- 2018 FIRST QUARTER SALES HOLD
DESPITE STILL CHALLENGING RETAIL ENVIRONMENT
- COMPANY’S DIRECT RETAIL OPERATIONS
CONTINUED TO IMPROVE, WITH LIKE-FOR-LIKE SALES INCREASING BY 17.3%
VERSUS Q1 2017
- 2018 DOS ROLLOUT PLAN ON TRACK, WE
EXPECT TO HAVE 73 DOS AND 20 CONCESSIONS BY YEAR END,
GLOBALLY
- OPERATING RESULTS AFFECTED BY
ADVERSE CURRENCY MOVEMENTS
The Board of Directors of Natuzzi S.p.A. today approved its
first quarter consolidated financial results.
First quarter 2018 net sales were €117.7 million, up 1.6% from
€115.9 million reported for the first quarter of 2017,
notwithstanding the generalized strengthening of the Euro versus
USD in particular in the period as well as challenging weather’s
negative effect on USA retail. Under constant exchange rates, total
net sales would have increased by 8.2%.
Revenues generated by our core business (sofas, beds and
furnishings) were €110.2 million, up 1.0% (or up 8.0% at €117.9
million, under constant exchange rates) compared to the first
quarter of 2017.
Total upholstery net sales declined 1.2% quarter-over-quarter.
This was more than offset by the increase in total furnishings net
sales (+29.3% at €10.4 million over 2017 first quarter), which is a
direct result of our new retail and merchandising format.
Furnishings remain an important part of our branded strategy.
During the first three months of 2018, Natuzzi branded sales
increased 2.5% (or 10.0% under constant exchange rates) versus same
period of 2017, a testament to both our brand strength and our
retail strategy. Sales generated by the Softaly division decreased
by 3.0% during the period, but would have increased by 2.4% under
constant exchange rates.
Retail division
During the first quarter of 2018, sales from our retail
division (a network of Directly Operated Stores, or DOS, and
concessions) were €15.2 million and increased by 26.1% (or by 32.2%
under constant exchange rates), with positive results in the USA
(+97.2%), China (+1.0%), Spain (+17.8%), Italy (+11.5%),
Switzerland (+13.3%). Sales from our UK-based retail network
decreased mainly due to the rationalization of our network, having
closed the sale of one DOS to an independent partner. The strength
in the US was primarily due to the opening of new stores, which we
continue to do aggressively.
Retail sales represented 13.8% of our core business, increasing
from 11.1% in the first quarter of 2017. As the percentage of the
business from such DOS increases, we expect to get improvements in
terms of growth and overall profitability.
During the first quarter of 2018, Natuzzi Italia retail
net sales increased by 39.6% to €10.0 million, Natuzzi Editions by
1.0% to €1.4 million, and Divani&Divani by Natuzzi by 9.0% to
€3.8 million.
During the first three months of 2018, we opened three Natuzzi
Italia DOS, one in Chicago, one in Los Angeles-Costa Mesa and one
in Paris. In addition, one Natuzzi Edition DOS was opened in China.
As of the date of this press release, there are 64 DOS, of which 37
operate under the Natuzzi Italia name, 16 Divani&Divani by
Natuzzi and 11 Natuzzi Edition. In addition, the Group directly
operates 20 Natuzzi Italia concessions.
The restructuring measures implemented in our trading
subsidiaries and the increased level of productivity of our stores
have allowed for a gradual improvement in our operating results.
During the quarter, our retail network reported net losses of €0.3
million, improving from net losses of €1.1 million in 2017 first
quarter. We will continue to restructure our trading subsidiaries
to enhance the overall retail profitability.
This improvement in the retail operations was achieved even
though new DOS were opened over the last few months. The opening of
new DOS generates up-front costs rather than sales, due to the
product order-cycle, which typically requires three months for
manufacturing, delivery and invoicing. In addition, acquired stores
also need a restructuring phase. Lastly, it takes about between 12
and 18 months for a new DOS to be fully productive.
