Natuzzi S.p.A. (NTZ) on Q4 2022 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Natuzzi 2022 fourth quarter and full year financial results conference call. Joining us for today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer; Mr. Carlo Silvestri, the Chief Financial Officer of Natuzzi Group; Mr. Pasquale Natuzzi, Founder and Executive Chairman; and Mr. Jason Camp, President Natuzzi Americas; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I'd like to turn the conference over to Piero. Please go ahead.
Piero Direnzo: Thank you, Kevin. Good day to everyone. Thank you for joining the Natuzzi's conference call for the fourth quarter and full-year 2022 financial results. After a brief introduction, we will give room for a Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities laws. Obviously, actual results may differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now, I would like to turn the call over to the company's Chief Executive Officer. Please, Antonio.
Antonio Achille: Thank you, Piero and Kevin, for kind introduction. Good morning and good afternoon to all the attendants of this 2022 fourth quarter and fiscal year press release. I would like to start more from an overview of how the 2022 closed for us. Then I will let Carlo Silvestri, who has been announced already joining our group from Ferragamo, our new CFO, to comment more specifically on figures regarding fourth quarter and fiscal year. So we closed 2022 internal revenue at €468 million which is 10% more than last year and some 20% more 2019. If we go back to 2020, that is an increase of 40%. So we kind of added €140 million business from the 2020, which was clearly affected by COVID. So I will say high single digit top line increase. This can also, in parallel, continue working on gross margin. As you may remember, 2022 was dominated by a strong inflection on general cost and raw material. We were working so to protect in spending our marginality, which is currently 5 percentage point above what it was in 2019. So we were able to protect and expand marginality. In term of EBITDA, that -- in term of operating profit, that resulted in €8.4 million, which could have been a higher figure, could have been close to €13 million if we didn't have to do accrual for very specific one-off element which will be commented by Carlo later in this section. So in general, the trajectory is going north on the two fundamental duration that we have in our long-term plan, which is top line growth and the margin and profitability expansion. At the same time, which is another as a proxy of value creation, we expanded our cash flow from operations, which was close to €19 million in 2022. And that figure compared to €0.5 million 2021, and €4.7 million 2019. So again, through the discipline, we're trying to have also time on working capital even though, as our business has been growing, we've been able to enhance the cash flow generation from operation. Cash position was pretty much the same with the previous year, so we are dealing at €54.5 million in term of cash, which is significantly higher than what we need from operation. And I also remind you that we don't have long-term debt. So in a situation of uncertainty like the one we are all facing in the industry, I believe that also should convey a positive message to the investors. Looking a bit more at the quality of what we have done, I am pleased to report that we are continuing executing the journey that has been initiated by Pasquale Natuzzi of transforming the company in a brand retailer. We set some long-term targets to measure that trajectory, and I was surprised to anticipate reaching that some of those target versus our plan. For instance, in 2022, 92% of our total sales came from branded products compared to 89% versus previous year. That is pretty much a significant transformation because, as you all remind, Natuzzi regional started as more an operator and a manufacturer. And the percentage of branded product was not dominant. We set ourselves a target to reach almost in order that the vast majority of sales generated by branded, and we are ahead of that target. And the interesting, if we measure our, let's say, strengths of the brand in the eyes of the consumer, which means measuring it at sell-out, the brand is a €830 million brand. So if we consider what we do in terms of lean with retail multiplier, the brand is on pace to become a €1 billion retail brand. This, I think, is a useful figure to compare it with the player in the industry, which are pure retailer and to compare it with those number at par with that point. The other division we're working on is to continuous working on retail. Retail for us is an objective to accelerate growth, is an objective to expand marginality, and is also an objective to have a better control of the brand. Jason, do you want to mute because we're hearing your message coming in. If you can kindly mute. Thank you. So at the end of 2022, the percentage of total sales done through retail either directly or through franchising was 61% versus 53% of the previous year. So also on this dimension, we are well on track on our objective to complete our