Natuzzi grows gross margin in Q3

Italy
Published:  30 November, 2021
Credit: Natuzzi

The Italian premium leather furniture maker and tanner reported a gross margin of 36% in the third quarter of the 2021 financial year, up from 32.5% in the same period in 2020 and 28.7% in 2019.

Invoiced sales increased by 20.7% in the third quarter against 2020 results, and 15.6% against 2019, though the business saw an operating loss of €0.4 million (US$454,680), matching the result in Q3 2020, but down from a loss of €8.7 million (US$9.9 million) in 2019.

CEO Antonio Achille said: “We ended the quarter with two important messages. On one hand, demand for our products remains strong, as it increased sequentially compared to the prior quarters of the year and is up double-digit both versus 2020 and 2019.

“As we are nine months into the year, written orders continue the positive trajectory across all the main geographies of our business. Also, the quality of our sales keeps improving with 87% of invoiced sales coming from branded products compared with 79% in 2019 same period.”

However, supply chain disruptions continue to be a problem. Costs were significantly affected by the “generalised inflationary environment”, but a decision to implement additional price increases resulted in a gross margin improvement.

Meanwhile, production delays caused an increase to the company’s backlog of around €21 million (US$24 million), or by 23%, in the third quarter compared with the end of the second quarter, leading to a total backlog of €110.4 million (US$125 million) at the end of third quarter, most of which is concentrated in Natuzzi’s Italian and Romanian operations.

Furthermore, the management of incoming orders has required that the company incur approximately €8 million (US$9 million) of cash outlays for purchasing raw materials, semifinished goods and operational expenses that were not mirrored by the relevant revenue in the third quarter.

In addition, rising prices for overseas freight, especially for the Far East and North American routes, have generated €5 million (US$5.7 million) of additional transportation costs during the quarter for the company.

In order to mitigate these effects, the Natuzzi supply chain team has been implementing a series of stabilising initiatives including:

  • Working with long-lead time vendors to anticipate the shipping of supplies with respect to the scheduled week of delivery
  • Increasing factory output
  • The “Fabbrica Italia 4.0” industrial program, which aims to improve the efficiency of the group’s Italian operations
  • Hiring 60 additional workers in Romania
  • Setting up an industrial programming system that prioritises the completion of those written orders for which the company has immediate availability of semi-finished goods to expedite final deliveries to customers
  • Finally, the company is accelerating its outsourcing program in Mexico to support the acceleration of the commercial development of the North American market.