Natuzzi S.p.A. (NTZ) 23 Oct 242024 Q2 Earnings call transcript

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi 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 passcode 39252103# in addition to the link already provided to join via video.

[Operator Instructions] Joining us on today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi, Founder and Executive Chairman; Mr. Carlo Silvestri, Chief Financial Officer; and Piero Direnzo, Investor Relations.

As a reminder, today's call is being recorded. I'd now 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 may differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. 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 listeners joining from Europe and good morning from the one at least joining from U.S. [ for our Chairman]. I would like to start with a brief introduction to what has been the second quarter in terms of sales.

As you have seen mortar sales slightly increasing versus the same period 2023, which is not something we are particularly excited about.

But definitely, need to be put in the context where not only our sector has been very soft. And to our knowledge, most of our direct competitors actually are reported in negative comps. But in general, the durable and consumer spending are very much depressed. I believe that 1 of you is following what's happening to another interesting industry, the automotive where there is serious double-digit decrease in orders.

So we interpret the fact that we have been able to defend our top line. And then if we look at the branded sales actually has been 3% above last year, is a sign of resilience of our company and also is a testament that our brand journey is very much appreciated and understood our partner and increasing 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, Natuzzi has taken this titanic -- 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 these customer experience can be better control is now becoming very important, roughly 70% of total sales are happening to retail, being DOS, FOS up to 45% in 2019, which still is a good year to compare before the pandemic.

So it's an increase of 23 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, the 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 4 or 5 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 highlight 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 U.S., 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 U.S. is central to our strategy and retail in U.S. is central to our strategy.

As part of that, I'm pleased to announce that we eventually opened a new DOS in U.S. in Denver is a location, which has been very carefully scouted for is in downtown, First Avenue, very close to other furniture brands that we consider right affinity for Natuzzi Italia, which include Roche Bobois, Restoration Hardware, West Elm, Crate&Barrel, Room & Board. Again, because our experience tells it is very important to be part of a district populated with the brand with a similar position. With this new opening, we now have 23 stores, of which 18 are directly operated and 4 are in franchising in the U.S. And again, this will remain a priority for us, both in terms of organic growth and in terms 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 have been, over the last few months, increasingly supporting our partner in China on operational level.

So we're really teaming up with a different department to support the JV team to take the right choices at merchandising, retail, marketing level.

Personally being more than 5x since the few last months every time really being very much immersed in the retail reality. Last year, it 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 our North of Shanghai, very Beautiful City. We wanted to make sure that Hangzhou store become a flagship, fully control in terms of design by our team, which is a total newness because despite being in partnership, our partner, has been somehow quite autonomous in some choices when it comes to retail.

In the spirit now to create a very high consistency of the representation of Natuzzi Italia globally, we agreed with our partner that a significant opening like Hangzhou need to be integrating we're working. What does it mean that the full layout, the merchandising, the design of Hangzhou store and actually been done by our newly created retail excellence division.

The Hangzhou opening event has been a success. There's been some-40 dealers joining more than 100 architect.

Now it's still very early, but it's encouraging to see that after 9 weeks from operation the Hangzhou stores is pacing at a double speed of the other remaining directly operated store in China, which encourage us to say we now have learned the job, we've done a lot of investment in terms of co-defining what should be, and we call it internally the brand retail region, 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 this is not a sign of authority but is a sign of business legitimacy because as Hangzhou show, when you do the right things, then you have a very good payoff.

So on closing on the retail franchising and directly operator store, we now have 681 stores. We believe that this is a very solid platform to regain growth as market condition stabilized.

There's been -- I don't see any more, Pasquale? Pasquale is with us.

Okay.

Sorry, you just disappear for one second Okay.

So in parallel to retail, there's been another significant effort in the duration of improving the quality of our gallery.

We call it the Reimagined Gallery because it's been really recreated a concept from these fundamentals.

As you remember, gallery is a shop-in-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-shop experience.

Again, in the search of delivering a brand experience, which is immersive. There's been a dedicated team that has been redesigned layout, the merchandising so that we can convey the experiences 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, as you know, now there is an iconic market, which is one of the opportunity we offer to our partners they want to invest in Natuzzi Editions or in some location for Natuzzi Italia where the potential does not sustain a full-scale store.

