Earnings Call: Q2 2021

Sep 27, 2021

Earnings release

In detail the results of the Q2 and the 1st 6 months. Thank you, Pasquale, and good morning, good afternoon to everyone. I joined the company last June, and this is my first analyst call. I'm working very closely with Pasquale in the new governance and thank you for the very there's a bit of echo for your very kind word, Pasquale. Okay. Maybe Kevin, can you mute the microphone of people which are who are not speaking because I got a bit of okay, excellent. Thank you so much. So I was saying, very happy to be with you. Today for me is an important meeting, not only because in my first analyst call, because I interpret my mission in a sense as a simple mission. My mission is about creating value for the investor, which I believe today is well represented in Zolgiums as measured per share value increase. The other mission is, of course, to satisfy the other shareholder of the company, which I intend to be our final customer. So those are, let's say, my 2 priority, equally important, and those are based on a reset of our fundamentals, which we are very hard working with Pascuale. In terms of numbers, I believe you have seen our 2nd quarter numbers by this time. We continue reporting strong sales, 76% versus the Q2 of 2020 and 17.7% versus the same period 2019. So growth is back. It's back, I would say, for the sector because as Pascual mentioned, the sector is enjoying positive growth, which we start believing can become structural. But it's also very good for us. We believe that in lots of geographies, including U. S, we are gaining market share. So we are growing faster than the market. It is not just about the absolute number of growth, but it's the quality of growth. As you may know, if you're following this stock from enough time, the company has taken the decision to growth on 2 main avenue. One is the branded business. So leveraging the strengths of Natuzzi Italia, which is 60 years of heritage, which is entirely manufactured in Italy. And Natuzzi Editions, which is designed in Italy, Its price point is more than a foldable price point and the production takes place where you need to be, so closer to the end market. So when I say I'm pleased to see the quality of the growth is because the branded business represent now 87% versus the total. To me, that is quite an interesting achievement because as you know, the company started 6 years ago, but with a completely different scheme. It was producing great product at an affordable price point, but which were mostly sold on brand. So you can imagine how much effort and how much investment we calculated roughly $1,000,000,000 investment went to move from being a manufacturer to being a brand. The second avenue, which for me is a symptom of improving quality, is that retail in the geography where we start having a right team and a right receipt is working well. For instance, if you look at the U. S, where we have our manager, which is attending this call, Jason Kemp, that brings 25 years of experience in different company, including Restoration Hardware, who built a strong team around them, really with retail competencies. In this geography, we have our best store basing at 4,000,000 sales per year, reporting 669 sales like for like increase versus 202049% increase versus 2019. So I would say significant numbers of organic growth, which did not happen by chance. It happened because we have a strong team. The strong team is implementing a very good merchandising retail strategy as launched, and I'm sure Jason could give more color along the way, what is called Quick Program. So based on advanced analytics, we read the data of the previous three seasons to understand which are the best product in term of rotation. And on those product, we take a major risk in term of stock. So to be able to serve the client with very short term delivery time, which in this turbulent time of supply chain is really a competitive advantage. So brand business is growing well. Retail is growing well in those areas where we have enough focus of the management team to start playing by the book what a good retailer should do. And we intend, of course, to deploy this winning receipt to the remaining geography. So I would say what I witnessed after 3 months of my joining is a team which has a very clear view of the strategy ahead. The strategy ahead is based on branded business, retail and 3 priority geography, U. S, China and Europe. I also see and I'm encouraged by the fact that Pasquale said that it is true not only for me that I just joined since 3 months, but also for him who is in the business in 60 years. I also see an unprecedented level of supply chain disruption. And this happened on the 3 main elements of the entire supply chain. It happens to the raw material, where we witness price increase of up 100% versus the beginning of the year. It happens in terms of manufacturing, where we see demand outpacing our ability to fulfill the demand for very different reason. And we see this in the shipping, where it's increasing complex to secure a timely shipping of our product with the proper cost of service. So this is, I would say, keeping us very focused. We are centered on the reduction of backlog because, of course, we want in these days, our final customer will trust our brand not to suffer from this contest. As you know, it's not just Natuzzi. As you know, it's not just the furniture business. It's the global economy, which is facing this global challenge. So we are working very