Natuzzi - Q2 2024
October 23, 2024
Transcript
Operator (participant)
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi conference call the 2024 second quarter financial results conference call, financial results. As a reminder, anyone interested in joining this call live can join via telephone by dialing +1 412 717 9633, then passcode 39252103 pound, in addition to the link already provided to join via video. Once again, if you'd like to join via telephone, please dial+1 412 717 9633, then passcode 39252103 pound. At this time, all participants are in listen-only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time for the queue for questions. Joining us on today's call are Mr.
Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi, Founder and Executive Chairman, Mr. Carlo Silvestri, Chief Financial 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 (Investor Relations)
Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2024 second quarter financial results. After a brief introduction, we will give room for the Q&A 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 securities law. 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 most recent annual report on Form 20-F, filed with the United States Securities and Exchange Commission, for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call.
And now I would like to turn the call over to the company's Chief Executive Officer. Please, Antonio.
Antonio Achille (CEO)
Thank you, Kevin, and thank you, Piero. Good afternoon for the listener joining from Europe, and good morning from the one at least joining from U.S, where our chairman is. I would like to start with a brief introduction to what has been the second quarter in terms of sales. As you have seen, we reported sales as slightly increasing versus the same period 2023, which is not something we are particularly excited about, but definitely need to be put in the context where not only our sector is being you know very soft, and to our knowledge, most of our direct competitor actually are reporting negative comps, but in general, the durable and consumer spending are very much depressed.
I believe that one of you is following what's happening to another interesting industry, the automotive, where there is serious double-digit decrease in orders. So we interpret the fact that we have been able to defend our top line, but then if we look at the brand, the sales actually has been at 3% above last year, is a sign of resilience of our company, and also is a testament that our brand journey is very much appreciated and understood by our partner, and increasingly by new partner, like real estate developers. I would like to highlight a few elements of our strategy, which has been very much consistent through the cycle. The first element is our effort to continuously improving the way we reach our consumer.
As you know, you know, Natuzzi has taken this titanic, you know, gigantic task of turning from a manufacturer to a brand retailer. One key element is improving the quality of the relationship that we have with our final customers, which can only happen in an environment where we can control the customer experience. Here, retail, which is, of course, the channel where this customer experience can be better controlled, is now becoming very important. Roughly 70% of total sales are happening through retail, being in the US up to 45% in 2019, which still is a good year to compare before the pandemic. So is an increase of 23 percentage points, which I believe is very significant.
Which not only speaks about the fact we are a better way to reaching our customers, but also speaks about the very, very intense and deep work, we have been doing to transform our competencies, because clearly, it's a very different job to be a producer than to be a retailer. So there's been a lot of effort over the last few months, that Pasquale, myself, and the whole organization, has been doing to equip Natuzzi with competencies in the area of retail, retail design, merchandising, customer experience, which are totally new competencies for the group just four or five years ago. As part of, the, let's say, retail, I would like me to. Oh, wait. You can see me? Yes, yes, you can see me.
I would like to highlight the performance of our directly operated stores, which have been growing 6% versus last year, and in particular, the performance of our directly operated stores in the U.S., which have been growing roughly 33% versus last year. Again, this is a clear confirmation of what we've been repeatedly saying in this conference call, that the U.S. is central to our strategy, and retail in the U.S. is central to our strategy. As part of that, I'm pleased to announce that we eventually opened a new DOS in the U.S., in Denver.
It is a location which has been very carefully scouted for, is in Downtown First Avenue, very close to other furniture brand that we consider right affinity for Natuzzi Italia, which include Roche Bobois, Restoration Hardware, West Elm, Crate & Barrel, Room & Board. Again, because our experience tells us it is very important to be part of a district populated with a brand with a similar position. With this new opening, we now have 23 stores, of which 18 are directly operated and 4 are in franchising in U.S. And again, these remain a priority for us both in term of organic growth and in term of potential new opening. Let me switch to another geography which is central to our strategy, which is China.
As you know, more than half of the total stores we have are in franchising in China. We don't consolidate line by line because we are in a minority JV with KUKA, but we've been, over the last few months, increasingly supporting our partner in China on an operational level. So we're really teaming up with a different department to support the JV team to take the right choices at merchandising, retail, marketing level. Personally, been more than five times since the last few months, every time really being very much immersed in the retail reality. Last visit was in August, and I was very pleased to witness the christening of a new project, the Hangzhou store. As you know, Hangzhou is a city one hour north of Shanghai, very beautiful city.
We wanted to make sure that the Hangzhou store become a flagship, fully controlled in term of design by our team, which is a total newness, because, despite being in partnership, our partner has been somehow quite autonomous in some choices when it comes to retail. In the spirit now to create a very high consistency of the representation of Natuzzi Italia globally, we agreed with our partner that a significant opening, like, Hangzhou, need really to be integrated in our way of working. What does it mean? That, the full layout, the merchandising, the design of the store, and actually being done by our newly created, retail excellence division. The Hangzhou event, opening event, has been a success. There's been, some 40 dealers joining, more than 100 architect.
Now, it's still very early, but it's encouraging to see that, after nine weeks from operation, the Hangzhou stores is pacing at a double speed of the other remaining directly operated store in China, which encourage us to say we now have learned the job. We've done a lot of investment in term of codifying what should be, and we call it internally, the brand retail religion, which means very strict guidelines in term of execution of brand merchandising retail. And we feel the legitimacy to guide more strictly the choice of our partners, because we believe that it is not a sign of authority, but is a sign of business legitimacy. Because as I'm so sure, when you do the right things, then you have a very good payoff.
In closing on retail, franchising, and directly operated stores, we now have 681 stores. We believe that this is a very solid platform to regain growth as market conditions stabilized. I don't see Pasquale any more. Pasquale is with us?
Pasquale Natuzzi (Founder and Executive Chairman)
I'm here.
