First Quarter 2023
Highlights
- 1Q 2023 Invoiced Sales Amounted to €86.1 Million, a Decrease
of 27.4% Versus the 1Q 2022, Confirming the Headwinds of the Last
Part of 2022. 1Q 2022, Which Reported Double Digit Growth vs 1Q
2021, Was the Last Quarter of the 18-Month Expansionary Phase That
Started in the Aftermath of the COVID-19 Pandemic.
- Branded Sales Amounted to €77.5 Million, 21.6% Below 1Q
2022. Branded Sales Were 92.3% on Total Sales In 1Q 2023, Compared
to 86.8% in 1Q 2022.
- Gross Margin of 35.6%, Compared to 34.3% in 1Q 2022. Net of
the One-Off (€0.9) Million Accrual to Reduce Workforce Gross Margin
Would Have Been Equal To 36.6%. 1Q 2023 Gross Margin Compares to
30.1% in the Pre-Pandemic 1Q 2019.
- 1Q 2023 Operating Loss of (€0.9) Million Due to a Lower
Operating Leverage Partially Offset By a €7.6 Million Reduction in
the Operating Expenses. Net of the One-Off (€0.9) Million Accrual
to Reduce Workforce, Operations Would Break Even.
- Retail Expansion Continued in 1Q 2023 With 2 DOS Opened in
the U.S., 1 DOS in JV in the U.S. and 1 DOS in JV in China as Well
as 5 Additional FOS, of Which 3 in China, 1 in the U.S. and 1 in
Australia.
- Cash of €43.8 Million as of March 31, 2023, Compared to
€54.5 Million as of December 31, 2022.
- Headwinds From Challenging Business Conditions Continue to
Affect Store Traffic and Written Sales; This Might Adversely Impact
Our Operations in the Short-Term, While the Group Confirms Its
Long-Term Plans. We Are Focusing on Supporting Our Commercial Teams
to Regain Growth, While Working to Adapt Our Fix Cost
Structure.
Natuzzi S.p.A. (NYSE: NTZ) (“we”, “Natuzzi” or the “Company”
and, together with its subsidiaries, the “Group”), one of the most
renowned brands in the production and distribution of design and
luxury furniture, today reported its unaudited financial
information for the first quarter ended March 31, 2023.
Pasquale Natuzzi, Chairman of the Group, commented: “Our sales
results are not at the level we aspire to as we continue to face
challenging market conditions and a more prudent approach by our
customers, resulting in a weaker store traffic and reduced orders
from large distributors. Globally our industry is transitioning
from the expansionary phase, started in 2021, which created growth
for the sector but also led to unprecedented over-stocking at the
different level of the distribution value chain. The perduring of
this economic scenario confirms the importance of the work that our
team is doing to ensure a tight control on discretionary costs
together with a more effective capital allocation. We are
confirming those investments which are pivotal for the execution of
our mid-term plan, chiefly to support retail new openings and our
factory modernization.”
Antonio Achille, CEO of the Group, commented: “The context in
which we are operating continues being challenging not only for the
global economy but specifically for our industry. Indeed, perduring
effects of the ongoing war in Ukraine, high inflation
notwithstanding record increases in interest rates by major central
banks, and stock market volatility continue to represent a drag to
consumer spending attitude for durables. In addition, and with
specific reference to the furnishings industry, high interest rates
have resulted in a freezing of the housing market, which is a
primary driver for furnishing new demand. The overstock is
gradually easing but is not solved yet and still represents a
burden for the introduction of new collections. Our mid-term plan,
which states that growth will come from Brand and Retail in core
markets, remains the compass for our commercial strategy and
investments.
In a context of softer demand, our attention to protect the
marginality of our business is very high.
Notwithstanding the lower delivered sales, we were able to
improve gross margin over last year first quarter and the
operations would have broken-even excluding the one-off (€0.9)
million accrual accounted for in the quarter to right-size our
workforce abroad. We intend to continue in this direction so to
free up resources that can be invested in business development.
The sales of the first quarter confirm a slow-down in two of our
main markets, the U.S. and China, where we are implementing a clear
action plan to revert the current business trend and to align
SG&A costs.
