Natuzzi S.p.A. (NYSE:NTZ) Q4 2023 Earnings Call Transcript

Natuzzi S.p.A. (NYSE:NTZ) Q4 2023 Earnings Call Transcript April 8, 2024

Natuzzi S.p.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi Conference Call for 2023 Fourth Quarter and Full Year Financial Results. As a reminder, interested parties can join this conference call live also via telephone by dialing in the following number +1-412-717-9633 then Passcode 392-52103#. In addition to the link already provided to join the video. At this time, all participants are in a listen-only. Following the introduction, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. Joining us today are Mr. Antonio Achille, Natuzzi’s Chief Executive Officer; Mr. Pasquale Natuzzi, Founder and Executive Chairman; Mr. Carlo Silvestri, Chief Financial Officer; and Mario de Gennaro, Chief HR, Organization and Legal Officer; Mr. Diego Babbo, Global Retail Division 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.

Piero Direnzo: Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi’s conference call for the 2023 fourth quarter and full year financial results. After a brief introduction, we will give room for a question-and-answer 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 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 last annual report on Form 20-F filing 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 today’s call. And now I would like to turn the call over to the company’s Chief Executive Officer. Please, Antonio.

Antonio Achille: Thank you, Piero, and good morning everyone and good afternoon for people which are connecting from Europe. Let me start to briefly discuss the figures of the last quarter of ’23 and the full year of ’23. Then, I will provide together with my colleague, an understanding of what we are doing in our long-term objective. So starting from the last quarter of the year, we reported a decline in sales. It’s important to consider this decline in the perspective versus 2022, were throughout the year and especially in the last quarter of 2022, we had a stronger backlog. If we net the performance of 2023 last quarter from that effect, the decrease is still significant but is in line from what we observe in the industry in general, given a very tough market for the durable and furniture in 2023.

A mid-sized warehouse filled with furniture and home appliances.

Despite these, let’s say, clearly tough market condition in 2023 last quarter, we work to accelerate our transition to becoming a brand retail company. In particular, in the last quarter, we have reported sales from branded goods in excess of 92%, which means that basically our entire sales is composed by branded sales either Natuzzi Italia or Natuzzi Editions. The percentage was 85% at the beginning of 2021, so a step acceleration. Equally for retail that if you wish is the natural consequence of becoming a brand company. Retailer on total sales has been nearly 60%. Diego, can you put that on silence, please from 52, which was the reported in 2021? I will discuss later, but I believe this is a very important element, because Natuzzi is completing a transformation as investor or other people interested in our story.

Now we should really, in full, look at Natuzzi as a company which has been investing for more than 20-year to establish itself as a globally recognized brand and especially with Natuzzi Italia in the AI segment of the market. These also imply that we had to invest and we will comment later also with the help of Diego to evolve our tools and organization really to control this retail and branded business in a manner that before was not required by the company. The other area which becomes evident in 2023 last quarter and more in general in the full year is that we are executing and accelerating on our restructuring plan and effort. In 2023 last quarter, in fact, we accrued EUR5.9 million of one off restructuring cost for intervention that will become from a cash perspective and from a benefits perspective visible — fully visible in the following year.

In the last quarter, our gross margin, net of this one off restructuring activity has been of 36.2%, which compare with 38.8% in the last quarter of 2022 and it compare with 34.6% in the last quarter of 2019. So we are still in trajectory of improving margin. Clearly, the effect of having a sub utilization in factory has a partial impact on the margin. These key figures on last quarter of 2023. Looking at the full year, I would say the key underlying elements that apply to 2023 are pretty similar in the sense that for us as for the majority of the people we compete with the public, the result 2023 has been a year where after two year of very strong demand, given the implication of real estate and low confidence of consumer, we witnessed a lot of postponement in purchasing.

