Natuzzi Reports Net Loss For Second Quarter On Lower Sales

Furniture World Magazine

The Board of Directors of Natuzzi S.p.A. a leading manufacturer of leather-upholstered furniture, presented the consolidated financial statements for the second quarter and first half ended on June 30, 2007. NET SALES During the second quarter of 2007, total net sales were at EUR 162.4 million, decreasing by 17.0 percent from EUR 195.6 million reported in second quarter 2006. During the same period, units sold were down 20.6 percent. Considering the first half of 2007, total net sales were at EUR 316.2 million, down by 17.6 percent as compared to EUR 383.8 million reported in the first semester of last year, and units sold were down 18.9 percent. The decrease in total net sales was mainly attributable to a negative business environment especially in the US market as well as to a challenging period-over-period comparison base. During the first half of 2007, total order flow was down high-single digit versus the same period of last year. During the quarter ended on June 30, 2007, upholstery net sales decreased by 18.0 percent at EUR 144.9 million, from EUR 176.7 million in the second quarter of 2006. Other sales (principally living room accessories and raw materials produced by the Group and sold to third parties) decreased by 7.4 percent over the second quarter of 2006 at EUR 17.5 million. In the second quarter 2007, total net sales decreased, on a quarter-over-quarter basis, by 21.6 percent in the Americas at EUR 49.4 million, by 16.4 percent in Europe at EUR 85.9 million, and by 12.7 percent at EUR 9.6 million in the Rest of the World. During the second quarter 2007, total net sales to our chain Divani & Divani by Natuzzi Stores and Natuzzi Stores were at EUR 33.2 million, down 14.0 percent as compared to the same period of 2006. During the same quarter three new stores were opened (1 in UK, 1 in Finland and 1 Russia), while six stores were closed (5 in Greece and 1 in China), thus bringing the total number of stores at 280 as of June 30, 2007. At the same date, there were 484 Natuzzi Galleries. In the second quarter 2007 leather-upholstered furniture decreased over the same quarter of last year by 17.7 percent at EUR 126.6 million and fabric-upholstered furniture by 20.1 percent at EUR 18.3 million. Total net sales for the Natuzzi branded products during the second quarter 2007 were at EUR 96.1 million, or 66.3 percent of upholstery net sales, down 16.0 percent from EUR 114.4 million reported last year. During the same period, sales for Italsofa products decreased by 21.7 percent at EUR 48.8 million from EUR 62.3 million reported in the second quarter of 2006. GROSS & OPERATING RESULTS For the three months ended on June 30, 2007, Group’s gross profit was EUR 45.2 million, down from EUR 70.7 million reported in second quarter 2006. As a percentage of sales, gross margin decreased to 27.8 percent from 36.1 percent reported in second quarter 2006. During the same period, the Group reported a net operating loss of EUR 9.2 million, versus an operating income of EUR 12.1 million reported one year ago. FOREX AND TAXES For the three-month period ended on June 30, 2007, the Group reported a net foreign exchange gain of EUR 0.6 million as compared to a net foreign exchange loss of EUR 1.1 million reported for last year’s comparable period. During the same quarter, the Group reported a deferred tax asset for EUR 2.2 million, versus income taxes of EUR 2.3 million for the second quarter of 2006. NET RESULT AND GROUP EARNINGS PER COMPANY’S SHARE During the quarter ended on June 30, 2007, the Group reported net losses of EUR 4.2 million (or EUR 0.08 losses per share), versus Group’s net earnings of EUR 9.9 million (or EUR 0.18 earnings per share) in the second quarter of 2006. Considering the first six months of 2007, the Group reported net losses of EUR 9.0 million (or EUR 0.16 losses per share), versus net earnings of EUR 16.7 million (or EUR 0.31 earnings per share) reported for the first semester of 2006. CASH FLOW During the six-month period ended on June 30, 2007, Group’s operations used EUR 11.7 million of cash flow. Ernesto Greco, Chief Executive Officer of the Group, commented, “The quarterly Group’s performance reflects, as also confirmed by most of the major market players, the continued challenging business conditions, particularly evident in the U.S. where aggressive pricing competition and lower consumer confidence are still dominant factors. Furthermore, top line was also affected by the penalizing period-over-period comparison base. As far as the margins are concerned, persisting unfavorable Euro exchange rates against major currencies, U.S. dollar in particular, fixed costs not absorbed by adequate sale volumes, and the price increase in raw material, have all contributed to determine the quarterly reduction in the gross margin. The reduction in production working time planned in June 07 didn’t bring any saving in the second quarter yet. Order flow during the second quarter was still down high-single digit with respect to the same period of last year, even if at a lower pace than what recorded at the beginning of the year. Although such difficult business conditions, we have been registering, due to our marketing efforts, some positive signs from the market over the last weeks: as a matter of fact, third quarter to-date order flow is currently up high-single digit rate over the same period of last year. We are, nevertheless, aware that the retail environment is still challenging, so the Group should remain committed in putting in place all the necessary initiatives like the reorganization of our retail activities and the completion of the restructuring process of the Group’s operations so to reach a cost structure consistent with current production level as well as a new business model more coherent with the new business environment”. 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 123 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.