Natuzzi SpA Q2 FY2024 earnings call

• Natuzzi is transitioning from a manufacturer to a brand retailer, focusing on improving customer experience via retail channels.
• Directly operated stores in the U.S. grew 6%, with a new store opened in Denver. In China, efforts to support the JV partner in merchandising and marketing.
• Gallery reimaging: 43 new galleries opened and 25 reengineered, with plans to roll out to more galleries globally.
• Trade contract business is expanding, with a new business unit established to manage trade and contract segments.
• Gross margin increased by 11 percentage points since 2019, reaching 38.1% in Q2 2024. Workforce reduced by 170 in the first six months of 2024 to enhance productivity.
• Nicola Internullo joined to accelerate retail transformation. Divestment of the High Point strategic asset, with proceeds earmarked for restructuring and retail.

Sales in the 2024 second quarter were slightly up versus the same period in 2023. Retail accounts for roughly 70% of total sales. Directly operated stores grew 6% year-over-year, with directly operated stores in the U.S. seeing a ~33% growth. China has over half of its stores in franchising, and efforts are being made to support the JV partner there. The gallery reimaging initiative led to 43 new galleries opened and 25 reengineered. Trade contract business is a developing area with significant potential.

• Plans to continue expanding directly operated stores in the U.S. cautiously, leveraging proceeds from the High Point sale for restructuring and retail.
• Expect market rebound to aid sales growth, with confidence in the company's ability to generate higher returns on investments once market conditions stabilize.
• Committed to gradual expansion in retail, prioritizing well-chosen locations and strong teams.

• Market softness in sectors like furniture and consumer spending. Economic uncertainties impacting retail performance.
• Challenges in finding optimal locations for directly operated stores. Complexities in workforce restructuring while maintaining ethical practices.

Q: Can you speak about the capital from the disposition of High Point and how it will be deployed?

A: Proceeds from the High Point sale will be used for restructuring and retail. Restructuring is a priority for predictable returns in the short term, with retail expansion being a key long-term lever, but done cautiously.

Q: Is there an inflection in China's market?

A: China's market is soft, but government stimulus may aid, though the impact is recent and the situation remains difficult. Efforts are ongoing to prepare for a potential market rebound.

Q: Performance of U.S. stores and leveraging of galleries?

A: Variability in U.S. store performance due to location and team quality. Working on improving team quality (e.g., store managers with entrepreneurial traits, design-background staff) and assortment to elevate average ticket. Galleries are being upgraded with new concepts to enhance customer experience.

Q: What is the net cash from the High Point sale?

A: The gross amount for the transaction is $12.1 million, with all cash proceeds to be added to the company's accounts.

Q: Growth in U.S. store openings?

A: Committed to expanding directly operated stores in the U.S. gradually, ensuring well-chosen locations and strong teams. Proceeds from High Point sale may support this expansion.

Q: Trade strategy and e-commerce?

A: Trade strategy focuses on new collections designed for designers/architects, design studios in stores, digital configurators, and proactive engagement with design communities. E-commerce is considered for lower-priced Editions but approached cautiously, as online sales of high-ticket items like Natuzzi Italia sofas are not the primary focus.