Natuzzi S.p.A. (NTZ) Earnings Call Transcript & Summary

Thank you so much Piero for your introduction. Good morning, and good afternoon, depending on the time zone to our analyst and investor and potential investors attending this call. I'm here today with -- beyond Piero, other 3 people, who are very relevant, and will be involved in our conversation. The first person is clearly Pasquale Natuzzi, which is our -- who is our Chairman, beyond being the founder and the live history of the company. I'm working very closely with him on any strategy and organization matter. So we definitely involve him when the subject pop up. The other person is Jason Camp. I believe most of you already know him. He's an Executive with 25 years experience in the sector, who leads our North America and Central -- North America operation. And the third one is Vittorio Notarpietro, our CFO, longstanding CFO. So let me open the conversation along to the press release, which has been just released to say that on one end, we are very pleased to see the growth for our product to continue. That has not always been the case in the past. We're now on a positive trajectory which last few sequential quarter. Written orders are even stronger than invoices sales. Invoices sales were 20% above the third quarter 2020 and 15% above the pre-pandemic level, so 2019. So the demand for our product continues to be strong across most geographies. And if you double click, which is interesting, is that the branded product, so the products which are sold with our 2 brands, Natuzzi Italia, Natuzzi Editions post very relevant growth rate. They are 40% above 2019. And currently, they represent nearly 90% of what we do. So the company, which has been going to a different phase of history, now is clearly focusing on brand, increasing focusing on having direct access to consumer, and this seems to be paying off in terms of growth. When it comes to fulfilling the demand, we've been experimenting. And of course, we're not being the only one, but today, we should talk about Natuzzi, we're experimenting, especially in the third quarter, difficulty to keep up with the increasing demand. And this is, again, is a matter of availability of product, availability of workforce in our plant and availability of third-party producer who keep the demand which has been, again, posting very positive momentum. This basically beared 2 consequence. The spike in material has been really pressuring our P&L structure. I believe here, the company has done a good work in mitigating that. In fact, if you see our gross margin has been actually increasing, arriving at 36% versus 32% in 2020 and 28.7% in 2019. So despite the strong pressure in cost of material, which often has been in the space of double-digit increase on our main material like leather, like wood, we've been able to contain and actually the gross margin has been improving. And this has been systematically by optimizing our purchases, but also by reflecting some of those price increase in our retail and selling prices. The other element in terms of cost, which has not been so easy for us to fully reflect and pass over to clients has been shipping cost. Shipping cost, giving -- the global nature of our supply chain are a relevant part of our cost structure. We've been -- to be a third party to our partners. Vittorio, I think you should mute, I guess there is some noise coming. So I was saying, we've been able to pass this in terms of additional freight cost, but not always in a timely matter. And as that -- as a result of that we observed, between Canada, one-off cost. In some of these one-off freight cost, additional EUR 5 million this quarter. So the net result could have been clearly, including that, negative impacting could have been higher. The second element, which is a consequence of the disruption of the supply chain is that our backlog is increasing, which in a sense, could be also positive because we're going to start next year with already some meat in the freezer and it's been increasing by EUR 20 million, arriving to EUR 110 million. And I'm talking euro here. So we have a significant backlog, which gave us a good kick for the next year. At the same time, we need to work carefully to make sure the level of service across geography remain consistent. So this is a bit what you can read in our number. So I would say a good continuation of our trajectory to regain growth and regain quality growth. At the same time, this could have been even higher if we managed the supply chain in a way to fully catch this growth momentum. We are working very much, not only to do this for the short term to kind of enhance the output of our supply chain, but also to sustain our mid-term goals, which clearly are very significant in terms of topline growth. What are we doing? Basically, we're working on 3 main area. One is secure material availability. So we are working to prebook some of the material, especially the ones which have a longer cycle. We are also trying to near shoring, so get supplier closer to our factories for some material, which have strategic relevance, but they don't bear a major implication in term of cost. So the first area is secure material availability. The second area is increased factory output. And later, I will invite Pasquale to comment on that. As you know, one of our potential advantage is to have a very articulated supply chain. We have production in Italy. We have production in China. We have production in Romania. In each of those plants, we are very carefully working to increase the output. Each plant as its history. In Romania, we have added 2 lines. We hired 60 people. In Italy, we are piloting a factory 0.2, which is an innovative way of producing much integrated with the supplier through information systems. And in China, we continue adjusting the capacity to the output. This is the long-term perspective. In the short term, as I mentioned before, we are facing a series of complexity factor linked to the level of absentees, which was higher than we predicted due to COVID. You must also be remembered that in Italy, our factory shutdown for 2 weeks during August and this also affected the third quarter production capability. The third area where we're working on is increasing the strategic outsourcing. The company, as you must know, if you've been following our story, has been always producing in-house everything. This will continue being the case for Natuzzi Italia, which we proudly produce in Italy and for which the made in Italy is a dominant part of the value proposition. For Natuzzi Editions, to