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

Ladies and gentlemen, thank you for standing by. Welcome to the Natuzzi 2022 Fourth Quarter and Full Year Financial Results Conference Call. [Operator Instructions] 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; Mr. Jason Camp, President of Natuzzi Americas; 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.

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 will differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial conditions. 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.

Thank you, Piero and Kevin, for kind introduction. Good morning, and good afternoon to all the attendance of this 2022 fourth quarter and fiscal year press release. I will actually start more from an overview of how the 2022 close 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 close the 2022 in terms of revenue at EUR 468 million in a row which is 10% more than last year and some 20% more than 2019. If we go back to 2020, that is an increase of 40%. So we kind of added EUR 140 million business from the 2020, which was clearly affected by COVID. So I would say high single-digit top line increase. These are can also to in parallel, continue working on gross margin. As you might remember, 2022 was dominated by a strong inflection on general cost and raw material. We were working so to protect and spending our marginality, which is currently 5 percentage points above what was in 2019. So we were able to protect and expand marginality. In terms of EBITDA, that in terms of operating profit, that resulted in EUR 8.4 million, which could have been a higher figure would have been close to EUR 13 million if we didn't have to do accrual for very specific one-off element, which will be commented by Carlo later in his section. So in general, the trajectory is, let's say, going north on the 2 fundamental dimension that we have in our long-term plan, which is top line growth and margin and profitability expansion. At the same time, which is another, let's say, proxy of value creation, we expanded our cash flow from operation, which was close to EUR 19 million in 2022 and the figure compared to EUR 0.5 million in 2021 and EUR 4.7 million in 2019. So again, through the discipline we're trying to have also in term of working capital, even though our business has been growing, we've been able to enhance the cash flow generation from operations. Cash position was pretty much the same in the previous year. So we are dealing at EUR 54.5 million in terms of cash, which is significantly higher than what we did 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've done, I'm pleased to report that we are continue executing the journey that's been initiated by Pasquale Natuzzi of performing the company in a brand retailer. We set some long-term target to measure that trajectory. And I was surprise to anticipate reaching some of those targets versus our plan. For instance, in 2022, 92% of our total sales came from branded product compared to 89% versus previous year. That is pretty much a significant transformation because as you will remind, Natuzzi regional started as more than operator and manufacturer and the percentage of branded product was not dominant. We set ourselves target to reach almost the vast majority of sales generated by branded, and we are ahead of that target. And interesting, if we measure our, let's say, strengths of the brand in the eyes of the consumer, which means the mentioned get sellout, the brand is EUR 830 million our brand. So if we consider what we do in terms of saline with the retail multiplier, the brand is on pace to become a EUR 1 billion with the brand. These are things that are useful figure to compare it with the player in the industry, which are pure retailer and into compare it with those number, apple with apple. The other division we're working on is -- we're continuously working on is 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 in the brand. Jason we really want you to mute because we're hearing your message coming in, can you 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 Edition. I believe with the 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 opportunity to expand our network, and I will discuss in the minute, our plan for accelerating the opening of additional stores directly operating in the U.S. 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 stores performing more in terms of sales per square meter and marginality. So a lot of effort, which is currently being done in the organization, which led also us to create a new division is really to try to create a common methodology that can become an asset, a competitive asset for our direct operated stores and for the one operated by our franchisee. I'm happy to report that we'll continue also working and strengthening our team. Carlo has been longer waited for, who has been announced in press -- in a separate press release. We just brought on board 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 speciality because I would say distribution is still a relevant part of the market. Natuzzi is one of the most known brand in the tunnel, actually, the first internal brand awareness among the European brand. So we indeed there's a parallel opportunity as we are building the retail to continue serving that market. We realize that we wanted to change gear. So there's been a change in the leadership. We realize that we want to increase the coverage in terms of rep across the states, and we are now onboarding with very positive results agency. So not exclusive agency, but the agency that will bring along their lines also at Natuzzi. As in the U.S., we very recently, 3 weeks ago, and I was particularly happy to see how well is received this opportunity by top agency 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 U.S. 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. As you know, we are ready for the durable industry for the furniture leading a phase of transition after 2 years, which has been dominated by a booming demand and difficulties in fulfill the demand, the wind changes turning into headwind 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 that will sale an internal traffic in our store. Looking at the first weeks of the year, we do see encouraging sign when it comes to few geography like China, especially for our Natuzzi Editions business, which has been back on growth and also the U.S., especially on Natuzzi Editions. So we are cautiously optimistic that the, let's say, the bottom has been reached, we can hopefully see a recoupe of demand. So that is our hope. But at the same time, we are planning and acting as this, let's say, negative phase of the economy should last. What does it mean that? That we are very cautious about spending SG&A and our cash position. Regarding the cash position, we continue seeking actively the opportunity to sell new strategic asset cheaply in U.S. 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 the year so far. And also we say our mindset. In essence, our mindset is the one which has been put in writing our long-term plan, which is to explore 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 we can achieve. At the same time, we need to recognize that for the industry, the shift in the year has been pretty brutal. And so we are managing our group to make sure we can mitigate these negative circumstance without affecting the overall goal continue in our internal strategic internal plan. Okay. Let me stop here. If you agree, I will pass it over to Carlos, who will comment some of the figure of 2022. I believe that will be useful, especially in consideration that we had several material one-off events affecting our P&L in 2022, which I believe are -- is useful to characterize to kind of get to a more normalized performance of the year. So I suggest that Carlo does this comment on our structure of the P&L. And then we open up for questions, both in my section, which is more, let's say a strategic framework as well to the technical reading of the figure that Carlo is now doing.