hard on this, but we cannot claim to have the full map to say will be solved for Natuzzi next week. And this is the other important aspect we want to share with you in a very transparent manner, as though we should be communication with our trusted advisor and investors. So let me stop here because I'm assuming you have seen the rest of the press release and would be a better use of your time to address your question rather than continuing on this introduction. The other element I might want to highlight is that I spent the 1st weeks with Pasquale, with whom I'm working extremely closing to align the full team on the future vision for growth. We have been investing a lot of time on creating alignment. We just end up this weekend another off-site with the full management team because we believe that this will be a people led growth acceleration plan. And one of the element beyond creating alignment on the vision and increasing communication within the team, Another element which we wanted to actively use to create this alignment and to create sense of ownership and the management is the incentive system. So we have in place since the beginning of the year our MBO, which is anchored on short term results. Our board gave us just approval to define and fine tune by the beginning of next year a stock option plan that will be extended to a limited number of managers, including myself, with intent of creating a perfect alignment with the shareholder and also being a long term retention instrument because it will be with a vesting period relatively long. Today, we don't have the detail on that because I'm being finalized, but the decision by the Board has been taken on a quite a clear journey in term of timing to complete the stock option plan. So definitely, I'm sure that in the upcoming next analyst call, we will be able to provide more details on this element, which I believe would be very important to create ownership, instinct in the top management. Okay. Let me stop here. Maybe, Kevin, you want to unless Pasquale has another remark, you want maybe to open for question. You're on mute, Pasquale. Can you unmute, Pasquale? Yes, there you go. Antonio, you listed the complete issues. So we can certainly listening our shareholders for their questions. Thank you. We're now conducting a question and answer session. If you'd like to ask a question, I guess David is trying to connect them to Yes. Our first question today is coming from Kyle Travers. Your line is now live. I do apologize. One second, Mr. Kainen, you were first. Please go ahead, Mr. Kainen, your line is now live. Mr. Kainan, the press your phone is on mute on your end. Mr. Kane, I'm just going to move forward. Would you mind just re raising your hand please? One moment please. Kyle Travers, your line is now live. Please unmute yourself. I am unmuted. Can you guys hear me? Yes, I can hear you. Please proceed. Good morning, guys. I appreciate you taking the time. Had some time over the weekend to go through your press release and appreciate the question. So one question I had in particular was about your U. S. Stores that I think you said are trending at around $4,000,000 at over 70%, I guess contribution margins. And I was curious how many of your stores are headed in that direction? And if you could also remind me just of your total U. S. Store count? Sure. Good morning. I guess that's for you. Good morning, Kyle. It's Jason. So we have 13 stores in the U. S. And when we look at our top 6 to 7 stores, those are the locations that are pacing in the $4,000,000 range. And generally, those stores were pacing at about $2,500,000 in 2019. So they're up in the 70s, plus 70 percent or so to 2019. Those top 6 or 7. Okay. And I think the other, I guess, other 6 stores, And I guess, dream big with me for a second. How long do you think it would take for the other 6 stores to get to the $4,000,000 run rate? When do you see the soonest that could be achieved? Sure. The average pace of the 13 stores is $3,000,000 just to give you like some ability to do the math. And in general, I think we definitely see a lot of growth beyond this $3,000,000 to $4,000,000 pace. And we expect and hope that our work in the area of talent, merchandising, marketing, lead time improvement will all that work will lift all boats. Generally, it's my experience that your best locations grow faster than the average. And I hope that generally answers your question, Kyle. It does. I appreciate it. And I guess just one other question. This is a little bit broader, and I don't know if you guys might be able to point me in the right direction. But there's some things that are off balance sheet here. Have some land and you have a JV here in China. And I guess I was wondering where I could find one the China, the KUKA information about their operations and how those are trending. Maybe you guys could just summarize sort of the land opportunity and some of the stuff that maybe it's not particularly strategic to the longer term vision and how much you guys think you could be able to monetize by selling real estate and some things that you do this when you're reading through a press release? So two questions there. Antonio, would you like me or would you like you to answer? Vital, I think you're best positioned. You should do it. Then I'll do a bit of more general comment on capital employment, capital efficiency. But please comment on land and then KUKA. Okay. The program to sell our non core assets is going ahead correctly as anticipated 1.5 years ago. In