[Audio Gap] First Quarter 2025 Financial Results Webcast. [Operator Instructions] Joining us on today's call, as usual, are Antonio Achille, Chief Executive Officer; Pasquale Natuzzi, Executive Chairman; Carlo Silvestri, Chief Financial Officer; Mario De Gennaro, Chief HR, Organization & Legal Officer. Furthermore, at the explicit request of the Executive President, Mr. Natuzzi, also joining us on today's call are Pasquale Jr. Natuzzi, Executive Director, Chief Trade and Contract Officer; Diego Babbo, Global Retail Division Officer; Codrin Coroama, Chief Wholesale Officer; Daniele Tranchini, Chief Marketing & Communication Officer; Domenico Ricchiuti, Chief Operations Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I would 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 2025 First Quarter Financial Results. After a brief introduction, we will leave 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 security 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 option to update or revise any forward-looking matters discussed during this call. And now, I would like to turn the call over to the Chief Executive Officer. Please, Antonio.

Thank you, Piero. Let me start, as usual, by sharing the highlight of the first quarter. We're going to be particularly brief since we want to leave more space -- Piero, [Foreign Language], to leave more space for a quality discussion with the management. As you see, we invited the core people from the grid. So looking at the light, we closed the quarter at EUR 78.1 million. This is down from the last year by 7.6%, and we're going to be commenting the specific reason for this shortfall of revenue in addition clearly to a challenging market condition. Gross margin was down to 34.1% compared to 36.9% of the previous quarter. We will elaborate on this because it's particularly important. The primary reason is because in the first quarter, we had a transition phase, which was planned of the shift of production for Natuzzi Editions for North America from China to the Italian market. I will elaborate later on why this contributed for a slight decrease in margin in this quarter. So the combination of revenue below what we need from scale and margin led to a loss in terms of operating loss of EUR 0.8 million in the quarter. Net financial costs were EUR 2.9 million compared to EUR 2.2 million in the previous quarter -- the quarter of the previous year, mostly due to currency movement. As you know, the currency has been particularly volatile in the first quarter. Despite all these elements, we continue investing roughly EUR 2 million primarily on the factory side. In terms of cash, we closed the quarter with EUR 22.2 million in cash, slightly above from EUR 20 million at the end of the year. In this regard, important to note is that this was also the quarter where we completed the transaction of High Point, which contributed to the cash position. We will have plenty of opportunity to discuss with you what we are experimenting as an industry, I would say, global sickness of the world as well in a market that continues to be clearly very challenging. I don't, let's say, expand on this element because it's obvious the reason why I'm doing this statement. I was just reading the data on consumer confidence, the Board confidence for U.S., which went back to the beginning of 2023. I also saw the data for confidence in Europe, which was down 3.1 percentage point. So it's quite evident that we are still working in a market where consumers tend to postpone durable purchases. So as I mentioned, I keep it very short and light. I will return later to comment some of the elements. Let me now pass to Pasquale for an overview of the commercial achievement in the quarter.

Well, good morning, everyone. Just for everyone information, okay, I'm Pasquale, my position is operative President. So in other words, I'm working together with our CEO to put all my experience at the company disposal considering the situation, I mean, which is complicated. No question about that. I mean, the business environment is very, very difficult. So because I have the commercial responsibility, I'd like just to recap what I wrote on my press release in order to stimulate question, which would be very welcome from all of you shareholders, analysts or bankers, whoever. And that's why also I invite the Channel Director, Diego Babbo. Diego Babbo has the responsibility for the retail channel. And Codrin has responsibility for wholesale channel. And Pasquale Junior Natuzzi has the trade and contract responsibly, while Daniele Tranchini is our Chief Marketing Officer. Again, I will read what I wrote on the press release just to remind everyone or to stimulate everyone to ask eventually any questions. And Chanel Director, Marketing Director, that's why they have been invited here to answer to any of your questions because they have been very much involved in all the activities that we have been implementing. So no question about the markets in which we operate have not shown those signs of improvement that we expected. The business environment has been further affected by the introduction of United States trade duties on April 2, the perduring Russia-Ukrainian conflict, and more recently, the escalation of tension in the Middle East. In this context, we have intensified our effort to support commercial deployment. We continue to implement our brand commercial strategy that integrates collections, marketing and customer experience while closely monitoring its effectiveness in a challenging market environment. The brand guidelines have now been centrally codified to accelerate the global…

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

Dave, I'm afraid you're on mute. Or I don't know, Kevin, can you help David to unmute [indiscernible] you manage it.