recognize that we want to have a more [indiscernible] supply chain model. We are basing the production where it makes sense from a delivery standpoint. So we will have Romania and Europe for Europe. We will have our Shanghai, Vietnam for the Asia, and for some part of our North America demand, and we will build up Mexico for North America. This is something you will not see happening in 1 quarter, but it's something that progressively will -- we believe will be delivering significant advantage to our ability to fulfill demand. So this is a bit the very transparent view on our quarter where we continue enjoying strong demand, which, by the way, continue as we speak. So you see in the press release the data for the 44 weeks of the year, where the written orders were up 24% versus 2020, 15% versus 2019. As we speak, we are entering in week 47, the trend of written order keeps very, very robust. So we don't see any weakening in terms of written orders demand. I've been, hopefully, and I wish to be more specific during the Q&A, be very transparent of the hard work we are doing to evolve, modernize and enhance our supply chain and production. During this month, we also did other intervention to solidify the fundamental of our business. One is the organization. We believe that the power will be a people-led transformation. So in close symphony with the Chairman and our HR responsible, we have been evolving our commercial organization. In clearance with what I said at the opening, the Natuzzi is almost entirely a brand company. We made a strategic decision to create 2 brand division. So now we have a Chief Brand Officer for Natuzzi Italia and a Chief Brand Officer for Natuzzi Editions. Each of them is in charge for setting up the strategy and for controlling the P&L of his own brand, clearly, interact with the regional head, like Jason and the other. So introducing a matrix where the region has the full autonomy and P&L accountability to grow the brand in the regions and the Chief Brand Officer set up the destiny and the strategy of those brands. Beyond the organization, we continue working on increasing what they can call the assets to the sea, where the sea is our final customer, the clients. So in that direction, there have been a few, let's say, enhancement in this quarter. The first one of which I'm quite proud of is the launch of our new global digital platform. We had, before, 46 individual platform representing Natuzzi in the different markets. Starting for last Thursday, we sunset all those platforms, and we introduced just 1 global new digital premises. This will represent a window for both Natuzzi Italia and Natuzzi Editions. They will be fully transactional towards 2022. We started from having e-commerce fully transactional in U.S. for Natuzzi Italia. So now the window in terms of displaying the product is operational in all the geographies. The e-commerce is fully operational in U.S., and we start recording the first sales during the Black Friday. And digital will be, of course, one of the major priority for the development of the company. In the new organization, digital will be reporting to me and will be closely following this development. When I said I'm particularly proud that means I'm not proud for the end result. This will be continuing evolving. It will be the result of an agile implementation approach. I'm proud because when we -- 4 months ago, we set up the planned date for the new launch, which was last Thursday, it sound a bit a challenging task. And I'm proudly to report that our team exactly match the data. So it gave me a sense -- a good sense of delivery and on that aspect. The other area where we are continuing expanding our assets to the sea is North America retailer. Jason will be providing more color about that, but we are significantly higher, I would say, very double-digit high, depending how you cut sometimes almost triple-digit high versus 2019 and 2020 on our U.S. and North America. And this, again, will be a very important area of priority for investment for me going forward. Starting from this press, we provide a bit more color on our JV in China, where we currently have more than 300 stores with 60 new openings also this year. The brand is positioned in a very strong way with Natuzzi Italia being really positioned as a luxury brand, and Natuzzi Editions being more an aspirational furniture brand. So the combination of digital North America and China, in my view, are clear confirmation that we are a brand recognized by the consumer, that the consumer is appreciating, not only our brand, but the experience he can and she can receive the brand in our retail. And this is, again, in full transparency to provide you with a visibility on what could be my agenda as CEO, but also the agenda, the company is working on. The other point we flesh out in this press release is a bit -- a reflection on our trajectory. As you know, the company has been going through different phase. The phase we're in potentially started some 10 years ago when Pasquale has this very visionary view of moving a producer, a manufacturer into a brand retail. We are now accelerating the trajectory. And looking at the last 4 years, I think it's encouraging to see some of those indicators, confirming the viability of that strategy. Let me flesh out a few numbers. The revenue of the first 9 months has been growing, as I mentioned, 36% versus 2020, interrupting a cycle of declining lasting 4 years and more. The branded sales on total sales are 86%. In 2018, were 76%. So they are 10 percentage points more. Gross profit percentage moved from 28% in 2018 to 36%, so 8 percentage more. In absolute number, we were posting a loss of, let's say, EUR 70 million in 2018, EUR 90 million -- sorry, EUR 70 million in 2018, EUR 9.5 million loss in 2019 and EUR 13 million loss in 2020. We are now posting a profit of EUR 4 million operating profit. The retail, it was a new adventure for the company, even in U.S., which has been always one of the strongest market, it was posting negative results until this year, where we are posting a positive operating result of EUR 2.3 million. So the job, in my view, just started. There is a lot for us to do, but I want to share some indicator that they maybe confirm that the direction is the right one. And of course, myself and my team are highly committed to confirm the accelerated trajectory. Let me stop here. I might ask maybe Pasquale, since he has been named a few times in my summary to comment with any common, let's say, color on our strategy on the work we're doing together before opening to the Q&A.

