Natuzzi, S.p.A.

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Natucci Conference Call for 2024 Second Quarter Conference Call Financial Results. As a reminder, anyone interested in joining this call live can join via telephone by dialing plus 1-412-717-9633, then pass code 3925-2103-POUND. in addition to the link already provided to join via video. Once again, if you'd like to join via telephone, please dial plus one four one two seven one seven nine six three three, then passcode three nine two five two one zero three pound. At this time, all participants are in listen only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. Joining us on today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi, Founder and Executive Chairman, Mr. Carlos Silvestri, Chief Financial Officer, and Piero Di Renzo, Investor Relations. As a reminder, today's call is being recorded. I now would like to turn the conference over to Piero. Please go ahead.

Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2024 second quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities law. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations in financial conditions. Please refer to our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's chief executive officer. Please, Antonio.

Thank you, Kevin, and thank you, Piero. Good afternoon for the listener joining from Europe, and good morning from the one joining from the U.S., where our chairman is. um i would like to start with a brief introduction to what has been the second quarter in terms of sales as we have seen reported sales slightly increasing versus the same period 2023 which is not something we are particularly excited about but definitely need to be put in a contest where Not only our sector has been very soft, and to our knowledge, most of our direct competitors actually are reporting negative comps. But in general, the durable and consumer spending are very much depressed. I believe that one of you is following what's happening to another interesting industry, the automotive, where there is a serious double-digit decrease in orders. So we interpret the fact that we have been able to defend our top line. Then if we look at the brand, the sales actually has been 3% above last year, as a sign of resilience of our company, and also as a testament that our brand journey is very much appreciated and understood by our partner and increasingly by new partners like real estate developers. I would like to highlight a few elements of our strategy, which has been very much consistent through the cycle. The first element is our effort to continue improving the way we reach our consumer. As you know, you know, Natuzzi has taken these titanic, you know, gigantic task of turning from a manufacturer to a brand retailer. And one key element is improving the quality of the relationship that we have with our final customers, which can only happen in an environment where we can control the customer experience. Here, retail, which is of course the channel where this customer experience can be better controlled, uh is now becoming very important roughly 70 percent of total sales are happening through retail being the os of os up to 45 percent in 2019 which still is a good year to come compare before the pandemic so it's a an increase of 23 percentage percentage point which i believe is very significant which not only speaks about the fact we are a better way to reaching our customers, but also speaks about the very, very intense and deep work we have been doing to transform our competencies, because clearly it's a very different job to be a producer than to be a retailer. So there's been a lot of effort over the last few months that Pasquale, myself, and the whole organization has been doing to equip Natuzzi with competencies in the area of retail, retail design, merchandising, customer experience, which are totally new competencies for the group just four or five years ago. As part of the retail, I would like me to... Wait, you can see me? Yes, yes, you can see me. I would like to... highlighted the performance of our directly operated stores, which have been growing 6% versus last year. And in particular, the performance of our directly operated stores in the US, which have been growing roughly 33% versus last year. Again, this is a clear confirmation of what we have been repeating in this conference call, which the U.S. is central to our strategy and retail in the U.S. is central to our strategy. As part of that, I'm pleased to announce that we eventually opened a new DOS in Denver. It's a location which has been very carefully scouted for. It's in downtown First Avenue, very close to other furniture brands that we consider important. Right affinity for Natus Italia, which includes Roche-Loire, Restoration Hour, West End, Creighton Barber, Room & Go. Again, because our experience tells us it's very important to be part of a district populated with a brand with a similar position. uh with this new opening we now have 23 stores uh of which 18 are directly operated and four are in franchising in us and again this remain a priority for us both in term of organic growth and in term of potential new opening let me switch to another geography which is central to our strategy, which is China. As you know, more than half of the total store we have are in franchising in China. We don't consolidate line by line because we are in a minority JV with KUKA. But we've been over the last few months increasingly supporting our partner in China on an operational level. So we're really teaming up with a different department to support the GV team to take the right choices at merchandising, retail, marketing level. Personally, I've been more than five times since the last few months, every time really being very much immersed in the retail reality. Last visit was in August, and I was very pleased to witness the christening of a new project, the Hangzhou Store. As you know, Hangzhou is a city one hour north of Shanghai, a very beautiful city. We wanted to make sure that Enzo Store became a flagship, fully controlled in terms of design by our team, which is a total newness because despite being in partnership, our partner has been somehow changed. quite autonomous in some choices when it came to retail. In the spirit now to create a very high consistency of the representation of Aptuz Italia globally, we agreed with our partner that a significant opening like ANZO needs to be integrated in our way of working. What does it mean that the full layout, the merchandising, the design of the store, and actually being done by our newly created retail excellence division? The Anzho opening event has been a success. There's been some 40 dealers joining, more than 100 architects. Now it's still very early, but it's encouraging to see that after nine weeks from operation, the Anzho stores is pacing at a double speed of the other remaining directly operated stores in China. which encourage us to say we now have learned the job we've done a lot of investment in term of codifying what should be and we call it internally the brain retail religion which means very strict guidelines in terms of execution of brand merchandising retail and we feel the legitimacy to guide more strictly the choice of our partners, because we believe that is not a sign of authority, but is a sign of business legitimacy. Because as I'm so sure, when you do the right things, then you have a very good payoff. So on closing on retail, franchising and direct operator store, we now have 681 stores. We believe that this is a very solid platform to regain growth as market conditions are stabilized. This being, I don't see any more Pasquale. Pasquale is with us. Okay, sorry. You just disappeared for one second. Okay. So in parallel to retail, there's been another significant effort in the direction of improving the quality of our gallery. We call it the Remaging Gallery because it's been really recreated the concept from its fundamentals. As you remember, gallery is a shop in a shop experience. They go anywhere from 1,000 to 3,000, 4,000 square feet. in some geography in Europe even larger, but they are a shop in the shop experience. Again, in the search of delivering a brand experience which is immersive, uh there's been a dedicated team that has been redesigned the layout the merchandising so that it can convey the experience of the brand at the same time being very modular and very cost effective for our partners they need to co-invest in this format this is the format for instance which is uh as you know now there is high point markets which is one of the opportunity we offer to our partners they want to invest in a tradition or in some location for natus italia where the potential does not sustain a full-scale store this new concept has been extremely well received we open some 43 new galleries, 25 is being re-engineered, and this is an effort we're going to be progressively rolling out to the 600 galleries we have globally.