David, your mic should be open [indiscernible] and please ask your question.

Okay. My apologies. Are you able to hear me now?

Yes, please go ahead.

Okay. In the prepared remarks, you highlighted that you moved production for various reasons out of China and over to Italy and then that caused some disruption in gross margin. Furthermore, you explained that you enacted a price increase of 10%. So last quarter, Q4 gross margin was 38.1%. So we went backwards about 400 basis points. With the moves now completed, should we expect a return back to the 38% level, assuming we're doing EUR 75 million to EUR 80 million a quarter. Is that a good assumption or it's going to take some time?

So it's definitely something we want to manage. As you know, since 2nd of April, which is after this quarter, we're just commenting, the administration also introduced a 10% out of -- yes, can you partially mute, David? There is a return in the voice. So after this quarter, we are commenting, the U.S. administration also introduced a duty of 10% for products exported from Italy. So we are definitely reviewing also this aspect in light of the 9 April, which was -- the 9 July, which was the deadline anticipated by the American administration to potentially review this duty because absolutely, we want to take all the measures to reinforce the margin, especially for this component. In addition, as anticipated in the press release, we're also considering more sustainable production location for Natuzzi Editions for North America. We have, as you know, factory, including Romania. Any movement of that production need to be clearly considered in the light of the rigid precondition we have in terms of agreement with the public institution and the contract in Italia. So the protection of margin, it will be pursued with 2 actions. Short term, we're going to be reviewing our, let's say, price list also in consideration of the duty, which has been introduced and would be most likely confirmed. More midterm, we are also considering potentially allocation of the production for Natuzzi Editions outside Italy, but this is something which needs to be consulted also with the local institution beyond as industrial transition carefully be planned from an operational standpoint. In case you want to have, which is a very important element, more context of the constraint and the preexisting agreement, Mario is the best person in this team to provide them.

Okay. So my question is, in Q2 and for the balance of the year, notwithstanding, yes, it looks like there's going to be a 10% tariff for product coming in from Italy unless Trump makes a special deal with Meloni. They seem to get along pretty well, but we'll assume 10%. So should I continue to assume that gross margin will remain at the 34% level in Q2 and beyond with the tariff, let's say, landing at 10% or will it improve with the price increase and some of the moves? That's what -- I don't think [indiscernible] got a clear...

It's a central question. As you know, we don't provide specific guidance on these figures. Not -- also because they are a result of a complex algorithm where there is price realization, product mix, production cost, materials. So we don't provide specific guidance. What I can reassure you at least in my capacity of CEO that we're going to be very determined in readjusting the marginality on Natuzzi Editions towards North America in light of also the tariff. We need to protect our margin because the tariffs don't depend on us as an industry standard. So definitely, we're going to take price adjustment there. In terms of -- production allocation is a more structural move, but also there, the company is very serious about having a discussion with the government to face some of the historical constraints that prevent a more effective allocation for this production.

Okay. And then operating expenses for the quarter were down to EUR 27.4 million in Q1. So have you done 38% in gross margin, you would have actually had almost a $3 million operating profit, $2.5 million to $3 million. So that's why I'm focusing on margin. That reduction in operating expense to EUR 27.4 million, is that sustainable? I know there's some variable costs, specifically transportation, commission, et cetera. But assuming all things equal, let's say, EUR 78 million with the same mix more or less in revenue, can you maintain that EUR 27.4 million operating expense level? Or there was something anomalous that drove it lower?

So I'm going to be -- going back to your question to make sure I answer in a correct way. Provided the scale is the one we are discussing because, of course, there's a matter of absorption of those expenses. I have good confidence that we are on a good track to reduce operating expenses. We're also doing a contingency. We just discussed and implemented with our CFO here, a contingency on all discretionary expenses. We launched with Domenico here and his procurement team an effort to review the cost of purchase of material and transportation. So provided the scale and the mix, which was in your opening question, stay at the level we are witnessing today, I have confidence that the expenses will go down in percentage. They will go down in absolute term is a matter also then to maintain or increase the scale of -- to witness also a reduction in percentage.

Okay. And then Mr. Pasquale Natuzzi called out some of the changes that you've made in your new, I guess, you would call it, software or technology platform to track retail locations, and he said something like you're seeing early signs of improvement. Could you just speak to that a little bit, what these differences are? And when did you see this improvement? And how profound is it?

I'll let Pasquale comment on this.

