Natuzzi S.p.A. (NYSE:NTZ) Q3 2023 Earnings Call Transcript

Natuzzi S.p.A. (NYSE:NTZ) Q3 2023 Earnings Call Transcript November 27, 2023

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi 2023 Third Quarter Financial Results Conference Call. As a reminder interested person can join the conference call by dialing plus +412-717-9633 then Passcode 392-52103#. Once again, to dial in by phone, please dial +1-412-717-9633 and then Passcode 392-52103#, in addition to the link already provided to join the video webcast. At this time, all participants are in a listen-only. Following the introduction, we will conduct a question-and-answer session. Instructions will be given at that time. Joining us today are Mr. Antonio Achille, Natuzzi’s Chief Executive Officer; Mr. Carlo Silvestri, Chief Financial Officer of the Natuzzi Group; Mr. Pasquale Natuzzi, Founder and Executive Chairman; and Mr. Jason Camp, Senior Vice President of Retail for the North American market; and Piero Direnzo, Investor Relations.

As a reminder, today’s call is being recorded. I’d now like to turn the conference over to Piero. Please go ahead.

Piero Direnzo: Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi’s conference call for the 2023 third quarter 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 might 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 filing with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during today’s call. And now I would like to turn the call over to the company’s Chief Executive Officer. Please, Antonio.

Antonio Achille: Thank you, Kevin, and thank you, Piero. Good morning, good afternoon to everyone. I hope our audience from US enjoyed joyful Thanksgiving last week. So let me brief illustrate the development of this year focusing on the third quarter. As you’ve seen, sales in the third quarter have been significantly below what we reported in the last year same period and 15% below what we reported in 2019 that we keep using as a parameter of comparison given the seasonality of the last cycle. It’s still important to detail the difference between 2022 because 2022 benefited for a significant amount equal to EUR28.3 million from previous quarter backlog. As you will remember, due to the unprecedented spike in demand in the aftermath of the COVID, we struggled as all the industry did in fulfilling the demand.

And that resulted in the backlog that during 2022 helped us to keep busy the top-line. So if we compare 2023 third quarter, with, let’s say, a normalized third quarter of 2022, the decrease has been up 15%. The component of our business, which has been clearly more affected and I will say that is partially because of some clients leaving us, but is very much consistent with our strategy is the unbranded component of our business. As a reminder for those participants that might not know in depth Natuzzi, Natuzzi is now a branded retail group. But historically, it was also producing unbranded products. So brand is a product which was sold on the floor of large retailer without coming out of the factory with the brand Natuzzi. If we look at the branded company in total, branded and unbranded sales, we closed the third quarter of 2022 at 94% roughly.

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Q&A Session

So I would say, almost entirely sales are done under the brand Natuzzi. Whereas if we compare the percentage to what happened in the third quarter of 2019, it was 78%. So almost an increase of 16 percentage points. This is — and I will spot some more, a confirmation that despite the unprecedented times we live, we are not deviating from our long-term strategy, which is to become a brand-wide company. Of course, the company of business fully leverage our heritage of 65 years and also carry higher marginality. That’s the reason why that is the way — the direction in which we want to invest. Another important element I would like to flesh out is that since a week 29 of this year, we have witnessed a change in direction, in the sense that the weekly order flow, so what we receive in terms of fresh order has been resulted higher than the previous year 2022, so for 19 weeks in sequence, right now, we are closing week 47, we are reporting order flow, which is above 2022 or previous period.

And that interrupted a cycle of 15 months where the fresh orders were below the same period of the previous year. I think it’s too early to say if that is structural, let’s say, turning point, but I believe it’s encouraging to see that now for 19 weeks, we are reducing that. Another element, which I believe is important, is to testify that the marginality, so our gross margin has been at 35.4%, which is again above the average over the last three years. This comes as a consequence of our restless focus on pricing discipline and cost management, which compensated to a large extent the disadvantage we reported in absorbing the fixed cost with lower volumes because that’s absolutely what happened with our factory. The sum of those, let’s say, element of the equation, led to loss — operating loss in the quarter of EUR1.3 million.

which, of course, not what we wanted to achieve, I believe it’s still useful to put it in perspective. For instance, that loss of EUR1.3 million reported achieving EUR74.9 million in sales compared with a loss of EUR8.7 million reported in 2019 but with EUR88.1 million sales. So that means that in 2019, adding EUR14 million more sales, we were losing EUR8.7 million. This year, we are losing EUR1.3 million with EUR14 million less. So I believe that directionally give you a sense that we are working to strengthen our operating model and to lower our breakeven, so that when growth come back, and we are likely working for that, and have no doubt that will happen. We will have a better profit on our asset and cash conversion. Talking to cash. Also this quarter has been positive from the operation.