In North American, which is fundamental for the execution of our
long-term plan, we have implemented a profound reorganization of
our commercial structure by strengthening our wholesale team, with
the introduction of a new seasoned manager, Scott Kruger, and
increasing our commercial reach also with the activation of
independent agencies. At the same time, we have been empowering our
retail team with enhanced approaches and tools, developed by our
newly established Global Retail Division, so to improve the
like-for-like performance of the existing stores and create the
conditions for the planned retail expansion.
We are also putting an extra focus on the Chinese market, which
is a strategic region for our long-term growth plan. Our JV in
China, in which we have a 49% stake, is focusing its activities in
supporting local franchisee partners to improve the sale
performances and implementing with renewed rigor our dual-brand
strategy.
Across geographies we are taking a series of commercial actions
with the aim of creating a short-term impact. These actions
include: a global merchandise strategy, aiming at having a product
assortment in line with the potential and profile of each store; a
more comprehensive price architecture so to widen the price range
covered by our product collection and attract new potential
customers; a new and more impactful in-store communication so to
better engage the customer.
We are also accelerating the development of our contract
business with a dedicated organization so to leverage the strength
of our brands and our collections, as well as our R&D and
production. Natuzzi Italia is the primary focus for this global
opportunity. The newly established contract team has reported
encouraging initial wins both in residential and commercial
opportunities.
Despite the negative economics context, we remain focused on our
transformative journey to become a branded company, selling its
products mainly through retail. While year-to-date order flow is
below our expectation, it is worth highlighting that the branded
portion of the business is above the level of 2019. Furthermore,
year-to-date written sales generated by our brands continue to
increase their share on the overall business, 92% versus 90% one
year earlier and 76% in the pre-pandemic 2019 same period.
We keep on expanding our retail network to accelerate growth,
improve profitability and have a better control of the brand. Today
we can rely on 710 Natuzzi stores, of which 382 are located in
Greater China. During the first three months of the year, 3 new DOS
opened in the U.S., namely, 1 Natuzzi Italia store in Miami,
acquired from an historical franchisee, 1 Natuzzi Italia store in
San Diego, and 1 Natuzzi Editions in Frisco operated in joint
venture with a local partner. Furthermore, a new Natuzzi Italia
store, directly operated by our joint venture, opened in China.
Lastly, we added 5 new franchise Natuzzi stores to our existing
network, of which 3 in China, 1 in the U.S. and 1 in Australia.
We are progressing in actively seeking opportunities to sell
those assets, mainly in the U.S., that are no longer in line with
our strategic plans, and whose proceeds could be actively invested
to increase efficiency in our industrial operations and add more
DOS to our network.
Our long-term plan remains the same; however, we need to
recognize that for the industry the change of pace has been quite
evident, and therefore we remain extremely vigilant to ensure a
tight cost control and high financial discipline to navigate
through the current headwinds.”
**********
1Q 2023 CONSOLIDATED REVENUE
1Q 2023 consolidated revenue amounted to €86.1 million, from
€118.5 million in 1Q 2022 and from €106.2 million in 1Q 2019, as a
result of macroeconomic and industry-specific challenges.
Excluding “other sales” of €2.1 million, 1Q 2023 invoiced sales
from upholstered and other home furnishings products amounted to
€84.0 million, as compared to €113.8 million in 1Q 2022 and €101.1
million in 1Q 2019.
Revenue 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 the Natuzzi
Italia, Natuzzi Editions and Divani&Divani by Natuzzi) and the
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 Italy and targets an affluent and more
sophisticated global consumer with a highly inspirational
collection that is largely the same across all our global stores to
best represent our Brand. Natuzzi Italia products are almost
exclusively sold in mono-brand stores (directly operated or
franchises).
ii) Natuzzi Editions, our
contemporary collection, offers products entirely designed in Italy
and produced in different plants strategically located to best
serve individual markets (mainly China, Romania, Brazil). Natuzzi
Editions products are distributed in Italy under the brand
Divani&Divani by Natuzzi. The store merchandising of Natuzzi
Editions, starting from a common collection, is tailored to best
fit the opportunities of each market. The Natuzzi Editions products
are sold primarily through galleries and selected mono-brand
franchise stores.
In 1Q 2023, Natuzzi’s branded invoiced sales amounted to €77.5
million, from €98.9 million in 1Q2022 and the same level as in the
pre-pandemic 1Q 2019 (€77.5 million). During the quarter, the
branded portion of the business represented 92.3% of sales of
upholstered and other home furnishings products compared to 86.8%
in 1Q 2022 and 76.7% in 1Q 2019.