Antonio, I'm sorry. Antonio, I'm sorry, but we opened also 47 or 48 Natuzzi stores in 2024.

The balanced net number is pretty much stable.

We opened 47 new stores in 2024 with kind of business environment. I mean, you know, and these are, I mean, we just opened one store in Denver, in Colorado, as a direct operating store. But all the others, So in imagining the journey of Natuzzi, or visualizing the journey of Natuzzi, you really have to understand the distance that Natuzzi has been

covering which is significant because is still operating for very few selective relationship in a way in which it just displays the product. But other than those relationships which are chiefly with large, few large retailers in the US, the remaining way that the customer can get in contact with Natuzzi is through a very qualified distribution channel where the brand and the merchandising can fully express their potential. A second direction where we are very excited by the acceleration is trade and contract. Let me clarify first what we mean by each of the two words, trade and contract. So trade is the business that we do mostly through our stores, chiefly in Atuzitalia, where the final buyer, rather than be an individual consumer, is an architectural designer, which is working for the final consumer. That's a very interesting part of business, because it's exactly the place where we can deploy our strategy, which is, for Notozitalia, not to sell product, but to sell project. we believe we have the legitimacy now to step in and house and do a full project for the living room for the bedroom for the full house and this is increasingly happening and in us for instance this part of business represent some 20 percent of the revenue stores which is incremental versus the revenues we do with the retail consumer and this business is channeled mostly to our stores The second company contract is, I would say, pretty new for our company, but it's very important for several of the Italian brands Natuzzi Italia compete with. For contract, we mean the business where the buyer is a business operator, typically a real estate developer, a hotel chain. So this is a completely different dynamics. because the single contract can be significant. The contract can involve, as it happened in a couple of circumstances for us, even the design of the outside building can definitely involve the design of the units, can involve supplying beyond our upholstery, which remains central, also fixed furniture. So it's a very interesting and new arena for us. There is a significant and robust trend in the market for branded real estate, where the real estate developer try to build a layer of additional value by introducing a brand. It started, of course, with, you know, fashion brands, Armani, Bulgari, but those brands, not necessarily then they have the design competencies. They have the strengths of the brand, but they don't have the design competencies. Natuzzi can fulfill this opportunity, bringing the full breadth of his design competencies. And it happened, for instance, in one of these projects, which is still under development, confidentiality agreement but will be publicly announced on the 12th of November so we will have a specific press release on it. So this new area of business already delivered three major projects, two in Middle East and one in Central America. They are very meaningful in terms of size but I would say they are even more meaningful because they constitute a strong qualification and a testament, the Natuzzi can play in that game. In a game where you need to have competencies, design capability, you need to have project management capability, the ability to aggregate other partners for fixed furniture. So it's a game where very few people can actually play. To support and accelerate that business, We just established an individual business unit that will be managing trade and contract. I speak about business units because it will be assigned a target in terms of growth and marginality, but, of course, it will be fully leveraging our, let's say, platform in terms of capability, R&D, and product. So moving from top line to the structure of our P&L, I want to discuss their work we have done on margins. I must say that here I'm particularly proud of what our team has achieved because compared to 2019, we increased by 11 percentage points the gross margin in a context that could not have been more turbulent. because we went through years like 2021 and 2022 with hyperinflection, with scarcity of access to materials, More recently, we witnessed a spike in transportation from one job to the other. So I believe this year has been really challenging for many companies that wanted to maintain the historical margin. And our group has been able to increase it by 11 per point. Even in this quarter that we are discussing, we continued the trajectory because we reported 38.1 gross margin compared to 36.4 or one years ago. So 1.7 percentage point increase in just 12 months. This in a context where we had for our specific accounting, severance that got accounted negatively in the gross margin. Without that, that, again, severance, in a sense, are an investment for the future. Without that, the gross margin, the first quarter, would have been of 39.3, so almost three percentage points above the quarter of last year, which I believe is quite significant. This is in a context where, especially our Italian factory, they have a low saturation given the scale we are operating. So if we would consider a proper saturation, you should be adding three or four percentage points more in terms of gross margin. And this is the blended growth margin. Then when we look at integrated growth margin or retail, then here we go in the range of more of 65, 68% percentage, because of course there we sum the margin of our retailers and the margin of our producer. So moving on the fourth point I wanted to highlight is something