Thank you, Antonio. Good day, ladies and gentlemen. Let me first briefly introduce myself. This is -- 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 received so far. Now going back to myself, I spent my last 16 years in Asia. And recently, I served in the last 9 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 to a joint venture as Natuzzi is doing. I was serving as the same time as CFO, but I was in charge also about the retail excellence and managing directly their retail stores of Hong Kong and Macau. Thank you very much. Now going back to the figures after the policy 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 EUR 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 at the end of 2021 and gradually will benefit in the reduction of our order backlog. Talking and specifically above the gross margin, we achieved a 35.1% versus a 36% in 2021 and 29.7% in 2019. As a reminder, in 2022, our industrial operations were deeply affected by both spike in energy costs and inflationary environment. Together, we -- the company decided to protect the margin and during the year through different phases, we did applied price increase all over the board. This has been fully affected only in the last part of the year, where we did achieve in the last quarter a margin of 37% compared the yearly 35.1%. Talking about the cost of sales is important as Antonio was mentioning that we record a EUR 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, where 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, was not related to our core business. We reported 2 main factor. The first one is a cost of labor related to our stock option plan for EUR 1 million. And the other one is a EUR 1 million contingency for a legal dispute over a land in Brazil. Therefore, the operating profit in 2022 landed at EUR 8.4 million compared to EUR 4.9 million in 2021 versus an operating loss of EUR 22.5 million in 2019. Excluding this phenomenon not related to our core business, we will now compare a EUR 12.9 million operating profit equivalent to 2.7% of revenues versus 5.8% in 2021. Despite of the interest of provoke and increase in our finance costs that landed at EUR 8.5 million versus the [ EUR 6.8 million ] [indiscernible] on the IFRS 16. The last quarter was impacted by the FX effect. We did not change our strategy practices and edging techniques just due to the reversal of the euro, U.S. depreciation. We reported in the last quarter, EUR 2.4 million loss but over the year, we did achieve a EUR 2.4 million positive results. Talking about our joint venture in China the digital business remain to over the year. And at the end, the significant slowdown in the activities provoke our profit to EUR 400,000. I just remind that we own a 49% stake in our joint venture. And in 2021, we recorded a profit of EUR 3.6 million. But talking about the joint venture is extremely important that in 2022, we received EUR 3.7 million in dividend and we received in 2023, a EUR 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 rough reference to the comments of Antonio, cash for us is extremely important. So we were able to maintain our cash position at EUR 54 million. And it's extremely important to underline that our operation were able to achieve a positive cash flow of EUR 18.7 million that we did invest in EUR 9 million capital expenditures and in repayment of a long-term loan. This is overall the picture of our performances in 2022. And I would like now to give room to Q&A session.