retail transformation. And we overcome in 2022, the number of 700 store -- freestanding store carrying either Natuzzi Italia or Natuzzi Editions. I believe with a global coverage, this is one of the highest figure in term of number of stores distributing a single brand in the industry. And this leads to another consideration that a lot of the work we are doing currently is to expand organically the performance of the stores. We continue seeking opportunities to expand our network. And I will discuss in a minute our plan for accelerating the opening of additional stores directly operating in US. But if we recognize that one of the, in a sense, less capital intensive opportunity that we have to grow the top line is to make those 700 store performing more in term of sales per square meter in marginality. So a lot of effort which is currently being done in the organization, which led also us create a new division is really to try to create a common methodology that can become an asset, a competitive asset, for our directly operated stores and the for the one operated by our franchisee. I'm happy to report that we continue also working on strengthening our team. Carlo has been longer waited for, has been announced in a separate press release. We just brought onboard a few weeks ago another senior executive, Scott Kruger, who is now in charge on the wholesale business in North America. North America is a special reality because I would say distribution is still a relevant part of the market. Natuzzi is one of the most known brand in that channel. Actually, it's the first internal brand awareness among European brand. So we envisage a parallel opportunity as we are building the retail to continue serving that market. We realized that we wanted to change gear, so there has been a change in the leadership. We equally realize that we want to increase the coverage in term of rep across the states, and we are now onboarding with very positive results agency. So not exclusive agency, but agency that would bring among their lines also Natuzzi. I was in the US very recently, two weeks ago, and I was particularly happy to see how well is received this opportunity by top agency. I definitely see an opportunity of creating business in their accounts with Natuzzi which is still a very, very well respected and inspirational brand for the large retail in the US. So that is another area where we're working. I believe that you are, as we are, interested in the future. The future remains to be, I would say, difficult to read that. As you know, we are clearly for the durable industry for the furniture, leaving a phase of transition after two years, which has been dominated by booming demand and difficulties in fulfilling that demand, the wind changes turning into headwinds mid of April -- mid of 2022. We don't see yet a clear change in trajectory in the sense that the demand remain weaker than it used to be in the previous year, both at wholesale and in term of traffic in our store. Looking at the first weeks of the year, we do see encouraging sign when it comes to a few geographies like China, especially for our Natuzzi Editions business, which has been back on growth and also US especially on Natuzzi Editions. So we are cautiously optimistic that the, let's say, the bottom has been reached, and we can hopefully see a recoup of demand. So that is our hope, but at the same time, we are planning and acting as these, let's say, negative phase of the economy should last. What does it mean that? That we're very cautious about spending, SG&A, and our cash position. Regarding the cash position, we continue seeking actively the opportunity to sell non-strategic asset chiefly in US and in Italy. We are with active process on those asset, and I hope that in the coming conversation, we can report some positive outcome in that sense. Let me stop here for, let's say, a more general overview of what has been there so far and also, let's say, our mindset. In essence, our mindset is the one which has been put in writing our long-term plan, which is to exploit the potential of this brand on this group, continuing the growth on both the brand and continue achieving that through retail. So our long-term plan has not been changed, and we have the highest confidence that we can achieve it. At the same time, we need to recognize that for the industry, the shift in gear has been pretty brutal, and so we are managing our group to make sure we can navigate these negative circumstance without affecting the overall goal contained in our internal strategic midterm plan. Okay. Let me stop here. If you agree, I would pass it over to Carlo, who will now comment some of the figure of 2022. I believe that would be useful especially in consideration that the we had several material one-off events affecting our P&L in 2022, which I believe is useful to characterize to kind of get to a more normalized performance of the -- So I suggest that Carlo does these comments on our structure of the P&L, and then we open up for question, both from my section, which is more, let's say, a strategic framework as well to the technical reading of the figures that Carlo is now doing.