This new concept has been extremely well received. We opened some 43 new galleries, 25 has been reengineered and this is an effort we're going to be progressively rolling out to the 600 galleries we have globally.

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

So Piero [indiscernible] opening and closing, the balance net number is pretty much stable.

We opened 47 new stores in 2024 with kind of a business environment. I mean -- and these are -- I mean we just opened 1 store in Denver and Colorado as a direct operating store, but all the others are franchising.

So I mean...

Thank you for correcting me, thank you.

So in imaging in journey of Natuzzi or visualizing the journey of Natuzzi, you're really to have to understand the distance that Natuzzi has been covering which is significant because is still operating for a very few selective relationship in a way in which it just display the product.

But other than those relationships, which are chiefly with large retailer in U.S., 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 integration where we are very excited by the acceleration is trade and contract.

Let me clarify first what we mean by each of 2 words. Trade and contract.

So trade is the business that we do mostly to our stores, chiefly Natuzzi Italia 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 it's exactly the place where we can deploy our strategy, which is for Natuzzi Italia not to sell product but to sell project. We believe we have the legitimacy now to step in in-house and do a full project for the living room, for the bedroom, for the full house.

And this is increasingly happening. And in U.S., for instance, this part of business represent some 20% 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 component, contract, it 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 in the business where the buyer is a business operator, typically retail -- sorry, 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 site building can definitely involve the design of the units, can involve supply 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 the fashion brands Armani, Bvlgari. But those brands, not necessarily then they have the design competencies. They have the strength of the brand, but they don't have the design competencies. Natuzzi can fulfill this opportunity bringing the full breadth of these design companies -- competencies. And it happened, for instance, in one of this project, which is still under confidentiality agreement but will be publicly announced on the 12 of November, so we will have a specific press release on it.

So this new area of business already delivered 3 major projects, 2 Middle East, 1 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 the 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 plays.

To support and accelerate that business, we just establish individual business unit. They will be managing trade and contract. I speak about business unit because it will be assigned target in terms of growth and marginality. But of course, it would 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 the hard 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 point, 11 percentage point the gross margin.

In a context that could not have been in more turbulent because we went through years like 2001 -- 2021 and 2022 with hyperinflation, with scarcity of assets to materials. More recently, we witnessed a spike in transportation from one geography to the other.

So I believe this year, has been really challenging for many companies, they wanted to maintain the historical margin and our group has been able to increase it by 11 percentage point. Even in this quarter that we are discussing, we continue the trajectory because we reported 38.1% gross margin compared to 36.4%, 1 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 negativly in the gross margin without debt -- that again, severance in a sense are an investment for the future.

Without debt, the gross margin in the first quarter would have been up 39.3%.

So almost 3 point -- 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 3 or 4 percentage points more in terms of gross margin.

And this is the blended gross margin. Then when we look at integrated gross margin or retail, then here, we go in the range of more of 65%, 68% because, of course, there we -- [ sum ] the margin of our retailers and the margin of a producer.

So moving on the fourth point I wanted to highlight is, something which has been discretely managed in the sense we didn't read anything about Natuzzi laying off people, which I believe is an achievement per se because we work in a highly unionized market when it comes to workforce, but we have been achieving a lot. Because if we take a midterm perspective, we've been reducing almost by 900 people, our workforce.

Some 20% reduction in 3 years.

If we just look at these first 6 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 major consequence of evolution of Natuzzi. Natuzzi move from being a volume company to be a value company.

So we needed a lower production, we need new competencies and needed to change the shape of our, let's say, workforce.

So this has been planned. It is continue to be a focus.

We continue to do this in the most ethical and respectful way, but it is also part of our midterm plan.

Just to give you a single number, even as you know, we are 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 our productivity per employee by 30%.

Last point I want to mention before talking about High Point, it's something we are proud of because we continue elevating the quality of our leadership team and mentioned before how interesting and challenging is to transform a company that for 4 decades and now has been working as a vertically integrated manufacturer to transform it with -- to transforming into a branded retail company, which has been the vision Pasquale had some 20 years ago, but it's accelerating now. Clearly, talent play a specific role at all levels, definitely at the store, but in new areas like merchandising, retail marketing, all areas where the company need to learn to fly while flying in a sense.