[Operator Instructions] Here we are, David, your line is now live. Please go ahead, David Kanen.

Firstly, we can't hear, Dave.

No, not even here.

I repeat, as in the past, Dave, you may want to use the telephone line. Kevin, I don't know if is there any way to suggest they use their phone line. I remember that in one of the previous press call, we encountered the same technical issue, and that was bypassed by using fixed telephone line. And if that is suggestion you can...

Yes. Maybe he is dialing in right now. [Operator Instructions] David, if you're on the line, I'm going to make -- I'm going to unmute your line. The thing is, he has disconnected here, you see on the background. David, can you hear me?

I can hear you. Okay. So sorry about the first attempts to ask a question. Yes. 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 being said, it would have been nice to show after all of these items are 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 (sic) [ EUR 80 million ]. And then also, what type of declines are we seeing in written orders given the weaker housing market economic backdrop?

So thank you for your question. I might take this one. So the reason why we're putting a lot of emphasis in the past to the backlog because it was a main for the reason why because one, it has been a main obstacle for us to delivering revenue we could deliver. And second, because it was becoming a very visible obstacle to maintain the better service to our clients to aspire. The backlog now went back to what it be defined as physiological level to standard level, which is pretty much EUR 60 million, which is what typically we need to do a proper planning of the factories. In terms of written order, the year, as I mentioned in my press release, started to level that is, let's say, below our expectation. What is somewhat positive is that if you read this first 14 weeks and we provided by to the last 7 weeks show a relatively stronger turn versus the previous one. But clearly, we are pacing at a level that is not in line with what we want to add and we aspire to add also in light of our production capacity. As you will remind, Natuzzi Italia gets produced globally in Italy, where we have a significant population of workers and a significantly safe production capacity with 5 factories. And at the moment, especially for Natuzzi Italia, the level of order we're receiving does not allow us to fully occupy those factories. So that is, let's say, the main element we are working to improve both as a combination of opportunity to sustain our growth ambition, but also as the need to be busy at a reasonable level of our factories. So that's a bit long answer. So inventories back to standard level. I don't have the figure in front of me, but it's in the ballpark of EUR 55 million to EUR 60 million. And when talking about the pace of orders is, as I mentioned before, below our expectation. And it's a different situation among the region, we have China, which was extremely, extremely, extremely -- it's difficult -- sorry, different across region and channel. So China, which is mostly operating to franchising, we see a recovery of Natuzzi Editions business. While of Natuzzi Italia was quite stock in the channel and the recovery is lower. Natuzzi Editions North America is above budget but below last year. And Europe is a more of a mixed picture. And I think at the moment, Europe is the continent, which is a bit more difficult to predict because the economic environment is the one, which is still struggling to find a way out of the last past gloomy months. So I think we will see first recovery coming from U.S. and China is a combination of both the market condition and also the actions we are taking. And I think the, let's say, turning point for West Europe is less easy to predict in terms of timing.

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 U.S., 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 carrying back the number of openings in North America from 10 to 6. 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 noncore 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 place 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?

No, strategically, Dave, and I speak for the group because we have constant alignment with the Board, 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 confirm 6 opening. And I will say some of those are pretty signature opening like when the asset is going to be 20,000 square feet in the Golden Mile near the [indiscernible]. So really kind of flagship location that will be used on, it will be [indiscernible], but there will be Atlanta, with San Diego, and then there will be the first DOS free for Natuzzi Edition. So we are keeping the pace considering the constraints. We are trying to remove, as you mentioned, the constraints. The way we're trying to move some of this financial constraint, this accelerated disposal of our strategic asset. The largest one is a point. We're actively working on the [ DOS ], as I mentioned, is something I cannot be more precise, but I hope the sooner rather the later, I can give you some positive outcome. As you can imagine, given the high interest rate is not the easiest way is a moment to sell debt asset because the loan to value for a potential buyer is not easier. But really because of the determination we mentioned before, that those money could be actively reinvest to increase efficiency in our factory and to open more in the U.S., we are continuing approaching for that action. So we are not stepping back in terms of strategy. We just need to finance the strategy, and we're making also the standard way to achieve that goal.