July this year, in Q1, we saw between the 1st and second quarter, we sold the company, the firm company, and then we sold 2 lands in Italy. And in July, we just finished and completed the sale of a land in High Point. So we are moving ahead in the right direction so far. As far as KUKA JV is concerned, you find in the profit and loss a share the so called share of profit of equity method investees. It is below the net finance income. Today, for the first half, they contributed with €2,000,000 profit to the Natuzzi consolidated profit and loss compared with €900,000,000 in the 1st semester 2020. So this morning, I just had a look to the August results. I do confirm they are moving ahead with both brands with retail rollout. I'm sure that Antonio will elaborate a little bit better than me from a qualitative point of view. No. You did a perfect answer. Just to be collaborating and linking this back to my opening. If, as I said, the whole company is working to increase value of the share, to purchase the share, Of course, capital efficiency is an important matter. So we are continuing to explore a way to get light our balance sheet in term of capital. And of course, nonstrategic asset are a focus of that effort. We're in advanced discussion to continue that journey. Of course, we want to do it in a proper manner to maximize the current value. JV China is a bit a different matter. It's more strategic, more structural. But equally, we're exploring and is more midterm way to make sure that the Natuzzi investor get the full value of what happened in there, which is very encouraging because we are growing significantly in terms of numbers of stores. We have roughly 300 stores there among the 2 brands. And the performance are doing very well. And our partner in collaboration close collaboration with us is really establishing the dual brand strategy with Natuzzi Italia being a top luxury brand positioned very high and Natuzzi Editions being more affordable. So if you think about the potential value of this story, China, luxury, fast growth clearly can be significant, and we will continue looking at way to capture more of this value going forward. Just from somebody who is new to your story, I think you guys can for what you will. But I think it would be incredibly helpful for somebody on my side to have a little bit more granularity on what's going on with KUKA and even the metrics we always look at are sort of sales and EBITDA and we're going to plop a multiple on there and just to understand what your 49% is worth, just so it's a little bit clearer, because people that are new to your story, there's obviously no self coverage here. So it's a little harder to do a full sort of sum of parts here and understand what's completely under the assumption there. So I will leave it at that. And I appreciate the details and I appreciate you guys taking my questions. So thank you very much. Hello, Mr. King, you're now at the podium. Please unmute yourself. Mr. Kane, I believe you're having an audio issue on your end. I do apologize. I cannot hear you. If you could hear me, I cannot hear you. You're unmuted, but I still cannot hear you. I do apologize. Our next question is coming from Greg Cohen. Your line is now live. Hi, guys. Can you hear me? Yes, please proceed. Yes, please. Hi. So congrats on the strong growth in Q2, particularly in the U. S. My first question is, are you seeing these strong trends in written orders continue into Q3? We're almost at the end of Q3 here. So just was wondering if you can give some color on the trends in sales, whether they're accelerating or staying the same or what you're seeing, if you can provide some guidance on that? Yes, sure. I refer back to the press release because in the intent of providing transparency as suggested by SSE. We also shared information on 1st 36 weeks written orders. Currently, we are starting week 38. So basically, we're talking about 2 weeks before now, so mid September. And written order are plus 36 versus 2020 and plus 14.5 versus 2019. So the momentum positive momentum continued. Now we are months 9% of the year. The consolidated written order at 2 weeks ago were still very positive versus post-twenty 20 2019. I hope this address your question. You see this information in our press release, in first page and also yes. Yes. That's helpful. I guess my question is in the U. S. In particular. From my perspective, that's our key growth market. So, is there any more detail you can give on how the U. S. Is doing in particular over the past couple of months or so? Good morning, Greg. I would generally confirm what Antonio shared is that the pace of business that we're seeing into Q3 in a pure dollars perspective is holding true to what we're seeing in the first half. And for the first half of the year, when you kind of double click down onto just the USA in the branded wholesale business or the retail business, right, our growth numbers are somewhere between plus 50 and plus 70. 