It’s been positive by EUR2.3 million, which compared to a negative cash of EUR4.2 million of previous year. And this, again, is a proof that our model is resilient even under extreme circumstance like the one we’re witnessing. You will see that it is in a way self-financing. We will discuss later, but we are not deviating from our long-term strategy. And even in this quarter — sorry, yes, even in this quarter, we invested EUR1.8 million in retail and EUR1.1 million in restructuring and modernization of our factories, which are basically the long-term priority for us. On one side, enhancing brand retail, on the other side, continue our restructuring and modernization of our factory. So this is, I would say, the highlight of a quarter where, as everybody in the industry, we are still witnessing a soft demand.

I believe the circumstances are very evident. We have an ambition, as you know, unfortunately, it’s not only for us, but for human kind, we are living this additional humanitarian crisis in the Middle East, which, of course, does not contribute. So how we are equipping ourselves to make sure that Natuzzi, which has 65 years heritage that’s been through a series of moment of glory, more difficult, can continue and get out of this crisis even stronger. As you can imagine, we’re really focusing on ensuring resilience and the strength of our balance sheet and our cost structure. We are continuing on the restructuring front. Since 2021, we reduced our working force by 649 units, which compared just to give a sense of acceleration, with 577 of the past quarter.

So in one quarter, we let go another 72 people. This I think is important to notice that the net reduction because in the meantime, we are strengthening our organization. So we are changing the plot. Just to name the last addition, we started a collaboration with a gentleman called Brian Waidelich which come from Mitchell Gold and Bob Williams, that didn’t make it through this crisis, but it was definitely a very good retailer. And Brian has been managing for this cost $90 million business of 14 stores and is now actively collaborating with our global retail division in the quarter to keep strengthening our approach on retail. So I use this as an example to ensure that we are working to make our business more efficient. But since we deeply believe in the growth and the strengths of our brands, we are, at the same time, investing to uplift competencies.

The other area where we have not been decelerating has been the retail front. So we’ve been opening since the first nine of the year, 1,900,000 square feet of retail capacity, or retail commercial surface. I challenge every one of you to find somebody that during a crisis has the courage to keep investing in this dimension, apart from players in US, the open large box, but I’m talking about traditional retail. As you know, North America is still very central to our strategy. In fact, five new stores Italia Natuzzi has been opened or flagship, which means primary location with surface of 1,000 square feet and above. We inaugurated three new cities, so Atlanta, Houston and San Diego, where we were not present. We opened a really fantastic store in Manhasset.

I hope you have a chance to visit it. It is on the Miracle Mile, the one connecting the outcome with a flagship. And we will locate our [indiscernible] stores. In addition, we opened 45 franchising stores. So as I said, focus on cost containment, but at the same time, not de-focusing on what we should be the platform for accelerating growth in the meantime. Another way we are working to increase our investment capacity is the one of dismissing non-strategic asset. We’ve been explicit on those intent in our past calls. We’ve been further discussing with our Board, which gives us the green light to continue some of those discussions, which are really becoming the real — as I mentioned before, and I cannot give you further detail, the non-strategic asset, which we are considering.

This means in including point, which is a really iconic location with a fantastic heritage designed by Marubeni, which is still one of the most famous and respected architect still living of 1,200,000 square feet. Other assets that we might consider selling, including our tannery, Natco and some fields that we have in the area of Greensboro. So that are ongoing process where there is an active discussion with potential buyers. What we will do is those proceeding materialize? Again, a very consistent journey. If that proceeding materialized, two main priority, retail and core geography, which means especially North America and accelerating our restructuring. This has been, again, a discussion with our Board and has been really a consensual decision that, that should be our priority going forward.