And again, this caused a decrease that if you compare it with 2022, net of backlog is significant but in line with what we observe from competitors. We discussed about restructuring. Let me give you a few number to give you the size of what we’re talking about. In 2023 only, we reduced our team, especially from factory by 514 units, 5-1-4 units, which bring the total of reduction from the beginning of 2021 to 759 units equivalent to 17.5% of the total workforce, which I believe is a significant achievement because in most of the jobs where we operate starting from Italy, there is a very rigid labor law. So every step need to be accurately planned and accurately executed. And we did so avoiding any kind of, let’s say, turmoil in our environment.

This restructuring will produce on yearly benefit — on a yearly basis a benefit of EUR22.5 million running benefit and labor cost compared to 2021. In 2023, we also kept investing some EUR12 million of which EUR4.6 million in retail, we opened nine new doors and EUR7.2 million, again, in the area of factory enhancement. So this is the key highlight on numbers and figures on which then our CFO will provide some other details. In opening the Q&A, I would like to give you more holistic and strategic perspective. So it’s clear and evident that the results reported in 2023 are an effect of adverse market for furniture. It’s clear that those figures are well below our mid-term target and our potential. Having said that, there are tricky messages I would like to share and elaborate on.

The first one is now that we already have completed the transformation to become a branded company. As I mentioned, nearly 93% is branded, which is a huge, huge achievement considering that the company has been investing 20 years to arrive to this point. And this region were very different because in region Natuzzi, it was an incredible growth story, but very much focused on the value segment. So it was sending a sterling price in U.S. in the range of $395. Currently in U.S., average ticket for Natuzzi Dali is in the range of $9,000 and the best sold configuration product is in the range of $14,000. So you can imagine how much it takes to legitimate a brand to do this kind of stretch. So first element, we are a branded company. Second element, we really invested to excel in distribution.

Distribution for us, is both the retailer where we mean the U.S. direct to retail in franchising, but also, which is very important for us, wholesale of branded product that we distribute through a format which is called gallery, which again is a control format where we express the right merchandising and the last the right brand experience. And the last element, as I mentioned, transformation which we’ve been working on very hardly to prepare it in the last few months in year now is getting to a pace that is what we’re going to be continuing and accelerating in the following year. So to get some more detail, talking about the retail front, we now have 680 stores with the banner Natuzzi being them Natuzzi Italia, Natuzzi Editions, being them U.S. or franchising operator.

But for a customer perspective, those are store. And then we have some 600 galleries, which are store-in-store. For us, both deserve equal attention. For the first area, the stores, we have worked very much to really learn how to do retail and to really control the sales at a sellout level. Doing so required quite a significant program in terms of investment in it, because, historically, the store was just an account number. We didn’t really have an understanding of what’s happening in the store. Now we have a very timely and punctual understanding of what’s happening in the store in term of people getting in, people buying, what they buy, and this for our transformation to become a consumer centric company is really invaluable. To support this knowledge get progressively spread across our market, we created not only systems but an organization.

In particularly, some 12 months ago, we create an organization that we called explicitly Global Retail Excellence Division, which really has the purpose of absorbing best practice, codifying them and make them available first to our directly operated stores but progressively also to our dealer, because we want the experience and the productivity, also the dealer level be energies. Let me invite Diego Babbo for a brief illustration of some examples of what we do under this chapter of Global Retail Division.

Diego Babbo : Thank you, Antonio. Good day to everyone. Just briefly, let me introduce myself while I’m attending this call for the first time. On top of my previous experience in the retail downstream within the old company sector, I’ve been working for more than 20 years now in this company, embracing many roles within our retail environment from purchasing to construction and development. And I can witness the effort that Natuzzi put in place in order to sustain the transition from manufacturer to retailer and a lifestyle brand, which had to do with cultural and mindset evolution for the majority of us, supported through the adoption of new tools and routines. And this is exactly, as Antonio was saying, what retail division established last year is about.