2017. Got it. That's helpful. Yes, that's helpful. And I guess as we look forward, can you just kind of give a little bit more color on our store opening plans? I know in previous calls we had discussed, I think there were 6 or 7 that were going to be open in sort of the near term timeframe. If you could just kind of give us a little bit more color on the pace of store openings in the U. S, I think that would be helpful. Dizon, again, I think it's for you. And again, we don't provide guidance with precise number, but I think we directionally can share what our and of course, depend on the real estate opportunity. But Jason, please, you are clearly better entitled than me. Sure. When we look at total number of openings in the region. We expect to have opened 4 stores between independently owned and stores we operate this year and 10 stores in 22. That's sort of our let's call it 8 to 12 store range, but we're targeting for 10 for 2022 between both brands and between independently owned and company operated. Got it. And just one last question for me, and then I'll hand it over to the next caller. But could you give an update on some of the other strategies in the U. S. And globally that we're pursuing such as e commerce and kind of the second ancillary to that would be where we are in the opening of the Mexico plant to service the North American and South American markets? So maybe I'll start taking those two questions. And maybe, Greg, a further clarification to what Jason said. Again, in term with the spirit of being capital efficient, some of the opening will be done in partnership. In the sense that we will be majority partner. We'll be fully running the show, the operation in the store, but we will also involve a partner to lower the capital need of those opening. So e commerce in Mexico. E commerce is on track. So it will start it will be a global new platform, merging the existing 46 digital platform that are representing the brand. So it will be a global platform for all geographies for Natuzzi Italia Natuzzi Editions. It will start being operational. The current plan is start being operational for the brand Natuzzi Italia and for Natuzzi Italia and for the brand geography U. S. By the end of this year. So this is the plan. As you can know by e commerce, we are pursuing a kind of agile implementation, which means there's going to be a Mexico is absolute priority. Mexico is absolute priority. The working is going ahead. We are now moving a senior team for from Natuzzi Italia from Natuzzi a quarter in Mexico to secure a better pace of our implementation. But this is among like the 3 or 4 major priority for next year. So also there, the objective is to progressively ramp up the production in 2022, and that objective for the time being is confirmed. Thank you. That's incredibly helpful. And just, I know you've only been every 3 months, but the work you've done so far is very impressive and energizing. And I think shareholders really appreciate your focus on return on invested capital and a new focus on profitability, as well obviously as high quality product. But personally, I'm very much looking forward to the years to come. And it seems, based on current trends, we're set to grow in a very big way and be very, very profitable. So look forward to hearing the update on the next quarter. Thank you for your encouragement. And I can share back the consideration that Pascual and I did. It is that clearly the company had a very strong instinct for growth. We want to preserve that but include a more systematic instinct from profit generation and value generation. We are increasingly use as a matter of discussion among our team metrics which are really focused on incremental cash generation. I think it's good to start with a company which has strong growth instinctive. We now need to take benefit of this moment to reset a bit the machine and the KPI and the culture to be equally focused on value creation. Thank you. Our next question today is coming from Charles MacDuhan. Your line is now live. Good morning. Dave Kanan on Charles MacDuhan's line. Are you guys able to hear me? Yes, please go ahead. Okay. Sorry about the earlier problems. So in terms of the new store openings, it's encouraging to hear there are 10 your goal is about 10 for next year. Looking out 3, 4 years, how many stores do you think you can have in North America? And the reason I'm asking for more color there is your statement that branded and DAS scores contribute 74% gross margin. Obviously, we'd like for that ramp to occur as soon as possible. So if you can give us a longer term goal, is that 10 stores per year sustainable? Where are we going to be in 3 or 4 years? Just why don't you take that one and then maybe Pasquale and I can give more color. Sure. In general, Dave, when you when we look at the combined opportunity of both brands, both Italia and Editions, The truth is on a kind of a long term saturation in the United States in the region, honestly, we could probably have almost 10 times the number of stores that we do today. So there's a really long runway. We're not going to achieve that over 3 to 4 years, but there's a really long runway from a retail growth standpoint. And Dave, another comment on that. Everyone, including, as you can imagine, the shareholder, Pasquale and myself, are looking with great excitement to what we are achieving in term of retail performance in U. S. And we will prioritize any dollar to continue the journey. At the same time, we need to recognize that opening a store is an investment. And it need to happen in the proper manner. So if you look at what luxury brand do, let's say, personal luxury and fashion luxury brand do. For them, it's like a major investment opening a store. So they take consideration of the agency, they take consideration of the long term potential, want to structure very well the needs. So we're looking with great excitement at opportunity, but also in a very informed way. So we will not let, let's say, the will of building up a presence prevailing on rigor or choosing that