Antonio. Okay. Good morning, and good afternoon, everyone. Antonio, you have been the best analyst that I have met in my life. So you have been able to analyze the company, understand the strength of our company, the strategy, and you are the best communicator. I mean, I believe I can just confirm what you said. That's it. Then for any question.

Thank you, Pasquale. And again, we don't want to sound too nice to each other before Christmas, but I can confirm that all the management and especially with the Chairman, we are really working in a close symphony on the strategic agenda, which I know was a question coming from all of you guys. Okay. Maybe let's stop us here and let's open for questions unless again, Jason or Vittorio, you feel you want to comment anything on what I just said.

Ready for questions, team.

Me too.

[Operator Instructions] Our first question today is coming from George, actually it's just dropped off.

I'm not sure I understood the name of the gentleman posing the question.

They did drop off before I call their name, I do apologize. [Operator Instructions] Our first question is coming from David Kanen. [Operator Instructions]

It's Dave Kanen. I'm working on Charles' laptop. Can you guys hear me?

Yes.

Good. Okay. So first question is I see that backlog was up $21 million sequentially from Q2 to Q3. Can you approximate or quantify how much of that backlog is high-margin branded product.

Vittorio, go ahead.

The branded business is growing, as said, by Antonio before. So according to that, the backlog is -- also the quality of the backlog is improving.

So my estimate, David, is that, that roughly resemble -- I mean, if I look at the vintage of that backlog is paid between second part of last year and this year. So during this period, the percentage of branded product has been from 80% to 85%. So my assumption, which need to be verified, but I will be surprised if not the case, is that, that percentage apply also to the vintage -- to the backlog. So I expect the backlog to be significantly represented by branded company -- by branded product. And for you to know, if I look at the area of our business where we experimented most difficulties in fulfilling quantity in third quarter was Italy for Natuzzi Italia. As I mentioned, I don't know if you followed that, but most of the European countries and Italy was one of those made compulsory to have the green pass to reenter factory during August. So a good quota of our workers were not ready to do so, and we experimented some 20%, 25% of absentees. And Natuzzi Italia chiefly produced -- sorry, Italia factory chiefly produced Natuzzi Italia brand product. So on the new additional backlog, the EUR 21 million, I'm pretty sure the percentage of Natuzzi Italia product is significant.