Our goal is to set up appropriate retail processes and guidelines in order to generate consistency within the brand experience and ultimately increase stores profitability. Our willingness is to partner with each regional manager in assisting him or her in achieving their retail network expected performances. But let me give you examples of the some recent achievements. We have recently launched the state-of-the-art 3D room configurator, which is allowing a more efficient interaction at store level within the local trade community. We have also revised the compensation scheme for the store manager and design assistance, which together with the launch for the first time here of a sales contest for the global DOS network is intended to boost performance and sense of belonging for our end.

We are also cherishing our store staff by addressing their training needs through a brand new online platform boosted with the artificial intelligent driven multi language live translator, which will allow for the first time ever to reach all our network. On top of the classroom session with more than 300 attendees already set up. Leveraging our store staff has already proven to achieve very good results in some of our more representative stores with double-digit growth, for instance, in our ambassador store in New York and Madrid. Back to you, Antonio.

Antonio Achille : Thank you, Diego. Just in synthesis, I mean to make a long story short, the Global Retail Division has the objective to improve organic performance because they have to fix that with 600 stores, and then we’ll discuss the all of the stores in China is quite terrific, the upside potential that we have by simply working on organic growth. Then I mentioned branded wholesales. So, as anticipated, 40% is still distributed within wholesales branded product. That for us is still a very important strategic part of the business. So for that, we developed what we call Natuzzi commercial excellence program. What it’s about? Basically, two things: One is standardizing the format. So we define a new brand gallery format.

So, basically, it’s a kind of business card of the Natuzzi in a multi brand environment. I know most of you — a lot of you come from U.S., so you need to think about the large furniture retailer where you find different provider maybe on the same floor. Given the confidence we have in our in our brand, we want to have a special role in positioning on the floor, which means that the shopping environment and the brand presentation need to fully express the potential of the brand like it happened in our stores. So in the wholesale, we really invested on these topics again with organizational people appointed. Secondly, the commercial excellent program aims at daily improving the performance of our commercial team. We have 304 people, a different role in the organization, some direct employees, some other agents, which are dealing with clients, with dealers.

So we are standardizing the methodology they should approach this dealer, but also, we’re setting very clear productivity target and budget by dealer that can be managed centrally, again, because Natuzzi is a very spread organization and we realized that we needed to really reinforce the control of the center. On the retail front, I believe it’s very important to show a concrete sign of our commitment to that to remember that in 2023, which is a year where a lot of company cut investment, we actually opened nine stores, of which six in North America. A store is a name but store can be very different. The store Natuzzi opened 30 years ago, they’re very different on what we opened now. What we opened now, especially market North America, we really strive to have senior to location, senior to retailer infrastructure environment.

An example is Manhasset. Manhasset, as you might know is Long Island. It’s called the Miracle Mile because it really connecting Manhasset to the Hamptons and is one of the area with highest productivity. There we opened an absolute flagship, which is really a very iconic new store and is an example of what we are now doing when we talk about new store for Natuzzi Italia. So they’re really major, major investment in the appropriate location to fully express the potential of the brand commercially and from a brand perspective. Shifting gear to the restructuring. Maybe before that, let me do a couple of comments on individual market. Now as you know, as we discussed, we’re operating under market. Well, let me provide some insight in the most important market, which are U.S., China and Europe.

On U.S., our focus remains very high. We believe is one of the highest priority and opportunity we have is where the company is listed, is where the company in a sense found its own way of doing business. We opened 632 branded stores and one franchising, an additional seven galleries. And there is quite an interesting pipeline of new gallery as we speak. We also stabilized the organization with Lou Mossotti taking on the baton from Jason Camp as announced in the press release of 7 March. Lou Mossotti is a person who has more than 20 year experience in North America, and he was with us for more than two year really coming from the same team of Jason Camp. And then we have Scott Kruger, which is developing the branded wholesale business. To accelerate on this letter, we also have now 24 independent agents, which basically are covering, I will say, the state — the not second priority but the one where we didn’t have yet a direct agent — a direct rep.

