Sales down again at Natuzzi; ‘confident’ to ‘emerge stronger’

Italian furniture manufacturer Natuzzi has reported a decline in third quarter sales but remains “confident” in its brand moving forward.

According to its unaudited financial information for the third quarter ended 30 September 2023, total sales fell 35.8% to €74.9m. Q3 branded invoiced sales, while being below Q3 2022, were up 4.3% against the same period in 2019. Operating losses stood at €1.3m, down from a profit of €4.1m.

“3Q 2023 consolidated revenue continues to be affected by the persisting macroeconomic and industry-specific challenges, resulting in a reduced consumers’ spending capacity,” Natuzzi said.  

“Furthermore, 3Q 2023 compares with a strong 3Q 2022 that benefitted from two effects: i) the recovery of production by the Group’s Chinese factory after being closed for a two-month lockdown, ii) a €28.3 million reduction of post-COVID backlog, of which €12.7 pertaining to our Chinese operations and €10.4 pertaining to our Italian operations.

“As a remainder, the Chinese factory mainly serves the North American market with Natuzzi Editions and unbranded products.”

Natuzzi had a gross margin of 35.4%, compared to 37.7% in 3Q 2022 and 28.7% in 3Q 2019. “While gross margin in 3Q 2023 is higher by almost 7 p.p. than gross margin in 3Q 2019, it is slightly lower than gross margin in 3Q 2022,” the group said. “The €41.7 million sales difference between 3Q 2023 and 3Q 2022 resulted in a higher incidence of fixed costs, which has not been completely offset by increased efficiencies and improved pricing discipline.”

Pasquale Natuzzi, Chairman of the Group, commented: “The persistent geopolitical instability, aggravated by the emerging crisis in the Middle East, has created an environment of reduced consumer confidence, presenting a challenging context for our industry.

“While we acknowledge these challenges, we remain highly confident in our Brand and Retail strategy. With a Brand awareness which, as certified by a leading independent institute, poses Natuzzi as 1st brand in the U.S., 1st in the UK, 1st in Spain, 2nd in China among European Premium Furniture brands, it is evident that our growth potential is substantial.

“In addition, the restless focus of our team to reduce the costs of our Company is strengthening our operating model; the current circumstances are providing an opportunity to accelerate this work.

“Natuzzi, with its 64 years of rich history, has weathered numerous moments of both glory and challenges. I have unwavering confidence that, together with our team, we will emerge stronger from the current market phase.”

Antonio Achille, CEO of the Group, added: “The persistent challenges that have characterized the last 18 months of the global economy require us to streamline our cost structure while continuing investing in our growth platform.

“At the same time, we are committed not to decelerate from those investments needed to bring our growth to the next level and to enhance our marginality. These investments are primarily concentrated in two areas: Retail expansion and Improvement of our Operations. During the first 9 months of 2023, we invested €10.6 million, of which €4.2 million in retail and €6.4 million in the operations.

“On the industrial front, we invested to continue executing the ‘industry 4.0’ project and to respect our long-term commitment with the local public institutions to enhance the quality of our industrial operations in Italy.

“We continue to take decisive actions to ensure that our operating model becomes more agile and structurally more competitive. Since 2021, we have successfully reduced our headcount by 649 units, and we plan to continue on this direction throughout 2024 to make our organization more agile and more responsive to the new market context.

“On the retail front, in the first 9 months of 2023, we opened nearly 1,900,000 sqf of retail capacity. We inaugurated 5 Natuzzi Italia flagship stores in the US: San Diego, Miami, Manhasset, Houston and Atlanta. In addition, we opened a new Natuzzi Editions DOS in Frisco managed in Joint Venture with a local partner. We also opened 45 franchise stores, of which 26 located in China.

“In our ongoing pursuit to enhance corporate retail excellence competences, we have initiated a collaboration with Brian Waidelich, formerly a key member of the Senior retail team at Mitchell Gold + Bob Williams, where he spent over 18 years. We are confident that Brian’s extensive experience in retail will be instrumental in accelerating the impact of the newly established Global Retail Division on our retail teams worldwide.

“We are actively engaged in the process to accelerate the sales of our non-strategic assets, the most relevant being our iconic building located in High Point, North Carolina, of 1,210,000 sqf, strategically located at the centre of the district that, twice a year, hosts the largest furniture market show in the US.

“The proceedings from these potential divestures, in case they materialize, will be strategically directed to accelerate our retail expansion, focusing on North America, and to support our restructuring, particularly in Italy.

“The 3Q results reflect a significant impact on our business due to the unfavourable consumer dynamics observed in all key regions where we operate. In comparing 3Q revenue to the same period in 2022, however, it is crucial to note that 3Q 2022 results were boosted by the reduction of the backlog of written orders, related to the pandemic demand spike, which amounted to €28.3 million in the quarter.

“Despite the challenges from lower sales, our gross margin in the first nine months of 2023 showed improvement compared to the first nine months of the previous year, also thanks to the efforts of our supply-chain and industrial team in addition to a more structured price discipline which is now part of the Company’s commercial approach. This has allowed our industrial margin to be more resilient, notwithstanding the significant decline in sales.

“The primary contributor to the Group’s overall operating loss stems from the decline in revenue for the quarter. The current business environment markedly differs from the previous year, which experienced a surge in demand following the pandemic. Consequently, we did not deliver enough revenue to break-even. We are working to both sustain top-line with a set of specific actions by each geography and to continue reducing our break-even point, by finding new sources of efficiency through a more agile industrial footprint.

“As the duration and intensity of the furniture industry’s current weakness remain uncertain, it becomes paramount, as we approach 2024, to focus our efforts on tightening cost control and increasing financial discipline to ensure that we can navigate this challenging business climate with resilience.”

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