Okay. That makes sense. And then when I look at the quarter on the surface, it looks like revenues were down versus the second quarter, but then when I look at written orders, they actually accelerated from Q2 to Q3. And then the backlog had a huge jump by EUR 21 million. So my question is how much revenue do you think was lost due to the 2-week shutdown for the factory during August. How much was -- I guess, the 2 issues would be supply chain and then the 2-week holiday in Europe. How much of that was supply chain? How much of it was 2-week holiday.

So before maybe passing to Vittorio, if he has specific data on that specific question, I think you're pointing out something very relevant for the framing of this discussion. In the sense that depending -- the result of this quarter can be a picture or can be a part of a movie. If you look at the picture, of course, we could have higher revenues, even though they've been higher than both 2020, 2019 because we could have been fulfilling additional quantity order we already booked for this quarter. If you look at in a sequence as a movie, it's clear the trajectory is moving North, in my view. I mean, the data speak clearly. So I mean backlog in a sense are postponed revenue, so are not lost revenue. So all the order we received would be delivered. So that is a bit more high-level answer. Vittorio, I know we did some of the analysis David is asking for. I don't know if you have the precise figure what could mean the revenue -- yes.

Not much more precise, but for sure, David mentioned the EUR 21 million backlog increase. We didn't have any plan to increase that backlog. We did have the intention to lower the backlog we had at the beginning of the year. So the sales -- the deliberate sales that we -- in the 9 months, if we compare the 9 months that we have lost compared to our previous plan, is higher than EUR 21 million, at least it's EUR 30 million, if not more. Because we had about EUR 105 million backlog by the beginning of this year. We had in mind to recover a portion of that by delivering more sales -- by producing more sales during 2021, which was not supposed to be another pandemic year. And instead of lowering that EUR 105 million, we are EUR 110 million. So it's more than between EUR 20 million and EUR 30 million at least the loss in terms of delivered.

Okay. So I mean, I'm going to look at it in a simplistic way. I'm not sure where you're completely understanding what I'm saying. We lost, in the quarter, at least 14 production days from the shutdown in Europe for the holiday. If I look at your total revenue, and I just divide it by the number of days in the quarter, it's about $20 million. However, to be fair, not all of your production is in Europe. So it's somewhere, my guess is, $10 million to $20 million for the 14 lost days of production. Is there a way that you could quantify that for me or give me a little more detail.

If I may, I mean, while we are a global company, and while the pandemic is still there, is still in Brazil, is still in -- certainly in Vietnam, is still in Europe, as our CEO said, our -- now despite the 2 weeks vacation, okay? But the absentees in the last 3, 4 months, has been -- has reached, in one of our biggest factory, 25%, it's just unbelievable. That's -- so we had, I mean, a problem based on pandemic in Romania in our factory. In Brazil, we had a production reduction in Brazil. In Vietnam, there was a lockdown for a long, long time. But then one of the main problem is the transportation. I mean, it's very difficult to find the space on the vessel to ship the product. Because -- and the price is just unbelievable. While we used to pay $3,000 from China to America or from Vietnam to America. Now the shipping company, they are asking $15,000, 5x more expensive. And so we cannot ship just easily because we should manage cost and the shipment, but also on -- because we import a lot of components from Asia, even the cost of transportation and the availability of the component and transportation from Asia to Brazil, from Asia to Romania, from Asia to Italy, very complicated, seems to be in a war, if we don't get the component, we are not capable to smooth the production. I mean, there are so many, many really problems that we are managing, okay? And we are -- I must say we are managing very well. I mean, so that's my personal feeling.

If I can -- a little bit, if we have to qualify the shortage in deliberate sales, we have problems everywhere for the reasons explained. But the first one has been in Vietnam where lockdown has been concluded by the end of October. So the most of that shortage comes from our Vietnam subcontractor.

And we have a finished product, I mean, in the warehouse that we cannot ship because there are no space on the vessel available. So production is there. As soon as we find space on the vessel and reasonable price, we will ship and invoice and consequently will help the total revenue.