The improving picture of our retail network is even clearer in
our Like-For-Like store network that reported sales of €13.1
million (up 17.3% from €11.2 million in 2017 first quarter) and an
operating profit of €0.3 million from an operating loss of €0.7
million for the first three months of 2017. In particular, we
continue to see like-for-like sales improve in our DOS located in
USA (+69.8%), UK (+1.7%), Italy (+15.0%), Spain (+14.5%), and
Switzerland (+9.1%). Our business in China generated sales for €1.2
million, versus €1.3 million in 2017 first quarter, due to more
aggressive promotional sales in the period. Our Chinese business
remains profitable.
As of the time of this release, year-to-date order flow for our
total DOS network show a 4.9% increase (+8.0% under constant
exchange rates), led in particular by the 12.4% increase in the
Natuzzi Italia business (+15.3% under constant exchange rates). The
4.9% increase in the retail order flow depends also on the
increased number of contracts (+5.6% versus same period in 2017)
and the implementation of our new marketing and value-driven
promotional strategy, which has led to reduced discounts against
the same period last year (18.6% YTD versus 21.7% for the same
period in 2017).
The Group confirms the opening of additional 9 DOS by the end of
the year, namely 2 in the USA, 2 in China, 2 in the UK, 2 in Italy
and 1 in France. This will bring our worldwide DOS total to 73 and
20 concessions. The opening of an additional DOS in USA initially
planned by the end of this year, has been postponed at the
beginning of 2019.
Natuzzi wholesale division
Sales from our Natuzzi wholesale division, that
distributes branded products through franchised operated stores
(FOS), were €67.5 million, down 1.7% from €68.7 million in the
first quarter of 2017. Under constant exchange rate, the Natuzzi
wholesale division would have increased by 6.2%. These sales in
particular were also impacted by weather in North America.
Natuzzi Italia franchised sales increased by 9.6% at €28.9
million and Divani&Divani by Natuzzi by 56.3% at €5.4 million.
Natuzzi Editions franchised sales decreased by 14.6% at €33.2
million mainly affected by adverse currency movements as well as
difficult weather conditions in the North American region at the
beginning of the year.
We will continue to restructure the current distribution network
also of our franchised Natuzzi points of sale. In particular, we
intend to work closely with our independent partners in order to
transfer the know-how and best practices of our retail business
model also to our franchised network.
We will push both existing and new customers so that they can i)
open new franchised Natuzzi Italia and Natuzzi Editions stores in
those cities where market potential is not properly exploited; ii)
relocate the existing stores in case their current location and
size are inappropriate to take full benefits from our retail
format, and iii) upgrade the existing stores with our new retail
concept, in terms of merchandising, marketing tools, retail
excellence, customer analytics and KPIs monitoring.
Softaly wholesale division
Sales from the Softaly wholesale business were €27.5 million,
down 3.0% over 2017 first quarter. Under constant exchange rates,
sales from Softaly division would have been up by 2.4%.
Softaly reported a 17.8% increase in the EMEA region over 2017
first quarter. Sales from the Asia-Pacific decreased 7.3%, mainly
because of adverse currency movements: under constant exchange
rates, they would have been up 4.8%. Softaly is still suffering in
the North American market (-34.0%) due to difficult retail
conditions. We recently introduced a new collection with appealing
price points to help recover our position in this very important
market.
We have been carrying out different initiatives to further gain
competitiveness in our unbranded offering and recover market share,
with particular reference to the North American market. In
particular, we have been reengineering the Softaly collection, in
order to reduce complexity in our production, and get higher
economy of scale and production efficiencies. We are also revising
our Softaly customer portfolio with the aim of focusing on
customers having appropriate size and potential.
Gross margin
During the first quarter of 2018, the consolidated gross margin
was equal to 31.0%. Under constant exchange rates, consolidated
gross margin would have been equal to 33.1%.
As far as upholstery volumes are concerned, the Group invoiced a
4.5% increase in seats. Such increase has been the result of a
-0.2% seats sold for Natuzzi and a +10.6% seats sold for Softaly.
This worsening in the product mix was the main reason for the
higher incidence of consumption as a percentage on net sales along
with increases in the cost of some raw materials, such as foam and
wood.