which has been discreetly managed, in the sense you didn't read anything about Natuzzi laying off people, which I believe is an achievement per se, because we work in highly unionized markets when it comes to workforce, but we have been achieving a lot. Because if you take a midterm perspective, we've been reducing almost by 900 people our workforce, some 20% reduction in three years, If we just look at these first six months of the year, reduced by 170 units, our workforce, this has been planned even, I would say, before the negative economic market we are facing, because it's a natural consequence of evolution of Natuzzi. Natuzzi moved from being a volume company to be a value company. So he needed lower production, he needed new competencies, and he needed to change the shape of his workforce. So this has been planned, it continues to be a focus. We continue to do this in the most ethical and respectful way, but this is also part of our midterm plan. Just to give you a single number, even as you know, we're not operating at the scale we want in terms of top line, the revenue per employee from 2021, they increased by 30% because we've been reducing our workforce. So a significant improving of productivity per employees by 30%. Last point I want to... um mentioned before talking about i thought that is something we are proud of because we continue elevating the quality of our leadership team i mentioned before how interesting and challenging is to transform a company that for five decades and now has been working as a vertical integrated manufacturer to transform it to transform it into a brand retail company, which has been the vision Pasquale had some 20 years ago, but is accelerating now. Clearly, talent plays a specific role at all levels, definitely at the store, but in new areas like merchandising, retail, marketing, all areas where the company needs to learn to fly while flying, in a sense. As part of the effort of continuing elevating our capability in the retail and consumer space, we've been very pleased to have Nicola Internullo joining us. Who is Nicola Internullo and what will do in our company? Nicola Internullo is a veteran of the luxury industry. I've been working with him even in my previous life as McKinsey. He's been working in Loro Piana, in LVMH, in L'Oreal. Lastly, he was the HR director for Balbray for North America, a region that you know is very central to our development. and join us really with the task of helping us to accelerate this transformation into a retail and branded company. He will closely team up with Mario, which remain our group as our director, which has really a deep knowledge in transformational structure. So we believe that this kind of teaming is really fit to our new challenges. So, having commented more on the, let's say, ordinary matter, let me comment on a point. As you know, I announced in agreement with our board our decision to divest in a strategic asset as part of a strategy to become a more agile company and free up resources to reinvest in the business. One of those assets which has been identified as not strategic in the sense which is strategic for us as a location for our showroom, and it will continue being, but not strategic for us owning it, as we don't own the store where we sell goods, is, I find, High Point has been on the market basically since 2019. Then there's been acceleration in 2021, where we appointed two of the major real estate brokers, specialized in commercial real estates. The very high interest rate did not help to close some of the discussion we had for potential buyer in US. We've been more recently receiving an interest from our insider shareholder, Pasquale, who has been really at the core of the origin of this building, which is a very iconic building designed by Mario Bellini, one of the most respected and still alive architects globally, who asked for a potential transaction. We do have within our governance a committee that is tasked to assess transactions that might involve related parties. It's composed by three independent board members. Giuseppe Zangelo, who is a senior manager from Ferrero, Gilles Bonnane, who has been the CEO, a long-standing CEO of Roche-Beauvoir, and Marco Caneva, which is a former partner of Goldman Sachs. So, three high-standard individuals. They perform all the requested activity by the committee, including requiring our company to ask for independent evaluation of the building. And after that, they concluded the transaction at the price and the condition proposed by the insider shareholder were at market value. During the last board that we had last week, given this was highly consistent with our strategy of disposal, non-strategic asset, myself and the board agreed for these sales, which has been approved. It's still, let's say, in the process, because as you can expect, there is some procedural step to be taken, but in principle, unless there is any Let's say constraining this step will happen within the year. The amount, the gross amount for the transaction is of $12.1 million. Of course, there will not be commission fee involved. the sales is configured as a dry sales in the past we also explored sales list back option which were not very positive seen by myself and the board because they will require quite significant liability midterm so having commented also on the point which I believe was due I stop here for opening the debate and question. And I thank you for your attention. I believe this time has been a bit... longer than usual, but I wanted to testify the hard work that our team is doing at the quarter in the region and in the store, which I can assure you is very significant. Our team is very cohesive, is working very hard. And, you know, we are strengthening the company in a phase of strong headwinds. And I believe that this can only be helping us when the condition will normalize. Thank you, Kevin. You may open for questions.

