Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi 2023 Second Quarter and First Half Financial Results Conference Call. As a reminder, anyone who like to join this conference via telephone may do so by dialing +1-412-717-9633, then passcode 39252103#. In addition to the link already provided to join via video. As a reminder, if you’d like to join via telephone it’s +1-412-717-9633, then passcode 39252103#, in addition to the link already provided. At this time, all participants are in a listen-only mode. Following the introduction, we'll conduct a question-and-answer session, instructions will be provided at that time to queue up for questions. Joining us on today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer; Mr. Carlo Silvestri, Chief Financial Officer of the Natuzzi Group; Mr. Pasquale Natuzzi, Founder and Executive Chairman; then Mr. Jason Camp, Senior Vice President of Retail for North American Market; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I'd now like to turn the conference call 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 2023 second quarter and first half financial results. After a brief introduction, we will give room for a 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 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, Piero and thank you, everyone to join our second quarter press release on 2023 results. Let me share -- let me start by providing some facts about the market. I believe the fact that most analysts in our sector still refer to 2019 to compare 2023 data, speak by itself. We've been through an unprecedented cycle that brought the sector to potentially one of the most positive momentum in its dynamics to a very difficult situation. If we look at what's happening around the globe in the real estate market, we do see signs of perduring uncertainty. I believe everyone has read with interest the news about the CEO of Evergrande being de facto put (ph) under physical restriction. We do see that the continuing tension on the depth side because of the high interest limits the purchase of new houses, which is a primary driver for the industry. I want to share these elements to put in perspective our 2023 second quarter performances. As you have seen by now, unfortunately, our top line have been suffering versus 2022. Quite seriously, in terms of decrease and also in terms of sales, total sales, we are below 2019. I think that it's still important to notice that if we look at the branded invoice sales, which is in a sense the strategic direction the company is heading to, the sales are above 2019, so above 5% 2019. Currently, our business is composed by more than 90% by brand sales, which means sales which are done under the name Natuzzi Italia or Natuzzi Edition, which are our dominant brands. This is important to us because we stated clearly in our long-term strategy that we are here to fully leverage the strengths of the brand of the company and act in…

Thank you. [Operator Instructions] Your line is now live.

Good morning. David Kanen, thank you for taking my questions. Are you guys able to hear me clearly?

We do. At least I do.

Yeah. So I guess at a high level, to me, the call-out here is at EUR83 million in revenue, we were actually operating profit neutral and generated a little bit of cash, which is impressive given the cost containment, the increase in gross margin and then the prospects for the future. So that being said, I'd like to understand or drill down a little deeper on the new branded stores, the direct operated stores that you've been opening. So my question is for Jason. When you look at all of these new stores you've opened Atlanta, Manhasset, Long Island, Houston, Fort Worth, et cetera. Can you give me a sense as to what those stores will run rate in annual revenue, Jason?

Dave, good morning. Listen, we – three of those openings have happened in the last 45 days. And so, I think it's premature to attempt to predict an annual run rate on these openings. But I would say, based on the traffic -- the quality of the traffic that we're getting, we expect these stores to perform above our, let's say, network average for Natuzzi Italia.

Okay. And just as a reference point, Jason, what is the network average?

Just shy of about 3 per unit.

Okay. So these new stores should be -- is it -- your internal plan, is it EUR4 million plus or is it closer just slightly above EUR3 million?

We're watching these new guys carefully and obviously going to align on budgets per location as we get closer to the end of the year. But I think for public consumption purposes, I think, I probably said as much as I can say and should say.

Okay. So I mean, it seems clear to me that given the production per location and the high marginality that it's critical. And I've had these conversations before and I know that you acquiesce to them. But it seems critical that we open up more DOS branded stores. So can you give us an update? I know that we need to preserve our balance sheet, but also at the same time, opening these DOS stores puts us in a position over the next two years to get revenue back over EUR100 million per quarter, where it seems we could generate meaningful operating profit. So Antonio, the question is, we've had a -- let's call it, a noncore asset in North Carolina that has meaningful value that could potentially subsidize the net 10 stores, if not more than that. Can you give us an update on that and just reiterate that this is a top priority to open these DOS stores, hopefully, getting to 15 or 20 additional in the next two years.