Antonio Achille (CEO)
Yeah. Okay, sorry. You just disappeared for one second. Okay. So in parallel to retail, there's been another significant effort in the direction of improving the quality of our gallery. We call it re-imagining gallery, because it's been really recreated the concept from its fundamentals. As you remember, gallery is a shop-in-a-shop experience. They go anywhere from 1,000 to 3,000-4,000 sq ft in some geography, in Europe, even larger, but they are a shop-in-a-shop experience. Again, in the search of delivering a brand experience which is immersive, there's been a dedicated team that has been redesigning the layout, the merchandising, so that it can convey the experience of the brand, at the same time, being very modular and very cost effective for our partners. They need to co-invest in this format.
This is the format, for instance, which is, as you know now, there is High Point Market, which is one of the opportunity we offer to our partners. They want to invest, in a Natuzzi Editions or in some location for Natuzzi Italia, where the potential does not sustain, a full-scale store. This new concept has been extremely well, received. We opened, some, 43 new galleries, 25 is being reengineered, and this is, an effort we're gonna be progressively rolling out, to the 600 galleries we have globally. So in terms-
Pasquale Natuzzi (Founder and Executive Chairman)
Antonio, I'm sorry, but-
Antonio Achille (CEO)
Yes.
Pasquale Natuzzi (Founder and Executive Chairman)
We opened also 47 or 48 Natuzzi store in 2024.
Antonio Achille (CEO)
So clear as the numbers, between some opening and closing, the balance net number is pretty much stable. Maybe Piero
Pasquale Natuzzi (Founder and Executive Chairman)
Okay, but anyway, we opened forty-seven new stores in 2024 with kind of a business environment. I mean, you know. And I mean, we just opened one store in Denver, in Colorado, as a directly operated store, but all the other are franchising. So, I mean
Antonio Achille (CEO)
That is right.
Pasquale Natuzzi (Founder and Executive Chairman)
I-i-
Antonio Achille (CEO)
That's correct.
Pasquale Natuzzi (Founder and Executive Chairman)
Yeah. Okay. All right.
Antonio Achille (CEO)
Thank you for.
Pasquale Natuzzi (Founder and Executive Chairman)
No, no, I'm sorry.
Antonio Achille (CEO)
Thank you.
Pasquale Natuzzi (Founder and Executive Chairman)
It's okay.
Antonio Achille (CEO)
So in imagining the journey of Natuzzi or visualizing the journey of Natuzzi, you're really to have to understand the distance that Natuzzi has been covering, which is significant because is still operating for very few selective relationship in a way in which it just display the product. But other than those relationships, which are chiefly with large, few large, retailer in U.S., the remaining way that the customer can get in contact with Natuzzi is through a very qualified distribution channel, where the brand and the merchandising can fully express their potential. A second direction where we are very excited by the acceleration is trade and contract. Let me clarify first what we mean by each of two, two word, trade and contract.
So trade is the business that we do mostly through our stores, chiefly Natuzzi Italia, where the final buyer, rather than be an individual, consumer, is an architectural designer, which is working for the final consumer. That's a very interesting part of business because, it's exactly the place where we can, deploy our strategy, which is for Natuzzi Italia, not to sell product, but to sell project. We believe we have the legitimacy now to step in in-house and do a full project for the living room, for the bedroom, for the full house. And this is increasingly happening. And in U.S., for instance, this part of business represent, some 20% of the revenue stores, which is incremental versus the revenues we do with the retail consumer. And this business is channeled mostly through our stores.
The second company, contracts, is, I would say, pretty new for our company, but is very important for several of the Italian brands Natuzzi Italia compete with. For contracts, we mean the business where the buyer is a business operator, typically a real estate developer, a hotel chain. This is a completely different dynamics because the single contract can be significant. The contract can involve, and it happened in a couple of circumstances for us, even the design of their entire building, can definitely involve the design of the units, can involve supplying beyond our upholstery, which remains central, also fixed furniture. It's a very interesting and new arena for us.
There is a significant and robust trend in the market for brand and real estate, where the real estate developer try to build a layer of additional value by introducing a brand. It started, of course, with you know, fashion brands, Armani, Bulgari, but those brands, not necessarily, then they have the design competencies. They have the strengths of the brand, but they don't have the design competencies. Natuzzi can fulfill this opportunity, bringing the full breadth of these design company competencies. As it happened, for instance, in one of these projects, which is still under confidentiality agreement, but will be publicly announced on the twelfth of November, so we will have a specific press release on it.
So this new area of business already delivered three major project two in Middle East, one in Central America. They are very meaningful in term of size, but I would say they are even more meaningful because they constitute a strong qualification and a testament, then Natuzzi can play in that game. In a game where you need to have competencies, design capability, you need to have project management capability, the ability to aggregate other partners for fixed furniture. So is a game where very few people can actually place. To support and accelerate that business, we just established a individual business unit that will be managing trade and contract.
I speak about business unit because it will be assigned target in term of growth and marginality, but of course, it will be fully leveraging our let's say platform in term of capability, R&D, and product. So moving from top line to the structure of our P&L, I want to discuss the hard work we have done on margins. I must say that, yeah, I'm particularly proud of what our team has achieved because compared to 2019 we increased by 11 percentage point, 11 percentage point the gross margin. In a context that could not have been more turbulent, because we went through years like 2021 and 2022, with hyperinflation, with scarcity of access to materials.
More recently, we witness a spike in transportation from one geography to the other. So I believe those years have been really challenging for many companies that wanted to maintain the historical margin, and our group has been able to increase it by eleven percentage points. Even in this quarter that we are discussing, we continued the trajectory because we reported 38.1% gross margin, compared to 36.4% of one year ago, so 1.7 percentage points increase in just twelve months. This in a context where we had, for our specific accounting, severance that got accounted negatively in the gross margin. Without that severance, in a sense, are an investment for the future.