Certainly. We'll now be conducting a question and answer session. If you'd like to ask a question, you may do so by typing it into the ask a question field on your screen. Our first question today is coming from David Keenan. Your line is now live.

Can you hear me?

Please proceed, sir.

No, yes. 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.

Okay, so you want me to do a question by question? Okay. I thought you had a longer list. You want to go question by question?

Yeah, let's start with that.

Okay, okay, okay, okay. So the discussion we had in the board when we decided in 2021 to start this process of selling non-strategic assets has been very clear. The proceeding, if any of these disposal happen as it happened today, will go on structural improvement. Basically in two areas. One is restructuring, and the payback of restructuring is very predictable because, as you know, Dave, when you act on cost, that is independent from cost. market contest or other conditions. So restructuring is still an area we will prioritize in using that additional resources. And when I talk restructuring is laser focused restructuring. I will not disclose here too many details because there are trade union involved but our area where the evolution of our business model requires restructuring. So it's not like, you know, a flat bond restructuring. The second dimension, you're absolutely right, is retail. The fact that we have money doesn't mean in any way that we're going to be rushed in opening retail. Why that? Firstly, because for three reasons. First, because we still have plenty of opportunity to grow organic. Second, even the most recent opening like Denver testified that it's very, very delicate to find the right location in the right place in the right condition. So we're going to be continuing looking for retail opportunity, but always with a very structured approach. We don't want to jump in The retail, it will be predominantly when we talk about retail Natuzzi Italia North America, there might be other selective opportunity in other geography, but retail will be predominantly North America for Natuzzi Italia. So long answer to say what, the proceeding of Natuzzi of high point will be safeguarded and reinvested for restructuring and retail. I'm using this order because also in this contest, I believe restructuring also for you as shareholder offer a more predictable return in the short term, which doesn't mean we will not open stores, but I'm saying those two levers maybe in this phase will be used in this sequence. No, you're muted, I believe. Oh, Kevin, you're muted, okay.

Am I still mute?

No, no, now we can hear you.

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 kind of an adjusted, if you will, if you were a U.S. company, non-GAAP operating profit of $2 million, which I'm very pleased that 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 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 do not have data in particular on KUKA or NITUZI, but we do see that in mainland China there has been an inflection. Now, I'm not saying it's off to the races, but are you guys seeing a turn or an inflection there most recently as well?

Thank you, Dave, for the positive notes and for the long-term trust in our work on commenting on margin before we move on in China. skydreaming, but if you think 400 is a natural, let's say, revenue potential of this company without, you know, progression, 11% point of gross margin would almost translate in 20 to 30 EBIT number, no? Because then the fixed costs are paid. So I believe that if there is a rebound in retail, in real estate, which is a primary driver for our industry, the company now is set to generate a much higher return on the investments. On China, the market is very soft, as you know. I'm just drawing analogy with other sector. You have seen caring posting yesterday result, 11% sales down, 20% sales down in China. And we're talking about item that yes a luxury but compared with our price point you know they are one seat of uh the price of one seat of a three-seater sofa so the market is very tough We are lucky to have a partner which is robust. As you know, the government has announced this stimulus package because the situation is so severe that they had to step in as somehow the Fed had to step in in the US when there was the COVID crisis. The impact of that still needs to be visible because it's very recent. But everyone is hoping, and we are between those ones, that This will be gradually easing the situation which has been extremely, extremely difficult. I've been, as I mentioned, in Shanghai in August last time. Restaurants were empty. Department stores were empty. The stairs bringing to the second floor were somehow stopped to save energy. And I'm not talking about furniture mall. I'm talking about fashion mall. Then if you go to departments of furniture more, the situation was even worse. So, to say, I hope it will provide, as the intention of the government is, a positive acceleration, yet the situation is quite difficult. In the meantime, we are working on what we can control. As I mentioned, we have been intensively working with the GV, to bring them closer to us to make sure the retailer and the merchandising marketing choices are taking full leverage of our knowledge so that we are preparing our operation to intercept this positive rebound of the market, which I cannot predict will happen next month or in the first part of 2025. I believe we are closer to what is the bottom because, you know, if the government step in, situation can only improve. No, you're muted. Okay.