As part of the effort for continuingly elevating our capability in the retail in consumer space, we'd be very pleased to have Nicola Internullo joining us, who is Nicola Internullo and what he 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 at McKinsey, he has been working in Loro Piana, in LVMH, the L'Oréal, lastly he was the HR director for Burberry for North America, a region that you know is very central to our development.

He's joined us really with the task of helping us to accelerate this transformation into our retail and branded company. He will closely team up with Mario which remain our group HR as our Director, which has really a deep knowledge in transformation and structure.

So we believe that this kind of teaming is really fit to our new challenges.

So having commented more on the, say, ordinary matter, let me comment on High Point.

As you know, I announced an agreement with our Board, our decision to divest no strategic asset as part of a strategy to become a more agile company and free up resource to reinvest in the business.

One of those assets which has been identified that 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 High Point.

High Point has been on the market basically since 2019, then there's been acceleration in 2021, where we appointed 2 of the major real estate brokers specialize in commercial real estate. The very high interest rate did not help to close some of the discussion we had for potential buyers in U.S. We've been more recently receiving an interest from our inside shareholder, Pasquale, we've 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 architect globally who asked for a potential transaction.

We do have, within our governance, a committee that is task to assess transaction that might involve related parties is composed by 3 independent Board members. Giuseppe D'Angelo, who is a Senior Manager from Ferrero; Gilles Bonan, who has been the CEO, a long-term standing CEO of Roche Bobois; Marco Caneva, which is a former partner of Goldman Sachs.

So I -- 3 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 proposal of -- by the insider shareholder were at market value.

During the last Board, we had last week given this was highly consistent with our strategy on disposal, nonstrategic asset, myself and the Board agreed for the sales which has been in the approved is still, let's say, in the process because you can now expect is some procedural steps to be taken.

But in principle, unless there is any let's say, constraint in this step will happen within the year. The amount, the gross amount for the transaction is of $12.1 million.

Of course, it will not be commission fee involved, the sales is configurated dry sales. In the past, we also explore sales and leaseback option which were not very positive seen by myself and the Board because they will require quite significant liability midterm.

So having comment 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, we've been a bit longer than usual, but I wanted to justify the work that our team is doing the quarter in the region and in the store, which I can assure you is very significant.

Our team is very cohesive. It's working very hard and 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 might open for questions.

[Operator Instructions] Our first question today is coming from David Kanen.

Okay. Can you hear me?

Please proceed sir.

Now yes.

Congratulations on selling the building, congratulations to you Pasquale I hope it works out veruy well, I'm pleased with the outcome. I have a number of questions, I'm going to get half way 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 question-by-question? Okay. I thought you had a longer list.

You want to go question by question.

Yes, let's start with that.

Okay.

So the discussion we had with the Board when we decide in 2021 to start this process of selling nonstrategic assets has been very clear. The proceeding, if any, of these disposal happen as it happened today, will go on structural improvement basically in 2 area. 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 market context 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 they are trade union involved. But our area where the evolution of our business model require restructuring.

So it's not like a [ flat bond ] restructuring.

The second dimension, you're absolutely right, is retail. The fact we have money doesn't mean any way, Dave, that we're going to be rush in opening retail. Why is that? First, because -- for 3 reasons: First, because we still had plenty opportunity to growth organic.

Second, even the most recent opening like Denver, testified that this is very, very delicate to find the right location in the right place and 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 context, I believe restructuring assume for you a shareholder offer a more predictable return in the short term, which doesn't mean we will not open stores. But I'm saying those 2 levers, maybe in this phase will be used in this sequence. No, you're muted, I believe. Or Kevin you muted.

Am I still mute?

No, 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, 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 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 preopening expenses and onetime expense that were in SG&A. I come up with a 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 with, 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 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 don't -- we do not have data in particular on KUKA or Natuzzi. 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 hard work on commenting on margin for -- we move on to China, not dreaming -- Sky dreaming, but think [ 400 ] is a natural, let's say, revenue potential of this company without progression, 11 percentage points of gross margin would almost translate [ 20 to 30 ] EBIT number 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 analogy with other sector, you are seeing 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, they are 1 seat of -- the price of 1 seat of 3 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 the U.S. when there was the COVID crisis.