Okay. Let me move on to my next question. Do you see that -- do you see starting in Q4 you guys working down backlog and revenues increasing, assuming written orders remain at the same robust pace? Are you going to start working down that backlog and delivering product output at a faster pace in Q4 and in 2022.

So let me answer. First of all, we have a luxury problem in a sense that we are trying to empty the backlog, but demand is always accelerating. So first, it's important to put in that frame because, of course, is a problem, but it's better to be in the situation that having empty plant and not demand. So our demand, third quarter -- fourth quarter for what we're seeing, there's no sign of weaknesses rather the opposite. So first, we are not like other companies in the market saying we are working down the backlog because we are kind of cooling down demand. Our demand keeps to be very hot. Second point, in terms of capacity, but also marginality will work so that given our business cycle, the action we put in the beginning of quarter 1 -- sorry, at the beginning of quarter 3 will be fully impacting in quarter 4, both in terms of marginality and in terms of some of the production announcement. Then the broader transformation I mentioned before, so opening up Mexico, increasing our productivity in Italy with a 4.0 production, bringing additional capacity to Romania. Those are typically action which have impact for the mid, longer term. It's something we don't do tactically from 1 quarter. We do because our, let's say, mid-term objective, a 2026 forecast a major growth across our brands. So some of the, let's say, more tactical action differently has been designed to have impact in Q4. So hopefully, we will see a better situation in terms of our output capacity and definitely in terms of marginality announcement. The other action I mention are more to enhance our operational machine for -- to sustain the long-term objective growth.

Okay. And then in terms of the strategy for growth in North America that you've articulated previously to open approximately 10 stores per year for branded product, which will positively affect overall margin. Do you believe that with the changes and plans you've put into effect in Q3 that you'll be able to meet that additional demand with output?

Do you want me to comment or I should comment?

Yes. Yes, I've been -- it sounds like a supply chain question more than a retail question.

So 2 points to your question. Absolutely, North America is a top priority. I feel one of my, let's say, mission of my job when -- I don't have a complex job in a sense. But one of my mission is to allocate investment, advertise investment. And North America is retail -- and North America are both highly priority and across each other. So when you talk about retail in North America is a top priority, especially for Natuzzi Italia. So we plan to accelerate that. When it comes to timing for executing is less a supply chain issue constraint, is more the fact of identifying the proper location. We are very, let's say, anxious to deliver on the new opening. At the same time, we are very careful because opening a new store is a multiyear commitment, even though, of course, we don't buy, but we rent. So we want to find perfect location, which fit the target consumer we want, which present good economic condition. I've been already twice to New York to look at location for a potential additional store in New York. So it's something just to tell you how relevant is the decision, which I go myself to visit the store, look at economics, looking at the catchment area. So we definitely want to keep the target, and we will do. At the same time, we want each opening to be successful, and we're very careful examining new locations. And this, I mean, I mentioned not in New York, but they've been in Texas, again, with Jason looking at potential location. So we define the process where any new location will be considered as a major decision for the company, not just because of its size, but this, of course, is a very important decision. And we want to be all of us involved in taking this decision.

Okay. But my question is, with the changes that you've put into effect, each -- let's say, each store contributes approximately another 4 million in revenue. Can you meet that demand right now?

Yes. I mean for -- again, we talked about...

Yes, I mean certainly, we have a production capacity. I mean we have -- especially in Italy, we have a production. We have a factory, we have people, we have a production capacity. The issue, again, has been transportation, material shortage and high absenteeism in the last 3, 4 months. So unlikely, the pandemic is still there. I mean, it didn't disappear. But again, yes, if we open the store, we have a production capacity. We have well-skilled people here in Italy. We have a factory. We have everything ready to go.

Okay. And then my last question...

That was your question, right?

Yes. In general, can you meet that capacity.

I confirm that. And what I said is we're not going to be slow -- slowing anything because of production, if anything is because we don't find the perfect location, but production is not an issue for our stores.