Can you hear me?

Yeah, we can.

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 slash gallery business, going forward, do you have net new doors that you'll be in? Or is it down the same? I know you're restructuring, refreshing things. 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?

So for gallery, there is an increase of 43 new ones. And we plan to have additional 25 by the end of the year. So this is a net addition. A lot of value relies not only in the net addition, but in the upgrading of the gallery, because gallery has been historically quite a broad concept. There were partners which were really aligned with the brand, they were representing well the brand, having right merchandising, right, let's say, customer experience, others that were representing using it more tactically, more in a light manner. We are elevating the banner, of course, gradually, because we also recognize that our partners are facing difficulty in investing, but we want to show them that by doing the right things at the gallery level, they can have higher returns. And our expectations are increasing in terms of what is the minimum level of investment and customer experience a gallery should provide. So to your question, 43 new openings, 25 expected by end of the year, but there is a massive job in upgrading the existing one because a part of it, especially in the U.S., we have quite a loose implementation of what is the new gallery concept we have.

Okay. You answered the question.

Yeah, just one question. And I will link back to what also Pasquale, our chairman, said on China. I can tell you that there is not a lot of happening in China. Not a lot of happening in China cross-sector. It's very, very quiet, the market. We had 16 dealers visiting the Milan Design Week. So 16 dealers which operate franchising visiting our Milan Design Week. Almost half of them decide immediately to open new stores or to renew stores. So first of all, I want to recognize how brave they are because investing in this circumstance in China is very brave. At the same time, and I say in a humble manner, is also a result of the hard work we have done in showing what the strengths of Natuzzi can be. So I challenge you to find other brands which are open in stores right now in China. I don't want to quote, but even the larger... fashion group French luxury group they mentioned they will not open anything more before 2026 so I think this is again talks a lot about the potential strengths of this group that you only see partially today in the top line numbers Kevin I think Dave has been very kind as usual to leave space for other questions from other participants maybe you want to

David, I'm going to keep you connected, my friend. Stay right there. But in the meantime, if anyone would like to be placed into question queue, you may do so at any time by using the ask a question feature on your screen. Standing by for further questions, please do so. If you're via telephone, you may press star 1 on your telephone keypad to be placed into question queue. One moment, please, while we poll for questions. And if we do have a question at this point coming from George Mellis from MKH Management, your line is now live.

Hi, good afternoon, everybody. Thanks for taking my question. Just a simple question. I don't know if it's a simple question, but on the U.S. retail results so far, you have opened new stores, you have invested a fair amount of money and and focus on the U.S. 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 leverage the presence that you already have in galleries and elsewhere in the U.S. with those stores.

Our head of global retail excellence was actually invited to this call, and I'm sure he would have addressed the question much more effectively than I would do, but he's busy with some meeting in a point. So we'll start addressing it, and then I will wait for him maybe to get more specific. So first, let me talk about the performance of our store. And Piero, you can keep me honest because we use those data a few years, press release ago. So on average, our store before the COVID in 2019 was generating sales in the range of 1.8, 1.9 per store. I'm, you know, mentioning that by heart. So I might be off a bit, but Piero, meanwhile, you're streaming the data. Now the average is more in the range of four. Even those, you know, is not clearly the best here for retail, furniture retail in the US. So on average, we improved a lot. Having said that, to your question, there is still a significant variability among stores. That variability depends on many factors. First one is location. We have to recognize that the brand evolved Some stores have been opened a few years ago, so not necessarily they are in the location today we would open on a Tuzzi Italian store, considering where the collection has moved. So location has an impact. And we are, of course, looking at the tale of stores where we believe location maybe is not the good one. which doesn't mean it's not in the right city but you know retail really change if you change two blocks it's a really different environment so location is a first thing is affecting our performance the second element is the team quality we have codified what is the DRT as I mentioned Natuzzi learned the other way retail because it was a new job for the group. And we recognized that the team in the store need to have specific characteristics. So first of all, we need to have a store manager, which is really a manager, which means he's accountable, he's entrepreneurial, can build a strong team around him or her. So the store manager needs to really respond to some very specific characteristics. Second, we need to have in the stores at least one, if not more people, which have a design background. Because if you are a great seller in the car industry or in the equipment, not necessarily you are able to engage with a designer or an architect to develop a project. So we also are investing on that dimension. So the quality team is very important. So we are assessing our team and making sure we have the right quality. Third element is having a right assortment. So Natuzzi is doing a great job on upholstery, on dining, and accessory we definitely have opportunity of improvement and to go the extra mile that is an area we need to work on because to elevate the average ticket of course that also play in telling you how big is the currency so we have top performing store like costa mesa that are more in the range of six million and above per year and the tail stores, which are well below the average. The reason why we introduce the retail excellence division is really because we want to codify best practice and to help the store moving, aligning more on the average because still is quite widespread. That's also the reason, going back to early question of Dave, that makes us, I wouldn't say cautious, but prioritizing this completion of retail excellence journey. before opening massively, because we want to open stores when we feel we are very predictable in the results. Now we feel much stronger than a few years ago, but still we want really to complete this retailing excellent program so that when we open a store, we know that it can be 5% or 10% below or higher than the average, but cannot be necessarily a surprise. So I hope that addressed your question. Again, I hope we can connect then you with Diego Babbo. We can also have a separate call so that you can also be more specific on individual store performances. Great. Thank you. I don't know, Piero, did you retrieve the data from the press call, the last press call?