Carlo Silvestri: Thank you, Antonio. Good day, ladies and gentlemen. Let me first briefly introduce myself since this is my first conference call with the Natuzzi group. But before doing that, allow me to thank Mr. Natuzzi and Antonio for the opportunity of this incredible exciting experience and my team for the great support that I've received so far. Now going back to myself, I spent my last 16 years in Asia. And recently, I served in the last nine years as a CFO for Salvatore Ferragamo that is a luxury brand listed in Italy in the Milan Stock Exchange and is also distributing China through a joint venture as Natuzzi is doing. I was serving at the same time as a CFO, but I was in charge also about the retail excellence and managing directly the stores of Hong Kong and Macau. Thank you very much. Now, going back to the figures after the closing comments of Antonio, I will start with an overview of the 2022 fiscal year with some hints of the fourth quarter. In 2022, total revenues were at €468.5 million, up by 9.6% versus 2021 and by 21.1% versus the pre-pandemic 2019. During the year, we were also able to recover from the major supply chain disruption of Jan 2021, and gradually we benefit in the reduction of our order backlog. Talking specifically about the gross margin, we achieved a 35.1% versus 36% in 2021 and 29.7% in 2019. As a reminder, in 2022, our industrial operations were deeply affected by both spike in energy cost and inflationary environment. Together, the company decided to protect the margin, and during the year, through different phases, we did apply price increase all over the world. This has been fully effective only in the last part of the year where we did achieve in the last quarter a margin of 37% compared to the yearly 35.1%. Talking about the cost of sales is important as Antonio was mentioning that we recorded a €2.2 million accrual not related to our core operation but related to the cost of the labor to restructure our Italian operations. If we exclude these from the fourth quarter 2022 when it has been recorded, the gross margin of the last quarter would have been 38.8%. Operating expenses that, as Antonio was mentioning, is always a focus of the company to find efficiencies that includes the selling and administrative expenses were impacting 33.3% on our revenues compared to 34.8% in 2021 and 35.5%. Regarding detailed expenses, it is important to underline that we see a decrease in the impact of the transportation cost over the total sales that now impact 11.9% versus 12.8% in 2021. Talking about FX, although it was not related to our core business, we recorded two main factor. The first one is a cost of labor related to our stock option plan for €1 million. And the other one is a €1 million contingency for a legal dispute over a land in Brazil. Therefore, the operating profit in 2022 landed at €8.4 million compared to €4.9 million in 2021 and versus an operating loss of €22.5 million in 2019. Excluding these phenomenon not related to our core business, we will now compare a €12.9 million operating profit equivalent to 2.7% of revenues versus 5.8% in 2021. The spike of interest provoked an increase in our finance cost that landed at €8.5 million versus the €6.8 million in 2021 . It is important to also underline in these €8.5 million, there are €2.8 million related to the rental contract and the application on the IFRS 16. The last quarter was impacted by the FX effect. We did not change our strategy practices and hedging techniques just due to the reversal of the euro, US depreciation, we recorded in the last quarter €2.4 million loss. But over the year, we did achieve a €2.4 million positive results. Talking precisely about our joint venture in China, the difficult business remained over the year, and at the end, the significant slowdown in the activities provoked our -- brought our profit to €400,000. I'd just remind that we own a 49% stake in our joint venture. In 2021, we recorded a profit of €3.6 million. But talking about the joint venture, it is extremely important that, in 2022, we received €3.7 million in dividend and we received, in 2023, a €3.2 million in capital reduction. The profit of the joint venture, nevertheless, is important to underline that, even in this challenging year, has been profitable. Making a last reference to the comments of Antonio, cash for us is extremely important, so we were able to maintain our cash position at €54 million. And it's extremely important to underline that our operation were able to achieve a positive cash flow of €18.7 million that we did invest in €9 million in capital expenditure and in repayment of a long-term loan. This is overall the picture of our performance in 2022, and I would like now to give room to Q&A session.
Operator: David Kanen.