Net of the accrual made last year, the Labor cost as percentage
of sales increased from 18.0% in 2017 first quarter to 19.4%. Such
increase was mainly due to the different mix of products sold and
to the acceleration in our operations to fulfill the delivery terms
required by our customers. This caused the Company to utilize extra
work-shifts that has contributed to the increase in the cost of
labor.
The Company has adopted selective price-list increases to better
face the inflationary pressure from some of the raw materials used
in production and to take into consideration the strengthening of
the Euro currency.
SG&A
While we continued in the first quarter to invest in the
expansion of our retail network and the strengthening of sales
management in the USA and China in particular, the “Other SG&A”
expenses decreased both in absolute terms and as a percentage of
sales as compared to 2017 first quarter. In fact, “Other SG&A”
for the first quarter of 2018 was €22.7 million (or 19.3% as a
percentage on sales), decreasing from €23.9 million (or 20.6% on
sales) in 2017 first quarter. This was due to higher sales,
cost-reduction program, and favorable exchange rates.
In expanding our DOS network, we will mainly incur those costs
that are strictly related to the opening of a new DOS (such as
store staff, new store managers, utilities, rent, and so on) and
will concentrate our expansion in those markets where we already
have a retail organization in place as to favor the absorption of
fixed SG&A costs.
Continuing Investment
Digitization is critical to our business for the future. We must
continue to invest in order to meet our customers’ needs in the
most efficient way. Our costs have shown improvement even after
these important investments.
In the last few months, we have continued to promote the brand
through exhibitions, events and opening of new generation
stores.
The most important fair of the furniture / design sector took
place in April in Milan and for the first time we presented a fair
booth presenting a real Italian lifestyle brand displayed in a way
that architecturally spoke a language of pure interior design. And,
we launched collaborations with two of the most important
architectural designers in the world: Marcel Wanders and Mario
Bellini.
The Agronomist collection (one of the two created by Marcel
Wanders) has also been redesigned in a special / limited edition
for the NY Design week earning an honorable mention from the
organization NY X DESIGN.
The interest that the international design community has shown
for these projects has been strong, leading us to consolidate a
position of leadership on the sector. And the media coverage
obtained from these events further enhances the value of our
brand.
First quarter 2018 net Results
During the first quarter of 2018, the Group reported an
operating loss of €3.0 million. Under constant exchange rates, the
Group would have reached a break-even result at the operating
level.
Group’s net losses attributable to Natuzzi S.p.A. and
Subsidiaries were €4.9 million.
Group’s available cash as of March 31, 2018 was €44.8 million,
from €55.0 million at the end of 2017. We had an acceleration of
production in March and consequently experienced increasing trade
receivables that more than offset the positive contribution from
accounts payable and inventory reduction.
Joint Venture with Kuka
On April 17, 2018, Natuzzi Trading (Shanghai) Co., Ltd., the
Company’s wholly-owned Chinese subsidiary, following the Share
Purchase Agreement dated March 22, 2018, received CNY 271.2
million, equivalent to €35.0 million at the exchange rate of the
same date. This payment was carried out by Kuka as a contribution
to the Joint Venture for the subscription of a capital increase of
U.S.$ 567,869 in the Joint Venture. Full availability of such
amount is subject to obtaining any regulatory filings and approvals
by local authorities, as well as the satisfaction of other
customary closing conditions. In May 2018, the joint venture
obtained the approval from Kuka shareholders and the Company
believes that the closing of the Agreement will occur in few
weeks.
Chairman and CEO Pasquale Natuzzi commented: “While the overall
environment for our wholesale business remains a challenging one,
we think that, thanks to our new collection, our franchised
business could add growth. As more of our franchisee partners adopt
more of our approach, we expect their business, and as such ours,
to improve.
I believe it is important to point out that thanks to the very
positive results coming from our DOS, we will continue to pursue
our retail-based strategy. The final goal is to have a more balance
distribution mix between retail and wholesale business.
I am pleased to report that we have executed the Joint Venture
Agreement with Kuka and expect the JV to be operative in the short
term, after local authorities’ approval. This will essentially
drive our retail business in China, a very important growth market
for us.
In summary, while I am personally disappointed of our results, I
remain committed to and optimistic about our strategy and our
future.