The following is the contribution of each Brand to 1Q 2023
invoiced sales:
- Natuzzi Italia invoiced sales amounted to €31.6 million,
from €43.5 million in 1Q 2022 and €35.1 million in 1Q 2019, mainly
as a result of the impact of the overstock in China.
- Natuzzi Editions invoiced sales (including invoiced
sales from Divani&Divani by Natuzzi) amounted to €45.9 million,
from €55.4 million in 1Q 2022, mainly due to the de-stocking
process, especially in North America and China. 1Q 2023 invoiced
sales increased from €42.4 million in 1Q 2019.
A2. Unbranded business. Invoiced sales from our unbranded
business amounted to €6.5 million in 1Q 2023, from €15.0 million
and from €23.6 million in 2022 and 2019 first quarter,
respectively. The Company’s strategy is to focus on selected large
accounts and serve them with a more efficient go-to-market model.
In addition, the Company intends to increase the leverage of
industrial partnership with the outsourcer in Vietnam, in an effort
to recover market shares in this low-end segment of the market.
B. KEY MARKETS
Here below a breakdown of 1Q 2023 upholstery and
home-furnishings invoiced sales compared to 1Q 2022, according to
the following geographic areas.
1Q 2023
1Q 2022
Delta €
Delta %
North America
23.3
35.0
(11.7
)
(33.4
%)
Greater China
4.4
14.7
(10.3
)
(69.9
%)
West & South Europe
32.4
36.8
(4.4
)
(12.1
%)
Emerging Markets
13.2
13.1
0.1
0.5
%
Rest of the World*
10.7
14.2
(3.5
)
(24.7
%)
Total
84.0
113.8
(29.9
)
(26.2
%)
Figures in €/million, except percentage
*Include South and Central America, Rest of APAC.
The performance of invoiced sales in the North America was
curbed by the weak sales of the wholesale channel, both branded and
unbranded, as wholesale distributors continue to be mainly focused
on reducing their stock rather than placing new orders.
As for the Chinese market, the level of sales reflects a more
focus of our joint venture in selling stocked products accumulated
in 2022 as a result of the low traffic in our points of sales
caused by the perduring level of contagions in the region for most
of last year.
C. DISTRIBUTION
During the first three months of 2023, the Group distributed its
branded collections in 91 countries, according to the following
table.
Direct Retail
FOS
Galleries
Total as of March 31,
2023
North America
18(1)
7
151
176
West & South Europe
33
102
127
262
Greater China
25(2)
357
─
382
Emerging Markets
─
76
131
207
Rest of the World
4
88
88(3)
180
Total
80
630
497
1,207
(1) Included 3 DOS managed in joint venture with a local
partner. As the Natuzzi Group does not exert full control in each
of these DOS, we consolidate only the sell-in from such DOS.
(2) All directly operated by our joint venture in China. As the
Natuzzi Group owns a 49% stake in the Joint Venture and does not
control it, we consolidate only the sell-in from such DOS.
(3) It includes 11 Natuzzi galleries (store-in-store points of
sale) directly managed by the Mexican subsidiary of the Group.
FOS = Franchise stores managed by independent partners.
During 1Q 2023, Group’s invoiced sales from direct retail, DOS
and Concessions directly managed by the Group, amounted to €18.0
million, from €18.6 million in 1Q 2022 and from €17.8 million in 1Q
2019.
In 1Q 2023, invoiced sales from franchise stores amounted to
€33.8 million, compared to €43.8 million in 1Q 2022 and €24.1
million in 1Q 2019.
We continue executing our strategy to become 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, or FOS) on total upholstered and
home furnishings business in 1Q 2023 was 61.7% compared to 54.8% in
1Q 2022 and 41.4% in 1Q 2019.
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 2022, invoiced sales from the wholesale channel amounted
to €32.2 million, compared to €51.5 million in 1Q 2022 and €59.3
million in 1Q 2019. Such decrease is mainly attributable to lower
sales from our large distributors in North America that are
focusing on reducing their stock, thus postponing orders for new
products.
1Q 2023 GROSS MARGIN
In 1Q 2023, we had a gross margin of 35.6%, as compared to 34.3%
in 1Q 2022 and 30.1% in 1Q 2019, mainly due to a favorable sales
and channel mix, a decrease in the average consumption of raw
materials, as well as effective price adjustments (that were not
yet effective in 2022 first quarter) in response to inflationary
pressure, partially offset by lower delivered sales in the
quarter.