location. Example being New York, we want to do a location reopening in New York, which, of course, will be important because it's where the company listed, where before Pasquale set up the success of this company, personally starting the relationship with Macy. So it has many meaning, and we want to do it in the proper manner. So we're not rushing in doing things which may be good for being reported in an analyst call, but not be as good in 3, 4 years down the road. Okay. And then Dave, if I could just build on that for a moment. I think one of the most costly mistakes that a company can make is rushing into locations and leases that are not A locations, at A level economics. And so often when companies get into a very accelerated rollout, I think the wheels come off. I've actually watched that happen at RH where they're opening 20 stores a year. And then 2 years later, they were nearly in bankruptcy. And they've obviously, right, found their way through that and become a very successful organization. But I think making sure that in our early years, we're negotiating A locations for each brand at A level financials is honestly one of the most important things we can do, right? What's the biggest difference between our top 6 to 7 stores and our least successful stores is location and once you sign a lease, you're generally locked in for 10 years. So we want to make sure that we do our ask enough questions before we get married in all of these. So we know we're happily married. Okay. And I appreciate that color. I'm sorry, go ahead. No, the other element, which I realize we are not ready to do it today, but maybe we'll do it next time. We continue investing in elevating the store experience, especially with recent events for Natuzzi Italia. We just defined and fine tuned a very exciting new retail format for Natuzzi Italia, which has been rolled out in Shanghai and China with very great, well, let's say, comment from customer and partner. It will be next time we're going to making virtually touring the new store as being developed by an Archistar designer, Fabio Novembre. He speaks about the DNA of the brand, he speaks about our soul. It's very bright and very innovative. So for us, as we develop the retail, it's also elevating the retail experience. That will happen through the infrastructure, and I'm talking about the retail new store. It will happen through the experience. So we're investing in new training for our sales force with a proper clienteling and proper storytelling, both for final customer and for the architect and designer team. So for us, retail will proceed in 2 ways, more opening and better opening. Okay. Yes, I appreciate the thoughtful approach to the expansion. That completely makes sense and it sounds like you're learning from other people's errors. In terms of gross margin, I know that you've seen inflation in raw materials. You passed through about a 15% price increase. Can you give me the timeline on that? What I'm kind of wondering about is on a go forward basis, are we going to see an expansion in gross profit on a consolidated basis from these cost increases? For example, if they were passed through in May or June, you did not have the full quarterly benefit. So that's what I'm trying to ascertain, if you could speak to that, again, the timing And if on a go forward basis, the price increases are going to help improve gross margin. Hi, David. This is Vittorio. Let me focus on North Central America first. We did the first price increase by November 2020. Then following the trend in raw materials and transportation costs from China, We did a second one in February. But recently, we just adopted another surcharge for transportation cost in September. This means that in Q4, we will have the full impact of price increases on our profit and loss. And this is just the example of our North America additions. More or less the same in terms of timing for Safale, for the unbranded. For Natuzzi Italia, we had December 2020, July 21, October 21. Okay. So the price increases that we've taken recently are going to have a favorable impact on gross profit going forward? So David, yes. But again, I think it's for the time being, it's a game of running faster than the bullet because we don't see yet a decrease in this crisis time. So please in doing your math considering also that. I believe that at one point, but it's my personal expectation, so it's not any guidance, at least on raw material, we should see a normalization. And when the second, that will be constituting a major advantage for us because we have increased prices in some geography and some brand up to 30% in 9 months, which I think testifies the resilience of our and the strengths of our brand. So if and when raw material price will go down, then is we're going to get a very strong uplift because, of course, we will not lower down our price again. But in the short term, the combination of us increasing price in raw material spike is still a battle, still a battle. That is important to mention. I don't know, Pasquale, if you want to comment. I see you're nodding. Again, I mentioned you've been 60 years in the market. I'm sure you have more experience than me judging these trends. Listen, you learn very, very fast. All the statements you have made are the good one. Otherwise, I would stop you. I hope it means stop me from talking, not stopping in sense of firing me. But of course, I must be very frustrated. Dave, I will add to the other comments that on a global basis, cost of materials has been