Natuzzi S.p.A. Announces First Quarter 2006 Sales Increases

Furniture World Magazine

The Board of Directors of Natuzzi S.p.A., a leading manufacturer of leather-upholstered furniture, announced the approval of the financial results for the three months ended on March 31, 2006. NET SALES In the first quarter ended on March 31, 2006, Natuzzi total net sales increased by 13.0 percent at EUR 188.2 million, or $226.5 million, as compared to EUR 166.6 million, or $218.4 million, reported for first quarter 2005. During the same period total seats sold increased by 6.1 percent. During the first three months of 2006, upholstery net sales were at EUR 167.4 million, or $201.4 million, up 14.3 percent from EUR 146.4 million, or $192.0 million, reported for the same period last year. Other sales (principally living-room accessories and raw materials produced by the Company and sold to third parties) increased by 3.0 percent at EUR 20.8 million, or $25.0 million. In the first quarter of 2006 net sales in the Americas were at EUR 63.8 million, or $76.8 million, increasing by 6.5 percent from EUR 59.9 million, or $78.5 million, reported in first quarter 2005. In Europe sales were at EUR 92.9 million, or $111.8 million, up by 21.1 percent from EUR 76.7 million, or $100.6 million, reported in the same quarter last year, and in the rest of the world net sales were up 9.2 percent at EUR 10.7 million, or $12.9 million, from EUR 9.8 million, or $12.8 million, reported in the previous year's comparable period. In the quarter ended on March 31, 2006, total net sales to their chain of Divani & Divani by Natuzzi Stores and Natuzzi Stores were at EUR 34.2 million, or $41.2 million, increasing by 14.0 percent as compared to EUR 30.0 million, or $39.3 million reported one year ago. During the same quarter six new stores were opened (2 in France and one each in Croatia, Russia, Poland and Australia), whereas sixteen stores were closed (9 in UK, 4 in Italy, 2 in Greece, and 1 in Lebanon), thus bringing the total number of stores at 280 as at March 31, 2006. At the same date there were 594 galleries, 11 less than three months earlier. Leather-upholstered furniture sales in the first quarter 2006 were at EUR 143.4 million, or $172.6 million, 19.1 percent up from last year's first quarter, whereas over the same period fabric-upholstered furniture decreased by 7.7 percent, at EUR 24.0 million, or $28.9 million. First quarter 2006 net sales for the Natuzzi branded products, representing 65.2 percent of total upholstery net sales, were at EUR 109.1 million, or $131.3 million, 3.5 percent up with respect to the last year's comparable quarter, and sales for the Italsofa products at EUR 58.3 million, or $70.2 million, from EUR 41.0 million, or $53.8 million, in first quarter 2005. Pasquale Natuzzi, Chairman and Chief Executive Officer, commented: "First quarter 2006 results confirmed the recovery in sales, particularly consistent in Europe, although the economic and currency scenario in which the Company has been operating remains unfavorable as a whole. We continue to see mixed results, with the Italsofa line that drove the quarterly performance, and the Natuzzi brand still curbed by a deflationary environment, particularly evident in U.S." GROSS PROFIT & OPERATING INCOME For the three months ended on March 31, 2006, Natuzzi's gross profit was at EUR 64.5 million, or $77.6 million, 17.1 percent up from EUR 55.1 million, or $72.2 million, reported one year earlier. As a percentage of sales, gross profit margin increased at 34.3 percent from 33.1 percent in the first quarter 2005. Over the same period, the Company reported an operating income of EUR 8.8 million, or $10.6 million, versus an operating loss of EUR 1.1 million, or $1.4 million, in first quarter 2005. FOREX & TAXES For the first quarter 2006 the Company reported a net foreign exchange loss of EUR 0.5 million, or $0.6 million, as compared to a net foreign exchange loss of EUR 1.5 million, or $2.0 million, reported in last year's comparable period. Over the same period, Company's income taxes were at EUR 4.0 million, or $4.8 million, as compared to EUR 1.0 million income taxes, or $1.3 million, in first quarter 2005. NET INCOME & EARNINGS PER SHARE In the first three months of 2006, the Company reported net earnings of EUR 6.8 million, or $8.2 million, versus a net loss of EUR 3.5 million, or $4.6 million, in first quarter 2005. Earnings per share (ADR) were EUR 0.12, or $0.14, from EUR 0.06 losses per share, or $ 0.08, reported for the first quarter of 2005. Pasquale Natuzzi continued: "After a difficult year in which the Company reported net losses for the first time ever, the Company is back to profitability as a result of the restructuring actions we have been implementing since June 2005 - namely, a more efficient cost management and the closing of non-performing retail units - together with more favorable currency conditions in the period". CASH FLOW During the first three months of 2006, the Company generated EUR 23.7 million of cash flow from operations, or $28.5 million, increasing from EUR 8.7 million, or $11.4 million, generated in the same period of last year. On a per ADR basis, net operating cash flow was EUR 0.43, or $0.52, versus EUR 0.16, or $ 0.21 generated during the first three months of 2005. OUTLOOK Concluded Mr. Natuzzi: "The positive performance achieved in the first quarter 2006 is an encouraging sign for the near future. However, we are aware that rising energy prices, the current unfavorable level of the Euro against the US dollar, as well as upward trending interest rates, will continue to challenge consumers' discretionary spending and, as a consequence, the furniture industry. In consideration of this we consider the current restructuring process of our operations and the improvement of retail activities fundamental for the competitiveness of the Company. In light of the above, we confirm the previously announced targets for the whole 2006 of a positive net profit margin at most at 3 percent together with an increase in units sold of about 5 percent." CONVERSION RATES The first quarter 2006 and 2005 dollar figures presented in this announcement were converted at an average noon buying rate of $1.2033 per EUR and $1.3112 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 123 markets on 5 continents. Since 1990, Natuzzi has sold its furnishings in Italy through the popular Divani & Divani by Natuzzi chain of 131 stores, which it licenses to qualified furniture dealers. Outside Italy, the Company sells to various furniture retailers, as well as through 149 licensed Divani & Divani by Natuzzi Stores and Natuzzi Stores.