The impact of that still need to be visible because it's very recent. But everyone is open, 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 store were empty. The stairs bringing to the second floor we're somehow stopped to save energy. And I'm not talking about furniture mall, I'm talking about fashion more.

Then if you go to the furniture mall, 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 JV to bring them close to us to make sure the retail and merchandising marketing choices are taking fully leverage our knowledge so that we are preparing our operation to intersect this positive rebound of the market, which I cannot predict it will happen next month or in the first part of 2025. Definitely, I believe we are closer to what is the bottom because if the government step in situation can only improve. No, you're mute again.

Okay. Can you hear me?

Yes, 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/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, 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?

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 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 that we're representing well, the brand, having right merchandising, right let's say, customer experience, other that were using it more tactically more in the right manner.

We are elevating the banner of course, gradually because we also recognize that our partner also facing difficult 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 expectation are increasing in terms of what is the minimum level of investment in customer experience a gallery should provide.

So to your question, 43 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 U.S. where quite a loose implementation of what is the new gallery concept we have.

Just one, I will link back to what was 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 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 decided either to open new store or to run new 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 humble manner, is also a result of the hard work we have done in showing what the strength of Natuzzi can be.

So I challenge you to find other brands which are opening 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. Questions from other participants, maybe you want to quickly check if there's people in queue.

[Operator Instructions] And we do have a question at this point coming from George Melas from MKH Management.

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 open new stores, you have invested a fair amount of money 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.

Thank you, George.

Our Head of Global Retail Excellence was actually invited to this call, and I'm sure he would have addressed the question much more effective than I would do, but it'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 year 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 mentioning that by heart, so I might be off of a bit, but Piero meanwhile we're streaming the data.

Now the average is more in the range of 4, even those not clearly the best year for retail -- furniture retail in the U.S.

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 1 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 to date, we would open Natuzzi Italian store considering where the collection has moved.

So location has an impact. And we are, of course, looking at the tail of stores where we believe location maybe is not a good 1 which doesn't mean it's not in the right city but retail really change, if you change 2 blocks, it's already a different environment.

So location is -- our first thing is affecting our performance.

The second element is the team quality.

We have codified what is the [indiscernible].

As I mentioned, Natuzzi learned the way retail because it was a new job for the group. And we recognize 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 that 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 have a great seller in the current industry or in the equipment, not necessarily you're able to engage with the designer on and 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 the right assortment.

So Natuzzi is doing a great job on upholstery on dining and accessory, we definitely have opportunity of improvement. And to go to extra mile, that is an area we need to work on because to innovate the average ticket, of course, that also play -- in telling you how big is the variancy, so we have top-performing stores like Costa Mesa that are more in the range of EUR 6 million and above per year and tail stores, which are well below the average.

The reason why we produce the retail excellence division easily because we want to codify best practice and to help the store moving -- aligning more on the average because still it's quite widespread. That's also the reason going back to early question of Dave, where -- 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 excellence program.

So then we will open a store. We know that it can be 5% to 10% below or higher the average but cannot be necessarily a surprise.

So I hope that address 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. 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 want, I can provide him with data.

Our next question is coming from Steve Emerson from Emerson Investment Group.

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. The High Point sale, how much is net cash coming back to the company?

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

So let's say, I'd say that te process is still in progress. The offer we have received from our major shareholders is USD 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.

So -- and we're going -- all the cash, the net cash on these sales will come in accounts.

So all the sales is of USD 12.1 million is all cash.

Excellent. Will this cash then enable a fairly rapid expansion in the U.S., once conditions stabilize, will -- what kind of growth in new opening? 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 spend at particularly Natuzzi Italia, presence through direct-operated stores. We just completed 5 opening because 4 last year, 1 this year.

So we want really to make sure those stores will come at regime, but we might look again at new opening in 2025.

Definitely, we see potential for additional directly operated store in U.S. And this is, as I mentioned, one of the potential area where the proceeding of High Point would be going.

So definitely, this is -- to confirm, we are not changing our strategy. I hope you understand that this market and the fact we just opened 5 new stores advise us to be gradual because opening right store is great, opening wrong because you don't have the right team, or wrong location is one of the worst investment, or worst legacy you can add because then you are committed with [indiscernible].