significant in the North America region, specifically freight is really the most volatile. And when Antonio speaks of outrunning the bullet, freight is really the one we're chasing right now. We're living at historic times, it relates to access to containers, access to railcars, access to trucks and all the prices related. Right. And maybe just to add some color, which I believe could be relevant for you if you intend to follow this talk and this company for the midterm. When we look at supertank disruption, I believe there will be some effect which are short term on which we need to defend and other which we are more midterm opportunity on which we need to readjust. So raw price increase for me is more, let's say, for medium short term in the sense I don't expect that the reservation for this to continue forever. And this, we are trying to defend by a better raw material sourcing and, of course, the price increase that everyone is introducing in the industry. When it comes to shipping, where just to quote you, we're reporting an ever cargo shipping from Vietnam going in 6 months from $2,000 to $16,000 $7,000 I personally believe this will be more structural, which means that, let's say, the global economy, which in a sense was using Far East as a factory and selling product with a markup in the rest of the world. For me, something we don't want to bet on anymore. So we're going to have Natuzzi Italia, which is our luxury brand, which is going to be continued being manufactured in Italy, where we can leverage an experience of 60 years with some of our more experienced working having 36 years of experience in their hands on how to craft a luxury product. When it comes to Natuzzi Bichon, the design will still be fully in Italy with internal design team. The production needs to be in a logical place, also for a sustainability standpoint. We don't want to contribute to unsustainable practice. So we'll have Mexico for North and Central America. We'll have our Romanian plant and somewhat selective production in Europe for Europe. And then we have Shanghai, our own plant and Vietnam for China and Asia Pacific. That for me makes more sense. It's more sustainable. It will support reducing shipping cost and getting a better service. So in Synthesy, raw material strategy is defending. Shipping strategy is optimizing long term supply chain. Okay. So you guys kind of beat me to the punch on transportation. That was really my next question. Transportation costs were up 4 20 basis points. And if you look at the history of that, shipping containers, it's somewhat cyclical. And historically, when they've had large price increases, they've been followed by price declines. So I would like to believe that over the next 12 to 18 months, we're going to recapture some of those 4 20 basis points along with the price increases that we've taken that will drive gross margin higher. So is it I know you don't give guidance, but looking out 12 to 24 months as you most likely reclaim some of that 4 20 basis point increase in transportation, you start to get the benefit of price and declining raw material prices being that operating income adjusted for the one time Canadian issue was about almost $3,000,000 Is it possible that we can get to well into a double digit EBITDA margin? I mean, we were at about pro form a, I think we're at $8,000,000 of adjusted EBITDA for the quarter. Could we get to a 10% or better margin over the next 12 to 24 months? So as you currently said, we don't provide guidance. I cannot say yes or not. But clearly Antonio, I mean, just because my experience, I can answer one of the questions. Absolutely. Please, please, Doncquale, please. Yes. Regarding the transportation cost increase. In I mean, we export in America, in Italy, for example, since 40 years. And I mean, never, never anything like what happened today, I mean, I remember 40 years. Okay, the price increase could be a 10%, a 20%, more or less. But here, we are talking about we used to pay $2,500 now $10,000 $20,000 This is situation. It's something that it's there is no way to understand why is happening anything like that. So and I cannot continue to be like that, but that's just my feeling, all right. So never happened before in 40 years, I can guarantee you. That is the cost of transportation. Regarding supply chain, we are certainly stopping by purchasing, importing component from China. And also on importing from China, we are penalizing because of the cost of a component never can justify transportation costs like that. So we are going to review, as Antonio explained, the supply chain. Whatever we manufacture in Italy, we should try to have a component, raw material, everything as close as we can. And then the same would be in Romania, the same would be in Shanghai and the same would be in Brazil. So we are going to review the supply chain, the complete supply chain in order to avoid transportation costs and make our company sustainable as Antonio said, okay? So that's what I can say. Okay. So in other words, you have other initiatives to mitigate cost inflation and transportation and raw materials. You're controlling the things that you have control over. That's good to hear. And then I have a question for you, Mr. Natuzzi, on product development. Today, it seems like you're moving more towards training your sales force in store where they're more designing a room for a customer as opposed to just taking an order for a product where I come in looking for a sofa, but taking a more holistic view. Are