Okay. And then just last question, and then I'll turn it over to any of the other callers. I don't want to monopolize. But your KUKA JV from your original monetization event where you sold little over 50% for EUR 65 million, it's grown considerably. Could you give us an update on that? Is there -- as a shareholder I would love to see you monetize that and help unlock the value for Natuzzi shareholders. Can you give us an update on how it's doing? And if you're open to exploring alternatives or if you've already engaged?

We are open. We engage. Tomorrow, we have a board with our colleagues of the JV and some of the points for discussion are really about how collectively extract the maximum value for that. The company, the JV continue to be on a positive trajectory, both in term of growth and in term of cash accumulation in the JV. And in terms of profit, which has been distributed to us, and I pass it over to Vittorio to share the progression of the profit. But the short answer to your question is we're absolutely -- is absolutely in our agenda, and we are engaged -- actively engaged. So we're not just considering. We are actually engaged with our partner. Of course, we sit in our board. So it's a matter of discussing, considering alternative and taking common choices, but we are actively engaged the partner on that topic. Vittorio, maybe you want to share some number or the progression of the profit, which has been distributed by...

In 2000 -- let me have a longer perspective about that. When we started the JV by the year-end 2018, they had full year revenues of about EUR 27 million. By the end of 2021, they will triple their sales. When they started in 2018, the JV had single-digit EBIT. Now they are in the area of 12% EBIT and EBITDA is around 13%. When -- on 1st of August 2018, they started with EUR 25 million cash, and as of September, they have already doubled their available cash. So the company is well managed, is growing, is improving margins and cash. Antonio has already said about the cooperation with them and maybe in the future, this point will be analyzed by the JV board in terms of new developments. Now the discussion is about the better use of the available cash and maybe Antonio will discuss about the DOS development over the next 3 years with the Board of Directors of KUKA. But the company is running very well.

Your next question today is coming from George Melas-Kyriazi from MKH.

Two quick questions. One of them is, can you give us a progress on the Mexico plant and your planning to have production there. And then the other one is for Jason, just an update on revenues and store developments in the third quarter.

So let me take the one on Mexico, and again, maybe Pasquale can provide more color. So first, when we talk about Mexico is primarily Natuzzi Editions North America, okay? Just to qualify what we're talking about. There are 2 options we're going to be implementing in parallel. One is a producer which is a very established company, which is a listed company. We will be producing a specific number of product which are today making what we call quick program. So a quick program means that made to stock, which are product that the consumers in our stores. And if they buy, are immediately delivered to them. So we identified a subset of those models to be produced. We've been costing them. We've been looking at all the aspects and I believe that can be ramped up beginning of 2022. And this is for made-to-order program. This will be having the benefit of fast delivery and reducing our working capital in U.S. I'm particularly sensitive on anything which is related to capital absorption of the company. So the program of quick program is very successful commercially and it requires some selective working capital inventory in North America. This production in Mexico will lower this requirement of working capital to fulfill the quick program. The second partnership we are exploring is a production JV similar to what we've been successfully implementing in Vietnam, where with -- let's say, an established North American manufacturer, which has operation in Mexico, we're going to be ramping up capacity for our special order production. Special order means that the customer for Natuzzi Italia can order any combination...

Natuzzi Editions.

Apologies, Natuzzi Editions. Thank you for correcting me Pasquale -- for Natuzzi Editions can order any product in any configuration. And this is special order. This, of course, bigger JV being I wouldn't call it greenfield, but almost a greenfield operation will require more time, but we are targeting again to start production in 2022. Thank you, Pasquale, for correcting me. Because, again, it gives me the opportunity to reinforce the fact that for the brand positioning of Natuzzi Italia, all production will stay always in Italy, at least for what is a upholstery concern. Then for accessories, there may be some tactical adjustment. But for upholstery we'll always be in Italy. We have taken this very seriously in the sense that our Director of Operation, Ottavio Milano, is now entirely focusing on Mexico, working very closely also with Jason because, of course, is of the interest of the North American market, but is entirely focused on that to the point that to let him entirely focusing on that opportunity, we are trying to understand how to reinforce his current position of Director of Operation. But he will be in charge primarily and almost solely of this opportunity to elevate our execution capability. I don't know Pasquale if you -- I know you have followed even before I joined the discussion on Mexico. I don't know if you want to comment anything here.