Without that, the gross margin, the first quarter would have been 39.3%, so almost three percentage points above the quarter of last year, which I believe is quite significant. This in a context where, especially our Italian factory, they have a low saturation given the scale we are operating. So if we would consider a proper saturation, you should be adding three or four percentage points more in terms of gross margin. And this is the blended gross margin. Then when we look at the integrated gross margin or retail, then here we go in the range of more of 65%-68%, because of course, there we sum the margin of our retailers and the margin of a producer.
Moving on to the fourth point I wanted to highlight is something which has been discreetly managed, in the sense you didn't read anything about Natuzzi laying off people, which I believe is an achievement per se, because we work in highly unionized markets when it comes to workforce. But we have been achieving a lot, because if we take a midterm perspective, we've been reducing almost by 900 people, our workforce, some 20% reduction in three years. If we just look at these first six months of the year, reduced by 170 units, our workforce, this has been planned even, I would say, before the negative economic market we are facing, because it's a natural consequence of evolution of Natuzzi.
Natuzzi moved from being a volume company to be a value company, so we needed lower production, we needed new competencies, and needed to change the shape of our, let's say, workforce. So this has been planned, is continued to be a focus. We continue to do this in the most ethical and respectful way, but is also part of our midterm plan. Just to give you a single number, even as you know, we are not operating at the scale we want in term of top line, the revenue per employee from 2021, they increased by 30% because we've been reducing our workforce. So a significant improving of productivity per employees by 30%.
Last point, I want to mention before talking about, I thought it's something we are proud of, because we continue elevating the quality of our leadership team. I mentioned before how interesting and challenging is to transform a company that for five decade and half has been working as a vertically integrated manufacturer, to transform it with, to transform it into a brand retail company, which has been the vision Pasquale had some time 20 years ago, but is accelerating now. Clearly, talent play a specific role at all levels, definitely at the store, but in new area like merchandising, retail, marketing, all area where the company need to learn to fly while flying, in a sense. As part of the effort of continuing elevating our capability in the retail and consumer space, we've been very pleased to have Nicola Internullo joining us.
Who is Nicola Internullo, and what will do in our company? Nicola Internullo is a veteran of the luxury industry. I've been working with him even in my previous life as McKinsey. He's been working in Loro Piana, in LVMH, in L'Oréal. Lastly, he was the general director for Burberry, for North America, a region that, you know, is very central to our development. He joined us really with the task of helping us to accelerate this transformation into a retail and branded company. He will closely team up with Mario, which remain our group HR director, which has really a deep knowledge in transformation and restructuring. So we believe that this kind of teaming is really fit to our new challenges. So having commented more on the, let's say, ordinary matter, let me comment on High Point.
As you know, I announced, in agreement with our board, our decision to divest non-strategic assets as part of a strategy to become a more agile company and free up resources to reinvest in the business. One of those assets, which has been identified as non-strategic, in the sense which is strategic for us as a location for our showroom, and it will continue being, but not strategic for us owning it, as we don't own the store where we sell the goods, is High Point. High Point has been on the market, basically since 2019, then there's been acceleration in 2021, where we appointed two of the major real estate brokers, specialized in commercial real estate.
The very high interest rate did not help to close some of the discussion we had for potential buyer in U.S. We've been more recently receiving an interest from our insider shareholder, Pasquale, who has been, you know, really at the core of the origin of this building, which is a very iconic building designed by Mario Bellini, one of the most respected, and still alive architect globally, who asked for a potential transaction. We do have, within our governance, a committee that is tasked to assess transaction that might involve related parties.
It is composed by three independent board members: Giuseppe D'Angelo, who is a senior manager from Ferrero; Gilles Bonan, who has been the CEO, a long-standing CEO of Roche Bobois, and Marco Caneva, which is a former partner of Goldman Sachs. So, three high-standard individuals. They perform all the requested activity by the committee, including requiring our company to ask for independent evaluation of the building. And after that, they concluded the transaction at the price and the condition proposed of, by the insider shareholder were at market value. During the last board we had last week, given this was highly consistent with our strategy on disposal, non-strategic asset, myself and the board agreed for the sales, which has been, in the, let's say, approved.
It's still, let's say, in the process, because as you can know or expect, there is some procedural step to be taken, but in principle, unless there is any, let's say, constraint in this step, will happen within the year. The amount, the gross amount for the transaction is of $12.1 million. Of course, there will not be commission fee involved. The sale is configured as a dry sale. In the past, we also explored sale-leaseback options, which were not very positively seen by myself and the board, because they will require quite significant liability mid-term. So having commented also on the point, which I believe was due, I stop here for opening the debate and question, and I thank you for your attention.
I believe this time has been a bit longer than usual, but I wanted to testify the hard work that our team is doing at the quarter in the region, and in the store, which I can assure you is very significant. Our team is very cohesive, is working very hard, and you know we are strengthening the company in a phase of strong headwinds, and I believe that this can only be helping us when the condition will normalize. Thank you, Kevin, you may open for questions.
Operator (participant)
Certainly. We'll now be conducting a question and answer session. If you'd like to ask a question, you may do so by typing it into the Ask a Question field on your screen. Our first question today is coming from David Keenan. Your line is now live.
David Kanen (Analyst)
Can you hear me?
Operator (participant)
Please proceed, sir.
Antonio Achille (CEO)
Now, yes.
David Kanen (Analyst)
You can hear me? Okay. Thank you for taking my questions, and congratulations on selling the building. Congratulations to you, Pasquale. I hope it works out very well. I'm pleased with the outcome. I have a number of questions. I'm gonna get halfway through them, and then I'll go back in queue because I don't wanna completely monopolize. But could you speak a little bit about, first, the capital that you're going to receive from the disposition of High Point and how you're going to deploy that capital? In the past, we spoke about continuing to fill in white space in North America with Natuzzi Italia stores. I'm hopeful that that's going to be the continued strategy. So if you could expand upon that, I'd appreciate it.