In closing, I would like to give you three messages that for me are really the key takeaways of this quarter, but I would say more of this year, which is going to the closing at least from a solar calendar perspective. So the market is still challenging. That is obvious. I think we should be celebrating our capacity of increasing resilience and managing cost because this has been achieved during a period of unsaturated capacity, and we achieved higher marginality, which is not obvious, increasing by some 10 percentage points compared to 2019. The second key message for me is that we are not deviating from our long-term strategy, which is focusing on branded retail and accelerating the restructuring environment. And the third point, which again, I don’t want to over comment, but it’s encouraging to note is that from week 29 of this year, we are reporting green numbers versus the same period 2022, which is, I believe, a question that came often in the previous conversation we had together.

So let me stop here for questions on this initial part of illustration of third quarter results. Then, with Carlo and Piero, we will provide you some more specific interesting element of our P&L and balance sheet, but let me stop here for initial Q&A.

Operator: [Operator Instructions] And we do have a question coming from Dave Kanen from Kanen Wealth Management. David, your line is now live.

Dave Kanen: Hi, good morning, guys. I appreciate you taking the questions. A follow-up on the statement that you made, your focus is on ‘accelerating the restructuring’, and then building out the North American DAS footprint, which makes perfect sense to me. So my question is in order to fund and accelerate that, what do you think the time frame is of the disposal of some of these noncore assets in particular High Point?

Antonio Achille: Thank you, David, for your encouragement words and your specific question. So I point we are very carefully looking at the market. At the moment, we have an ongoing discussion with a potential buyer and we are entering in the due diligence, which is — we are close to entering the due diligence, which is if we then agree on the terms, the terminating phase of a potential disposal. So that point is very concrete, the opportunity, again, as you know better to me, tell you have not signed a piece of paper, both parties can decide that it is not the right moment, the right terms to complete it, but we’ve been going through the full process including the approval of our Board for the dismissal because, of course, it is a strategic asset, which need to be approved by our Board.

So internally, we have done our homework, and we are in active discussion for the last part of this potential transaction with a potential buyer. I cannot disclose, of course, the details, but this is the situation. At least on the other asset, there is an active — I think on the other asset, we are a bit a step behind. They are, by the way, less meaningful in terms of potential impact, but we are active scouting on the market for potential buyer with appointed adviser for both DAS.

Dave Kanen: Okay. I have several questions, so my apologies in advance for monopolizing. But in terms of the — you highlighted some of the new stores that were open Atlanta, Houston, San Diego, Manhasset. So in the third quarter ended September, how many of these stores did not contribute and if any, and what — if you can quantify the revenue that we may pick up in Q4 incrementally? I’m assuming these stores — the newer stores probably have an average unit volume, $4 million to $5 million. That seems to be the average on the new stores. So if you could give me color there, that would be helpful.

Antonio Achille: Okay. I will start, and then I will ask maybe Jason or Piero to add finer details. When we open a new store, there is a very careful process, which include a geo-market study to make sure that the catchment area, the agency in terms of other brands are really what constitute a solid base for operating a store. For us, it’s a very strategic decision. And that decision includes our business plan, our five-year business plan, which should show breakeven between 14 and 18 months. That is our strategy. Of course, there is always a on phase because as in any business initially you have not the full benefit of the operation while we have the full impact of having a team in course. So that’s a bit as a principle. So those stores, they are still in this ramp-up phase. But maybe, Jason, you can provide if you have already rating and otherwise not care as it some more precise figures on those five new opening in 2023.

Dave Kanen: Jason, if you could help on that. Just I’d like to know of the new stores, how many of them did not contribute in Q3? Just so I could model going forward, what the incrementality is, if anything?

Jason Camp: Sure. So it’s — I think, first, important to remember that these stores are all largely based on a special order and import model. So in our — there’s definitely a timing difference between what we call written orders into our factory versus delivered revenue, which really begins to flow on a kind of more regular and normal basis, four to five months into the opening of the store based on our import model outside of any locally stocked product that we feature in our Quick Time assortment. So for all of these recent openings, I think it’s — as you’re thinking about your models, you should really be thinking about early ’24 to more materially impact our North American revenues.