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

So it's not a sales leaseback in the meaning that when we were considering sales leaseback to our brokerage agency, they were requiring the potential buyer for some 12, 14 years of commitment of minimum lease, which was very significant and which would have caused us to increase by EUR 20 million on our liability in correspondence of debt obligation.

So this is absolutely not the case. And that's the reason also why our Board and myself. We're looking at those sales and leaseback opportunity quite with skepticism.

This is dry sales, I would 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 dry sales.

Okay.

So maybe our rent will go up, what, $100,000, $200,000 a year that's all?

I mean I am -- it will be a market calculation. But in doing that, remember that right now, we were early spending some EUR 0.5 million and maintenance cost.

So that will, of course, will not be anymore on our book.

So I would say definitely that will 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 a potentially lease. It will be quite an easy deal because we have very clear what is the market value for leasing office, the last space 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 to be able to give you a precise figure.

Just in the question, remember that, yes, we might have some active -- sorry, some lease to pay, some rent to pay. But at the same time, we won't have any more the maintenance cost.

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 is a matter 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 is proceeding.

So we have not taken otherwise, we would have announced it any decision on share buyback. I understand it's a legitimate question, but I also believe there is a very good opportunity from our operations at this moment.

[Operator Instructions] We do have a follow-up from David Kanen from KWM.

Okay. I guess the first -- a couple of more questions. Could you sketch out for -- can you guys hear me? .

Yes, we do.

Okay. Could you sketch out on trade, what your, let's call it refocused strategy is? I understand like designers generate a lot of business and they can really grow sales in your 4 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 over the last couple of years in terms of your trade initiative and how you're going to grow that?

Yes.

So to cut it short, I would say pretty much everything is different. In the sense, we now have a very -- Dave can you maybe mute? There's 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 this traditional strength of Natuzzi, which is still important. And actually, we have doubled down on that for the consumer. This idea of comfort, which we branded into [ comfortness ]. It's very important to talk and have a dialogue with the consumer.

Things for instance, about America, where we discussed a lot, the consumer recognize Natuzzi and actually reward Natuzzi for this idea of comfortness. 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 architect globally, I'm talking about marcel wanders, I am talking about Paola Navone [indiscernible] .

So really people which sit on the top of the pyramid, which have been reinterpreting with humble approach the style Natuzzi make it more design-oriented. And we came up with a very incredible project. I will be pleased to show some of you.

Like last collection we have a project from Karin Rashid, is an Iranian designer who lives in New York, very visionally, but humble enough to understand what Natuzzi mean and designed 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 R&D element that need to be taken.

So first of all, we have now a different collection, an architect they enter in our store can find material to furnish a penthouse in New York to furnish Dubai penthouse, which didn't have before.

Second, which, again, I believe we should -- next time we will be in U.S. invite in one of our stores, 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 I would say -- I wouldn't say, but digital support to do project digitally because once you have played with the material, you want to see in a 3D configuration could look like.

So now we developed a configurator which can actually bring to life this project from [ CAD ], 1 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 the designer in New York. We need to have a designer in our stores.

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 recognize 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 Sao Paulo, where we're doing a great job on designers and CASACOR, which is the place to be in terms of magazine for designer with our partner, and we invited hundreds of architects to see our collection and this has been proactive.

So and I can continue and assure 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 word I 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 and think for the 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 configurate 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 planners.

We have all the tools, we have -- I mean, project that allow us to design home for customers where the ticket become EUR 100,000, EUR 80,000, EUR 150,000. That has to do with trade. And we have, I mean, some stores where 30% or 35% of the business is straight.

So in other words, there are consumers. They come directly in our store they choose the product, the project that we provide to give a service to them and sell the product.

But then there are designers, architect that come in our store by they ask us to design the project for the home of their clients, their customer. But there is -- I mean, Antonio, we -- I mean also in one of our store in Miami, a week ago or 2 weeks ago, we sold a number of sofa products for an hotel for EUR 8 million, I believe, just 1 sell of EUR 8 million.