Antonio Achille (CEO)
Okay, so you want me to do a question by question? Okay. I thought you had a longer list. If you want to go question by question.
David Kanen (Analyst)
Yeah, let's start with that.
Antonio Achille (CEO)
Okay. So the discussion we had in the board when we decided in 2021 to start this process of selling non-strategic asset, it's been very clear. The proceeding, if any of these disposal happen, as it happened today, will go on structural improvement. Basically, in two area. One is restructuring, and the payback of restructuring is very predictable because, as you know, Dave, when you act on cost, that is independent from market context or other conditions. So restructuring is still an area we will prioritize in using that additional resources. And when I talk restructuring, is laser-focused restructuring. I will not disclose here too many detail because there are trade union involved, but all our area where the evolution of our business model require restructuring, so it's not like, you know, a blanket restructuring.
The second dimension, you're absolutely right, is retail. The fact we have money doesn't mean any way, Dave, that we're gonna be rushed in opening retail. Why that? First, because for three reasons. First, because we still have plenty of opportunity to growth organic. Second, even the most recent opening, like Denver, testify that it's very, very delicate to find the right location in the right place, at the right condition. So we're gonna be continuing looking for retail opportunity, but always with a very structured approach. We don't want to jump in. The retail, it will be predominantly when we talk about retail, Natuzzi Italia, North America. There might be other selective opportunity in other geography, but retail will be predominantly North America for Natuzzi Italia. So long answer to say what?
The proceeds of Natuzzi, of High Point, will be safeguarded and reinvested for restructuring and retail. I'm using this order because also in this context, I believe restructuring also soon for you as shareholder offers a more predictable return in the short term. Which doesn't mean we will not open stores, but I'm saying those two levers, maybe in this phase, will be used in this sequence. No, you're muted, I believe. Or Kevin, you're muted, Kevin.
David Kanen (Analyst)
Am I still mute?
Antonio Achille (CEO)
No, no, now we can hear you.
Okay. So I should have commented at the beginning. I was pleasantly surprised with the operating results in light of the fact that we're in really a very severe furniture recession due to very low turnover of homes in North America. And I'm hopeful that when interest rates are lower, we'll see a reversion to the mean, and you know, implicitly, I think there's probably 20% - 25% organic upside from where we are.
But when I do my own math on the adjusted gross margin at 39.3%, and then also some of the pre-opening expenses and one-time expense that were in SG&A, I come up with a kind of an adjusted, if you will, if you were a U.S. company, non-GAAP operating profit of $2 million, which I'm very pleased with, and I congratulate you and your team on it, and I'm happy that you continue to look for ways to be more efficient. So I look forward to when we get the reversion to the mean in sales and opening up more stores. It seems like we're positioned to do very well. So congratulations, and thank you for your hard work in that, Antonio and team. So my next question is on China.
David Kanen (Analyst)
I know that China has been very soft, and you're levered to that with your JV with Kuka. However, I've been doing my own proprietary work on it, and the Chinese government has aggressively been lowering interest rates to stimulate demand in housing, and we have been tracking furniture sales over the last month or so, and we see a clear inflection. Now, we don't, we do not have data, in particular, on Kuka or Natuzzi, but we do see that in mainland China, there has been an inflection. Now, I'm not saying it's off to the races, but are you guys seeing a turn or an inflection there most recently as well?
Antonio Achille (CEO)
Thank you, Dave, for the positive notes, and for the long-term trust, in our hard work. On commenting on margin before we move on to China. Not that you know, dreaming, sky dreaming, but if you think 400 is a natural, let's say, revenue potential of this company without, you know, progression, 11 percentage point of gross margin would almost translate, you know, in 20-30 EBIT number, no? Because then the fixed costs are paid. So I believe that if there is a rebound in retail in real estate, which is a primary driver for our industry, the company now is set to generate a much higher return on the investments. On China, the market is very soft, as you know. I'm just drawing analogy with other sector.
You have seen Kering posting, you know, yesterday result, 11%, sales down, 20% sales down in China, and we're talking about item that, yes, are luxury, but compared with our price point, you know, they are one seat of a... the price of one seat of a three-seater sofa. So the market is very tough. We are lucky to have a partner which is robust. As you know, the government has announced, this stimulus package because the situation is so severe that they had to step in, as somehow the Fed had to step in, in the U.S. when there was, the COVID crisis.
The impact of that still need to be visible because it's very recent, but everyone is hoping, and we are between those ones, that this will be gradually easing the situation, which has been extremely, extremely difficult. I've been, as I mentioned, in Shanghai in August last time. Restaurants were empty. Department store were empty. The stairs bringing to the second floor were somehow stopped to save energy. And I'm not talking about furniture mall, I'm talking about fashion mall. Then, if you go to department store furniture mall, the situation was even worse. So, to say, I hope it will provide, as the intention of the government is, a positive acceleration, yet the situation is quite difficult. In the meantime, we are working on what we can control.
As I mentioned, we have been intensively working with the JV to bring them closer to us, to make sure the retailer and the merchandising marketing choices are taking fully leverage our knowledge, so that we are preparing our operation to intersect this positive rebound of the market, which I cannot predict it will happen next month or in the first part of 2025. Definitely, I believe we are closer to what is the bottom, because, you know, if the government step in, situation can only improve. No, you're muted, Dave.
David Kanen (Analyst)
Okay. Can you hear me?
Antonio Achille (CEO)
Yeah, we can.