Dave Kanen: Okay. So those five stores, that was very helpful, Jason. So in your clarification, what you’re saying is you’re taking written orders right now, but they don’t show up in revenue until five or six months later when product is shipped. Could you give us — that’s very helpful. Can you give us a flavor for — or to quantify the written orders that you’re seeing at the new stores and if they’re performing up to your plan?

Jason Camp: Sure. I would say that when I step back and the real estate [talent, the store design] (ph) against, let’s say, a lot of our legacy locations, I think we’re very proud of the work. As Antonio was mentioning, even on the written side, when we enter a new market, we’re hiring largely a new team. And we’re definitely seeing that our stores ramp to fully mature and typically year two is stronger than year one, both historically and what we’ve seen over the last couple of years. So we haven’t really been disclosing individual store volumes, and I’m not sure that I’m prepared to do that today. But I think we believe we’ve built great additions to the US fleet here.

Dave Kanen: Okay. Well, that’s — it’s helpful to just understand the cadence of revenue recognition and that we have a nice opportunity in front of us. And then if I could pivot to a question for Silvestri, I see — I guess the encouraging a bright spot here is on such soft revenue, the operating loss was quite small, and it appears you’ve done a great job of driving down selling expense and administrative expenses a little bit. Could you give me, Silvestri, a sense if and when revenues do increase? Let’s say, theoretically, we increased revenues by $15 million back to $90 million, okay? How much would selling expense go up? How much is variable? If you could help me understand that up to $21.6 million? So on the next $15 million, how much does selling expense increase?

Carlo Silvestri: Okay. So regarding the cost discipline, if we increase the volume, let’s say, that our numbers already show, as of today, all the fixed part, including in our selling and administrative expenses. So if we increase on the same basis in terms of network, the sales, it will only go up by all the variable part related to the rent and the sales commissions and the transportation costs. So let’s say they could go up by 20% of it around that range.

Dave Kanen: So selling expense would increase about 20% if we had a $15 million increase in revenue?

Carlo Silvestri: Yeah.

Dave Kanen: And administrative expense should remain flat?

Carlo Silvestri: Correct.

Dave Kanen: Okay. That’s helpful. So I mean, it shows that when you get that flow-through on revenue, there’s quite a bit of leverage in the financial model to generate profit. Okay. And then the last question, Antonio, if — you called out specifically that written orders have flipped to positive versus the last 15 months. Could you give us — without being completely granular, could you be — give us a little more color on what that improvement looks like in terms of percentage or magnitude?

Antonio Achille: So it’s single digit, strongly, if we look across the branded versus the unbranded, single digit, but it’s consistent. And geography wise, I will say, more recently, US has been more dynamic. The other geography, which has been — but that is not reason because they have been more resilient during the year are being emerging market of Central and South America. This also gives me an opportunity which goes beyond your question, Dave, to comment a bit on China. China, as you know, is going through a very different paradigm when it comes to consumer product than before the COVID. I would say not only the furniture, but we say all the branded even high end and luxury, they are being very, let’s say, gloomy this year.

We have been also affected. The thing is important change is that we are increasingly working as an integrated company. As you know, we have the minority. So this led to a creation of an autonomous organization historically, which now has been more and more integrated in the way we’re working and the way we operate retail brand and merchandising choices. So we feel good about the direction that with our partner, we’re giving to the business. And hopefully, that will be also translating in a positive outcome from that geography that is still witnessing a very, very, very conservative consumer after the pandemic.

Dave Kanen: Okay. On that topic, I’m cheating a little bit, I guess I’m asking more questions, but this was on my list, cash in China. How much is in the JV right now? And what is our flexibility or optionality in accessing some of that cash?

Carlo Silvestri: So on the cash, I need to refer to Piero, if technically, I know the figure, but I want to be sure that technically, we can refer to it before the 20F. I suspect we cannot disclose it now, right?

Piero Direnzo: You’re right, you’re right. You cannot disclose also because they are a listed company, so we cannot disclose.