No, I did not. But if George wants, I can provide him your data.

Thank you. Our next question is coming from Steve Emerson from Emerson Investment Group. Your line is now locked.

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.

Thank you. Thank you. Please go ahead.

Yes. The high point sale, how much is net cash coming back to the company?

Okay. Carlo, I'll leave that to you.

Hi. So, let's say, I say that the process is still in, you know, in arresting. One second. Okay. The offer we have received from our major shareholders is 12.1 million. I can't disclose right now the net book value, but the offer is above the net book value we're going to have, and we're going to all the cash will be net cash from these sales that we come in our accounts. So all the sales is of $12.1 million is all cash.

Excellent. Will this cash then enable a fairly rapid expansion in the U.S.? ? Once conditions stabilize, what kind of growth in new openings do you expect in North America? Let's assume furniture sales and housing start having reasonable growth.

So thank you for the question. As we addressed some of before with Dave, we definitely are committed to expand Natuzzi, particularly Natuzzi Italia presence through direct operated stores. We just completed five opening because four last year and one this year. So we want really to make sure those stores become a regime But we might look again at new opening in 2025. Definitely we see potential for additional directly operated store in US. And this is, as I mentioned, one of the potential area where the proceeding of iPoints will be going. So definitely this is... Confirmed. We're not changing our strategy. I hope you understand that this market and the fact we just opened five new stores advise us to be gradual because opening the right store is great. Opening wrong stores because you don't have the right team or wrong location is one of the worst investment or worst legacy you can have because then you are committed with your handle.

Okay. And is High Point a sale lease back? or actually access property that you don't need?

So it's not a sales list back in the meaning that when we were considering sales list back to our brokerage agency, they were requiring the potential buyer for some 12, 14 years of commitment of minimum lease, which was very significant. which would have caused us to increase by 20 million our liability in correspondence of that obligation. So this absolutely is not the case. And that's the reason also why our board and myself, we're looking at those sales list back opportunity quite with skepticism. This is a dry sales, as they say technically. So it's just selling the building. the new owner might consider renting us space at market value since we are still using the space for our showroom, but there won't be long-term obligation that will force us to accrue any liability for that. So it's a dry sales. Okay, so...

Maybe our rent will go up, what, $100,000, $200,000 a year. That's all.

I mean, it would be a market calculation. But in doing that, remember that right now we were yearly spending some alpha million on maintenance costs. So that will, of course, will not be anymore on our book. So I would say definitely that would be compensating for our rent. Right now, I cannot say what would be our final decision in terms of how many square feet we will ask to potentially lease. It will be quite an easy deal because we have very clear what is the market value for leasing office the last phase and showroom at the first floor so it won't be i would say a complicated decision to be made but i will not i'm not today able to give you this precise figure just in the equation remember that yes we might have some active sorry some leads to pay some rent to pay, but at the same time we won't have any more maintenance costs.

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?

So that is an interesting question. And it's a material definitely for our board. I definitely see what could be the rationale of buyback. As we mentioned, there is many opportunity that will also could be a good direction where to invest this proceeding. so we have not taken otherwise we would have announced it any decision on sure buyback i understand is a legitimate question but i also believe there is very good opportunity from our operation at this moment thank you thank you as a reminder if you'd like to be placed into question huge press star 1 over the telephone or use the ask a question feature on your screen any further questions

Please stand by. We do have a follow-up from David King from KWM. Your line is now live.