David Kanen (Analyst)
So after this question, I'm gonna go back in queue and then probably have a few follow-ups. But, in particular, your initiatives in the wholesale slash gallery business, going forward, are you-- do you have net new doors that you'll be in, or is it down the same? I know you're restructuring, refreshing, you know, you're trying to come up with ways to drive organic growth at the doors you're in, but could you give me an idea, is it... Are there net increases or decreases in doors?
Antonio Achille (CEO)
So for gallery, there is an increase of 43 new ones, and we plan to have additional 25 by the end of the year. So this is a net addition. A lot of value relies not only in the net addition, but in the upgrading of the gallery, because gallery has been historically quite a broad concept. There were partner which were really aligned with the brand, they were representing well the brand, having right merchandising, right, let's say, customer experience. Other that were were using it more tactically, more in a light manner. We are elevating the banner, of course, gradually, because we also recognize that our partner also are facing difficulty in investing. But we want to show them that by doing the right things at the gallery level, they can have higher returns.
Our expectations are increasing in terms of what is the minimum level of investment and customer experience a gallery should provide. To your question, 43 new openings, 25 by year-end expected by end of the year, but there is a massive job in upgrading the existing one, because a part of it, especially in the U.S., we have quite a loose implementation of what is the new gallery concept we have.
David Kanen (Analyst)
Okay. You answered my question.
Antonio Achille (CEO)
Yeah, just one, and I will link back to what also Pasquale, our chairman, said on China. I can tell you that there is not a lot of happening in China. Not a lot of happening in China cross-sector. It's very, very quiet, the market. We had 16 dealers visiting the Milan Design Week, so 16 dealers which operate franchising, visiting our Milan Design Week. Almost half of them decided either to open new store or to renew stores. So first of all, I want to recognize how brave they are, because investing in this circumstance in China is very brave. At the same time, and I say in a humble manner, is also a result of the hard work we have done in showing what the strengths of Natuzzi can be.
So I challenge you to find other brands which are opening store right now in China. I don't want to quote, but even the large fashion group, French luxury group, they mentioned they will not open anything more before 2026. So I think this, again, talks a lot about the potential strengths of this group, that you only see partially today in the top line numbers. Kevin, I think, Dave has been very kind, as usual, to leave space for other questions.
Operator (participant)
Sure.
Antonio Achille (CEO)
So questions from other participants. Maybe you want to quickly check if there's people in queue.
Operator (participant)
David, I'm gonna keep you connected, my friend. Stay right there. But in the meantime, if you wanna... If anyone would like to be placed into question queue, you may do so at any time by using the Ask a Question feature on your screen. We're standing by for further questions. Please do so. If you're via telephone, you may press star one on your telephone keypad to be placed into question queue. One moment, please, while we pull for questions. And, we do have a question at this point coming from George Melis, from MKH Management. Your line is now live.
George Melas-Kyriazi (Analyst)
Hi, good afternoon, everybody. Thanks for taking my question. It's just a simple question. I don't know if it's a simple question, but on the U.S. retail results so far, you have opened new stores, you have invested a fair amount of money and focus on the U.S. operation. Tell us a little bit more about it, about the performance of the stores, the variability in the performance of the stores, and kind of what you've learned. And also, if you've sort of been able to leverage the presence that you already have in galleries and elsewhere in the U.S. with those stores.
Antonio Achille (CEO)
Thank you, George. Our head of Global Retail Excellence was actually invited to do this call, and I'm sure he would have addressed the question much more effective than I would do, but he's busy with some meeting in Apex. We'll start addressing it, and then I will wait for him maybe to get more specific. First, let me talk about the performance of our store. Piero, you can keep me honest, because we used those data a few year press release ago. On average, our store, before the COVID in 2019, was generating sales in the range of $1.8 - $1.9 per store. I'm, you know, mentioning that by heart, so I might be off a bit, but Piero, meanwhile, is reading the data.
Now, the average is more in the range of four, even those, you know, is not clearly the best year for retail, furniture retail in the U.S. So on average, we improved a lot. Having said that, to your question, there is still a significant variability among stores. That variability depends on many factors. First one is location. We have to recognize that, the brand evolved. Some stores had been opened a few years ago, so not necessarily they are in the location today we would open a Natuzzi Italia store, considering where the collection has moved. So location has an impact, and we are, of course, looking at the tail of stores, where we believe location maybe is not the good one, which doesn't mean it's not in the right city, but, you know, retail really changes.
If you change two blocks, it's a really different environment. So location is the first thing affecting our performance. The second element is the team quality. We have codified what is the ideal team. As I mentioned, Natuzzi learned the hard way, retail, because it was a new job for the group. And we recognized that the team in the store need to have specific characteristics. So first of all, we need to have a store manager, which is really a manager, which means that he's accountable, he's entrepreneurial, can build a strong team around him or her. So the store manager need to really respond to some very specific characteristics. Second, we need to have in the stores at least one, if not more people, which have a design background.
Because if you have great seller in the car industry or in the equipment, not necessarily you're able to engage with a designer or an architect to develop a project. So we also are investing on that dimension. So the quality team is very important. So we are assessing our team and making sure we have the right quality. Third element is having a right assortment. So Natuzzi is doing a great job on upholstery, on you know, dining and accessory, we definitely have opportunity of improvement. And to go the extra mile, that is an area we need to work on, because to elevate the average ticket, of course, that also play a role.
In telling you how big is the variance, so we have top performing store like Costa Mesa, that are more in the range of $6 million and above per year, and tail stores, which are well below the average. The reason why we introduce the retail excellence division is really because we want to codify best practice and to help the store moving aligning more on the average, because still is quite widespread. That's also the reason, going back to early question of Dave, where that makes us, I wouldn't say cautious, but prioritizing this completion of retail excellence journey before opening massively, because we want to open stores when we feel we are very predictable in the results.