Carlo Silvestri: So I cannot disclose the figure. They have been since the beginning of the year, increasing the cash. Of course, is below what we report in previous year because as I mentioned that a few times, the balance between liquidity and fixed asset has been moving more in direction of fixed assets because they invested in inventory as, which we are now managing, but the group has been accruing cash. And again, unfortunately, I cannot give you the figure because of respect of our, let’s say, they are also both partners being listed. The other question — the other aspect is easier to answer. So the distribution of cash or dividend can happen in a form of capital reduction or dividend, both need to be authorized by the anonymity of the Board members, which are five, three being timing appointed by the majority shareholder Kuka and two being appointed by Natuzzi and being our Executive Chairman, Mr. Pasquale Natuzzi and myself.

So both the cash — so both options to, say, reduce cash, which is capital reduction and dividend need to be approved by an anonymity by the Board of the JV.

Dave Kanen: Okay. And then a quick strategic question, and maybe this falls into Jason’s domain, but I would like to get your thoughts on this, Antonio. When I visit your stores, it seems like you’re very focused on the living room, that particular space within the home. And when I go to competitors, I see that they have a broader appeal of the dining room, the bedroom as well as the living room. And so I guess the silver lining is this probably is a large opportunity for you. Could you talk in terms of the focus there? I know you’re focused on building out the North American footprint, but are you also focused — do you have your team focused on building and designing high-quality desirable Natuzzi product that goes into these other rooms, so that longer term, our average unit volumes could be double or even triple where we are now? Thanks.

Antonio Achille: No, David, you are really spot on. And I believe the answer here needs to be specific for Natuzzi Italia and Natuzzi Editions. On Natuzzi Italia, we’re really growing the of having a lifestyle presentation in the store with a total living. As you, of course know, the heritage and the strength of Natuzzi is in the living room in the poster where Mr. Pasquale Natuzzi is saying it, but it’s the market saying that has been a genius, inventing a new category of product, which combines harmony and emotion. And we want to preserve that. But as you mentioned, as we’re entering in retail, we want this retail to occupy different rooms. So we are working definitely on the bedroom, where, again, technically it is somehow closer to the opposite, especially for the poster at bedroom because technically, they are not far away, material.

And in fact, some of that production up in our factory. So the bedroom is another room we want to occupy. Another room we want to occupy is the dining room where instead of course, materials and technology and technicalities of production are different. And in fact, we design internally everything, but we do a strategic partnership for the production. And increasingly, we want also to have, let’s say, legitimacies and accessories, lighting, really because of two needs. One is to present in the store a full immersive experience of the brand and to experience that the retail needs to be experiential. And so you need to have a full enough of accessory and format. The second is to increase the average order ticket. And in fact, that is directional in most geographies.

I must admit and be transparent that we see — we do still see a significant opportunity in improving our furnishing because it’s a recent, let’s say, direction. So we are still working to improve the furnishing offering for Natuzzi Italia. This is a clear part of the short-term objective to fully leverage our strengths of the brand and to fully leverage the investment that we will retain.

Dave Kanen: Okay guys. Thank you. My apologies to anyone that’s waiting in queue for monopolizing the call. But thank you guys. If I have anything to follow up with, I’ll just pose another question. Thank you.

Antonio Achille: Thank you, Dave.

Operator: [Operator Instructions] We do have a question from Steve Emerson from Emerson Investment Group. Your line is now live.

Steve Emerson: Thank you for taking — hold on, let me hit video. Can you hear me?

Antonio Achille: We hear you perfectly. We don’t see you, but we hear you perfectly.

Steve Emerson: Antonio, thank you very much. I met with you at the LD Micro conference last year.

Antonio Achille: I do remember, Steve, nice to see you again.

Steve Emerson: Could you talk about some of your objectives next year? Some of the metrics you hope to be at? And also, what percent of your revenues in the US are now met with fairly quick or domestic inventory?

Antonio Achille: Okay. Thank you, Steve, and nice to reconnect with you. So let me start. I will answer specific to your question, but let me start answering to a question, which is a bit a different time frame, which is where we see Natuzzi mid-term, because I believe that under this difficult market condition, every 1 of us has the natural tendency to focus more on the problem and the issue and to forget the dream, the part of the dream. So I will answer first there, and then I go back to next to you. So the dream is to bring Natuzzi where it should be and deserve to be. Let’s remember that according to independent survey, which means we are not doing those, Natuzzi as a brand awareness among international brand, position it first in US market, first in UK, first in Spain, second in China.