David Kanen: So I guess I'd like to call out what I would call the encouraging signs. If we add back the nonrecurring item, the labor costs that affected gross margin, we would have been nearly 39%. And then there was some nonrecurring items, extraordinary items in the OpEx line whereby we would have had a significant operating profit. So I'd like to just call that out. What's exciting is as we grow and scale the business, we see the significant leverage in the financial model. Now that that being said, it would have been nice just to show after all of these items have bigger profit, but it is encouraging. So in the past, you guys have called out backlog in written orders. We know that traffic is down at the retail level. Could you give us some sense where backlog is currently? I believe last quarter, I'm going by memory, it was around $80 million. And then also what type of declines are we seeing in written orders given the weaker housing market economic backdrop?
Antonio Achille: So thank you for your question. I might take this one. So the reason why we are putting a lot of emphasis in the past -- to the backlog because it was a main -- for two reasons because it was an obstacle for us to delivering the revenue we could have delivered; and second, because it was becoming very visible obstacle to maintain the level of service to our client we aspire. The backlog now went back to what they can define as physiological level to standard level, which is pretty much €60 million, which is what -- typically, we need to do a proper planning of the factories. In term of written order, the year, as I mentioned in my press release, started to a level that is, let's say, below our expectation. What is somehow positive is that if you read these first 14 weeks, and we divided by two, the last seven weeks saw a relatively stronger turn versus the previous one. But clearly, we are facing a level that is not in line with what we want to have, and we aspire to have also in light of our production capacity. I will just remind that Natuzzi Italia gets produced globally in Italy where we have a significant population of workers and a significant safe production capacity with five factories. And at the moment, especially for Natuzzi Italia, the level of order we are receiving does not allow us to fully occupy those factories. So that is the main element that we are working to improve, both as a combination of opportunity to sustain our growth ambition, but also as a need to keep busy at a reasonable level our factories. So that's a bit -- a long answer. So inventory is back to standard level. I don't have the figure in front of me, but it's in the ballpark of €55 million, €60 million. And when talking about, let's say, pace of orders, as I mentioned before, below expectation. And it's a different situation among regions. We have China, which was extremely -- it's different, sorry, different across region in China. So China, which is mostly operating to franchising, we see a recovery of Natuzzi Editions business, while Natuzzi Italia was quite stuck there in the channel and the recovery is lower. Natuzzi Editions North America is above budget but below last year. And Europe is a more -- a mixed picture. And I think at the moment, Europe is the continent which is a bit more difficult to predict because its economic environment is the one which is still struggling to find a way out of the last -- past grueling months. So I think we will see first recovery coming from US, and China is a combination of both the market condition and also the action we are taking. And I think, let's say, turning point for West Europe is less easy to predict in terms of timing.
David Kanen: Okay. And, guys, just to recap: the progress, which is gross margins moving up significantly, this is the result of a shift in mix, primarily the branded product. It seems away from wholesale. And in the past, you've talked about opening up 10 stores in the US, 10 DOS stores, which would continue to grow DOS and flow through the P&L, higher-margin branded product. And then also, you've talked about Factory 4.0. Just a suggestion, as an investor, what I read in your press release is postponement of some planned investments for Factory 4.0, which I understood as being accretive to gross margin and then also paring back the number of openings in North America from 10 to six. I would encourage you to actually put your foot on the gas pedal to -- I know you're trying to conserve cash, but perhaps to get rid of non-core assets, real estate to accelerate this transformation to higher-margin product and to greater efficiency in the factory. During this time of, let's call it slowness, economically, we can play some offense and yield even better results than what we did on an operating basis in the long term versus Q4. So that's my feedback. I mean, I would love to hear your commentary on that. If those investments are going to yield better operating profit, why would we be pulling back?
