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Natuzzi Announces Second Quarter Operating Results - Net Sales and Profits Down

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-- Net sales decreased by 18.3 percent at EUR 165.6 million and units sold by 15.4 percent over the second quarter of 2004 -- Net losses of EUR 8.4 million versus net earnings of EUR 12.7 million reported in second quarter 2004 -- Cash flow from operations at EUR 4.2 million in first half 2005 The Board of Directors of Natuzzi S.p.A., a leading manufacturer of leather-upholstered furniture, today announced financial results for the second quarter and first half 2005. NET SALES Natuzzi 2005 second quarter net sales decreased to EUR 165.6 million, or $208.5 million, down by 18.3 percent from EUR 202.6 million, or $244.1 million, over the same comparable quarter of 2004. During the same period total seats sold decreased 15.4 percent. Considering the six-month period, net sales were down by 15.8 percent at EUR 332.1 million, or $426.7 million, and total seats sold by 14.2 percent. In the second quarter of 2005 net upholstery sales were EUR 145.0 million, or $182.6 million, down by 19.9% as compared to EUR 181.1 million, or $218.2 million reported for the same quarter of 2004. Other sales (principally living-room accessories and raw materials produced by the Company and sold to third parties) decreased by 4.2 percent to EUR 20.6 million, or $ 25.9 million. During the second quarter of 2005 net upholstery sales in the Americas were EUR 57.6, or $72.5 million, 24.8 percent down from EUR 76.6, or $ 92.3 million, reported a year earlier. In Europe, net upholstery sales decreased 14.1 percent to EUR 78.4 million, or $98.7 million, and in the rest of the world by 31.8 percent to EUR 9.0 million, or $11.3 million. In the second quarter of 2005, total net sales to our retail chains Divani & Divani by Natuzzi stores, Natuzzi stores, La Galleria store and Kingdom of Leather stores were EUR 27.0 million, or $34.0 million, down by 14.0 percent on a quarterly basis. During the same quarter 11 new stores were opened (of which 4 in Spain, 2 in China, and 1 in Lebanon, Sweden, Arab Emirates, Australia and New Zealand), whereas 2 stores were closed in Italy and 1 in Portugal, Switzerland and Hungary. Therefore, as of June 30, 2005, the total number of stores was 277 (of which 137 located in Italy). Leather-upholstered furniture sales decreased by 19.9 percent over last year's second quarter to EUR 120.7 million, or $152.0 million, and fabric-upholstered furniture by 20.1 percent to EUR 24.3 million, or $30.6 million. Net sales for the Natuzzi branded products during the second quarter 2005 were EUR 97.3 million, or $122.5 million, 29.0% down with respect to the last year's comparable quarter, whereas, over the same period, sales for the Italsofa products increased by 8.4 percent to EUR 47.7 million, or $60.1 million. Pasquale Natuzzi, Chairman and Chief Executive Officer, said "The economic and industry scenario remained difficult during the second quarter 2005: Aggressive price competition, rising fuel costs, strong competition for consumers' discretionary spending, weak US dollar. All these factors had a negative impact on our sales and order flow both in terms of volume and lower price-mix.". GROSS PROFIT & OPERATING INCOME Natuzzi's second quarter 2005 gross profit was EUR 51.7 million, or $65.1 million, down from EUR 78.7 million, or $94.8 million, reported one year earlier. Gross profit margin decreased from 38.8 percent to 31.2 percent. In the second quarter 2005 the Company reported an operating loss of EUR 8.2 million, or a loss of $10.3 million, versus an operating income of EUR 16.8 million, or $20.2 million, registered in the second quarter of 2004. FOREX & TAXES In the second quarter 2005, Natuzzi had a net foreign exchange loss of EUR 1.6 million, or a loss of $2.0 million, versus a net foreign gain of EUR 1.4 million, or $1.7 million, reported in last year's comparable period. The Company reported in the second quarter of 2005 income tax credits for EUR 2.3 million, or $2.9 million, whereas in the same quarter last year it reported income tax expenses for EUR 5.7 million, or $ 6.9 million. NET INCOME & EARNINGS PER SHARE In the second quarter 2005 the Company reported net losses of EUR 8.4 million, or $10.6 million net losses, versus net earnings of EUR 12.7 million, or $15.3 million reported in the second quarter of last year. Losses per share (ADR) were EUR 0.15, or $0.19 losses per share, from EUR 0.23 earnings per share, or $0.28 earnings per share, reported in the second quarter 2004. Considering the first six months of 2005 the Company reported net losses of EUR 11.9 million, or $15.3 million net losses, versus net earnings of EUR 22.1 million, or $ 27.1 million in 2004, and losses per share of EUR 0.22, or $0.28 losses per ADR, down from earnings per share of EUR 0.40, or $0.49, reported in 2004. Pasquale Natuzzi commented "The disappointing results were due to lower sales not balanced by a similar trend in fixed costs, fewer working days consequent to the order flow reduction and the persistent unfavorable currency conditions". CASH FLOW In the first six months of 2005 net cash flow from operations decreased 90.8 percent to EUR 4.2 million, or $5.4 million, from EUR 45.6 million, or $ 55.9 million, generated in the same period of 2004. On a per ADR basis, net operating cash flow was EUR 0.08, or $0.10, versus EUR 0.83, or $ 1.02 in the first half of 2004. OUTLOOK Concluded Mr. Natuzzi: "The negative results reported in the first six months of 2005 and the challenging economic and market scenario will affect full year performance both in terms of revenues and net results. We expect a 10 to 15 percent decrease of units sold and we should be close to break even for the full year 2005. The Company is focused on differentiating its brands from the competition. The Natuzzi brand is strengthening its market reputation as a global furniture brand through dedicated distribution, advertising, innovative and exclusive product design and quality. Italsofa, the promotional line, is growing thanks to a successful mix of Italian design and cost competitive manufacturing operations. At the same time, we are implementing the recently announced restructuring plan finalized to reduce manufacturing costs in Italy and increase overall efficiencies. As a result of the aforesaid initiatives, we expect to return to profit in 2006 in a range of 3 percent on net sales". CONVERSION RATES The second quarter 2005 and 2004 dollar figures presented in this announcement were converted at an average noon buying rate of $ 1.2591 per EUR and $ 1.2047 per EUR, respectively. The six months figures for 2005 and 2004 were converted at an average noon buying rate of $ 1.2848 per EUR and $ 1.2269 per EUR, respectively. ABOUT NATUZZI S.P.A. Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. designs and manufactures a broad collection of leather-upholstered residential furniture. Italy's largest furniture manufacturer, Natuzzi is the global leader in the leather segment, exporting its innovative, high-quality sofas and armchairs to 135 markets on 5 continents. Cutting-edge design, superior Italian craftsmanship, and advanced, vertically-integrated manufacturing operations underpin the Company's market leadership. Since 1990, Natuzzi has sold its furnishings in Italy through the popular Divani & Divani by Natuzzi chain of 136 stores, which it licenses to qualified furniture dealers. Outside Italy, the Company sells to various furniture retailers, as well as through 142 licensed Divani & Divani by Natuzzi and Natuzzi stores, including 6 Kingdom of Leather stores. Natuzzi S.p.A. was listed on the New York Stock Exchange on May 13, 1993. The Company is ISO 9001 and 14001 certified.

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