Now, we feel much stronger than a few years ago, but still, we want really to complete this retail excellence program, so that when we open a store, we know that it can be 5% or 10% below or higher the average, but cannot be necessarily a surprise. So I hope that addressed your question. Again, I hope we can connect then, you with Diego Babbo. We can also have a second separate call, so that he can also be more specific on individual store performances.
Pasquale Natuzzi (Founder and Executive Chairman)
Great, thank you.
Antonio Achille (CEO)
I don't know, Piero, did you retrieve the data from the press call, the last press call?
Carlo Silvestri (CFO)
No, I did not, but if George wants, I can provide him with data.
Antonio Achille (CEO)
Okay. Okay.
Operator (participant)
Thank you. Our next question is coming from Steve Emerson, from Emerson Investment Group. Your line is now live.
Steve Emerson (CEO and CIO)
First of all, congratulations and thank you to the whole team to come to a stable point, cut the losses in this very tough retail environment.
Antonio Achille (CEO)
Thank you. Thank you.
Steve Emerson (CEO and CIO)
Um
Antonio Achille (CEO)
Please go ahead.
Steve Emerson (CEO and CIO)
Yes. The High Point sale, how much is net cash coming back to the company?
Antonio Achille (CEO)
Okay. Carlo, I'll leave that to you.
Carlo Silvestri (CFO)
Hi. So let's say I say that the process is still in progress, you know. So as of today-
Steve Emerson (CEO and CIO)
One sec.
Antonio Achille (CEO)
...
Carlo Silvestri (CFO)
Yeah. The offer we have received from our major shareholder is $12.1 million. I can't disclose right now the net book value, but the offer is above the net book value we're gonna have. So, and, we're gonna, all the cash will be net cash from these sales that will come in our accounts. So all the sales is of $12.1 million, is all cash.
Steve Emerson (CEO and CIO)
Excellent. Will this cash then enable a fairly rapid expansion in the U.S., once conditions stabilize? What kind of growth in new openings do you expect in North America? Let's assume furniture sales and housing start having reasonable growth.
Antonio Achille (CEO)
So, thank you for the question. As we addressed it somehow before with Dave, we definitely are committed to expand Natuzzi, in particular, Natuzzi Italia, presence through direct operating stores. We just completed five opening, because four last year and one this year. So we want really to make sure those store become at regime, but we might look again at new opening in 2025. Definitely, we see potential for additional directly operated store in U.S. And this is, as I mentioned, one of the potential area where the proceeds of High Point will be going. So definitely this is confirmed. We're not changing our strategy. I hope you understand that this market, and the fact we just opened five new store, advise us to be gradual.
Because opening right store is great, opening wrong stores because you don't have right team or wrong location is one of the worst investment, worst legacy you can have, because then you are committed with them.
Steve Emerson (CEO and CIO)
Okay. And is High Point a sale-leaseback or actually excess property that you don't need?
Antonio Achille (CEO)
So it's not a sale-leaseback, in the meaning that, when we were considering a sale-leaseback to our brokerage agency, they were requiring the potential buyer for some 12-14 years of commitment, of minimum lease, which was very significant, and which would have caused us to increase by $20 million our liability in correspondence of that obligation. So this absolutely is not the case, and that's the reason also why our board and myself, we're looking at those sale-leaseback opportunities quite with skepticism. This is a dry sale, as they say, technically, so it's just selling the building.
The new owner might consider renting us space at market value, since we are still using the space for our showroom, but there won't be long-term obligation that will force us to accrue any liability for that.
Steve Emerson (CEO and CIO)
So-
Antonio Achille (CEO)
It's a dry, dry, dry sale. It's a dry sale.
Steve Emerson (CEO and CIO)
Okay, so maybe our rent will go up, what? A hundred thousand, two hundred thousand a year? That's all.
Antonio Achille (CEO)
I mean, it would be a market calculation, but in doing that, remember that right now, we were yearly spending some $500,000 on maintenance cost. So that will, of course, not be any more on our book. So I would say definitely that would be compensating for our rent. Right now, I cannot say what would be our final decision in terms of how many sq ft we will ask to potentially lease. It will be quite an easy deal because we have very clear what is the market value for leasing office, the leased space, and showroom at the first floor. So it won't be, I would say, a complicated decision to be made, but I will not... I'm not today able to give you the precise figure.
Just in the equation, remember that, yes, we might have some active, some lease to pay, some rent to pay, but at the same time, we won't have any more the maintenance costs.
Steve Emerson (CEO and CIO)
Okay. And finally, now that you will have the proceeds, cash proceeds, would you think that a share buyback would be in the best interest, the best investment you can make now?
Antonio Achille (CEO)
That is an interesting question, and it's a material difference for our board. I definitely see what could be the rationale for a buyback. As we mentioned, there are many opportunities that could also be a good direction where to invest these proceeds. We have not taken any decision on share buyback; otherwise, we would have announced it. I understand it's a legitimate question, but I also believe there are very good opportunities from our operations at this moment.
Pasquale Natuzzi (Founder and Executive Chairman)
Thank you.
Operator (participant)
Thank you. As a reminder, if you'd like to be placed into question queue, you can press star one over the telephone or use the Ask a Question feature on your screen. Any further questions, please stand by. You have a follow-up from David Kanen from KWM. Your line is now live.
David Kanen (Analyst)
Okay, thank you, guys. I guess the first... A couple more questions. Could you sketch out for... Can you guys hear me?
Antonio Achille (CEO)
Yeah, we do.
David Kanen (Analyst)
Okay. Could you sketch out on trade, what your, let's call it, you know, refocus strategy is? You know, I understand, like, designers generate, you know, a lot of business, and they can really grow sales in your four walls. What are you guys doing differently? Can you share with me? I'm pleased to hear it. How are you going to execute it? What's a little bit different now versus, you know, over the last couple of years in terms of your trade initiative and how you're gonna grow that?