Sincerely, I mean I don't -- I mean the communication is not really the best one here, and I haven't understood what David said. Could you repeat, please, David again?

Yes. Mr. Natuzzi, you had said that you had implemented some changes in terms of, I'm assuming, technology, information flow between headquarters and your retail locations. And this new platform you said is showing early signs of improvement. I believe you said that both for the commercial unit -- the new commercial unit as well as your North American retail. So if you could explain what some of these changes are, before and after. What it was like before, and magnitude of the improvements that you're seeing and why? Just give us more color or depth on these early signs of improvement.

Okay. All right. So I ask Diego Babbo. Diego is our Retail Director. So he will give you explanation about that, okay? Diego.

Yes, David. Well, actually, Mr. Natuzzi is referring to the fact that we have, let's say, institutionalized a robust process of ongoing performance assessment with actionable insight translating into precise and timely action plan. This is part of our culture of continuous improvement, which has allowed us to swiftly address underperforming categories and capitalize on emerging opportunities. We are based on a software platform, which is the Power BI platform, which is allowing us on a rolling basis to look at each single store, not only directly operated, but also including all our dealers that decided to join our system, which are more and more embracing the idea. And we are now able to really make a sounding business decision based on facts and figures as was a practice probably in most of the advanced retail, but not very much in our industry. I have to say we achieved a good threshold and a good level of excellence in that. Through that, by the way, to give you some color, a cornerstone of our progress in that lies also in our remerchandising strategies, which has been measured through the system. And in terms of meticulously analyzing the behavior of consumer and in-store dynamics through the system, we have refined our product placement and visual storytelling, making our showrooms, let's say, more engaging and effective in driving conversion. It's a data-driven approach that is paired with enhancing performance analytics that somehow has empowered our teams to anticipate market trends and consumer needs with greater agility. To give you just a couple of examples, by looking at this trend in our store, we have been able to set action plan in order to try to offset what has been a quite strong decrease in traffic, let's say. And the key factor mitigating the decline in store traffic has been the dedication and professionalism of our store staff who have benefited from target training program. This has been achieved by using the system, measuring results, offsetting the decline in traffic, mostly in U.S., through 3 main pillars and actions. One, as PJ could be eventually commenting more than me, is the fact that we are addressing the trade business through the architect in our store, which is now part of our double check activity through our software, which has achieved considerable results. Mostly in U.S., we have stores where we are exceeding 25%, 30% of our business made through the trade business. And through the system, we also implement action in order to improve the conversion rate of the fewer customers are getting B2C and consumers that get into our stores together with actions that protect the average ticket of our stores. So everything is now, let's say, putting on a rolling basis in the system, which is also strengthening our internal collaboration, integrating feedback loops between retail operations, merchandising and supply chain to ensure optimal execution at every level.

Okay. I'm going to go back into queue in case someone else would like to ask questions. But I have a request, Antonio, if you would be kind enough to make an introduction to Justin Christensen, the new North American Retail VP. I would appreciate that.

Sure. You will put in contact with our local team, absolutely.

[Operator Instructions] David, there are no further questions at this time. You can proceed with any further questions you may have my friend.

If there are no other questions [indiscernible] people...

David, I have David. David is on, but I just want to make sure he is unmuted, okay.

Okay. Please, please, please. Otherwise, I would have moved to comment the figure more in detail with Carlo. Please go ahead, David.

David, can you hear me my friend? I'm just going to make sure you're unmuted.

Okay. So my last question is on the Commercial division. Also you called out that you're seeing early signs in that business. If you could give us an update. Longer term, what is the potentiality of the size of that business? And any color that you can give us in terms of the early signs that you're seeing now that are encouraging?

I'm not sure if you're referring to -- are you referring to the projects business, the trade and contract business?

Yes. Is that now what you call the Commercial division, like selling to hospitality...

Well, we call it -- I think that's the reason why the team was a bit puzzled. We call it the contract. Commercial is all the division. Contract is what we refer more with this, let's call it, B2B or B2BC opportunity, which is led by PJ. PJ, I believe you are the one best suited to address the David's question. Please go ahead.