So that’s to say the strength of the brand. Clearly, the brand is much larger than today’s revenue. So our ambition is simply to bring the revenue where the brand is. Imagine what would be in terms of investment into the work, build this brand. And there is, by the way, a second element, which you cannot buy, which is the heritage. This is a company where the Chairman has founded this company 65 years ago. Again, this positions Natuzzi in the bucket of if we do an analogy with the fashion of Armani, Versace, so a company which really have created the market. So that is the dream and the vision. So let’s go back now talking more specifically on next year and US quick time portion of sales. Next year, we are finalizing the budget. It’s always in circumstances where the market still for everyone, and I believe you read the press release of our peers, is not providing obvious sign of recovery.

We are building a business case, which privilege resilience and solidity of our fundamentals. Having said that, we are prioritizing investment in the direction I mentioned before, which is retail and restructuring. If, as we discussed before, some of those non-recurring sales of strategic asset happen that will provide a strong acceleration. Otherwise, we’ll be quite prudent in the first part of the year in terms of new investment in retail to wait and see what is the development of the year. So that is how we are entering next year. So in terms of KPI, we were still monitoring the KPI that certified that we’re moving in the right direction long-term, which means sales of branded product versus total sales, sales of product in retail channel versus sales in wholesale, marginality, number of recurring customer, average order ticket.

So KPI that testify we are moving in the right direction from a P&L and an equity perspective. In terms of accelerating investment, I suggested our Board to be doing a budget which is relatively prudent in terms of new investment in the first part of the year ready to accelerate if the condition allow it or if any of the non-recurrent asset transaction materialized. Just to give you, I will say, an answer of next year by putting in the perspective more a mid-term journey. On a specific question on quick program or let’s say, stock inventory, Jason, maybe you want to take it.

Jason Camp: Happy to attempt to answer your question, Steve, and make sure I got it right. So from, let’s say, the retail side of the business, when I combine both brands, I would estimate that a little over 20% of our written orders come from sales that are already available in the US quick time, a floor model change, what have you. And then about 75% are special ordered today on the retail side. I would say on the wholesale side of the business, the — our retailers are ordering a much larger percent, let’s say, from us directly, but they’re — but they often provide their own stock investments. Our largest customers build their own stock. And so I would guess that the stock to special order ratio on the wholesale side of the business for their customers is maybe 60% stock, 40% special order from a blend standpoint, if I had to guess. Mr. Natuzzi, it sounds like you think that’s reasonably close. But — so I hope that answers your question.

Steve Emerson: Thank you I was looking for more concrete metrics like how many US Natuzzi stores do you expect to build next year et cetera?

Antonio Achille: So, Steve, as I said, I cannot give you a figure because it depends on how the year will develop. So let’s say we see at that point I point is I don’t give a precise figure, but it’s above the book value, which is EUR10 million. Let’s assume we said significant about the number. As I said, we’ll be primarily invested in the stores. In US, an average store’s net top capital contribution by the landlord is around $800,000. So you can imagine that, that can provide a significant acceleration of turbo boost. If we need to sell financing, those openings, leaving apart way to increase our capital available apart from selling non-strategic assets, of course, the speed of development is lower. In terms of full potential, again, we have a number in our plan.

But since we disclosed the plan, I would use analogy from the other competitors. I think the company which is closer to us in terms of not necessarily operating model, not positioning and being international as, which is similar in terms of price position actually on both Natuzzi Italia, 40-store, above 40 store in US. So I think the space different for us to more than double the presence of Natuzzi Italia store in US. The speed we arrive to that number depends on our ability to invest but also in the fact that we don’t want to open store. We are not eventually happy by as implicit question as Dave mentioned before. So we’re really focusing very much also on organic growth to make sure that every store is really supported. So I know it’s maybe a long answer, but to shorten it, I cannot give you a number for next year.

Our long-term perspective is to open around 8,10 stores per year in North America, but this is not confirmed for 2024 because on what I mentioned before, because we need to do a budget, which is at least in the first part of the year, particularly cautious.

Steve Emerson: Okay. Did you say, eight to eight, or eight to 10?