Antonio Achille (CEO)
Yeah. So, to cut it short, I would say pretty much everything is different. In the sense, we are now have a very... Dave, can you maybe mute? There is some rebound, sorry. So there is a very well understanding of what it takes to win. And this is in course of being implemented, and there are several new aspect, and I will mention some. First of all, collection. We recognize that, this traditional strength on Natuzzi, which is still very important, and we actually, we have doubled down on that for the consumer. This idea of comfort, which we branded into comfort, it is very important to talk and have a dialogue, with the consumer. Things, for instance, about America, where we discuss a lot, the consumer recognize Natuzzi and actually reward Natuzzi for this idea of comfortness.
But if you want to talk with the designer, you need to have, within the collection, a different kind of project as well. So there's a reason why we partner with some of the most renowned architects globally. I'm talking about Marcel Wanders, I'm talking about, you know, Paola Navone, Mauro Lipparini. So really people which sit on the top of the pyramid, which have been reinterpreting, with humble approach, the style of Natuzzi, make it more design-oriented. And we came up with a very incredible project. I will be pleased to show some of you. Like, last collection, we have a project from Karim Rashid, he's an Iranian designer who lives in New York.
Very visionary, but humble enough to understand what, Natuzzi mean, and design this project, Memoria, really as a tribute to the curve shape of Natuzzi, which then is taken by the Natuzzi R&D to make it a product, because then there are very strict, you know, R&D element that need to be taken. So first of all, we have now a different collection. An architect, they enter in our store, can find material to furnish a penthouse in New York or to furnish a Dubai penthouse, which didn't have before. Second, which again, I believe we should, next time you will be in U.S., invite you in one of our store. We created this design studio.
Design studio is a working space within our store, which is really intended for designers and architects, where they can play with a different combination of materials to define projects. Third, we have a digital support to do projects digitally, because once you have played with the materials, you want to see in a 3D configuration how it could look like. So now we developed a configurator, which can actually bring to life this project from a CAD one dimension drawing to a 3D project. And this, again, is something new. Third element, as I mentioned, is training. This sounds nice, but who can engage with a designer in New York? We need to have a designer in our store.
For instance, now we have a great team in Madison Avenue because they talk the language of designer. And this, again, was something which was not systematically happening in our store. Now, we are very clear that in the store, where we want to express the full potential of trade, we need to have designer in the store, and this is very important. Fifth, is the engagement. We recognize that we were passive, so Natuzzi is a great brand, some architects were entering in our stores. Now we are much more active in reaching the design community proactively.
We've just completed the congress in São Paulo, where we're doing a great job on designers and Casa Decor, which is the place to be in terms of magazine for designers, was our partner, and we invited hundreds of architects to see our collection, and this is being proactively. And I can continue, and I'm sure Pasquale can continue more than me. But Dave, just to say, before, it was somehow happening because we have a great salesperson in Naples, which came from that world and could do it. Now, it's happening because we have developed, in the last twelve months, not last ten years, a well-defined strategy to go hunting for this, a new opportunity, and we are also teaching our partners, our dealers, how to do it.
Pasquale Natuzzi (Founder and Executive Chairman)
So in other words, Antonio, or gentlemen that are asking a question. So the brand moved from product to project. So in other words, each individual project we have in our store, we can configure for different type of consumer. So when the many, many consumer, they go to the architect, to the designer, and they ask to decorate their home, they come to us, we should have in the store people capable to manage this kind of conversation, deal, or business, and consequently, we have what we call also floor planner. We have all the tools, we have, I mean, project that allow us to design a home for customer, where the ticket become one hundred thousand, eighty thousand, one hundred and fifty thousand. That has to do with trade.
We have, I mean, some store where 30% or 35% of the business is trade. So in other words, there are consumer, they come directly in our store, they choose the product, the project, and we provide to give a service to them and sell the product. But then there are designers, architects, they come in our store, and they ask us to design the project for the home of their client, their customer. I mean, Antonio, we, I mean, also in one of our store in Miami, I believe a week ago or two weeks ago, we sold a number of a sofa or product for a hotel for $8 million, I believe. Just one sale was $8 million.
Antonio Achille (CEO)
That's correct. That's very correct.
Pasquale Natuzzi (Founder and Executive Chairman)
Okay, we have, I mean, November twelfth in Dubai, we should promote and present in a stadium to a number of potential consumer the Natuzzi apartment home. And we already have a contract in our hands, I believe, Antonio, for the Natuzzi Harmony Residence for another 55 apartment. There is a building which is carrying our name, Natuzzi Harmony Residence. We designed the building, we designed the apartment, we designed the furniture. Everything will be just Natuzzi in Dubai. A lot of things, I mean, you know, we are certainly doing which is very much different than selling the sofa, in other words, okay?
Antonio Achille (CEO)
Absolutely.
Pasquale Natuzzi (Founder and Executive Chairman)
Okay.
Antonio Achille (CEO)
And I believe this is a completely new area. We're gonna be holding a, at least definitely a press release, because some of the elements we just mentioned are still under confidentiality agreement. We might have a different call. So, David, this is really-
David Kanen (Analyst)
Uh-huh.
Antonio Achille (CEO)
I mean, this is sixty-five years of history, but the last episode happening very rapidly. So some of the things we are discussing really materialized over the last six months, some over the last twelve months. It's really accelerating. Maybe they were happening here and there, but not in a systematic way.
David Kanen (Analyst)
Okay. Pasquale, thank you for sharing that and sketching out for us what the potential and long-term opportunity is in trade and construction. Essentially, I mean, it sounds like construction is almost, I mean, a new opportunity, but in terms of the traffic that comes into your four walls, you're engaging more with the customer, and rather than just selling them a sofa, you're helping them design their home, which should translate to higher average order volume. That's essentially what you're saying, from my interpretation.
