Natuzzi Reports 27.3% American Net Sales Quarterly Decrease

Furniture World Magazine

1Q07 Financial Highlights - Total Net Revenues Down by 18.3% at EUR 153.8 Million and Seats Sold Down by 17.0% Over 1Q06 - Operating Loss of EUR 7.9 Million, versus Operating Income of EUR 8.8 Million In 1Q06 - Net Losses at EUR 4.7 Million versus Net Earnings of EUR 6.8 Million in 1Q06 The Board of Directors of Natuzzi S.p.A. a leading manufacturer of leather-upholstered furniture, presented the consolidated financial statements for the quarter ended on March 31, 2007. NET SALES In the quarter ended on March 31, 2007, Natuzzi total net sales decreased by 18.3 percent at EUR 153.8 million from EUR 188.2 million reported for the first quarter of 2006. During the same quarter seats sold decreased by 17.0 percent with respect to one year ago. During the first quarter of 2007 upholstery net sales were at EUR 136.0 million, down 18.8 percent as compared to EUR 167.4 million reported for the same comparable period of last year. Other sales (principally living-room accessories and raw material produced by the Group and sold to third parties) decreased by 14.4 percent at EUR 17.8 million. In the three months ended on March 31, 2007, net sales in the Americas decreased on quarterly basis by 27.3 percent at EUR 46.4 million, by 14.4 percent in Europe at EUR 79.5 million, and by 5.6 percent at EUR 10.1 million in the rest of the world. During the first three months of 2007, total net sales to our chain of Divani & Divani by Natuzzi and Natuzzi Stores totaled EUR 28.3 million, down by 17.3 percent with respect to the first quarter of 2006. During the same period, six new Stores were opened (1 in UK, 1 in Belgium, 1 in Israel, 1 in Australia, 1 in China and 1 in the U.S.A.), whereas 1 store was closed in Italy, thus bringing the total number of stores at 283 as of March 31, 2007. At the same date there were 547 Natuzzi Galleries worldwide. Leather-upholstered furniture sales for the first quarter of 2007 were at EUR 120.0 million, decreasing by 16.3 percent with respect to EUR 143.4 million reported one year ago, and fabric-upholstered furniture sales were at EUR 16.0 million, down by 33.3 percent as compared with the same period of 2006. Net sales for the Natuzzi branded products decreased by 25.8 percent at EUR 81.0 million and sales for the Italsofa products by 5.7 percent at EUR 55.0 million over the first quarter 2006. GROSS & OPERATING RESULTS For the three-month period ended on March 31, 2007, the Group reported a gross profit of EUR 46.9 million, a 27.3 decrease from EUR 64.5 million in the first quarter of 2006. As a percentage of sales, gross margin decreased at 30.5 percent from 34.3 percent reported for the first quarter of last year mainly as a consequence of reduced production volumes. In the same period the Group had an operating loss of EUR 7.9 million, versus an operating income of EUR 8.8 million in last year comparable period. FOREX AND TAXES For the first quarter 2007, the Group reported a net foreign exchange gain of EUR 0.5 million, versus a net foreign exchange loss of EUR 0.5 million in the first quarter of last year. During the same quarter, the Group reported a deferred tax asset for EUR 1.1 million, as compared with income taxes of EUR 4.0 million for the same period of 2006. NET RESULT AND GROUP EARNINGS PER COMPANY’S SHARE For the quarter ended March 31, 2007, the Group reported net losses of EUR 4.7 million, or EUR 0.09 losses per share (ADR), versus net earnings of EUR 6.8 million, or EUR 0.12 earnings per share, in the first quarter of 2006. Ernesto Greco, Chief Executive Officer of the Group, commented “As previously anticipated, first quarter 2007 turnover performance was affected by the challenging business environment in all the major markets. In the US, the business level was even more depressed, as confirmed by other major players, mainly due to the low consumer confidence and to the sharp decline in the house trade. In addition to that, the top line was penalized by the minimal ending 2006 order backlog and by the unfavorable Euro exchange rates against major currencies. This challenging scenario still continues to have a negative effect on our performance: Year-to-date total order flow is down high-single digit as compared to the same period of last year and could affect the sales performance in the coming months. Furthermore, over the past months we have been experiencing also a price pressure in raw materials, leather in particular, that contributed to the quarterly gross margin decrease. Although the persistence of such tough business conditions, we remain committed in investing in the Natuzzi brand repositioning encouraged by the favorable acceptance of our new models presented during last international Milan fair. We are continuing the reorganization process of the retail activities as well as our ongoing restructuring process of our production to better match our cost structure with the pace of incoming orders.” 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 124 stores, and 1 Natuzzi Store. Outside Italy, the Group sells to various furniture retailers, as well as through 158 licensed Divani & Divani by Natuzzi and Natuzzi Stores. Natuzzi S.p.A. was listed on the New York Stock Exchange on May 13, 1993. The Group is ISO 9001 and 14001 certified.