During the first quarter of 2023, the Company accrued (€0.9)
million of labor-related cost following the reduction plan to
reduce the number of workers at our factories, mainly in China and
Romania. Excluding such accrual, gross margin would have been equal
to 36.6%.
1Q 2023 OPERATING EXPENSES
During 1Q 2023, operating expenses (which include selling
expenses, administrative expenses, other operating income/expenses,
and the impairment of trade receivables) were (€31.5) million (or
36.6% on revenue), compared to (€39.1) million (or 33.0% on
revenue) in 1Q 2022.
The €7.6 million decrease in the operating expenses was largely
due to the reduction in transportation costs (equal to €7.9
million, or 9.2% on revenue, in 1Q 2023, compared to €14.1 million,
or 11.9% on revenue, in 1Q 2022) as well as to lower custom duties
compared to 1Q 2022 (equal to €1.1 million in 1Q 2023, compared to
€1.9 million in 1Q 2022). While the Company is focused on
controlling discretionary costs, the low delivered sales in the
quarter has not allowed to adequately absorb fixed costs, resulting
in the increase of the weight of the operating expenses on
revenue.
1Q 2023 NET FINANCE INCOME/(COSTS)
During 1Q 2023, the Company accounted for (€3.4) million of Net
Finance costs compared to Net Finance costs of (€0.7) million in 1Q
2022.
Rising interest rates continue to adversely impact our results
principally in terms of increased interest expense of rental
contracts as well as third-party financing, notwithstanding the
average bank debt outstanding in the quarter significantly
decreased compared to 1Q 2022. As a consequence, during the
quarter, the Company reported Finance costs of (€2.1) million
compared to Finance costs of (€1.8) million in 1Q 2022.
In addition, the strengthening of the Euro occurred during the
quarter toward major currencies has resulted in a net exchange rate
loss of (€1.4) million, (compared to a net exchange rate gain of
€1.1 million in 1Q 2022), mainly deriving from the difference
between invoice exchange rates and collection/payment exchange
rates.
BALANCE SHEET AND CASH FLOW
During 1Q 2023, (€5.0) million of net cash were used in
operating activities as a result of:
- A loss for the period of (€3.3) million;
- adjustments for non-monetary items of €6.3 million, of which
depreciation and amortization of €5.5 million;
- a (€5.6) contribution from working capital change, mainly as a
result of the decrease in trade and other payables for (€10.4)
million, (€1.2) for payments connected to the reduction of
workforce, partially offset by lower inventories for €2.1 million
and lower trade receivables and other assets for €4.5 million;
- interest and taxes paid of (€2.4) million.
During the first three months of 2023, (€0.2) million of cash
were used in investing activities, as a result of (€3.2) million of
capital expenditure partially offset by €3.0 million collected from
our JV in China following the share capital reduction.
In the same period, (€4.3) million of cash were used in
financing activities, due to the repayment of long-term borrowing
for (€1.1) million, (€0.2) million for short-term borrowing
repayment and (€3.0) million for lease repayment.
As a result, as of March 31, 2023, cash and cash equivalents was
€43.8 million, compared to €54.5 million as of December 31,
2022.
As of March 31, 2023, 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 (€0.8) million,
compared to €7.9 million as of December 31, 2022.
*******
CONFERENCE CALL
The Company will host a conference call to discuss financial
information on Monday, June 5, 2023, at 10:00 a.m. U.S. Eastern
time (4.00 p.m. Italy time, or 3.00 p.m. UK time).