Antonio Achille: No. Strategically, Dave -- and I speak, let's say, for the group because we have constant alignment with the Board and with the Chairman. Strategically, we cannot be more in line in agreement with you. We definitely don't want to pull out from our retail strategy in 2023. We actually confirmed six openings. And I would say, some of those are pretty signature openings, like the main asset is going to be 10,000 square feet in the Golden Mile. We are near the downtown, so really kind of flagship location that would be used. And there will be Atlanta. There will be San Diego, and there would be the first for Natuzzi Editions. So we are keeping the pace, considering the constraints. We are trying to remove, as you mentioned, the constraints. The way we are trying to move some of these financial constraints is also rate, the disposal of non-strategic assets, the largest one is . We're actively working on the dossier. As I mentioned, it's something I cannot be more precise. But I hope that sooner rather than later, I can give you some positive outcome. As you can imagine, given the high interest rate, it's not the easiest way at the moment to sell real estate assets because the loan to value for a potential buyer is not easier. But really, because of the determination you mentioned before that this money could be actively reinvested to increase efficiency in our factory and to open more in the US, we are continuing pursuing that option. So we are not stepping back in term of strategy. We just need to finalize the strategy and we're looking also the standard way to achieve that goal.
David Kanen: Okay. So you're reiterating those plans to continue with Factory 4.0 and to continue to open branded DOS stores in North America then?
Antonio Achille: Correct. I don't know, Jason, if you want to make any comment. And again, I think, as I mentioned before, it is a dual strategy when it comes to retail because, yes, we want to open new stores. But the other things we want to continue is to increase like for like because we do see that among our 52 stores, which are directly operated, there is still a significant variation of performances. Some of those variations are justified by structural elements. The company has been opening the stores since a few years now. And the location, maybe they were initially spotted for some of the stores. They won't be a location that now we would consider ideal. Also, there is some structural factor. But other than that, we want to improve the productivity of the store. So for us, when we talk about retail, yes, there is new opening, but we see a very important opportunity also of increasing the productivity of the current store. That would also facilitate a new opening because given the current economics, it's really very attractive. By the way, if any of you investors want to open a franchise, you're welcome. One of our stores normally has a payback in 16, 18 months and then start generating double-digit EBITDA. But working on organic improvement will also shorten the payback of those investments. So we're also working that as a way to facilitate the enrollment of additional franchisee partner. Jason, Pasquale, if you want to provide any color, respectively, on US or retail, of course. I don't intend to monopolize the dialogue. You are very welcome to join. And I must say, Pasquale has been an active force also in driving this acceleration on retail. Jason, do you want to provide any color on US, maybe?
Jason Camp: Sure, I'd be happy to, Dave. First, forward looking, as the release suggested, we've got six DOS that we plan to open this year, in this case, all Natuzzi Italia, adding volume to our flagship factory in Italy, plus the FOS in -- around the US, mostly Natuzzi Editions. So a total of nine openings projected in the US for the year. I would say that as we look at our like-for-like performance, we finished 2022 basically flat to 2021 from a like-for-like retail performance. Obviously, a stronger start to the year, slower finish, but I think what's most important is that when we look at, let's say, our current pace of business in the last three months, six months, those like-for-like stores are still up between 40% and 50% to 2019. So while a lot of companies, retail businesses kind of reset down much closer to 2019, our like-for-like performance has been reset to a much higher average. And it really encourages us for the future strength of our growth as we open new units.
David Kanen: Okay. I appreciate you calling out the focus on organic growth or same-store sales, and that's the critical metric. A couple more questions, and I'll go back to queue.
Antonio Achille: So David, just to -- sorry to interrupt you. Sorry. But just to give you a bit of color why we are so passionate about this, we see that in store -- so just to give you some color, we saw that in stores, where we change, for instance, just the leader of the team and we do a more accurate management of some of the levers we have, the results are pretty astonishing. Just let me pull out the two stores. One is , which is one location we had for Natuzzi Italia in London in a high-end retail park. The store is performing 68% above last year. But as you remember, it was a very, very strong part of the year, and it's significantly above our internal budget. This is because we changed the team. We created better dynamics, same -- and Jason can comment. It's happening to our Madison store, which historically, despite the iconic location, was not as sales productive as how we wished. Again, new team, attention to details. Now, Madison is depending on demand, so either the first or among the first four top stores in US. So that the reason why we say less -- of course, expand our footprint. We already have 700 stores. We're going to spend it. But let's recognize that even though 700 stores today were performing homogeneously on a certain level, that will be solving a lot of our goals already. Sorry, Dave. I hope I didn't frustrate you by interrupting you.
