In detail the result of the second quarter and the first six months.
Thank you, Pasquale. 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 your very kind word, Pasquale. Okay. Maybe Kevin, can you mute the microphone of people which were not speaking? Excellent. Thank you so much. I was saying, very happy to be with you. Today, for me, is an important meeting, not only because it's 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 this audience, 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. Those are, let's say, my two priority, equally important, and those are based on a reset of our fundamentals, which we are very hard working with Pasquale. In term of numbers, I believe you have seen our second quarter numbers by this time. We continuous reporting strong sales, 76% versus the second quarter of 2020, and 17.7% versus the same period 2019. Growth is back. It's back, I would say, for the sector, because as Pasquale mentioned, the sector is enjoying positive growth, which we start believing can become structural. It's also very good for us. We believe that in lot of geography, 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 two main avenue. One is the branded business, so leveraging the strengths on Natuzzi Italia, which is 60 years of heritage, which is entirely manufactured in Italy. Natuzzi Editions, which is designed in Italy, its price point is more an affordable price point, and the production takes place where it need to be, so closer to the end market. When I say I'm pleased to see the quality of the growth, it's 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 six years ago, but with a completely different scheme.
It was producing great product at an affordable price point, but which were mostly sold unbranded. You can imagine how much effort and how much investment, we calculated roughly EUR 1 billion 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 those geography where we started having a right team and a right recipe, is working well. For instance, if you look at U.S., where we have our manager, which is attending this call, Jason Camp, that brings 25 years of experience in different company, including Restoration Hardware, who built a strong team around him, really with retail competencies. In this geography, we have our best store, pacing at EUR 4 million sales per year, reporting 669 sales like-for-like increase versus 2020, and 49% increase versus 2019.
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, has launched, and I'm sure Jason could give more color along the way, what is called Quick Program. Based on advanced analytics, we read the data of the previous three seasons to understand which are the best products in terms of rotation. In those products, we take a major risk in terms of stock, 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. Brand business is growing well. Retail is growing well in those geographies where we have enough focus of the management team to start playing by the book what a good retailer should do.
We intend, of course, to deploy this winning recipe to the remaining geography. I would say what I witnessed after three months of my joining, is a team which has a very clear view of the strategy I had. The strategy I had is based on branded business, retail, and three 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 three months, but also for him, who is in the business since 60 years. I also see an unprecedented level of supply chain disruption. This happened on the three main elements of the entire supply chain. It happens to the raw material, where we witness a 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 reasons. We see this in the shipping, where it's increasingly complex to secure a timely shipping of our product with the proper cost of serving. 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 who trusts 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. We are working very hard on this, but we cannot claim to have the full map to say it will be solved for Natuzzi next week.
This is the other important aspect we want to share with you in a very transparent manner, as there always should be communication with our trusted advisor and investors. Let me stop here because I assume you have seen the rest of the press release, and will 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 first weeks with Pasquale, with whom I'm working extremely closely, 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 offsite with the full management team, because we believe that this will be a people-led growth acceleration plan.
One of the element beyond creating alignment of the vision and increasing communication within the team, another element which we want to actively use to create this alignment, to create a sense of ownership in the management, is the incentive system. We have in place since the beginning of the year, an MBO, which is anchored on short-term results. Our board gave us just approval to design 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 are being finalized, the decision by the board has been taken on a quite clear journey in term of timing to complete the stock option plan. 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 will be very important to create ownership instinct in the top management. 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. Kevin, can you unmute Pasquale?
He needs to unmute. Yeah, there you go.
Antonio, you listed the complete issues. We can certainly listening our shareholders for their question.
Thank you. We're now conducting a question and answer session. If you'd like to ask a question, please use the raise your hand function on your C-Meeting platform. Once again, to verbally ask a question, please use the raise your hand function. Please hold while we pose for questions. Once again, ladies and gentlemen, we'll now be conducting a question and answer session. If you'd like to verbally ask a question, please use the raise your hand function on your C-Meeting platform. One moment, please, while we pause for questions.
I guess Dave is trying to connect to ask a question.
Yes. Give me one moment, please. Once again, ladies and gentlemen, please use the raise your hand function on your screen at this point, if you'd like to ask a question. One moment, please, while we poll for questions. Our first question today is coming from Kyle Travers. Your line is now live. Actually, I do apologize. One second. Mr. Caney, you were first. Please go ahead, Mr. Caney. Your line is now live. Mr. Caney, perhaps your phone is on mute on your end. I do believe I hear you now, Mr. Caney. Can you hear me? Mr. Caney, 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?