Okay. So for last 2 weeks, we had -- Ottavio Milano is our -- one of our top managers with another 2 managers, they spend 2 weeks time in Mexico. In Mexico, the cost of material is 2x more expensive than in China because let's make it clear, we are going to make -- so far, we manufacture Natuzzi Editions for the North America market in China. But because our strategy is to move the production in Mexico. Because we downsized the factory in China in order to meet the demand from domestic market for the next 5 years and for the rest of Asia, while we believe that we need to manufacture for North America, the brand of Natuzzi Editions in Mexico. The cost of material in Mexico so far is a much, much, much more higher than in China. The result we got so far in the last 2 weeks is that the cost of a final product in Mexico, it's the same as in China, included the duty that we pay, which impact about 12%, 13%. So in other words, but we have also today, the transportation cost is just unbelievable, very, very, very high. Certainly, let's say that on total cost today, Mexico seems to be convenient. We should have a meeting in the next few days with our management to finalize and understand that if really is convenient and when we should move forward with our production to meet the special order business. While as Antonio said, our CEO, the -- we are -- we believe that we should start the production of our 5 top seller model that we warehouse in America for immediately delivery. I mean Mexico is still in the process. But it seems that all the Americans are trying to move to Mexico from China because the transportation cost is just prohibitive. And probably the feeling between Americas and China is not the best one. It's just a matter of feeling certainly.

Maybe just to summarize that. So the made-to-stock is definitely happening, and that should be roughly around the beginning of '22. And the special orders you are working hard on that, trying to see whether to start the process.

Within 2, 3 weeks, we should have really much, much clear idea how to do it and what to do it.

On the special order, on the made-to-stock, your summary is very correct. We are launching it in 2022.

Question for Jason about...

Yes, the other question, I think, Jason, you should take it 1 on retail -- our U.S. retail.

You bet. Thank you. Listen, we're -- the results we're seeing in Q3 and now that we're almost 2 full months into Q4 continue to be encouraging. We're -- we've been already saying that our best stores are performing added around $4 million, which we're continuing to see, and that our network average is closer to $3 million. I think it's also relevant to share that as we have been watching some U.S. retailers report, written order results in the fall. Some of those retailers are having a hard time comping against their 2020 orders. And we're very pleased on the retail side to confirm that our results in Q3 and into Q4 are at a double-digit increase over what we saw in 2020 in Q3 and Q4. So we're quite pleased to feel that continued momentum. I hope that answers your question, George.

Yes. It does.

Our next question today is coming from Kyle Trevor of Private Investor.

Robert Marcin from Penn Capital. Congratulations on navigating a very difficult period through COVID and this explosive recovery. I'm looking at a lot of talent on the screen right now. And yet -- and I'm looking at a great product with a phenomenal brand name. And yet the only thing consistent has been the lack of profitability at the business. It's been good times or bad, high rates or low rates, good economy or bad, the company has been consistently unprofitable. So we hope things are going to change. And could you potentially give us a set of revenue and margin targets for the intermediate term that management would be held accountable for and that shareholders can use as a benchmark to set a price target on the business should these be achieved.

Thank you very much for the positive note on our business, which I really appreciate. I completely understand and sympathize with your question. I mean the marginality is really our focus. In transparency, the company, as many producers as more an attitude to focus on growth and topline rather than managing a capital utilization. We have been now having a full set of KPI supported by SAP, which allow us to track for any micro sale of our business, the EBIT produced. And going forward, also the cash flow produced for every micro sales. That is just part of the story. There's also a bit of cultural change because, again, all the company, you say something right, which I appreciate because it was very straight in any time, the company did not great margin, I mean, last 10, 15 years, but also need to be recognize that also growth was not there. So I think the company secured growth and hopefully, in a substantial way, we think double-digit growth or whatever you cut to the business. I think now definitely is time for margin. And it is going to be a top priority for us, is to be what we really look at in reading the business is really what's going to drive our decision of investment. It's going to -- what's going to drive our decision of MBO and promotional people, our implication for my compensation. So this is really central. I understand your question. I must dilute you in the sense we don't provide guidance. We have internal target breakdown by geography, by line of business, but we don't provide the external targets, not because we don't want to help investors. But I think because we are -- there are so many parts moving that we're going to be -- we want to be cautious in the way we create expectation around our company. We want to deliver first and then to get expectations. So I can reassure this is very central. I'm sorry to disappoint you because we don't provide guidance on where the margin or the EBIT, the cash flow will be in 1 year or 1.5 year? That's certainly, we don't do.