So this under the belief and certainty that U.S. is a large opportunity, is a continent, is made of significant state. We’re currently Natuzzi is no longer distributed but we’re being distributed and very successful for more than 30, 40-year, there is a clear business case for coming back. The other market where I would like to provide the some background is China. In fact, out of the 680 store more than Alpha 346 are in China. First, I want to provide some insight on how to read the number of stores, the productivity of stores because, in fact, the store belonging to the JV, where we don’t have the majority are not consolidated. So that is important because otherwise, when you assess the productivity of the retail, you might think that in some store, we just entertain client but we don’t sell.

So when we look at the productivity, in a sense, the store need to be carved out because for the store that belong to Natuzzi Italia which are 96, we report in our P&L, the Celine. For the store on Natuzzi Edition which are the majority, we report in our P&L only the cost of production plus a mark-up, because this is the way in which the deal with the JVSP in the structure. Of course, then as a financial shareholder, we take fully benefit of the growth of the JV. In the journey of becoming a global retail company, we recognized that the JV needed to be more integrated in our way of working. So this happened through our presence directly. For instance, myself, but also with Pasquale, we’ve been several time personally, 6x since it was possible to travel back.

And now the team is really working with the same approach when it comes to retail, merchandising and visual. We are very excited to welcome some 24 of the top dealer on Natuzzi Italia to the upcoming Milano Design Week, which is a special opportunity not only to develop business but also for brand positioning. And this year, it will be extraordinary events because Natuzzi celebrate 65 years of heritage, and not many company in our environment can arrive and celebrate that milestone. So China is now integrating is now integrating our IT system. We can see the performance at dealer level. We can see the performance at U.S. level. And this, for us is a major achievement and is the base on which we will build to increase the performance of China operation through our JV team that sit in Shanghai.

That’s on the two largest markets. I was anticipating on the restructuring. Restructuring for us is very important. It comes from as a consequence of the journey we are doing, we have to mention the Natuzzi, it was historically a huge production platform. It produced also for third-party. Just to name one, which was a client since few years ago, IKEA. So you can imagine, what it means in term of size of production but also in term of capabilities to move from producing that kind of product to produce something which is really top of the market and allowing us — allow us now to develop for instance, the contour business. We are developing business with the global leading resort and hotel — five star hotel in the world. It’s been a huge stretch from a brand perspective but also from a production perspective and one of the consequences that we don’t need that much capacity anymore.

Executing a restructuring is never easy. Executing a restructuring in Italy is almost impossible. But we are achieving it step-by-step. Now it’s becoming visible in term of numbers. As I mentioned, we let go 759 people out of which 260 are in Italy — south of Italy. I can assure you that normally when you touch this kind of topic before you get strike and then you get the result. We’ve been achieving this without any strike. We’re looking at the net saving of EUR22.5 million. And I would like Mario, which has been really, leading force in driving us to this restructuring to provide some more insight on what we achieved so far, but most notably, on the way forward on what we want to achieve with the full restructuring of our operation.

Mario de Gennaro: Thank you, Antonio. Good day to everybody. Just a few words before introducing myself because it’s the first time I’m joining this event. I have more than 30 years of experience in different cost tests like big corporation such as Unilever or other listed company and I am quite used to manage in particular situation in which is needed a deep experience in heavy industrialization contest like in Italy but not only in Italy. In all my experience, I have always managed restructuring, change management and transformation project. Antonio has already highlighted the most important figure of our transformation journey. So I don’t want to repeat them. What is important for me is to underline that this is not just a reduction plan because honestly, we are managing in the meantime a fair approach for the redundancy, but also an important transformation for the rest of our colleagues.