David Kanen: No, no, I appreciate that color. I mean that's actually been my belief and assumption that there is a tremendous opportunity to increase average unit volume when I compare you to your peers. So I appreciate that call out. So just two more quick questions. How much cash is in the China JV? That's the first one.
Antonio Achille: Just a clarification, and then I'll let in Carlo. The JV, of course, is part of a listed company. So we can report the last certified figure, which has gone in the 20th. So we can just share that figure. So please, Carlo and Piero, share the figure.
Carlo Silvestri: So the JV reported €33 million in terms of cash. And that has been the result of the sales, the distribution of dividends, and the capital reduction together versus the last part of the year, an increase in the purchase of the stock, the JV, and a decreasing of the orders. So that's the results, but we still have €33 million.
David Kanen: Okay. And when you say €33 million, is that the total, and our portion is roughly half of that? Or are you saying after 49%, it's €33 million.
Carlo Silvestri: It's the total, but these are referring on not audited numbers by, let's say -- that are not published by the JV.
David Kanen: Okay. And then --
Antonio Achille: Just a clarification there. It's important. So if we look at the -- and again, we should be just reporting official number because the JV is also part of a -- it's also owned by Kuka, which is also a public company. So what happened in looking at the delta of cash versus plus last reported year, it happened to offend. One, let's say cash distribution, a capital reduction of some €9 million in total if we take euro. Then, as I referred before, the JV itself invested some €15 million in stock. Why that? Because, as I mentioned before, we've moved from a phase where the issue was having the product to a situation where it's more about selling. So in the first part of the 2022, the JV took the decision of investing in some inventories in a significant manner. So when you look at the total active balance sheet of the JV, you'll find that between fixed asset and cash, the total isn't changed. The method of the distribution was changed in the distribution because it's been reduced, the cash, in favor of inventory. So there's been no dilapidation of cash. There has been just a different use of that cash.
Carlo Silvestri: Yes. Correct. Absolutely correct.
David Kanen: I understand. And then, if you could take a stab at gross margin post Factory 4.0, I know we've deferred or postponed some of those investments, but I'm thinking longer term, one, two, three years out. And it seems to me like we can get to a low 40%, maybe 42% type of gross margin. What would have been the effect if we had fully deployed Factory 4.0 at the current revenue run rate? Would we get into the low 40s or not quite yet?
Antonio Achille: So I can answer you in a bit more elaborated way, but it's not just because I won't go to straight to the point, but because it's a complex reality. So we have four main areas of production which are directly operated. So we have Italy. We have Romania. We have Shanghai in China. We have Shanghai and another city, Quanjiao. And then we have Salvador de Bahia. Each of those production facility has very different cost of production as a matter of cost of labor, efficiency, utilization of the factory, and cost of materials because the material depend very much on where you produce. In addition, we are, as we planned, working in outsourcing for the time being in Vietnam, which has a strong advantage in term of duties to serve US. So the first way to reduce the cost of production and to spend margin is an optimal utilization of those platform. So for instance, just to quote you a figure, moving a production unit from China to Vietnam allows, on average, between 15 and 18 percentage points more. It's a combination of labor cost but especially duties. So you can easily understand that that provides us an incentive to do so, especially for those large clients that can be served with stock order from Vietnam. So the first lever to optimize the cost of production of this part and gross margin is an optimal location of the sourcing in production choices. When it comes to Natuzzi Italia, as I told you, it's entirely produced in Italy. There we placed the game of the Factory 4.0, especially on that part of production. So I don't have a precise figure to quote on what should be the short-term expectation. But clearly, 4.0, we assess it in the pilot that we've done. And it's beneficial in term of margin improvement. And the topic that is of paramount importance at this phase, even more than rolling out this Factory 4.0 technology, is ensuring an adequate utilization of the factories because factories have functioning costs, which are fixed label. To understand, it's fixed because we cannot rule out people. So we need to make sure that we have a good level of utilization to start with, which is a of a higher relevance in this phase than the benefit that can provide the Factory 4.0 technology. There's a reason why we're also saying that in this phase, we are having a more gradual rollout of the Factory 4.0 technology in Italy because the priority at this moment is really to fulfill the capacity because that will bring the highest benefit in term of reduction of cost of production.