Chief Financial Officer Vittorio Notarpietro added: “The
comparison of the first three months of 2018 with same period of
2017 has been characterized by the strengthening of the euro versus
all major currencies, and the result of operations reflects this
scenario. Under constant exchange rate, in fact, the Group would
have reached a break-even result at the operating level.
The retail expansion strategy is proving to be correct. Our DOS
operations continue to grow and improve their performance. For the
rest of the year, we intend to capitalize on the investments in
retail made so far by opening new DOS in those markets where we
already have an organization in place.
At the same time, it is of crucial importance to improve the
execution of the brand strategy in the network of franchised
stores, which still represents the majority of our current
business.
The Company continues to negotiate with the Trade Unions and the
relevant Italian Ministry in order to find a solution for the
redundant workers in Italy.
While the new product presentation got positive feedback, we
expect the effects from such initiatives to realize starting from
the third quarter of this year.
The weaker-than-average order flow for the March and April
period due to what our customers are telling us is a very difficult
environment, will result in 2q2018 sales below our previous
expectations.”
---------------------------------------------------
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
Certain statements set forth 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, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. 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. More
information about the potential factors that could affect the
Company’s business and financial results is included in the
Company’s filings with the Securities and Exchange Commission,
including the Company’s Annual Report on Form 20-F for the year
ended December 31, 2016. 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 Italy’s
largest furniture house and one of the most important global player
in the furniture industry with an extensive manufacturing footprint
and a global retail network. Natuzzi is the Italian lifestyle
best-known brand in the furnishings sector worldwide (Brand
Awareness Monitoring Report - Ipsos 2016) and has been listed on
the New York Stock Exchange since 13 May 1993. Always committed to
social responsibility and environmental sustainability, Natuzzi
S.p.A. is ISO 9001 and 14001 certified (Quality and Environment),
OHSAS 18001 certified (Safety on the Workplace) and FSC® certified
(Forest Stewardship Council).
Natuzzi S.p.A. and Subsidiaries Unaudited Consolidated
Profit & Loss for the first quarter of 2018 & 2017 on the
basis of Italian GAAP (expressed in millions Euro)
Three months ended
on: Change Percentage of Sales
31-Mar-18 31-Mar-17 %
31-Mar-18 31-Mar-17
Upholstery net sales 99.9 101.1 -1.2% 84.9% 87.3% Furnishings net
sales 10.4 8.0 29.3% 8.8% 6.9% Other sales 7.5 6.7
10.6% 6.3% 5.8%
Total Net
Sales 117.7 115.9
1.6% 100.0% 100.0%
Consumption (*) (51.1) (46.2) 10.6% -43.4% -39.8% Labor
(22.8) (30.1) -24.2% -19.4% -26.0% of which: Provision for legal
proceedings 0.0 (9.3) N.M 0.0% -8.0% Industrial Costs (7.3) (8.1)
-9.5% -6.2% -7.0% of which: Depreciation, Amortization (2.1)
(2.5) -16.7% -1.8% -2.2%
Cost of Sales (81.2) (84.3)
-3.8% -69.0%
-72.8%
Gross profit
36.5 31.5 15.9%
31.0% 27.2% Selling
Expenses (16.9) (17.8) -5.0% -14.3%
-15.3% Transportation (11.1) (10.3) 7.2% -9.4% -8.9%
Commissions (2.7) (2.6) 2.1% -2.3% -2.2% Advertising (3.2) (4.8)
-34.9% -2.7% -4.2%
Other Selling and G&A
(22.7) (23.9) -5.2% -19.3%
-20.6% of which: Depreciation, Amortization (0.9) (0.9) 2.3%
-0.8% -0.8%
Operating income/(loss)
(3.0) (10.2)
-2.6% -8.8% Interest
Income/(Costs), Net (1.3) (1.2) Foreign Exchange, Net (0.8) 0.7
Other Income/(Cost), Net 0.6 0.0
Net Income/(loss) before
income taxes (4.4) (10.7)
-3.8% -9.2%
Income taxes (0.3) (0.3) -0.3% -0.3%
Net Income/(loss) (4.7) (11.0)
-4.0% -9.5%
(Net income)/loss attributable
tonon-controlling interest
(0.1) 0.2
Net Income/(loss) attributable to
Natuzzi S.p.a.and Subsidiaries
(4.9) (10.7)
-4.1% -9.3%
Net income (loss) per Ordinary Share
(0.09) (0.20)
(*) Purchases plus beginning
stock minus final stock and leather processing
Natuzzi S.p.A.