you going to be increasing the number of SKUs in product development to further increase the penetration that you have with that customer in designing a room as opposed to just selling them a product? And if you can give any color there of some of the if you are, what would some of those product categories and SKUs be? I believe we have product and color enough, okay? We need to just now to focus on selling. I mean, our total merchandising today the merchandising we have today for Natuzzi Italia. But talking about Natuzzi Italia can, I mean, support the lifestyle brand? So in other words, we are in the position to decorate an entire home for very demanding people in terms of style, coordination. No, I mean, investment on product development must be reduced because we need more to training people in the store and work on retailer merchandising. So that's the next 12 months of the challenge of the management. I see. So you have enough SKUs to meet the customer, which is what you're saying. And then just last question, I don't want to monopolize. In terms of e commerce, when is your launch? And if you can provide any color around that and expectations of shareholders that we should have? But that's what you really answered. Yes. Maybe yes. I think, David, maybe you were you had some problem with the camera and the audio. Don't mind the answer. Sorry. No, no, no problem. But I don't mind to summarize. So we are targeting end of the year for a global launch of a new information and branding platform for Natuzzi Editions, Natuzzi Italia globally. They will be substituting the existing 46 platform that exist in each different market. The platform will be also transactional for U. S. Natuzzi Italia, which will be the 1st market we will be launching e commerce. So we are targeting end of the year. Of course, we are rushing a bit, so we will not release the e commerce unless it's reasonably stabilized and solid. But for the time being, the plan of U. S. Natuzzi Italia by the end of the year is confirmed. And sorry, maybe I consider it obvious. Baba Bic is not obvious. One of the area where we're going to have a discontinuity is the marketing, which will be moving radically to digital. And we will be mostly about customer activation rather than brand building. And Natuzzi enjoy a touristic brand awareness in most of the geographies where we want to grow, including U. S, where it's number 1 in term of European Furniture brand. So the communication would be predominantly in the form of customer activation. It would be mostly digital. On average, a consumer search for 23 days a product before buying it in furniture. We want to be very visible in that journey, which happens a lot also on digital. On average, there are, in U. S, 8 digit touch point being social media or being the site of the common company. And we want to do a leapfrog in our ability to be present and influence there. We have a manager, Jay, who has extensive knowledge in U. S. On digital marketing, who is working closely with our recorder to accelerate that process. Okay. That's very helpful. Thank you, guys. Congratulations and good luck in the upcoming year. Thank you, Dave. Thank you. Thank you. You. Our next question today is coming from Stanford Wyatt. Your line is now live. Hi, guys. Thanks for taking my question. I appreciate it and I'll echo what one of the previous caller said that all the additional detail in the press release was really helpful and the focus on the return on capital and some of the other changes you made have been great. So thank you. And just to circle back on one of the previous questions, I'd love to hear, I know you're not giving guidance, but just on the long term EBITDA margin potential in this quarter, I thought the EBITDA margins were pretty strong considering all the headwinds with transportation supply chain costs. But love to hear just any thoughts on over the long term, what the EBITDA margins can get to? And then I've got one more question after that. Thank you. So maybe a more strategic consideration where I use the word strategic not to be glory, but to refer more to the midterm. So we claim and we aspire to that we want to be a brand company and at least for Natuzzi Italia to be a luxury vertical integrated company. So if you look at those the benchmark in those industry, they all clearly have double digit EBITDA. That's for sure. So when we say we aspire to that sector, it doesn't mean that we aspire to the sector just because we use that word that we will use that word in our press release, but we could aspire to the economics and the multiples of that industry. That is the kind of midterm strategic answer. More short term, when I say we want to rebalance our supply chain, I firmly believe the only sustainable company will succeed also for an investor perspective, but there is terrific value to do so. If you think that currently, the production from China and U. S. Is paying 25% of tariff, if you think that, that production need to pay the shipping costs we mentioned, you can imagine if we move it to U. S. Where there is 0 tariff, so from 25% to 0 And where production can travel on track, on wheels rather than shipping, what could be the impact on margin? So by doing logical things, like Pasquale said, reducing the complexity of our collection, by reviewing our supply chain, by increasing the efficiency of retail as we demonstrated to be able to do in U. S, we expect that our journey towards becoming a brand and luxury company will not just be a statement, will be