Antonio Achille: Eight to 10. No, no. Eight to 10.

Steve Emerson: Got it. And to follow up Dave Kanen’s question, what percent of your revenue is living room and what’s your objective in terms of percent nonliving room?

Antonio Achille: For North America or more in general?

Steve Emerson: North America.

Antonio Achille: I’m doing a checking right now on our system to be more specific.

Jason Camp: I know the numbers for North America, if it’s something we’d like to share, Antonio.

Antonio Achille: For Natuzzi Italia for brand, I was looking actually by brand. You have it by brand?

Jason Camp: Yes.

Antonio Achille: If you have it, you go ahead. I also have it, but you go ahead. You go ahead, Jason.

Jason Camp: Okay. When we look at product that’s oriented towards the living spaces number for Natuzzi Italia, it’s about 80% of our total. And for Natuzzi Editions, it’s north of 90%.

Steve Emerson: And your objective.

Antonio Achille: I mean if I see — I mean we’re going to be always skewed to post trade because the market is skewed to post trade. In the market, 60% is opposed to normal sales. I believe for Natuzzi that it will be always stronger. I think a good analogy may be is China, where the team push harder, especially on and is more — so I think the long-term objective can be 60-40, 70%. I don’t know Pasquale, if you agree, you have been in this industry, but I believe the remaining 60 to 70 upholstery is how the market is done and also equivalent with our heritage. You don’t see a higher percentage of upholstery in our stores.

Steve Emerson: Thank you very much.

Antonio Achille: Pleasure. But interesting enough, just again, because we are — I’m looking on my phone, where our system allowed to look in real time, any possible cross data, which means my life, I must say, quite easy at least on this is really a dream to look at all the data. Let me tell you something just to answer specifically to that question. If I look at, let’s say, last year, which is, of course, a close year, so I don’t do any privileged information. And I look globally, global market, hold on a second.

Operator: [Operator Instructions]

Antonio Achille: So the non-upholstery has been growing three time more than the upholstery just to give you, of course, from a smaller base, but just to give you a sense of acceleration of the non-upholstery and as I said before, we are not yet satisfied with what we express or what we call global merchandising platform, which means the complete assortment, which includes upholstery, dining, bedroom and accessories. So I believe that is still an area of opportunity.

Operator: We do have a follow-up from David Kanen. David, your line is now live.

Dave Kanen: Hi, guys. Yeah, on — you guys used to give a backlog number, I know it was more relevant when we had the supply chain issues during COVID, but what was our backlog as of September 30? And how does that compare with June 30?

Antonio Achille: The backlog is at a physiological level. If you cover the data, you’re already — you’re free to disclose it, otherwise, we can do it as a follow-up. It is at the physiological level, of course, the backlog it was…

Carlo Silvestri: Sorry to interrupt, it is EUR54 million.

Dave Kanen: Backlog is EUR54 million as of September. And what was it as of June 30?

Carlo Silvestri: June 30, let — but it’s the same at the beginning of the year. But let me check it. Let me check it.

Antonio Achille: David, we can check it, but duration I’ll tell you won’t be different because we reach what we call physiological level of backlog, which means the amount of backlog we need to have to do a proper planning of our factory, which normally is done three, four weeks in advance because of all the different materials and the capacity we need to book. So we’re in the physiological level which if you want to see the positive side of it means that our time to delivery for even special order has come back to what we could be, which is more responsive to the demand of customer, apart from some geographies where like rest of Asia Pacific still the logistics is very much impacted.

Carlo Silvestri: June was EUR56 million by the way, so.

Antonio Achille: [indiscernible]

Dave Kanen: So it was — okay, so it was about EUR56 million in June, so it’s about the same?

Antonio Achille: Yeah.

Dave Kanen: Okay. Thanks, guys.

Operator: Thank you. We have reached end of our question-and-answer session. I’d like to turn the floor back over for any further or closing comments. And if there are no further comments, at this time. I’d like to conclude today’s teleconference, and thank you all for joining us today. You may now disconnect and enjoy the rest of your day. We do thank you for your participation today.

Carlo Silvestri: Thank you.

Antonio Achille: Thank you.

Jason Camp: Thank you.