SANTERAMO IN COLLE, Italy – Tariffs on Chinese goods and an ongoing focus on directly operated stores that reduced wholesale revenue contributed to a 3.7% third-quarter revenue decline at Italian leather upholstery major Natuzzi.
The company reported consolidated net sales for the three months ended Sept. 30 of €88.1 million compared with €91.5 million for the same period in 2018.
Natuzzi lost €11.7 million in 2019’s third quarter, compared with a profit of €59.6 million in the prior-year period.
Third-quarter net sales for Natuzzi’s core upholstery, accessories and home furnishings business of €83.7 million were off 3% compared to third quarter 2018. The company attributed that to the deconsolidation of its Chinese commercial subsidiary following the agreement with Kuka Group finalized in July 2018.
Natuzzi division revenues increased 5% increase in the third quarter, driven by a 19.5% increase in the Americas. Asia-Pacific sales were off 4.1% despite a 15.4% increase in China.
Sales for directly operated stores were up 20.1% through 2019’s first nine months to €44.8 million. Natuzzi Group now directly operates 56 mono-brand DOS, of which 40 are Natuzzi Italia and 16 are Divani & Divani by Natuzzi stores. The group also directly operates 12 Natuzzi Italia concessions. By the end of the year, Natuzzi will open 2 additional new Natuzzi Editions directly operated stores in the United Kingdom.
DOS sales were, up 20.1% vs. the first nine months of 2018. In particular, DOS located in the USA have shown a 47.0% increase in sales, achieving a positive result.
On a like-for-like basis, revenues of the 45 DOS were up 6.3% for the nine months of 2019, while they decreased by 2.1% in the third quarter of 2019.
The Natuzzi division also includes sales generated by third-party operated mono-brand points of sales including franchised operated stores and galleries. Natuzzi sales generated by these third-party operated points of sale were €52.4 million, up 4.5%, net of the deconsolidation effects of the Chinese subsidiary as mentioned above.
So far in 2019, Natuzzi has closed 31 franchised operated stores, 250 galleries and smaller points of sales whose partners and locations were inconsistent with the company’s brand strategy. At the same time, Natuzzi has opened 63 franchise locations, of which 43 are in China. Another 26 FOS should open by year’s end, including of which 12 in China and three in the United Kingdom.
Third-quarter sales generated by the Unbranded wholesale division of €17.9 million were down 18.8% compared with the same period last year. Natuzzi attributed that to China tariffs in the U.S. market and rising price competition. As a result, the company is downsizing its manufacturing plant in China and exploring alternative outsourced solution in tariffs-free and low-cost countries.
Through 2019’s first nine months, net sales of €286.4 million are off 8.6% compared with the prior year. The company lost €26.8 million through the third quarter compared with income of €45.6 at the same point in 2018.
In reaction to China tariffs, “this year the group has been engaged in an extensive revision of the group’s industrial footprint with the aim to recover volumes and improve margins,” said Chairman and CEO Pasquale Natuzzi in an earnings release. “The first step of this process is the downsizing of our Chinese production plant in third quarter 2020 with the aim to serve only the local market and Rest-of-APAC region. At the same time, negotiations continue with third-party production players in tariffs-free and low-cost countries for outsourced production of unbranded products that will gradually start in Q1 next year.
“Furthermore, as for Natuzzi Editions, we have also decided to leverage within the first half of 2020 on our existing Brazilian operations to serve the East Coast of North America. In addition, negotiations with a third-party player in Mexico continue with the aim to find outsourced production and start serving the West Coast of North America from fourth quarter 2020.”
Click here for the complete Natuzzi third-quarter release.
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