and Subsidiaries Unaudited Consolidated Balance Sheets on
the basis of Italian GAAP
(Expressed in millions of Euro)
ASSETS 31-Mar-18
31-Dec-17 Current assets: Cash and cash
equivalents 44.8 55.0 Marketable debt securities 0.0 0.0 Trade
receivables, net 56.5 46.9 Other receivables 20.2 18.7 Inventories
78.3 80.3 Unrealized foreign exchange gains 0.7 0.3 Prepaid
expenses and accrued income 1.7 1.0 Deferred income taxes
0.4 0.6
Total current assets 202.7
202.9 Non-current assets: Net property,
plant and equipment 106.7 107.9 Other assets 5.4 5.5 Trade
receivables, net 0.0 0.0 Other non-current assets 1.3
1.5
Total non-current assets 113.5
114.9 TOTAL ASSETS 316.1
317.8 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Bank
overdrafts 21.2 19.7 Current portion of long-term debt 4.5 4.8
Accounts payable-trade 78.5 76.0 Accounts payable-other 30.8 29.8
Accounts payable-shareholders for dividends 0.0 0.0 Unrealized
foreign exchange losses 0.3 0.3 Income taxes 1.2 1.3 Deferred
income taxes 0.0 0.0 Salaries, wages and related liabilities
17.4 15.7
Total current liabilities
153.9 147.7 Long-term
liabilities: Employees' leaving entitlement 17.2 17.2 Long-term
debt 19.9 20.9 Deferred income taxes - long term 0.0 0.0 Deferred
income for capital grants 6.3 6.8 Other liabilities 15.3 16.7
Total long-term
liabilities 58.7 61.6
Minority interest 2.2
2.0 Shareholders' equity: Share capital
54.9 54.9 Reserves 11.5 11.5 Additional paid-in capital 0.0 0.0
Retained earnings 35.1 40.1
Total shareholders' equity 101.4
106.4 TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 316.1 317.8 Unaudited
Consolidated Statements of Cash Flows (Expressed
in millions of Euro)
31-Mar-18
31-Dec-17 Cash flows from operating activities:
Net result (4.7) (31.9)
Adjustments to
reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 3.0 12.8 Other non monetary costs
(revenues) (0.7) (2.7) One-time termination benefit accruals 0.0
0.0 Receivables, net (10.8) 10.4 Inventories 2.0 (3.2) Accounts
payable 1.6 10.1 Other changes in assets and liabilities 0.0 7.8
One time termination benefit payment (0.7) (8.3)
Total
adjustments (5.5) 26.9
Net cash generated/(used) by operating
activities (10.3) (4.9)
Cash flows from investing activities: Property, plant and
equipment: Additions (0.3) (6.6) Disposals 0.0 (0.1) Government
grants received 0.0 0.0 Dividends paid to minority interests 0.0
(1.3) Purchase of business, net of cash acquired 0.0 (3.6)
Disposal/devaluation of business 0.0 0.0
Net cash generated/(used) by in investing
activities (0.3) (11.7)
Cash flows from financing activities: Long-term debt:
Proceeds 0.0 12.5 Repayments (1.3) (4.7) Bank overdrafts 1.5
1.5
Net cash generated/(used) by financing activities
0.2 9.3
Effect of translation adjustments on cash
0.2 (2.6)
Increase (decrease) in cash and cash equivalents
(10.2) (9.9)
Cash and cash equivalents, beginning of the year
55.0 65.0
Cash and cash equivalents, end of the period
44.8 55.0
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version on businesswire.com: https://www.businesswire.com/news/home/20180528005313/en/
NATUZZI INVESTOR RELATIONSPiero Direnzo,
+39.080.8820.812pdirenzo@natuzzi.comorNATUZZI CORPORATE
COMMUNICATIONVito Basile (Press Office),
+39.080.8820.676vbasile@natuzzi.com
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