to the Italian Government’s investment incentive or similar programs, the duration, severity and geographic spread of any public health outbreaks (including the spread of new variants of COVID-19), consumer demand, our supply chain and the Company’s financial condition, business operations and liquidity, the geopolitical tensions and market uncertainties resulting from the ongoing armed conflict between
About Natuzzi S.p.A.
Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. is one of the most renowned brands in the production and distribution of design and luxury furniture. As of March 31, 2024, Natuzzi distributes its collections worldwide through a global retail network of 676 monobrand stores and approximately 600 wholesale points of sale, including shop-in-shop galleries and various distribution profiles. Natuzzi products embed the finest spirit of Italian design and the unique craftmanship details of the “Made in Italy”, where a predominant part of its production takes place. Natuzzi has been listed on the New York Stock Exchange since May 13, 1993. Committed to social responsibility and environmental sustainability, Natuzzi S.p.A. is ISO 9001 and 14001 certified (Quality and Environment), ISO 45001 certified (Safety on the Workplace) and FSC® Chain of Custody, CoC (FSC-C131540).
View source version on businesswire.com: https://www.businesswire.com/news/home/20240621058492/en/
Natuzzi Investor Relations
Piero Direnzo | +39 080-8820-812 | pdirenzo@natuzzi.com
Natuzzi Corporate Communication
Giancarlo Renna (Communication Manager) | +39. 342.3412261 | grenna@natuzzi.com
Barbara Colapinto | +39 331 6654275 | bcolapinto@natuzzi.com
Source: Natuzzi S.p.A.
FAQ
What were Natuzzi's overall invoiced sales in the first quarter of 2024?
How did directly operated stores (DOS) perform in 1Q 2024?
What was Natuzzi's gross margin in the first quarter of 2024?
Did Natuzzi report an operating profit or loss in 1Q 2024?
How much did Natuzzi invest in capital expenditures in the first quarter of 2024?
What were Natuzzi's net finance costs in 1Q 2024?
How much cash did Natuzzi hold as of March 31, 2024?
How did Natuzzi's wholesale channel sales perform in 1Q 2024?