In particular, we are managing an important training program for all our people up-skilling and re-skilling for the digital challenges that we will have in the next future. And just for giving you an example, in Italy during 2023, we have done more than 100,000 hours of training for our colleague for realign their competencies, not only in the commercial side but also in the factories because we have invested a lot of money for creating a future way of managing our production in terms of 4.0 transformation program. The other important point is as already said by Antonio that we have to deal with different legislation. In some cases, it’s simpler, it’s easier to manage the reduction of people, in some other cases a bit more complex and obviously, we have to approach everything with the usual ethical cultural approach Natuzzi has.

Indeed, this is also the reason for which you can see an acceleration in 2023 for the number of people that we, let me say, supported in their exit. This is due to the fact that we spent several months to find a good agreement with the Italian government, with the local government in the other countries with the union for having a very, very, let me say agreed way of managing this redundancy without any claim, without any strike and this is also the reason for which we will continue to do that in the next couple of years. In Italy, in particular, we are using a specific measure that could be considered a sort of early retirement and this is also the reason for which as Carlo will better explain in the following minutes, you see that we have accrued the entire cost of redundancy of those people but the cash out will be in the next five years.

Thank you, Antonio. I think that, you can. Antonio, you are on mute.

Antonio Achille: I said thank you, Mario. I’m sure there might be question later on. I suggest Carlo that you briefly double click on some of the figure we mentioned and then we open up for the question that I’m sure our audience has.

Carlo Silvestri : Good morning, everyone. Thank Antonio and Mario and Diego for your notes. I will go very quickly through some of the numbers. As Mario was mentioning, we’re talking about the EUR74 million of restructuring costs, it has to be noted that the application related accounting principle imposes us to accrue such laboratory restructuring as soon as the corresponding liability arises towards our employees and the majority of such liabilities arose in the fourth quarter. So in short, it was planned but we cannot prove in the previous quarter. From the financial perspective, we have paid almost half of it and the other half will be paid in the next five years. This, of course, impacted the way we need to look at our gross margin.

Antonio did provide a homogeneous comparison deducting all the impact of this restructuring cost in the people’s year for the last quarter. I will provide it for the full year. If we then neutralize this effect, 2023 close with a gross margin of 36.3% versus 2022 at 35.6%, 2021 at 36.2% and 2019 at 31%. So confirming the improvement and cost improvement that we have been having in the gross margin in the previous year. How we did achieve that? Not only because we were able to align the level of purchase as a consumption to the new sales volume but because we did achieve a better inventory management, a continuous renegotiation of the condition of the supplier. And this goes also for all the industrial cost that will manage according to better control — cost controlling activity.

Briefly talking about operating expenses and in details about the selling expenses, administrative expenses, we can see in our numbers that from the selling expenses that did include in expansion in terms of retail network and hiring to improve the quality of our personnel, we were able almost to compensate the lower volumes and the impact of the overall selling expenses passed from 26.7 in 2022 to 27.8. Also in this case, through every negotiation, especially of the transportation cost. Why for the administrative expenses, we did have an increase overall of EUR2.1 million and this brought us in terms of impact from a EUR7.7 million in 2022 to EUR11.4 million. This is, of course, is where we need to work and we are constantly working and is a one of the focus of the manager also for 2024, but it can be partially justified because we did invest in 2023 specifically, EUR400,000 s– EUR0.4 million to further digitalize our company and EUR0.8 million always for accrual for the reduction of our workforce.

And then on top of that in 2022, we did achieve a half a EUR1 million contribution from the government on this perspective. A last word of our net finance cost that did account for EUR9.3 million in 2023, while EUR8.5 million in 2022, we did lower our average outstanding bank debt of 7%, but we were impacting negatively of the average increase of interest from EUR4.4 million in 2022 to EUR6.2 million in 2023. I will leave now the floor for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question today is coming from Dave Kanen from Kanen Wealth Management.

Dave Kanen: The first one is in regards to China. I know the government has been working on different stimulus measures, including lowering interest rates. Have you started to see an inflection there where things have bottomed and they’re starting to turn up?