Okay. Thank you, guys. I guess the first couple more questions. Could you sketch out for – can you guys hear me?

Yeah, we do.

Okay. Could you sketch out on trade what your, let's call it, you know, refocus strategy is – You know, I understand, like, designers generate, you know, a lot of business and they can really grow sales 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?

Yeah. So to cut it short, I would say pretty much everything is different. In the sense we now have a very... Can you maybe mute? There is some rebound. Sorry. So there is a very well understanding of what it takes to win. And this is in course of being implemented. And there are several new aspects. And I will mention some. First of all, collection. We recognize that the traditional strengths of Natuzzi, which is still very important, and we actually have doubled down on that for the consumer. This idea of comfort, which we branded into ComfortNet, is very important to talk and have a dialogue with the consumer. Things, for instance, about America where we discuss a lot, the consumer recognizes Natuzzi and actually rewards Natuzzi for this idea of conformance. But if you want to talk with the designer, you need to have within the collection a different kind of project as well. So that's the reason why we partner with some of the most renewed architects globally. I'm talking about Marcel Wanders. I'm talking about, you know, Paolo Navona, Mauro Liparini. So really people which sit on the top of the pyramid, which have been reinterpreting with humble approach, the style of Natuzzi make it more design-oriented. And we came up with a very incredible project. I would be pleased to show some of you. Like last collection, we have a project from Kamir Rashid. He's an Iranian designer who lives in New York. Very visionary, but humble enough to understand what Latutsi mean. And design this project. Memoria really... as a tribute to the curve shape of Natuzzi which then is taken by Natuzzi R&D to make it a product because then they are very strict you know are in the element that need to be taken. So first of all, we have now a different collection. An architect entering our store can find material to furnish a penthouse in New York or to furnish a Dubai penthouse, which didn't have before. Second, which again, I believe we should, next time when you ask to invite in one of our store, we created this design studio. Design studio is a working space within our store. which is really intended for design and architect where they can play with a different combination of material to define project. Third, we have a digital support to do project digitally because once you have played with the material you want to see in a 3d configuration how it could look like so now we developed a configurator which can actually bring to live this project from a CAD one dimension drawing to a 3d project and this again is something new third element as i mentioned is training This sounds nice, but who can engage with a designer in New York? We need to have a designer in our store. For instance, now we have a great team in Madison Avenue because they talk the language of designer. And this, again, was something which was not systematically happening in our store. Now, we are very clear that in the store, we want to express the full potential of trade. We need to have a designer in the store. And this is very important. Fifth is the engagement. we recognized that we were passive. So Natuzzi is a great brand. Some architects were entering in our stores. Now we are much more active in reaching the design community proactively. We've just completed the congress in San Paolo where we're doing a great job on designers and Casdecor, which is the place to be in terms of magazine for designers was our partner. And we invited hundreds of architects to see our collection. And this is being proactive. And I can continue. And I'm sure Pasquale can continue more than me. But Dave, just to say, before it was somehow happening because we have a great salesperson in Naples which came from that world and could do it. Now it's happening because we have developed in the last 12 months, not last 10 years, a well-defined strategy to go hunting for this new opportunity. And we are also teaching our partner, our dealer, how to do it.

So in other words, Antonio, or gentlemen that are asking a question. So the brand moved from product to project. So in other words, Each individual project we have in our store, we can configure it for different type of consumer. So when the many, many consumers, they go to the architect, to the designer, and they ask to decorate their home. They come to us, we should have in the store people capable to manage this kind of conversation, deal or business. And consequently, we have what we call also floor planner. We have all the tools. We have, I mean, projects. that allow us to design a home for customer where the ticket become 100,000, 80,000, 150,000. That has to do with trade. And we have, I mean, some store, where 30% or 35% of the business is trade. So in other words, there are consumer, they come directly in our store, they choose the product, the project, and we provide to give a service to them and sell the product. But then there are designers, architects, they come in our store and buy, they ask us to design the project for the home of their client, the customer. But there is, I mean, Antonio, we, I mean, also in one of our stores in Miami, I believe a week ago or two weeks ago, we sold a number of sofa products for an hotel for eight million, I believe. Just one sale was eight million. That's correct.

That's very correct.

And then, okay, we have, I mean, November 12th, In Dubai, we should promote and present in a stadium to a number of potential consumers the Natuzzi apartment home. And we already have a contract in our hands, I believe, Antonio, for the Natuzzi Harmony residence for another 55 apartments. So there is a building. which is our name, Natuzzi Harmony Residence. We designed the building. We designed the apartment. We designed the furniture. Everything would be just Natuzzi in Dubai. A lot of things, I mean, you know, we are certainly doing, which is very much different than selling the sofa, in other words, okay?