We have, I mean, November 12 in Dubai, we should promote and present in the stadium to a number of potential consumer the Natuzzi apartment home. And we already have a contract in our hands, I believe Antonio for the Natuzzi harmony residence for another 55 apartment.

So there is a building which is carving our name Natuzzi Harmony residents. We designed the building, we designed the apartment. We designed the furniture, everything would be just a Natuzzi in Dubai. A lot of things, I mean, we are certainly doing, which is very much different than sending the sofa in other worlds, 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 may have a different call.

So David, this is really -- I mean, this is 65 years of history, but the last episode are happening very rapidly.

So some of the things we are discussing really materialized over the last 6 months, some over the last 12 months is really accelerating. Maybe they were happening here and there, but not in a systematic way.

Okay. Pasquale, thank you for sharing that and sketching out for us with the potential and long-term opportunities 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 4 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 [indiscernible]

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

You did well.

You did well.

So the last two questions, Antonio, I appreciate the fact that were we in the 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 -- again, you want to -- 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 that are trained in the right location. But longer term, 5, 8 years from now, can we not add 50 to 60 stores over time, okay, executed well. When I look at our competitors, when I look at Arhaus and RH and their boxes are larger than ours, they're at those numbers. Is that a realistic long-term goal 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 U.S. branded business. We're not going to go back to unbranded. A lot of that will happen to stores. We do believe that in some areas the gallery, which basically is a store just within a multi-brand environment is also a line opportunity to reach state, which will not sustain a fully fledge store.

But definitely, the opportunity in U.S. are massive, and some -- a significant part of that will happen to directly operated store for Natuzzi Italia.

We discussed that in the past, our long-term strategy, if you take 18, 19 definitely 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 5 stores we just opened. And second because retailers need to be an area where we minimize mistake in terms 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 tens of millions, even hundreds of millions of dollars.

Now it seems to me there are 2 home furnishing e-tailers, e-commerce companies, 1 of them begins with a W, and everybody knows that are massive, okay?

It seems to me like that it's not the right venue for Natuzzi Italia, selling $10,000, $15,000 sofas, but on the lower end with Editions $2,000 sofas, it seems like it's a really good fit. My question is, does -- can -- does Divani&Divani also be sold potentially in the U.S. at these large e-commerce, home furnishing companies along with Editions. 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 and 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 Divani&Divani 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 will be more -- a channel to drive traffic to the store because if you want to sell projects, not product, it's difficult to envisage that online.

There may be some improved product like revive or other that can be actually purchased online, but otherwise for Natuzzi Italia, there will be more dry traffic to the store.

For let's say, the second brand. That is still an opportunity where I feel we have not done equally well like another area like trade, for instance, because we still need to deploy it carefully.

On the idea of the Divani&Divani there is one element, the -- won't prove solving here, but there is one element that we need to be cautious. That Divani&Divani, which is a completely different banner to a great extent, has the same collection.

Having said that, I believe that for Natuzzi Editions the digital opportunity is something we still need to address properly, especially in U.S.

So I don't want to be defensive.

I think you are right on that. I don't want to be defensive and let's take the blame on me.

We are later than I wish we could be now.

I think we've done great work on retail, great work on merchandising, on many other dimension, 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 list.

Yes. Yes. Yes. 100%.

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'll leave it to Pasquale for closing remark on my side. I really appreciate this conversation and the tone. I don't want to convey the message we accomplished with what we have achieved so far. There is a lot of work we need to be done. We believe the company definitely deserve 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'll leave it to you for your final remarks.

As you know, Antonio, I'm -- as the Founder of the company, I'm writing down the Natuzzi brand by birth. Natuzzi brand by birth gives a very clear guideline of what the Natuzzi brand stands for. I'm riding down the DNA, the harmony called are -- digitalizing harmony called retail region.

I believe that the brand is exactly like the religion and the store, the retail is the Church where the brand needs to be -- where the religion needs to be practice.

We are doing a really good job in this very difficult time to define clear guideline for the brand management and also for the retailer way we should manage.

So but I really appreciate the way Antonio you have been describing the entire quarter and period and also all the questions raised by the shareholders that has been very constructive. I really thank you very much to everyone for the constructive approach which we need. Thank you again.

Thank you. That does conclude today's teleconference and webcast.

You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.