Italian furniture company, Natuzzi, S.p.A (ADR) (NYSE:NTZ) is a recovery story that I personally have been following closely over the past year or so.


Natuzzi has Italian roots and many decades of Italian heritage behind it. However, as Italian labor and manufacturing costs have surged higher during the past few years, while global sales of luxury leather furniture have slumped, Natuzzi has fallen on hard times. The company has also been struggling to compete with lower cost competitors in the sector. For these two reasons, Natuzzi has made a loss during every year for the past five and the company’s future has been called into question.

Luckily, Natuzzi’s management has quickly put a turnaround plan together, focused on returning the company to profitability and safeguarding the Natuzzi heritage.

Natuzzi: Management’s turnaround plan

2013 has been an important year for Natuzzi as management’s turnaround plan was approved by the board and the company has begun to make significant changes. In particular, production lines have been updated, some production has been relocated to lower-cost factories within China and Eastern Europe and management has begun cutting jobs within Italy. Indeed, Natuzzi’s recently released fourth quarter and full-year 2013 results updated the market on the company’s turnaround activities.

The key points to note within of Natuzzi, S.p.A (ADR) (NYSE:NTZ)’s results were:

  • Total upholstery net sales +0.3% in terms of units sold at €402.8 million in 2013.
  • Negative EBIT of €32.5 million
  • €5.9 million from negative currency effects
  • Full year net result at -€68.6 million, including €28.4 million extraordinary items relating to restructuring
  • Gross margin down 0.6% to 31%
  • Net cash at end of period €32 million
  • Goals of the 2014-2016 Business Plan: Recovery of Competitiveness and Return to Profitability Beginning in 2015

Natuzzi workforce declining

The restructuring of Natuzzi, S.p.A (ADR) (NYSE:NTZ)’s Italian operations is already well underway. After the approval of the company’s plan to lay off 1,506 workers within Italy, 390 of the 600 Italian employees offered voluntary departure incentives have already left the company and the rest should follow within the space of the next year. Savings from a smaller work force are already filtering through with labor costs declining by 2% year-on-year during the fourth quarter of last year. Additionally, transportation and advertising costs dropped 10% and 9% respectively year-on-year during the period.

Further, during 2013 Natuzzi made progress implementing product innovation initiatives, which included reducing the company’s reliance upon traditional manufacturing methods in favor of the company’s new moving line production processes. Currently, 50% of Natuzzi’s turnover is already generated by models that are manufactured on the moving line and the majority of Natuzzi’s product offering will be re-engineered to permit production on the moving line throughout 2014, which should help lower operating costs, decrease wastage and increase efficiencies. Natuzzi converted 18 production facilities to the moving-line process during 2013, a further 15 lines have been covered so far this year.

Front of house, Natuzzi, S.p.A (ADR) (NYSE:NTZ) is planning to close 13 non-performing group-operated stores thought-out 2014 and restructure the group’s Brazilian operations. During 2013, Natuzzi lost €7 million in Brazil, according to management, “reflecting sales volumes that were inconsistent with our overall cost structure and production capacity in that market. In this regard, we have begun targeted due diligence to quickly identify those measures that are necessary to eliminate losses in that country.  Brazilian sales only accounted for 2.1% of Natuzzi’s total euro sales volume during the fourth quarter of 2013.

So all in all, it would appear that Natuzzi’s recovery plan is well underway, although much remains to be done. 2014 will be yet another important year for the company.