Natuzzi S.p.A. (NTZ) Earnings Call Transcript

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Natuzzi S.p.A. First Quarter 2026 Financial Results. Interested people can also join this conference call live by telephone by dialing the following number 1 (201) 493-6703 and enter the passcode 39252103# in addition to the link already provided to join via video. [Operator Instructions] Joining us on today's call are, as usual, Pasquale Natuzzi, Executive Chairman and Chief Executive Officer; Pasquale Jr. Natuzzi, Chief Commercial Officer and Chief Product Division Officer; Carlo Silvestri, Chief Financial Officer; and then Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference over to Piero. Please go ahead.

Thank you, Darryl, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2026 first 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 laws. Obviously, actual results might 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 SEC 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, Mr. Natuzzi.

Thank you, Piero. Good morning, everyone, and thank you for joining us today. The results for this quarter '26 are clearly disappointing and reflect the combination of external and internal factors that had a significant impact on the group performance. On the external side, we continue to operate in a complex market environment, marked by geopolitical instability, added some sales in the United States and housing market at historically low levels and persistently weak consumer sentiment. In addition, the transfer of Natuzzi Editions production from United States market -- for United States market from China to Italy negatively affected the margin profile of this production line. Therefore, this result confirm the need to take decisive action on certain structural elements of the group. In particular, our industrial footprint in Italy is currently oversized compared with the present sales volume and cost level that are no longer sustainable. For this reason, since the beginning of July, we have started executing a restructuring plan aimed at significantly reducing our fixed costs and improving overall efficiency. The plan is based on a number of very concrete operational levers. First, we have initiated the transfer of Natuzzi diesel production for the United States market from Italy to Romania. This initiative is designed to improve the industrial margin of this product line and consequently reduces the losses associated with this production. Second, we have rationalized our industrial operation in Italy, reducing the number of operating plants from 5 to 2 plants. This is a necessary step to eliminate the fixed costs and are no longer aligned with the current size of the business and to create the condition for economies of scale. Finally, we have already received expression of interest from 120 Natuzzi employees to participate in a voluntary exit program. We are fully aware of the complexity of this phase and of the impact that the decision currently underway have on our organization. At the same time, we believe that acting now with the discipline and urgency is essential to strengthen the group economic sustainability, protect the competitiveness of the Natuzzi brand and lay the foundation for the progressing recovery in margin. That's the situation as of today. If there are any questions, I will be very pleased to answer to any kind of question. Thank you very much for listening.

[Operator Instructions].

So Darryl, if you don't mind, I can give some more color about the action that we are taking, so to have more clarity on that. So in -- while waiting for questions and then we can give you a bit of more color in what we are doing as a management to recover from the situation. So maybe this can help in understanding better how we are facing all the issues. As Mr. Natuzzi has rightly underlined, we are taking several actions on this. But I would like also to give you also what are the expectation of the action that we are taking. For example, when we talk about the relocation from Italy to Romania of the Natuzzi Editions for the U.S. market, if the question will come out, so anticipate it, the total volume of business is in the ballpark between EUR 30 million and EUR 40 million, and that we give according to our preliminary analysis that, of course, will differ because by the actual product mix will give us a 25% of that portion of business. So this is the action that we are taking into action and will impact, of course, the results in the second part of the year and the figures that I did mention before refer to the full year impact. When we were discussing about the reduction of the 120 employees that have voluntary for the moment, signed an intention to participate that has to be confirmed, that the 120 employees will be, let's say, not in our roster from January 2027 and all the cash flow of these exit costs will be in 2027. And in terms of cost advantages, a portion of our workforce cost today is already offset through social safety, net measures and wage support program. So the results of the savings achieved will depend on the level of and extent of the social support mechanism for next year. So this is important. But the main point of this initiative is that it is our first step to a more structurally efficient cost base and will give not only immediate financial impact, but will improve operational flexibility, enhance productivity and better align our workforce with the current future needs. On the same side, we as a plan that is going through several years of dismissal of idle asset an offer for another plant that has also a potential rehiring of 40 people because the objective remains the disposal of noncore assets, but the process has also been designed with a strong focus on protecting employees. So this is also something that the company is reevaluating. On the cost base, what I would like also to remind that the downsizing of the top managerial structure. So for the moment, we have had exit in U.S. and Italy of some executives that will bring savings in our cost structure base. And on a side note, I would like to underline that the company is actively working for actually discussing with . I would like maybe Pasquale Jr. to add some on the commercial side, so we will see the full picture of what's happening and then leave the floor to the question. Thanks.