Okay. So you're reiterating those plans to continue with Factory 4.0 and to continue to open Branded DOS stores in North America that?

Correct. Jason, if you want to any comment. And again, I think, as I mentioned before, 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 stores since a few years now and the location may be that were initially spotted for some of the store. One location that now we would consider also there is some structural factor. But other than this, we want to improve the productivity of DOS store. So for us, we talk about retail. Yes, there is a new opening, but we see a very important opportunity also of increasing the productivity of the current store. That's with all the facility of new opening because given the current economics is really very, very attractive. By the way, if any of you investor wants to open up franchisee, you're welcome. One of our store normally has a payback in 16 to 18 months and then start generating double-digit EBITDA but working on organic improvement would also shortened the payback of those investments. So we also work in that as a way to facilitate the enrollment of a digital franchisee partner. Jason, in addition of first quarter, if you want to provide any color, respectively, on U.S. or retail, of course, I don't intend to monopolize the dialogue. You are very welcome to join, and I must say Pasquale is an active force also in driving this acceleration of retail. Jason, do you want to provide any color on your SMB?

Sure. I'd be happy to, David. Like first, forward-looking, as the release suggested we've got 6 DOS that we plan to open this year, in this case, all Natuzzi Italia adding volume to our flagship factory in Italy, plus FOS in around the U.S., mostly Natuzzi Editions. So a total of 9 openings projected in the U.S. for the year. I would say that as we look at our like-for-like performance. We finished 22 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 the last 3 months, 6 months, those like-for-like stores are still up between 40% and 50% to 2019. So while a lot of companies retail business has kind of reset down much closer to 2019, our like-for-like performance has kind of been reset to a much higher average. And it really encourages us for the kind of the future strength of our growth as we open new units.

Okay. I appreciate you calling out the focus on organic growth or same-store sales as that's the critical metric. A couple more questions, and I'll go back to queue in case...

David, just to -- sorry to interrupt you, sorry. But just to give a bit of color why we are actually 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 DOS we have, the results are pretty astonishing. Just let me pull out the 2 stores. One is west elm, which is 1 location we had for Natuzzi Italia in London in a high-end retail park. The store is performing 68% above last year that, as you remember, was a very strong part of the year and significantly above our internal budget. This is because we changed the team with creating better dynamics. Same and Jason can comment is happening to our Madison store, which historically despite the iconic location was not the sales productive as all we wish. Again, new team, attention to details. Now Medison is depending on the month, either the first or among the first 4 top stores in U.S. So the reason why we say less, of course, suspend our footprint. We already have 700 stores, we're going to spend it. But let's recognize that if Natuzzi store today, we're performing simultaneously on a certain level that will be solving a lot of our growth we're all waiting. Sorry, I didn't frostbite you by interrupting you.

No, no, I appreciate that color. I mean that's actually been my belief and assumption that there's a tremendous opportunity to increase average unit volume when I compare you to your peers. So I appreciate that call out. So just 2 more quick questions. How much cash is in the China JV? That's the first one.

Just a clarification, and then let's comment, Carlo. The JV, of course, is part of a listed company, so we can report the last certified figure, which has gone in the 20-F. So we can just show that figure. So please, Carlo and Piero, show that figure.

So the JV reported a EUR 33 million in terms of cash. And that has been the results 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 the decrease of the orders. So that's the result but we still have EUR 33 million.

Okay. And when you say EUR 33 million, is that the total and our portion is roughly half of that? Or are you saying after 49% it's EUR 33 million?

Is the total of these are referring on not audited numbers, but let's say, that are not published by the JV.

Okay. And then if you could indication...