So Mr. David, as you well know, we're overseeing for sure, first of all, a phenomena, which is pretty positive on one end for consumers, which is the growth and the extended, let's say, lifespan of furniture products that is growing. And that is causing, as a matter of fact, a significant -- a slower pace in the repurchase cycle for consumer. That's a phenomenon that we're somehow looking at on the retail side. Then if you consider the macroeconomic pressures that we all feeling, clearly, that impacts like Antonio was opening in his remarks, it's definitely impacting consumers' confidence and purchase intention. Now there is -- we are seeing -- there is a shift in our retail business model. There is a somehow hybridization of what was a B2C purely type of commercial dynamic into a B2B2C model, where the business-to-business is represented by the relationship with the design community, which is what I'm looking and overseeing with what we call trade and contract division, which is a team and a business unit that overlooks on 2, let's say, business trajectories. On one hand, we do develop and deliver bespoke solutions to hospitality operator, hospitality and entertainment, commercial, residential, not to mention, of course, bespoke solution in the residential field, of course, which is very important. So that is what we call contract is bespoke. And it's what also gave life to incredible best practice of the Harmony Residences in Dubai, which was a relationship, let's say, an opportunity built over a relationship started with a real estate developer based in Dubai, and that is now being replicated in different geographies of the world that are adding on to the opportunity of Dubai by opening up to new opportunities of branded residential. On the other hand, we are also,…

Okay. Thank you for that commentary. Last question. I had made an introduction, Antonio, to probably the largest home furnishings e-commerce company. And I believe it was something that you were going to get stood up. Could you give us an update on that, when you expect to launch and give us an update there?

I will pass it to Codrin, who has been the person implementing this opportunity.

Thank you, Antonio. David, thank you for the question. So we are -- we have met quite a few times. They have visited us during Milano, during Salone del Mobile. We've had great time together. We have also met again. They have followed up with a meeting in High Point market in October. And we are now going through some technicalities in terms of finding the common ground in moving forward, technically speaking. I will also be meeting with their executive leadership team in Florida where they have a congress upcoming in September. We are confident that we will be able to positively conclude discussions by the time we meet in September in Florida. So first and foremost, thank you for bringing this opportunity forward. We're working on it, and we're cautiously optimistic about moving forward in a positive way.

As there are no further questions at this time. I'd like to turn the floor back over for any further or closing comments.

So in closing, maybe as typically we do, Carlo, you want to -- Carlo and Piero, you want to highlight some of the key dimension of the quarter as reported, even though I believe most of the audience is a well-educated audience, which had the opportunity to review with figures. But please, if you want to provide any commentary on the performance and more on the economics element.

Thank you, Antonio. Do you hear well?

Yes, we do.

Yes. Thank you, Antonio. I will provide a couple of comments that maybe is worth to underline again related to our performances while we have been discussing about the gross margin, given the situation in both channel mix and, let's say, between retail and wholesale and the new, let's say, production allocation. What is maybe worth to be, let's say, confirm is that in the other industrial cost, we see a decrease from EUR 4.9 million to EUR 4.4 million. So we have a saving of EUR 0.5 million given as a result of a lower related depreciation following the closure of all of our Shanghai plant and the move to the new plant of [indiscernible]. So this is a saving that will -- it's in our P&L as a result of this transition process. Then going back to the selling expenses. And while we have seen an overall increase in the transportation cost as a result of higher tariff of Italy, North American shipping route. On the other side, we have benefited of EUR 800,000 saving given this new industrial location. So we've lowered deliveries from China. So this is like a plus of all the process we are going through in terms of industrial location. And adding on the question of Mr. Kanen, we need to confirm that we had closed in 2024, 3 nonperforming stores, 1 in Spain, 1 in U.K. and 1 in Italy. And this is benefiting us with USD 700,000 saving in selling expenses. So these are data that confirm that our active portfolio management is indeed giving benefit to our P&L. On the other side, when, let's say, some few remarks on our financial cost, while we see the impact of the decrease of the interest rates that is reflected in financial costs from EUR 2.6 million last year to EUR 2.2 million, we have been overweighed by unfavorable currency movements on the trade receivable and payables. So we did not have any change in our hedging policy. This has been basically the results of the floating and unpredictable exchange rate of the U.S. dollar in the first quarter that has brought us EUR 1 million loss compared to EUR 200,000 profit last year. So these are, let's say, something on top of what we have fully described in our press release.

Okay. Thank you, Carlo. Kevin, I believe if there are no further questions, and as always, we also welcome the audience to reach us separately after the -- individually after the completion of the call. I believe, Kevin, if there are no further questions, we can thank the audience on behalf of Natuzzi. I also thank Pasquale and all the team who joined us today, and we can close the meeting.

Thank you. And thank you, everyone, for joining us today. That does conclude today's webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Thank you all.