David Kanen: Okay. But in the past, you've said that you expect a mid to high single-digit improvement in those factories that have been automated with Factory 4.0. Is that still a fair statement, 5% to 7%?
Antonio Achille: Yes, it is. I'll talk about the high single digit. It still is the case, but that needs to happen with factory, which is a good level of utilization. So that needs a good level of utilization. So we need now to make sure we have a good level of utilization of those factories. Then the Factory 4.0 technology can provide an overdrive, but provided we have a good level of utilization. A good level of utilization for us means 85% plus because it's a fixed cost business. When you go below that level, the cost of production increases quite significantly because the cost of functioning, so electricity and whatever, plus the cost of labor get absorbed by a lower volume of production. So if we were to, like it was last year, in a situation of full saturation of the factory, the Factory 4.0 would have provided the kind of incremental benefit you mentioned, and we would have accelerated the investment. In this phase, where we have this saturated factory, the priority for us is more commercial. It will make sure that Natuzzi Italia can regain the growth momentum needed to fulfill the factories.
David Kanen: Yes. Okay. I really don't have any more questions. I'm just going to make a comment, and I think we're in agreement here, but you called out that there's opportunity to grow same-store sales in your direct operated stores. I would exert you guys and encourage you to accelerate that to perhaps go to be even more aggressive during the soft patch in the economy. Because, ultimately, as you said, you have more control. You don't have a lot of control with a third-party retailer selling Natuzzi product, whereas you can better train your people and align them and still potentially affect same-store sales growth. And then, of course, we know the impact, as you said, having the factory at fuller capacity improves gross margins, okay? And then, of course, we know selling branded product is in the probably mid-70% gross profit range. So I would actually encourage you guys again to play offense and to accelerate the deployment of stores in North America. And that's pretty much all I have, guys. I'm encouraged by the operating profit, excluding the one-time items. And I'm sure, by the end of the year, we'll be looking at a better economic backdrop. So thank you.
Antonio Achille: Thank you, Dave. Also, thank you for your continuous dialogue. It's highly supportive for us to set the priority. You, of course, have been invested in the company for enough time to understand our trajectory and our challenges. So your contributions are particularly valuable to us.
Operator: Thank you. There are no further questions at this time. And I turn the floor back over to management for any further or closing comments.
Antonio Achille: So thank you for all your attention. As we mentioned before, we keep focusing on our priority. I must say our team is very cohesive. We do experiment with headwinds, reading what's happening in the market. We're not alone. We're paying particular focus to our fundamentals cash position to ensure we can go through this turbulent time without jeopardizing our long-term objective. And I look forward to reconnect with you either on individual conversation if you want to have more color in what has been discussed today or in our next press release for the first quarter of 2023. From my side, thank you. I don't know if Pasquale wants to provide any final word.
Pasquale Natuzzi: Antonio, you did a good job, and Carlo. And I thank you very, very much. The speech was very well done. And thank you very much, our shareholders. And we are all committed to overcome any kind of difficulty as far as we can. Thank you again.
Jason Camp: Thank you again.
Antonio Achille: Thank you very much.
Operator: That does conclude today's webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