Yep, I can hear you. Please proceed.
Hey, good morning, guys. I appreciate you taking the time. Had some time over the weekend to go through your press release and appreciate it. One question I had in particular was about your U.S. stores that I think you said are trending at around $4 million, about over 70%, I guess, contribution margins. I was curious, how many of your stores are headed in that direction? If you could also remind me just of your total U.S. store count.
Jason,
Sure. Good morning.
that's for you.
Good morning, Kyle, it's Jason. We have 13 stores in the U.S., and when we look at our top six to seven stores, those are the locations that are pacing in the $4 million range. Generally, those stores were pacing at about $2.5 million in 2019. They're up in the 70s, +70 or so % to 2019, those top six or seven.
Okay. I think the other six stores in, I guess, dream big with me for a second. How long do you think it would take for the other six stores to get to the $4 million run rate? When do you see the soonest that could be achieved?
Sure. Well, the average pace of the 13 stores is EUR 3 million just to give you some ability to do the math.
In general, I think we definitely see a lot of growth beyond this EUR 3 million-EUR 4 million pace. We expect and hope that our work in the area of talent, merchandising, marketing, lead time improvement, all that work will lift all boats. Generally, it's my experience that your best locations grow faster than the average. I hope that generally answers your question, Kyle.
It does. I appreciate it.
You bet.
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. There's some things that are off-balance sheet here. You have some land, and you have a JV here in China. 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 is maybe 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 just, when you're reading through a press release. Two questions there.
Antonio, would you like me or would you like you to answer?
Vittorio, I think your best position, you should do it. I do a bit more general comment on capital employed, capital efficiency. Please comment on land and then KUKA.
Okay. The program to sell our non-core assets is going ahead correctly as anticipated one and a half year ago. In July this year, between the first and second quarter, we sold a company, the foam company, and then we sold two lands in Italy. In July, we just finished and completed the sale of a land in High Point. We are moving ahead in the right direction so far. As far as KUKA JV is concerned, you find in the profit or loss 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 EUR 2 million profit to the Natuzzi consolidated profit and loss, compared with EUR 0.9 in the first semester 2020. 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, the percentage share, of course, capital efficiency is an important matter. We are continuing to explore a way to get light our balance sheet in terms of capital. Of course, no strategic assets are a focus of that effort. We are 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 different matter. It's more strategic, more structural, but equally, we're exploring, and is more mid-term way to make sure that the Natuzzi investor get the full value of what happening there, which is very encouraging because we are growing significantly in terms of numbers of stores.
We are roughly 300 stores there among the two brands, performance are doing very well. Our partner, in 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. 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's new to your story, I think you guys can take it 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. 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 sort of 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 sell-side coverage here. It's a little harder to do a full sort of sum of parts here and understand what's completely under there. I will leave it at that, and I appreciate the details, and I appreciate you guys taking my question. Thank you very much.
Pleasure.
Mr. Kane, the line is now live. Hello, Mr. Kane. You are now at the podium. Please unmute yourself.
Please proceed. Mr. Kane, I believe you're having an audio issue on your end. I do apologize. I cannot hear you. If you can 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. 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, just was wondering if you could 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.
Yeah, sure. I refer back to the press release because in the intent of providing transparency, as suggested by SEC, we also share the information on first of the six weeks written orders. Currently, we are starting week 38. Basically, we're talking about two weeks before now, so mid-September. Written order are +36% versus 2020 and +14.5% versus 2019. The positive momentum continued. Now we are month nine of the year, the consolidated written order at two weeks ago were still very positive versus both 2020 and 2019. I hope this address your question. You see this information in our press release, in first page.
Yes Yep. That's helpful. I guess my question is in the U.S. in particular. From my perspective, that's our key growth market. Is there any more detail you can give on how the U.S. is doing in particular over the past two months or so?
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. 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, our growth numbers are somewhere between +50 and +70.
Got it.
Depending on exactly what stat you're looking on.
Yeah, that's helpful. 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 six or seven that were going to be open in sort of a 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'd be helpful.
Jason, again, I think it's for you. Again, we don't provide guidance with precise number, I think we directionally can share what our, and of course depend on real estate opportunity. 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 four stores between independently owned and stores we operate this year, and 10 stores in 2022. That's sort of our, let's call it an 8-12 store range, but with targeting for 10 for 2022 between both brands and between independently owned and company operated.