Thank you, Dave, for the question. So I answer with two sentence. The first one is that we do confirm that open in the U.S.. For Natuzzi Italia, North America is a strategic priority. We are doing this size as you could expect of 2024 budget, which include, of course, also the investment statement. But the principle is to safeguard this intent. On the dismissal of non-strategic assets, there have been some progresses. We are considering option. I cannot say more than that, but there's been some positive evolution. So we hope that there will be some news on that front, which I remind you is our Board decision because, especially if we talk about a point, it goes beyond what is my autonomy. But we've been following up with all the meaningful approach with the asset, we always set publicly where we are considering this mystery, which including our [indiscernible] in Italy, High Point in North America, the iconic building, plus some terrain we have in [indiscernible]. For all those three assets we have interfere, pending or process in advanced stage. So we've been not dormant. So for NATCO, we have a process for the assets in the U.S., we have offer, which are pending either some final due diligence or some final consideration and approval from the Board. But this has been definitely -- something will be following up.

Okay. Thank you for that update. Because my -- here is my view, and not that I have a crystal ball, but I think there's a high likelihood that interest rates are going to have to be lowered during 2024, possibly, my opinion is in the first quarter of 2024, and at that point, we'll see mortgage rates come down and there's a high correlation of to housing as it relates to furniture, which should put us in a position where we start to see the business growing again organically. I would like to see a lot more stores by the end of 2024, so that we could start doing EUR90 million, EUR100 million a quarter, generating significant profitability given your leaner structure and higher gross margin profile. So I just wanted to reiterate to you guys that I'm hoping that you don't take your foot off the gas pedal in expanding some of these great markets in North America.

Sorry, David's interrupted, but also in the light of this, you should be right, what I mentioned before in time organization because we want really to have a heavy weight in terms of competence as there is a lot of wait, maybe wait Jason, really to focus entirely on business development, not be bothered and have a peace of mind from running more of the operation because really we intend to spend our network. And again, I don't want to second extrapolate, but you know there's some -- there's a lot of big changes, unfortunately, not always for the good in the landscape in U.S. and some brands in company, which in our view were also interesting company are at the risk of exiting the market. I'm mentioning Mitchell Gold that is filing for Chapter 11. So we are looking at all the possible way to on an individual store base to accelerate our growth. So absolutely, they were aligned. We need also to make sure that this happen in a self-financing manner. And disposal of our strategic assets is clearly the way we are trying to do accelerate our self-financing capability.

Okay. So the next question for Jason, which you alluded to in your prepared remarks, are the organic growth initiatives at our DOS stores. Jason, could you drill down into some of the opportunities you think exist to drive meaningful same-store sales at your current small fleet of North American stores?

Sure. So first of all, I'd say when we study the last six months of written orders in [indiscernible] 2019, are those like -- those 13 like-for-like stores are running around 44% above 2019. So there's been a lot of work to build a much more solid base from, let's say, pre-pandemic times. Second, as we look towards the future, I think there's really two significant opportunities here. One is for the team and I to build a talent base in those stores that can fully capitalize on any incremental trade and design project business. Our average order even compared to last year is up in the neighborhood of 20% year-over-year. And so we're fully committed to building a team that can engage in more design project work, more complete rooms, more multiple rooms whether that's with our clients directly or through trade partners. And then to complement our efforts, I think, we have an opportunity with our -- with the headquarters partner team to really study our assortment and add items inside the living space room and outside living spaces to build the size of our average ticket to sell more things to a similar number of customers or a growing amount of customers. And so that's really the strategic path that we're focused on.

Okay. Thank you. I’ll return back to queue, so other people can post questions. Thank you.

Well, one thing I realized there is on your question can be done in a form of a special conference, not necessarily a quarter results conference. We can organize a meeting with our retail division to work you through a bit what we are doing. And I mentioned here, for instance, our new IT systems, which provide really accurate data, which to my experience, may be ground, albeit for 23 years consultant in retail and they work a lot of corridors. And I might say, I'm biased that is one of the best system still ever. So maybe for those who are interested, we can organize a special informative section where we share some of these initiatives we do on trade. Some of these initiatives we do to support our team with better system tools to walk you through more in detail what we mean here that seems to be a bit generic statement. So we were going to capture your interest for a follow-up session in the next weeks, doesn't need to be tomorrow, but we can definitely can do a deep dive on retail, if you insure interest that.

Sure. Thank you for that.

If I may, Antonia and Jason.