I have had some issues hearing you some times. I hope you can hear me loud and clear. Do you hear me right?

Totally, perfect.

So good morning, gentlemen, ladies. Thank you for attending this call and giving me the chance to introduce myself. I'd like to take a few minutes to update you on our commercial transformation, I would say, since we've launched -- that we've launched over the past few months and the initiatives that are shaping Natuzzi's future growth. I have joined as a Chief Commercial Officer shortly before Milan Design Week in 2026 in April, where we already there back then introduced one of our most important strategic initiatives, which is the Natuzzi Studio. Natuzzi Studio is a new retail concept designed to capture the growing opportunities within the trade, projects and specification business, is clearly more than a traditional store. It was conceived and it is conceived as a urban design hub where architects, interior designers, developers, and clients can collaborate with our teams on residential and commercial projects. Clearly, the dimensions of these stores will allow us to be more capillar and be closer to these designers destinations, so definitely more city-centric. This evolution is fully aligned with our premium luxury and clearly design-oriented positioning. So from the very beginning, the organization experienced a renewed sense of energy and urgency since I started. The response of the Natuzzi Studio during Design Week exceeded our expectation and several dealers already expressed interest in opening this new format. Speaking of retail expansion and retail formats, the expansion continues at a very healthy pace, I would say. During the first half of 2026, we opened already 26 new stores following the 49 opened during 2025. These investments confirm our commitment to strengthening our global retail network as well as the recognition from investors and dealers who see a great value in the Natuzzi brand. And in addition to that, with more modern and better production formats, we continue to optimize the distribution footprint by closing or relocating locations that no longer reflect the premium luxury positioning of the Natuzzi brand. At the same time, retail itself is changing. Across most markets, store traffic continues to decline at a double-digit rate, making it increasingly clear that relying solely on walk-in customers is no longer enough. For this reason, we are transforming our retail model from a traffic-driven business into a clienteling outreach-driven organization. Our store manager and sales consultants are becoming design consultants and business people, business developers, capable of generating opportunities not only inside the 4 walls of a store, but throughout their local markets by building relationship with architects, designers, developers and of course, end consumers. This transformation also extends to our headquarters, where we are evolving our commercial operation from a model primarily focused on organic order intake into one supported by targeted commercial initiatives and demand generation programs. Over the past weeks, we have introduced daily cross-functional meetings focused on commercial priorities, cash generation, and operational execution. Commercial operation and finance are now working as one integrated team with shared objectives on orders, revenue, deliveries and cash flow. This new way of working has significantly increased alignment, speed of execution and accountability across the organization. We have also launched several initiatives to reduce raw material and finished goods inventories through our targeted commercial programs with selected key accounts. The feedback has been encouraging with customers recognizing not only the commercial initiative, but also the improved coordination, responsiveness and service level they are delivering. In the United States, our retail organization is placing strong emphasis on commercial urgency while accelerating clienteling initiatives to generate B2B and B2C opportunities beyond traditional store traffic. In China, we recently completed another successful roadshow alongside the opening of our flagship store in Beijing, where Mr. Maestrolangalanga came as an ambassador and supporter of this opening as well as the ambassador of Italy and China. It was followed by a series of events with the local design community, the growing recognition and the confirmation that Natuzzi among architects and high-end consumers of China is becoming more and more a point of reference and an icon of the industry. In the U.K., we're about to launch a major store refresh program across both Natuzzi Italia and Natuzzi Edition, which will upgrade not only visual merchandising and store display, but also will strengthen commercial momentum and store traffic conversion. Our contract business continues to build a strong international pipeline through relationship with developers, hospitality operators, architects, and specifiers. While geopolitical tension in the Middle East and India, 2 markets where we invested significantly over the last years have delayed the closing and revenue recognition of some projects. But by the way, these opportunities remain largely intact. At the same time, other regions are generating new opportunities that I honestly feel will help diversify and strengthen our global pipeline. So although the market environment remains challenging, the first months of transformation has confirmed that a stronger commercial discipline, closer cross-functional integration, and a sharper market focus are creating the foundation of a sustainable and profitable growth. We remain confident that these initiatives will strengthen Natuzzi's competitive positioning and support long-term value creation for our shareholders. Thank you, and I'm available for your questions if you have some.

[Operator Instructions].