Antonio Achille: So let me comment on China because I feel equipped. Dave I spend, I believe, three months out of six in China. And some of those actually we were really visiting stores. So I visited the 70 stores. Our fair share of those are in what we call furniture mall. So you have to imagine, what in U.S. can be a department store, but floor by floor it contain all the different category of furniture. The traffic is still very low. So China is still a market that need to find its way to full recovery. I believe you are very deep in a global, let’s say, insight. You have witnessed what happened to Evergrande. You’re witnessing what’s happening to other firm much larger than us, carrying reported 30% loss of Gucci in China.

So for durable, you can imagine it’s even more sensitive, the lost in spending versus fashion. So long story to say what for Natuzzi Editions, which is more our affordable brand, we see a kind of initial symptom of rebounds. For Natuzzi Italia not yet. And we’re working really to use the best of this Milano Design Week as a way to reengage with our key dealer. So as we are confident that the strength of Natuzzi in China will definitely pay off, because we are by far the largest distributor company. Our competitors have few dozen stores. We have 350 stores. So we’re highly confident China would be a strong upside. The exact timing when this will become strongly visible on our P&L is still uncertain in term of weeks and months, because really of the macroeconomic and consumer environment in China.

Dave Kanen: And then, in the rest of the world, especially North America, have you started to see stabilization or with written orders a little bit of an improvement to start 2024?

Antonio Achille: So on North America, we do see definitely sign of improvement when it comes to performing area of the business. They are performing stronger in 2024. We are still dealing with a tail of overstocking of the channel. But let’s say compared to China, I think it’s legitimate to expect a faster rebound of business in U.S. than in China. We also, as we speak Mario is in U.S. Again, we are really having a close eyes on what we can do to better support our team. Basically starting from today, but with a peak in the rest of the week, it will be the high point market for the wholesale branded business, where again, we believe we have a very strong and compelling offer that we’re bringing to the market. On the retailer, we’re working one-by-one to bring quickly at regime the new opening on the historical stores, performance are definitely improved.

For instance, I didn’t mention it. But if we take the first three stores in term of productivity, but the same can be to the first 10 stores in terms of productivity in North America. And you compare it to 2019, the like-for-like improvement in the range of 50% if we take the top 10 store and 70% if we take the top three stores. So means that in three, four years, we’ve done a huge step in them of being able to managing stores in U.S. The first three stores now they were pacing at EUR4 million and above per year. So definitely, there is a — if you look at across cycle a very, very strong trend of improvement that we did in North America.

Dave Kanen: Yes, I’m a big believer in you guys expanding your North American footprint and becoming vertically integrated. So to that point, I know that you have some non-core real estate up for sale in specifically in High Point and in Italy. Assuming that those assets are liquidated or that capital comes back to you, will you be redeploying that capital into expanding your North American footprint? Because it seems like you get the most bang for the buck there.

Antonio Achille: The answer is absolutely yes. So, I think it’s important to share with the broader audience. We discuss the sales of non-strategic assets which include High Point, which include a tannery in north of Italy and some other minor asset that the company has in the board for approval. And in the board it has been agreed that in currency with our long-term strategy the priority for potential disinvestment will be reinvesting in North America retail. The other priority will be supporting our long-term transformation. So in our mind, the way to create value for our shareholders is very clear. The board is absolutely aligned with us, and we are not deviating for one by the year for from that journey. The way in which to create value is retail, especially in North America and to reduce the cost base of our factory in Italy. So, Dave, if we have additional funding, those are the only way we’re going to be redeploying those funding.

Dave Kanen: Thank you for that clarification. And then in regards to the 514 person headcount reduction and the $22.5 million savings, does that number primarily show up in cost of goods sold going forward or is some of it in selling expense?

Antonio Achille: It’s a combination, but I’ll let Mario and Carlo comment more precisely. In particular, workers getting the cost of goods sold where account goes in service. But I will let Mario and Carlo, I believe each of you can be precise in answering.