Pasquale Natuzzi (Founder and Executive Chairman)
That's true.
David Kanen (Analyst)
Yeah, I appreciate-
Pasquale Natuzzi (Founder and Executive Chairman)
No, the way you describe is way better than mine, and that's because the language. In Italian, I would explain better, certainly.
David Kanen (Analyst)
You did well. You did well.
Pasquale Natuzzi (Founder and Executive Chairman)
Thank you.
David Kanen (Analyst)
So, the last two questions, Antonio, I appreciate the fact that we are in a furniture recession, and you wanna be conservative, and you're... Essentially, you're allocating your efforts and resources to organic growth that require little to no capital. It seems like that's what you're focusing on, and you're approaching filling in the white space in North America very conservatively. But longer term, if I could ask you to address this, because I think it's helping the results. The North American stores clearly are helping results. Am I correct in saying there's, you know, again, I wanna emphasize what you're saying, which is, we wanna very thoughtfully and judiciously open new stores to make sure we have the right people, you know, that are trained in the right location.
But longer term, five, eight years from now, can we not add fifty to sixty stores over time, okay? Executed well. When I look at our competitors, when I look at our house and our age, and their boxes are larger than ours, you know, they're at those numbers. Is that a realistic long-term goal, you know, to open up an additional fifty or sixty stores?
Antonio Achille (CEO)
I will say longer term, definitely, there is opportunity to double and triple our business in U.S., branded business. We're not gonna go back to unbranded. A lot of that will happen through stores. We do believe that in some area also, the gallery, which basically is a store just within a multi-brand environment, is also a nice opportunity to reach a state which will not sustain a fully-fledged store. But definitely, the opportunity in U.S. are massive, and some, a significant part of that will happen through directly operated store for Natuzzi Italia. We discussed that in the past, our long-term strategy, if you talk eight, nineteen years, definitely has not changed. I hope you understand that we need to be prudent, first, because we want to bring more organic growth also, the last five stores we just opened.
And second, because retail need to be an area where we minimize mistake in term of location.
David Kanen (Analyst)
Okay, and then here, I appreciate what you're saying, and my last question is on e-commerce. Many of our competitors are generating tens of millions, even hundreds of millions of dollars. Now, it seems to me there are two home furnishing e-tailers, e-commerce companies, you know, one of them begins with a W, that everybody knows, that are massive, okay? It seems to me like the, you know, it's not the right venue for Natuzzi Italia, you know, selling $10,000-$15,000 sofas, but on the lower end, with Editions, $2,000 sofas, it seems like it's a really good fit. My question is, can Divani & Divani also be sold potentially in the US at these large e-commerce home furnishing companies, along with Editions, and is that something that you're open to?
'Cause I've kind of, you know, reached out to one of them, and they seem to be very interested, then it kind of got put on hold. They have their own unique issues they're working through, but it seems like there's interest there. Is that something that you're interested in? And then could you do both editions and Divani & Divani there?
Antonio Achille (CEO)
That is very interesting perspective. So just a couple of, let's say, point I want to make. First of all, I agree with you. For Natuzzi Italia, e-commerce will be more a channel to drive traffic to the store, because if you want to sell project, not product, it's difficult to envisage that online. There might be some impulse project product, like Re-vive or other, that can be actually purchased online, but otherwise, for Natuzzi Italia, that would be more drive traffic to the store. For, let's say, the second brand, that is still an opportunity where I feel we have not done equally well, like in other area, like trade, for instance, because we still need to, you know, deploy it carefully.
On the idea of Divani & Divani, there is one element, Dave, that I won't, you know, problem-solving here, but there is one element that we need to be cautious. The Divani & Divani, which is a completely different banner, to a great extent, is the same collection. Having said that, I believe that for Natuzzi Editions, the digital opportunity is something we still need to address properly, especially in U.S. So I don't want to be defensive. I think you are right on that. I don't want to be defensive, and I take the blame on me. We are later than I wished we could be now. I think we've done a great work on retail, a great work on merchandising, on many other dimension, a great work on margin. That was a bit later than I wanted.
David Kanen (Analyst)
Okay, so it's something that's on your radar for to-do list?
Antonio Achille (CEO)
Yes. Yes, yes. 100%, 100%.
David Kanen (Analyst)
Thank you, guys. Congratulations on navigating a very difficult environment, and again, on the sale of the building, and I look forward to the back half of the year, and more importantly, 2025, I think, is going to be a recovery year. Interest mortgage rates should decline, and housing transactions can only go up from here. So I wish you well.
Antonio Achille (CEO)
Thank you, Dave, and thank you all. I leave to Pasquale for closing remark on my side. I really appreciate this conversation and the tone. I don't want to convey the message we are accomplished with what we achieved so far. There is a lot of work need to be done. We believe the company definitely deserve higher sales. We focus on the economics of the company, we focus on the retail transformation and the brand transformation, but there is still a lot that we need to do. Thank you. Pasquale, I leave to you for your final remarks.
Pasquale Natuzzi (Founder and Executive Chairman)
As you know, Antonio, I'm, as the founder of the company, I'm writing down the Natuzzi brand Bible. Natuzzi brand Bible gives a very clear guideline what the Natuzzi brand stands for, okay? I'm writing down the DNA, the harmony code, a digitalizing harmony code, retailer, religion. I believe that the brand is exactly like religion, and the store, the retailer, is the church, where the brand needs to be where the religion needs to be practiced. We are doing a really job in this very difficult time, you know, to define clear guideline for the brand management, and also for the retailer way we should manage.
You know, I really appreciate the way, Antonio, you have been describing, you know, the entire, you know, quarter and period, and also all the question, you know, raised by the shareholder. They've been very constructive. I really thank you very much to everyone for the constructive approach, which we need. Thank you again.
Operator (participant)
Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Antonio Achille (CEO)
Thank you all.