Just the clarification, so if we look at the -- and again, we should be just reporting official number because this is also part of a vessel owned by KUKA, which is also a public company. So what happened in looking at them, delta of cash versus plus last reported EBITDA is definitely to effect. One the cash distribution, a capital reduction of some EUR 9 million in total, if it all, [ Euro ]. Then, as I referred before, the JV itself invested some EUR 50 million in stock. Why that? Because, as I mentioned before, we've moved from a phase where the issue was that in the product to a situation where is more about selling. So in the first part of the year 2022, the JV to 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 find that between fixed assets and cash, the total is unchanged, net of the distribution was changes in distribution because it's been reduced the cash in favor of inventory. So there's been no dilapidation of cash that's been adjusted different use of that cash.

Yes, correct. Absolutely correct.

I understand. And then if you could take a stab at gross margin cost Factory 4.0, I know we deferred or postponed some of those investments. But I'm thinking longer term 1, 2, 3 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?

So I'm going to 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 4 main area of production, which are directly operated. So we have Italy, we have Romania, we have Shanghai, just China, with Shanghai in another city Shangyu, and then we have Salvador de Bahia. Each of those production facility has very different cost of production as a matter of cost of the work, efficiency of utilization of the factory and cost of materials because also 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 terms of duties to serve U.S. So the first way to reduce the cost of production to expand the margin is an optimal utilization of those platform. So for instance, just to quote you a figure moving production unit from China to Vietnam allows on average, between 15 and 18 percentage points more as a combination of labor costs but specialty duties. So you can easily understand that that's provided us an incentive to do so, especially for those large clients that can be served with stock orders from the Vietnam. So the first lever to optimize the cost of production to expand gross margin is an optimal allocation of the sourcing in production choices. When it comes to Natuzzi Italia, as a remainder, as I told you, is entirely produced in Italy. There, it plays 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 is beneficial in terms of margin improvement. The topics 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 the factories have functioning costs, which are fixed, labor with the stand is fixed because we cannot play our people. So we need to make sure that we have a good level of utilization of those factories, which is of a higher relevance in this phase than the benefit that can provide the Factory 4.0 technology. That's the reason why we're also saying that in this phase, we are having a more gradual rollout of the Factory 4.0 technology little because the priority at this moment is really to fulfill the capacity because that will bring the highest benefit in terms of reduction of cost of production.

Okay. But is -- 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% of that?

It is. I'll talk about high single digit. It still is the case, but definitely to happen with factory, which has a good level of utilization. So publically a level of utilization. So we need now to make sure we have a good level of separation of those factory then the Factory 4.0 technology can provide an overdrive but provided revenue utilization. Good level utilization for us means 85% plus because it's a fixed cost business. When you go below that level, the cost of production increased quite significantly because the cost of functioning, so electricity or whatever, plus the cost of labor get absorbed by lower volume of production. So if you were to like it was last year, in a situation of full situation of the factory, the Factory 4.0 would have providing the kind of incremental benefit you mentioned, and we would accelerate the investment in this phase where we have desaturated the factory, the priority for us is more commercial to be sure that Natuzzi Italia can regain the growth momentum needed to fulfill the factories.

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 exhort you guys and encourage you to accelerate that perhaps goal 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 the 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 onetime items. And I'm sure by the end of the year, we'll be looking at a better economic backdrop.

Thank you, Dave. Also thank you for your continuous dialogue is 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 contribution are particularly valuable to us.

[Operator Instructions] There are no further questions at this time. I'd like to turn the floor back over to management for further or closing comments.

So thank you for all for your attention. As we mentioned before, we keep focusing on our priority. I must say our team is very cohesive. We do experiment headwinds. Reading what happened in the market, we are not alone. We are paying particular focus to our fundamentals and cash position to ensure we can go through this turbulent time in terms of prioritizing our long-term objective. And I look forward to reconnect with you either individual conversation if you want to have more color on what has been discussed today or in our next press release for the first quarter of 2023. On my side, this -- thank you. I don't know if Pasquale wants to providing any final reward.

Antonio, you did a good job and even Carlo. And I thank you very, very, very much. Obviously, validation and the short speech was very well done, and thank you very much today, our shareholder, and we are all committed to overcome any kind of, I mean, difficulty, as far as we can. Thank you again.

Thank you guys for logging in.

Thank you very much everybody.

Gentlemen and ladies, 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.