Mario de Gennaro: Now as you said, Antonio, obviously, we are improving our contribution margin — first contribution margin being more efficient in the factory. Obviously, we are also reducing our central staff and that will have an impact — positive impact also in our G&A in the next few years.

Antonio Achille: But just to tell you, the investment the company did over the last 20 years and this restructuring really change the ability of doing EBIT and cash conversion. We just need as a precise comparison versus different tier that have the same top line that we report in 2021, 2022, and the company lowered its breakeven of about EUR150 million to EUR100 million, really because there’s a better mixer because it’s selling brand instead of unbranding, but also because of all these tough work of reducing the cost base and the accounts. So now we need really to focus on sales. If we reach, the sale we aspire or Alpha the sale we aspire, there will be huge, huge upside from an economic standpoint, a return standpoint from the investment.

Carlo Silvestri: Antonio, just to be more precise, we have only EUR1.1 million that we are impacting on administrative expenses and selling expenses, all the rest in the cost of goods sold.

Dave Kanen: One more question before I go back into the queue. Carlo, if I could ask, let’s say over the next two years we add 15 or 20 new direct operated stores here in North America. In theory that would give us about $15 million to $20 million incrementally per quarter of revenue. That would give us about roughly $65 million to $80 million a year at $4 million average unit volume. At $90 million to $100 million in revenue with the headcount reduction, some of the investments in automation at the factories at $90 million, $100 million a quarter in revenue, would we achieve a 40% gross margin or better?

Carlo Silvestri: May I Antonio or you?

Antonio Achille: The question was with you. But David addressed directly with to you and your capacity of CFO. Then I’m very happy to comment.

Carlo Silvestri: Yes. Let’s say that we are going in this direction in terms of improvement of margin, of course, adding more how to absorb better the fixed cost. So, of course, 40 is where we are going towards. If we add those sales and even more if we.

Antonio Achille: And again, Dave, we don’t provide guidance but at this point, I think it’s fair to do some high-level modeling. On our integrated sales for Natuzzi Italia, we have a contribution margin — integrated contribution margin, which means the producer plus the retailer of 65, 68 with the current sales productivity. So if you, of course, build a $100 million with that productivity and that marginality, by definition, it would be north of 40, because we’re already targeting 40, let’s say, in a sense, let me say, organically, which means with the same structure of business.

Dave Kanen: So it sounds like we’re well positioned during the next upturn. Hopefully, the Federal Reserve here in the U.S. cuts interest rates and we’re starting to see somewhat of a bounce in housing, there’s more inventory. So we’ll keep our fingers crossed that this spring things start to improve.

Operator: [Operator Instructions] And if there are no further questions at this time, I’d like to turn the floor back over for any further or closing comments.

Antonio Achille: I do my closing comment and then, of course, I invite Pasquale, who is the person who creates the company. Who is the person who’s going to celebrating 65 years with it for potential final remark. Listen guys, for me the story is very clear. Tough year but we know what we are doing. We’re very committed and very confident on the upside. This company is very different. You’re investing in a brand retail company. The awareness of this company is really strong and terrific. I don’t do any valuation on our, let’s say, market evaluation but I believe there is significant upside in it. And thank you for being with us as investor. Thank you for being with us today as a participant in this call. I’ll let Mr. Pasquale, our Chairman to do any final remarks if you wish.

Pasquale Natuzzi: Okay. Antonio, thank you very much for the way we have been explaining, you know, what we are facing. The same Diego Babbo and also Carlo, our CFO and our Human Resource Manager. I feel very much confident about the management today. And even in this difficult business environment, war in Ukraine, war in the Middle East, consumer confidence is very low. I mean, we believe very much in what we are doing and we are very much confident, obviously, about the future. I thank you very much, everyone, for attending this conference call. And we hope we will, obviously, we are very much committed to delivering to all of you but dear shareholder, the better result certainly. Thank you again.

Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Antonio Achille: Thank you.

Pasquale Natuzzi: Thank you.