Got it. Just one last question for me, then I'll hand it over to the next caller. 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? 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.
Maybe I'll start taking those two questions. Maybe Greg, a further clarification to what Jason said. Again, 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 will be fully running the show, the operation of the store, but we will also involve a partner to lower the capital need of those opening. E-commerce in Mexico. E-commerce is on track. It will be a global new platform, merging the existing 46 digital platform that are present in the brand. It will be a global platform for all geography for Natuzzi Italia, Natuzzi Editions. The current plan is to start being operational for the brand Natuzzi Italia and for the geography U.S. by the end of this year.
This is the plan. As you can know by e-commerce, we're pursuing a kind of agile implementation, which means there's going to be a first release, which is going to be progressively enriched. We're targeting this year. Mexico is absolute priority. The working is going ahead. We are now moving a senior team from Natuzzi Italia, from Natuzzi quarter in Mexico to secure a better pace of our implementation. This is among the three or four major priority for next year. 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. Just, I know you've only been there for three months, but the work you've done so far is very impressive and energizing. 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. 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 profitable. Look forward to hearing the update on the next quarter.
Thank you for your encouragement. I can share back the consideration that Pasquale 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. As a reminder, if you'd like to ask a question today, please use the Raise Your Hand function on the C-Meeting platform. Our next question today is coming from Charles McEwen. Your line is now live.
Good morning, Dave Keenan on Charles McEwen's line. Are you guys able to hear me?
Yes, please go ahead.
Sorry about the earlier problems. 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 three, four 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 DOS stores contribute 74% gross margin. Obviously, we'd like for that ramp to occur as soon as possible. If you can give us a longer term goal, is that 10 stores per year sustainable? Where are we going to be in three or four years?
Jason, why don't you take that one, then maybe Pasquale and I, we can give more color.
Sure. In general, Dave, 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 U.S. and the region, honestly, we could probably have almost 10 times the number of stores that we do today. There's a really long runway. We're not going to achieve that over three to four years, but there's a really long runway from a retail growth standpoint.
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 terms of retail performance in U.S. We will prioritize any dollar to continue the journey.
Okay.
At the same time, we need to recognize that opening a store is an investment, and it needs to happen in the proper manner. If you look at what luxury brands do, let's say personal luxury and fashion luxury brands do, for them, it's like a major investment opening a store. They take consideration of the adjacency, they take consideration of the long-term potential. They want to structure very well the lease. We're looking with great excitement at the opportunity, but also in a very informed way. We will not let's say, the will of building up a presence prevail on rigor or choosing that location.
Example being New York, we want to do a relocation 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's. It has many meaning, and we want to do it in the proper manner. We're not rushing in doing things which may be good for being reported in an analyst call, but not be as good in three, four years down the road.
Okay.
Let me build on that. 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. 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 were opening 20 stores a year, then two years later, they were nearly in bankruptcy. They've obviously found their way through that and become a very successful organization. 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 six to seven stores and our least successful stores is location. Once you sign a lease, you're generally locked in for 10 years. We want to make sure that we ask enough questions before we get married in all of these deals, so we know we're happily married.
Okay. I appreciate that color.
And--
I'm sorry, go ahead.
No, the other element, which I realize we are not ready to do it today, but maybe we 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 is being rolled out in Shanghai, in China with very great, let's say, comments from customer and partner. Maybe next time we're going to making virtually touring the new store, has been developed by an archistar designer Fabio Novembre. He speaks about the DNA of the brand, he speak about our soul. He's very bright, very innovative. For us, as we develop the retail, he'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.
We are investing in new training for our sales floor with the proper clienteling and proper storytelling, both for final customer and for the architect and designer team. For us, retail will proceed in two way, more opening and better opening.
Okay. Yeah, I appreciate the thoughtful approach to the expansion. That completely makes sense and 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. That's what I'm trying to ascertain, if you could speak to that. Again, the timing, 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. 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. This is just the example for North America Editions. More or less the same in terms of timing for Softaly, for the unbranded. For Natuzzi Italia, we had December 2020, July 2021, October 2021.
Okay. The price increases that we've taken recently are going to have a favorable impact on gross profit going forward?