reflected in EBITDA, EBIT and return on capital employed metrics. Yes, that's great. Yes, thank you. And just to follow-up on that, I see you guys also looked like spent $800,000 this quarter to reduce the redundancy of your Italian factories. And just kind of curious along those lines if there's more opportunity there and what potential is? This is and I will call maybe Pasquale to comment. That is, of course, a legacy from our past. The company used to be completely dependent and relying on Italian production for every part of its business. Of course, going forward, as Natuzzi Italia will continue growing, there will be still a logic for that because Natuzzi Italia needs to be produced in Italy because being made in Italy is part of the DNA of the brand. But for the rest of the business, as I said before, the fact of being sustainable, being closer to the market will not require necessarily to be produced in Italy. So we have started with the help of the new HR director, a discussion before summer, which now is accelerating, to find a sustainable solution on that front. Sustainable because that is part of the philosophy of the company and Pasquale. Sustainable also because you cannot proceed unilaterally. In Italy, the workforce environment is quite rigid. So you need to find a solution, which encounter the sustain of the workers, the trade unions and the government. We are quite advanced on that front. If that happen, it would be, I would say, an additional significant step in term of having the supply chain, how we want to have it and also in term of releasing marginality. But I'm sure, Pasquale, you want to add color because I know this been a battle. You fight over time. And by the way, interesting to know because we did it in a silent way or at least now we did it, the company did it. But over the last decade already more than 1500 employee worker left the company in a very, let's say, not traumatic way, not dramatic way. But please, Pasquale, maybe you want to comment on the topic of restructuring. Duke, Antonio, help me to understand a little bit more. I mean, if you describe the fact that we manufacture Natuzzi Italia in Italy and the reason why. And then, I mean, in order to make sustainable production and delivery and supply chain, we already have a plant in Brazil, we have a plant in China, we have a plant in Romania, And we are going now to organize reduction in Mexico. I mean, you described it very well. I don't know probably that. Okay. Then it should be fine. Okay. If you do have nothing to add, that's fine, that's fine, Pasquale. Okay. And then just my second question, also great to see the alignment and then mention your stock compensation plan, stock option plan that starts next year. And I think at the end of your prepared remarks, you mentioned NBO or some it sounds like you might already own some stock, but any more detail on what that is? I wasn't sure what that was referring to. And then also just on the option plan, I guess why wait until next year? I mean as we're working on a lot of good stuff and why not incentivize the management team right now? Or I guess just any details on what that mean? Are you getting granted the options now and invest next year? Is that what that means? Or any further detail would be helpful. So now thank you for also this comment. Let me take it maybe one step back. So when I joined Natuzzi, is because I believe this company and this is my belief, again, no guidance, my belief. This company has a terrific upside potential, okay? And I believe they are the condition to achieve it, and I hope that working hard that we're going to achieve it. So and I think at one point, we'll share detailed information. My best company my best salary is roughly 1 third or my last employment as senior partner in Global Litter Luxury McKinsey? Or the potential upside will happen only if there will be an upside for you as shareholders, and it will happen in a form of a stock option plan. There won't be the deal we're discussing with the Board is not that that's going to be granted, going to be stock option. There will be a strike price, which is, in my case, predetermined as the 30 days before my joining. So of course, that will be pushing me to incremental value creation. So I need really to double and triple the company value to make this me, I would say, 1st of all, a successful journey personally and professionally, but also financially. So there is a bit to the economics of the stock option plan for me. But again, we are finalizing this. It will be in place, we believe, by the end of the year, beginning of next year for myself and the key management team. Yes, that's great to hear. Well, yes, it sounds like so the strike price will be the 30 days before you join. So you obviously Yes, that's the surprise. Yes. Yes. You're incentivized now and going forward. And it sounds like a great opportunity and love to see that alignment as a shareholder. So thanks a lot for your time and up the great work. Thank you. Thank you. Thank you. If there are no further questions at this time, I'd like to turn the floor back over for Piero. Thank you, Kevin. We have no further questions. So therefore, this concludes the conference call today. Thank you all for participating in the event. And do not hesitate to reach out to me for any questions you may have. Have a nice day. Thank you. Thank you. That does conclude today's webinar. You may now disconnect, and have a wonderful day. We thank you for your participation today. Thank you. Bye bye.