I have something -- I am Pasquale. I have something to say also, Antonio, that it's true that in the last 3 years the company has been negatively performing. But please understand that 15 years ago, Natuzzi was an Italian manufacturer company, an Italian leather upholstery manufacturer company. Today, Natuzzi is a lifestyle brand. And to create a lifestyle brand requires just investment, investment and investment. And then to create a retailer model that should be profitable, again, require investment, investment, investment. So today -- I mean, so that's the way we should interpret the result -- the balance sheet result of the last 10, 15 years. So I mean, we have done a huge investment. Today, we are a lifestyle brand. The wholesale business represents 15%, 85% is branded where we make a better margin. And now we have also good management to manage the retailer and the brand around the world. So that's something to be considered.

I will interject Antonio that 1 quarter or 1 year outlook is guidance and many companies do not provide short-term guidance because of the moving parts. But they do on their website put presentation with financial intermediate or longer-term financial targets. There's a -- they are 2 very different things, sir.

I think it's a very fair comment. I appreciate you making that. I think here, you have a combination of us being on movement internally and the side being on movement. But again, I appreciate your question. We would reflect if at 1 point, we're going to feel this is something we will do to give more sense of confidence to potential investors. I've always been in...

When the business -- pardon me, when the business is up and running well and humming, I think it would behoove the Board and management to put something like that out.

Thank you. We heard you. Thank you so much. Is there any other question?

Our next question is coming from Kyle Trevor. Next question Mr. Marcin, are you there. Greg Cohen with Rambleside.

Can you hear me?

Yes.

My question is around e-commerce. It looks like it was recently launched. Can you guys give some color on how large that opportunity can be? And what, if anything, we're doing to promote it.

Thank you for your question. I might take this and, of course, I would say, Jason, but everybody else on our side is very welcome to provide color. So let's turn -- regulate on a few to stores to say how big can be the opportunity. If you look at other players in, let's say, the furniture accessories, that do a significant part of business online. So if you take a normal restoration hour, percentage are significant. I mean, I think you have the data, but we're talking about 40%, 50%, 60%. Of course, that include all accessories. When you look at more just furniture, it still is very significant, maybe 20, 30. Those are players which are focused on geography where digital and e-commerce are predominant, very well accept by North America and Anglo-Saxon market. So I think we'll be on the high end of what we can give us as a target. But this is just to say that for us is a significant opportunity. We are doing -- until last Thursday, we were doing 0. We recorded some sales as we can. So it's all an upside. All an upside also because, in my view, will allow us to tap into new segment of customers, also with partially different demographic. Then the way in which we're doing it is to be sense channel. This means that we are setting incentive system for the customer and for our team, not to make one channel prevailing on the others. So it will be always an environment where the customer can buy either online or -- stores -- and they buy in our store without any barrier. But we believe this can be one of our major upside opportunities together with retail. In terms of driving traffic. As you know, you need to, beyond the organic growth, which I think we're going to be benefiting a lot because our brand is very, very popular across geography. Beyond organic growth, we want to boost traffic by working with the usual suspect in terms of buying traffic. There, one source of financing for me will come also from the sector practice of doing sales and discounts across the year. I think we should be progressively understanding how to move some part of what they call investment in that area, so doing a discount, which is double digit for the sector to move it to acquiring traffic digitally. And that will be a significant buffer, which is not going to be nothing radical, but progressively, we're going to be exploring how to move part of that budget to acquiring traffic digitally.

Thank you. Ladies and gentlemen, that does conclude today's question-and-answer session. And that does conclude today's webinar. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.