So-
Yeah
David, yes. 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. 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. When that happens, that will be constituting a major advantage for us because we've increased prices in some geography and some brand up to 30% in nine months, which I think testifies the resilience and the strength of our brand. If and when raw material price will go down, then is when we're going to get a very strong uplift because, of course, we will not lower down our price again.
In the short term, the combination of us increasing price and raw material spike is still a battle. That is important to mention. I don't know, Pasquale, if you want to comment? I see you nodding. Again, I mentioned you've been 60 years in the market. I'm sure you have more experience than me in judging these trends.
Listen, you learn very fast. All the statements you have made are the good one. Otherwise, I would stop you.
I hope he means stop me from talking, not stopping in sense of firing me. Of course, I know it's worse way.
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. When Antonio speaks of outrunning the bullet, freight is really the one we're chasing right now, and we're living in historic times as relates to access to containers, access to rail cars, access to trucks, and all the prices related.
Yeah.
Right.
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 supply chain 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 in which we need to readjust. Raw price increase for me is more, let's say, for medium short term, in the sense I don't expect that there is a rationale for this to continue forever. 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 another cargo shipping from Vietnam going in six months from $2,000 to $16,000, $17,000. 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 is something we don't want to bet on anymore. We're going to have Natuzzi Italia, which is our luxury brand, which going to be continued being manufactured in Italy, where we can leverage an experience of 60 years with some of our more experienced workers having 36 years of experience in their hands on how to craft a luxury product. When it comes to Natuzzi Editions, the design will still be full in Italy with internal design team.
The production needs to be in a logical place. From a sustainability standpoint, we don't want to contribute to unsustainable practice. We'll have Mexico for North and Central America. We'll have our Romanian plant and some selective production in Europe for Europe. 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 costs and getting a better service. In synthesis, raw material, strategy is defending. Shipping, strategy is optimizing long-term supply chain.
You guys kind of beat me to the punch on transportation. That was really my next question. Transportation costs were up 420 basis points, and if you look at the history of that, shipping containers, it's somewhat cyclical. Historically, when they've had large price increases, they've been followed by price declines. I would like to believe that over the next 12- 18 months, we're going to recapture some of those 420 basis points, along with the price increases that we've taken that will drive gross margin higher. I know you don't give guidance, but looking out 12- 24 months, as you most likely reclaim some of that 420 basis point increase in transportation, you start to get the benefit of price and declining raw material prices.
Operating income adjusted for the one-time Canadian issue was about almost EUR 3 million, is it possible that we can get to well into a double-digit EBITDA margin? Pro forma, I think we're at EUR 8 million of adjusted EBITDA for the quarter. Could we get to a 10% or better margin over the next 12-24 months?
As you correctly said, we don't provide guidance, so I cannot say yes or not.
Antonio, just because of my experience, I can answer one of the questions.
Absolutely. Please, Pasquale, please.
Yeah. Regarding the transportation cost increase. We export in America from Italy, for example, since 40 years, and never anything like what happened today. I remember 40 years. Okay, the price increase could be 10%, 20%, more or less. Here we are talking about, we used to pay $2,500, now $10,000, $12,000. This is a speculation situation. It's something that there is no way to understand why it's happening anything like that. It cannot continue to be like that, but that's just my feeling, all right? Never happened before in 40 years, I can guarantee you.
Okay.
That's regarding the cost of transportation. Regarding supply chain, we are certainly stopping by purchasing, importing component from China. Also on importing from China, we are penalizing. The cost of component never can justify transportation costs like that. We are going to review, as Antonio explained, the supply chain. Whatever we manufacture in Italy, we should try to have component, raw material, everything, as close as we can. Then the same would be in Romania, the same would be in Shanghai, and the same would be in Brazil. 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. That's what I can say.
Okay.
Thank you.
you have other initiatives to mitigate cost inflation in transportation and raw materials. You're controlling the things that you have control over. That's good to hear. 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 quote, "Designing a room," as opposed to just selling them a product? 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 a product and color enough, okay? We need to just now to focus on selling. Our total merchandising we have today for Natuzzi Italia, but even for Natuzzi Editions. Talking about Natuzzi Italia can support the lifestyle brand. In other words, we are in the position to decorate an entire home for very demanding people in terms of style, coordination. Investment on product development must be reduced because we need more to training people in the store and work on retailer merchandising. That's the next 12 months challenge of the management.