To join the live 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 2023 and 2022
on the basis of IFRS-IAS (expressed in millions Euro, except as
otherwise indicated)
First quarter ended on Change
Percentage of revenue
31-Mar-23
31-Mar-22
%
31-Mar-23
31-Mar-22
Revenue
86.1
118.5
-27.4
%
100.0
%
100.0
%
Cost of Sales
(55.4
)
(77.9
)
-28.8
%
-64.4
%
-65.7
%
Gross profit
30.6
40.6
-24.6
%
35.6
%
34.3
%
Other income
1.3
1.0
1.5
%
0.9
%
Selling expenses
(23.8
)
(31.5
)
-24.5
%
-27.7
%
-26.6
%
Administrative expenses
(8.9
)
(8.3
)
7.1
%
-10.3
%
-7.0
%
Impairment on trade receivables
(0.0
)
(0.3
)
-0.1
%
-0.3
%
Other expenses
(0.1
)
(0.1
)
-0.1
%
-0.1
%
Operating profit/(loss)
(0.9
)
1.5
-1.0
%
1.2
%
Finance income
0.1
0.0
0.1
%
0.0
%
Finance costs
(2.1
)
(1.8
)
-2.4
%
-1.5
%
Net exchange rate gains/(losses)
(1.4
)
1.1
-1.7
%
0.9
%
Gain from disposal and loss of control of a subsidiary
—
—
0.0
%
0.0
%
Net finance income/(costs)
(3.4
)
(0.7
)
-4.0
%
-0.6
%
Share of profit/(loss) of equity-method investees
1.1
1.0
1.3
%
0.8
%
Profit/(Loss) before tax
(3.2
)
1.8
-3.7
%
1.5
%
Income tax expense
(0.1
)
(0.5
)
-0.1
%
-0.4
%
Profit/(Loss) for the period
(3.3
)
1.3
-3.9
%
1.1
%
Profit/(Loss) attributable to: Owners of the Company
(3.2
)
1.0
Non-controlling interests
(0.1
)
0.3
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-23
31-Dec-22
ASSETS Non-current assets
180.0
177.6
Current assets
171.3
191.0
TOTAL ASSETS
351.3
368.6
EQUITY AND LIABILITIES Equity attributable to Owners
of the Company
83.4
87.9
Non-controlling interests
4.6
4.7
Non-current liabilities
99.6
95.3
Current liabilities
163.6
180.8
TOTAL EQUITY AND LIABILITIES
351.3
368.6
Natuzzi S.p.A. and Subsidiaries Unaudited consolidated
statements of cash flows (condensed) (Expressed in millions of
Euro)
31-Mar-23
31-Dec-22
Net cash provided by (used in) operating
activities
(5.0)
18.7
Net cash provided by (used in) investing activities
(0.2)
(4.6)
Net cash provided by (used in) financing activities
(4.3)
(13.5)
Increase (decrease) in cash and cash equivalents
(9.4)
0.5
Cash and cash equivalents, beginning of the year
52.7
52.2
Effect of movements in exchange rates on cash held
(0.6)
(0.1)
Cash and cash equivalents, end of the period
42.7
52.7
For the purpose of the statements of cash flow,
cash and cash equivalents comprise the following: (Expressed in
millions of Euro)
31-Mar-23
31-Dec-22
Cash and cash equivalents in the statement of financial position
43.8
54.5
Bank overdrafts repayable on demand
(1.1)
(1.8)
Cash and cash equivalents in the statement of cash flows
42.7
52.7
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 risks
and uncertainties that could cause the Company’s actual results to
differ materially from those stated or implied by such
forward-looking statements including, but not limited to, potential
risks and uncertainties described at page 3 of this document
relating to the supply-chain, the cost and availability of raw
material, production and shipping and the modernization of our
Italian manufacturing and those relating to the duration, severity
and geographic spread of the COVID-19 pandemic, actions that may be
taken by governmental authorities to contain the COVID-19 pandemic
or to mitigate its impact, the potential negative impact of
COVID-19 on the global economy, consumer demand and our supply
chain, and the impact of COVID-19 on the Company's financial
condition, business operations and liquidity, as well as the
geopolitical tensions and market uncertainties resulting from the
Russian invasion of Ukraine and current conflict. Additional
information about potential factors that could affect the Company’s
business and financial results is included in the Company’s filings
with the U.S. Securities and Exchange Commission, including the
Company’s most recent Annual Report on Form 20-F. The Company
undertakes no obligation to update any of the forward-looking
statements after the date of this press release.
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. With a global retail network of 710
mono-brand stores and 497 galleries as of March 31, 2023, Natuzzi
distributes its collections worldwide. 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. Always 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/20230602005283/en/
Natuzzi Investor Relations Piero Direnzo | tel. +39
080-8820-812 | pdirenzo@natuzzi.com
Natuzzi Corporate Communication Giacomo Ventolone (Press
Office) | tel. +39.335.7276939 | gventolone@natuzzi.com
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