SANTERAMO IN COLLE, Italy – With COVID-19 disrupting production and business at retail during the period, Italian leather upholstery manufacturer Natuzzi Group reported a 22.4% drop in first-quarter 2020 sales to €82.5 million.
Natuzzi lost €7.8 million for the three months ended March 31.
Core business sales of upholstery, accessories and home furnishings also were off 22.4% compared with first-quarter 2019. Impacts there included a 43.7% decrease in private label sales and a 15.9% decrease in Natuzzi branded revenues.
The drop in Natuzzi branded sales resulted from a 22.8% decrease in the Americas, a 12.2% decrease in Europe/Middle East and Africa markets, and an 11.2% decrease in the Asia-Pacific region.
Natuzzi branded sales, generated by company-owned and third-party operated points of sale, were €65.2 million and represented 83.1% of the Group’s core business, versus 76.7% in the first quarter of 2019.
Natuzzi Group now directly operates 56 mono-brand stores, of which 40 Natuzzi Italia, 14 Divani&Divani by Natuzzi stores and 2 new Natuzzi Editions DOS in the UK. In addition, the Group directly operates 11 Natuzzi Italia concessions in Mexico.
During the first three months of 2020, DOS sales of €14.8 million were down 10% versus the same period of 2019, mainly affected by the closures of most of the points of sale as a result of the lockdown measures.
Same-store sales in the first quarter (based on 50 company-owned locations) fell 10.6%.
The Natuzzi division also includes sales generated by third-party operated mono-brand points of sales (franchised operated stores and galleries), whose sales of €49.5 million were down 17.1% compared with 2019’s first quarter, as a result of the 29.9% decrease in the Americas, a 9.3% decrease in the EMEAI and an 11.2% decrease in the Asia-Pacific region.
Sales generated by the unbranded wholesale division, addressing the mass-merchant distribution, fell 43.7% compared with first-quarter 2019 to €13.3 million.
In light of the tariffs imposed by the United States on goods imported from China, the company has started to outsource in Vietnam part of its private label production for some key U.S. accounts. Natuzzi continues to explore further external industrial capacity in low-cost European Countries.
As a result of the COVID-19 outbreak, the company remains strongly focused on minimizing cash outlays, including, among others, managing workforce costs, delaying capital expenditures and reducing discretionary expenses.
“The pandemic has had a far-reaching impact over our business. Before the outbreak of the virus, the branded business was growing in line with our expectations,” chairman and CEO Pasquale Natuzzi said in an earnings release. “As the spreading of the virus became global, we gradually closed all our stores and industrial facilities resulting in a sudden, overnight, shutdown of the activity, which has lasted for months, thus affecting the group’s overall operations. Being a global player, we were affected in an inhomogeneous way, as we had to close part of our industrial and commercial activities in different moments of the year: initially in China, then in Europe and lastly in America, resulting in fragmented interruptions of the business. At the same time, our effort was concentrated to implement initiatives to manage and preserve short-term liquidity to counterbalance the dramatic decline in sales caused by the pandemic.”
Natuzzi began reopening stores in May, but some remain closed, particularly in the United States and Brazil.
“In countries where restrictions were lifted, customer demand has been moderately positive over the last few weeks,” Natuzzi said. “We are closely monitoring consumer behavior as we reopen more stores and adopt a flexible approach as we get through this crisis.”
The company is working intensely in China with its retail partners as the market there reopens.
“We recently organized our retail congress, also through our digital platforms, and prepared a specific event in Shanghai to present, in two flagships stores, our 2020 collection as a world preview,” Natuzzi said. “Elsewhere, the situation is still evolving. While it is impossible to predict the rate at which business will return to pre-crisis levels, we have seen first signs of recovery in the order flow during the last few weeks, with particular reference to our retail business, but the overall picture is mixed. Some markets, such as North and South America, are still affected by the virus containment measures in place, whereas other countries, such as those located in Europe, are gradually returning to normality, as almost all the restrictions have been lifted by the relevant governments.”
With recent data raising fears of a second wave of COVID-19 in China and rising cases in the United States, Natuzzi pointed out that “uncertainty as for the recovery of the global economy still remains.”
Natuzzi’s plants, with the exception of Brazil, have fully restarted their operations, and the company has restarted negotiations for a new manufacturing partnership in Eastern Europe.
“Management continues to be highly focused on taking actions to mitigate the adverse effects generated by the COVID-19 and, in particular, has been implementing stricter procedures to manage liquidity and working capital needs, initiating measures to reduce the cost of labor, deferring certain capital expenditures, and cutting non-essential expenses,” Natuzzi concluded.
Click here for the full Natuzzi first-quarter press release.