Please. Please [indiscernible]

First of all, thank you very much for the way you are explaining performance the company and concern, obviously. And thanks to David for his optimism, which is very important to us. Certainly, what we create has been -- we create a lifestyle brand, which is not something that easily in the furniture industry, a few people really created. As far as I know, there is a certain registration as well, there is a set primarily registration hard work. There is Natuzzi and [indiscernible]. Those are the global (ph) but not global probable that really has been able to create a large study brand. Now obviously, in order to promote -- and to promote a lifestyle brand, retailer plays a strategic role because you need to show what the -- what's the lifestyle brand could represent? How can really be attractive for the consumer? And I must say that we have done great progress. on lifestyle brands, certainly, but also on retail. Thanks to Jason and also in other geography. So again, today, we need to be optimist on one side, but also realistic on the other side. The consumer confidence is very low everywhere, not only -- I mean, it's everywhere. There is no geography where there is enthusiasm to buy. Because for reasons that everybody knows, I don't need to repeat things that everyone knows. So that's what I want just to emphasize. Thank you for listening.

Thank you, Pasquale, For your comments, especially for you're perceiving entrepreneurial patience and enthusiasm. Thank you so much.

You’re welcome.

[Operator Instructions]

Kevin, my one suggestion. My people might digest – understand, we download (ph) a lot, so maybe people are through the testing and thinking about question. I will ask our CFO that joined almost one year ago, to provide some more color about, I would normally call it transformation, but the ambition of impact you want to create push me to call it more restructuring. So maybe he can provide some more color on that while we are waiting for other questions to surface, if you agree, we can go at this way.

Please proceed.

Hi. Thank you, Antonio. Good day, everybody. So as Antonio anticipated, I will give more color of this transformation process that we are starting -- we start already. Allow me to say that we -- as a top management, we are fully aware that given the express sales the current structure is no more sustainable and it's crucial, vital for us to deliver a structure that lead towards a more agile reaction to be resilient to the volatile markets. So what we have been doing and analyzing is all our operating expenses that includes selling expenses and administrative expenses. As a general comment on our P&L, I will not go deep in what Antonio already mentioned on our improved marginality. But on the operating expenses, I can say that we did benefit on our generalized decrease in transportation rates that counterbalance the higher cost for opening the U.S. and further strengthening. But, given the analysis on our cost, we did realize that we need to intervene on both our industrial side and our selling and administrative costs. On the industrial side, we are -- we already started the process a few years ago, and we will keep monitoring and working closely with our operations department in order to find opportunity to improve the marginality and to have a more agile, versatile industrial footprint. We are keep working with our outsourcing in Vietnam, and we are reducing the number of works in China and in Romania to align our structure to the current level of demand. Same as for the Italian operation, the upgrading of the plants and the continuum of reduction of redundant work is part of the plan and that keeps going. What is becoming new and more influence to discuss at this stage is the work that we…

Okay. Thank you, Carlo and of course, this is turning quite detail discussion. But I think we will be also – to focus our strategic course really to remind as David helped us priority number one, which is one retail expansion. I will put almost the same level at least in the short term. Priority two, which is reducing our SGA. And we will keep reporting on those two priorities in the follow-up conversation we will have during our next quarter review or intermediate press release. Kevin, maybe you want to, again, pull the audience to see if there is any emerging curiosity or question.

Certainly. [Operator Instructions] We do have a follow-up from David Kanen, who’s line is now alive, sir.

Quick question, given the mix now and that will continue a branded product, hypothetically at EUR100 million per quarter in revenues, is it reasonable to assume with the initiatives that we've already taken that gross margin would get up to around 40% or better. And this question is the first for Silvestri. Thank you.

Thank you. I think your assumption is directionally right.

Okay. Thank you, guys. Good luck.

Thank you. Thank you very much.

I'll turn the floor back over to you, Antonio.

Yeah. Thank you, Kevin. Once again, thank you all for being so attentive following our story. We have high confidence in what we represent, which is an incredible brand, an incredible potential given the strength of our brand. We are very sure we're going to be whether this difficult circumstance emerging stronger from a positive financial standpoint. I might suggest Piero to reach out to Kevin and now can technically can be done to serve you and to capture interest for a follow-up conversation of retail. So once we have -- who are interested, of course, we're going to be making this public, but we are sure to reach you. So we can organize another conversation on retail in the following week without waiting for the next press release. Other than that, I wish you a great start in the week. Of course, as a servant to the company, I’ll stay at your disposal, if you wish to have a follow-up conversation in respect, of course, of our public company status. Thank you so much, and have a wonderful day.

That does conclude today's webcast. You may now disconnect. That a wonderful day. We thank you for your participation today.

Thank you, all.