Absolutely. I believe this is a completely new area. We're going to be holding at least definitely a press release because some of the elements we just mentioned are still under confidentiality agreement. We might have a different call. So, David, this is really, I mean, this is 65 years of history, but the last episodes are happening very rapidly. So some of the things we are discussing really materialized over the last six months, some over the last 12 months. It's really accelerating. Maybe they were happening even there, but not in a systematic way.

Okay. Pasquale, thank you for sharing that and sketching out for us what the potential and long-term opportunity is 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. Yeah, I appreciate that.

The way you describe it is better than mine, and that's because of the language. In Italian, I would explain it better, certainly.

You did well. You did well. Thank you. So the last two questions, Antonio, I appreciate the fact that 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, 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, five, eight years from now, can we not add more? 50 to 60 stores over time, okay, executed well. When I look at our competitors, when I look at our house and RH, and their boxes are larger than ours, you know, they're at those numbers. Is that a realistic long-term goal, you know, to open up an additional 50 or 60 stores?

I will say long term, definitely there is opportunity to double and triple our business in the U.S., branded business. We're not going to go back to unbranded. A lot of that will happen through stores. We do believe that in Samaria also the gallery, which basically is a store just within a multi-brand environment, is also a nice opportunity to reach a state which will not sustain a full-fledged store. But definitely the opportunities in the U.S. are massive and a significant part of that will happen through directly operated stores for Natos Italia. We discussed that in the past. Our long-term strategy for 8-19 years definitely has not changed. I hope you understand that we need to be prudent. First, because we want to bring more organic growth also in the last five stores we just opened. And second, because retail needs to be an area where we minimize mistake in term of location.

Okay. And then here, I appreciate what you're saying. And my last question is on e-commerce. Many of our competitors are generating e-commerce. Tens of millions, even hundreds of millions of dollars. Now, it seems to me that there are two home furnishing e-tailers, e-commerce companies. You know, one of them begins with a W, but everybody knows that are massive. Okay. It seems to me like it's not the right venue for Natuzzi Italia, selling $10,000, $15,000 sofas. But on the lower end with additions, $2,000 sofas, it seems like it's a really good fit. My question is... Can Devani and Devani also be sold potentially in the U.S. at these large e-commerce home furnishing companies along with additions? And is that something that you're open to? Because I've kind of... 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 and Devani there?

That is a very interesting perspective. So just a couple of let's say, point I want to make. First of all, I agree with you. For Natuzzi Italia, e-commerce would be more a channel to drive traffic to the store because if you want to sell project, not product, it's difficult to envision that online. There might be some impulse product like Revive or other that can be actually purchased online, but otherwise, for Natuzzi Italia, that would be more drive traffic to the store. For, let's say, the second brand, uh that is still an opportunity where i feel we have not done equally well like in other area like a trade for instance because we still need to you know deploy it carefully on the idea of divani divani there is one element david i won't you know problem-solving here, but there is one element that we need to be cautious. The Divani-Divani, which is a completely different banner, to a great extent is the same collection. Having said that, I believe that for the Natuzzi edition, the digital opportunity is something we still need to address properly, especially in the US. So I don't want to be defensive. I think you are right on that. I don't want to be defensive and take the blame on me. We are later than I wish at the we could be now. I think we've done a great work on retail, a great work on merchandising, on many other dimensions, a great work on margin. That was a bit later than I wanted.

Okay. So it's something that's on your radar or to do?

Yes, yes, yes.

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.

Thank you, Dave, and thank you all. I leave to Pasquale for closing remarks on my side. I really appreciate this conversation and the tone. I don't want to convey the message we accomplished with what we achieved so far. There is a lot of work that needs to be done. We believe the company definitely deserves higher sales. We focus on the economics of the company. We focus on the retail transformation and the brand transformation. But there is still a lot that we need to do. Thank you. Pasquale, I leave it to you for your final remarks.

As you know, Antonio, I'm the founder of the company. I'm writing down the Natuzzi brand Bible. Natuzzi brand Bible gives a very clear guideline what the Natuzzi brand stands for, okay? I'm writing down the DNA, the harmony code, a digitalizing harmony code, retailer religion. I believe that the brand is exactly like religion. And the store, the retailer is the church where the brand needs to be, where the religion needs to be practiced. We are doing a really good job in this very difficult time, you know, to define clear guideline for the brand management and also for the retailer way we should manage. So but, you know, I really appreciate the way, Antonio, you have been describing, you know, the entire, you know, quarter and period, and also all the questions, you know, raised by the shareholders, they've been very constructive. I really thank you very much to everyone for the constructive approach. Thank you again.

Thank you.

That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.