I see. you have enough SKUs to meet the customer
Yeah
needs is what you're saying. This last question, I don't want to monopolize. In terms of e-commerce, when is your launch? If you can provide any color around that and expectations of shareholders that we should have.
I'm sorry.
Yeah. I think, Dave, maybe you had some problem with the camera and the audio.
I'm sorry.
No, no problem. Don't mind, to summarize. We're 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 first market we will be launching e-commerce. We are targeting end of the year. Of course, we are rushing a bit, so we will not release the commerce unless it's reasonably stabilized and solid. For the time being, the plan of U.S. Natuzzi Italia by the end of the year is confirmed. Sorry, maybe I consider it obvious, but maybe it 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. Natuzzi enjoy a terrific brand awareness in most of the geography where we want to grow, including U.S., where is number one in term of European furniture brand. The communication will be predominantly in the form of customer activation. It will 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., eight digital touch point being social media or being the site of the 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 Riccardo 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.
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Hi, guys. Thanks for taking my question. I appreciate it. I'll echo what one of the previous callers said, 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. Thank you. 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. Love to hear just any thoughts on over the long term, what the EBITDA margins could get to. I've got one more question after that. Thank you.
Maybe a more strategic consideration where I use the word strategic not to be blurry, but to refer more to the midterm. We claim and we aspire that we want to be a brand company, and at least for Natuzzi Italia, to be a luxury vertically integrated company. If you look at the benchmark in those industry, they all clearly have double-digit EBITDA, that's for sure. When we say we aspire to that sector, it doesn't mean that we aspire to that sector just because we will use that word in our press release, but because we 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 from 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 production needs to pay the shipping cost 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 truck, on wheels, rather than shipping, what could be the impact on margin.
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 the EBITDA, EBIT, and return on capital employed metrics.
Yeah, that's great. Yeah, thank you. Just to follow up on that, I see you guys also it looked like spent EUR 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 the potential is.
This is 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. 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. We 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. I'm sure, Pasquale, you want to add color because I know this has been a battle you fight over time. By the way, interesting to know because we did it in a silent way, or at least not we did it, the company did it. Over the last decade, already more than 1,500 worker left the company in a very, let's say, not traumatic way.
Please, Pasquale, maybe you want to comment on the topic of restructuring.
Antonio, help me to understand a little bit more. You describe the fact that we manufacture Natuzzi Italia in Italy, and there is a why. Then, 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.
Organize Mexico.
production in Mexico. You describe it very well. I don't know, probably
Okay. It should be fine. Okay, if you don't have nothing to add, that's fine, Pasquale.
Okay.
Okay. Thank you. Just my second question, also great to see the alignment and the mention of your stock compensation plan or stock option plan that starts next year. I think at the end of your prepared remarks, you mentioned MBO or 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. Also just on the option plan, I guess why wait until next year? You guys are working on a lot of good stuff, and why not incentivize the management team right now? I guess just any details on what that means. Are you getting granted the options now and they vest next year? Is that what that means? Any further detail would be helpful. Thank you.
Thank you for also this comment. Let me take it maybe one step back. 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. I believe there are the condition to achieve it, and I hope that working hard, we're going to achieve it. I think at 1 point we'll share detailed information. My base salary is roughly one-third for my last employment as senior partner and global leader luxury McKinsey. All the potential upside will happen only if there will be an upside for you as shareholders. It will happen in a form of a stock option plan. The deal we're discussing with the, let's say, board is not that's going to be granted. It's going to be a stock option.
There will be a strike price, which is, in my case, predetermined as the 30 days before my joining. Of course, that will be pushing me to incremental value creation. I need really to double and triple the company value to make this, I would say, first of all, a successful journey personally and professionally, but also financially. There is a bit the economics of the stock option plan for me. 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.
Yeah, that's great to hear. Well, yeah, it sounds like the strike price will be the 30 days before you join.
Yes.
Yeah.
Yep.
Yeah, you're incentivized now and going forward, and it sounds like a great opportunity, and love to see that alignment as a shareholder. Thanks a lot for your time and keep up the great work. Thank you.
Thank you.
Thank you. As a reminder, if you'd like to ask a question today, please use the raise your hand feature on your C-Meeting platform. One moment, please, while we poll for further questions. Once again, if you'd like to ask a question today, please use the raise your hand feature. 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 event. You may now disconnect and have a wonderful day. We thank you for your participation today.
Thank you. Bye bye. Bye bye.