NTZ

Thank you for standing by. Welcome to the Natuzzi S.p.A. fourth quarter 2025 financial results conference call and webcast. As a reminder, if you'd like to join the conference call via telephone, please dial one four one two seven one seven nine six three three, then passcode three nine two five two one zero three pound, in addition to the link already provided. Once again, to join via telephone, please dial plus one four one two seven one seven nine six three three, then passcode three nine two five two one zero three pound. At this time, all participants are in listen only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time for you to join the queue for questions.

Joining us on today's call as usual are Pasquale Natuzzi, Executive Chairman and Chief Executive Officer, Carlo Silvestri, Chief Financial Officer, and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I will now turn the conference call over to Piero. Please go ahead.

Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 fourth quarter financial results. After a brief introduction, we will give room for the 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 U.S. securities laws. 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 filed 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 this call. Now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you. Good morning, everyone, and thank you for you joining us in today's conference call. Our fourth quarter and full year 2025 results reflect a persistent and unfavorable macroeconomic environment. The market condition we currently face requires responsible, timely, and structuring decision. Consequently, we are working on a reorganization plan designed to restore the company to a stronger economic, capital, and financial foundation over the medium term. A core pillar of this strategy involves the reallocation of our low margin Italian production capacity because it is no longer sustainable under the current Italian cost structure. Therefore, we are shifting this volume to other manufacturing facility within the group like Romania, for example, or could it be China, could it be Brazil, or could it be Vietnam, where we still have our manufacturing company.

This shift will involve rationalization of our Italian footprint factories, including our tannery and logistic center. That's primarily the plan we are working on and to go forward. I ask Carlo, our CFO, eventually, you know, to comment something, and then obviously I'm available for any question. Thank you.

Thank you, Mr. Natuzzi. Good morning, everybody. Allow me to give me a little bit of more color of the numbers we did present, and then I will give you also more information of our strategic plan and how we intend to face it. First of all, we need to give a comment on our gross margin, specifically 'cause like from a 38.1% in fourth quarter last year, we did achieve 30.2% this year. The main reason that we did analyze stays also within the production shift that of certain Natuzzi Editions for the U.S. market from the Chinese factory to the Italian factories. As you may recall, last year we did plan such shift with the goal of avoid the trade tariff imposed by the U.S. administration for products manufacturing in Asia.

The subsequent trade tariff imposition also to the EU production has offset the benefits, and on top of that, we were expecting government grants that did not materialize for that. At the end, we were penalized from this shift. On top of that, in the fourth quarter, we did book a EUR 2.3 million impairment of machinery and equipment at certain Italian factories. The record of such impairment was the result of a prudent outlook of the current business environment in which we do operate, resulting in a more difficult recoverability of such non-financial assets.

If we do exclude this impairment, the gross margin would have been 33.2%, always compared to 38.1% of last year. The difference between the 38% and the 33.2%, apart the impact of the shift on Natuzzi Editions, stays in the lower direct retail of the sales coming from the retail channel compared to last year and unfavorable sales mix. We have seen less Natuzzi Italia and more Natuzzi Editions sold in the quarter. As Mr. Natuzzi was mentioning, we are in the middle of the restructuring plan that aim to create sustainability in the medium and long term.

What we are doing is on the top part, we are also continuously reviewing our price list to leverage and to recover from negative effect from U.S. trade duties and also from the strengthening of the euro. On the industrial part, even in the fourth quarter, we are also trying to reduce the impact of our industrial labor costs. In the EUR 17.1 million that you will find in our fourth quarter labor costs, we did book EUR 700,000 as accrual for cost reduction. Now, going back to the other impairment that we did book in our fourth quarter 2025 to have a more prudent view on our performances in the next future, we need to mention that we are continuously reviewing our DOS performances.

While we keep believing that our retail strategy will be the core at our business, we have booked a EUR 4.4 million impairment loss on our financial assets related to the retails operation, principally in Europe and in U.S. At the same, we did book in the administrative expenses a EUR 1.9 million accrual for impairment of non-financial assets compared to EUR 500,000 booked last year. At the same time, the company remains fully committed in reducing the cost of the overall structure in Italy and in some selected commercial subsidiaries. The structure is, let's say, strategy is, keep going and will be a focus even for 2026.

From the cash flow perspective, the two points that I would like to highlight is that for the operating activities, we use EUR 4.5 million, the most important thing is that we had a benefit from EUR 2.5 million of our improvement of our working capital change. That is mainly given by EUR 13 million decrease in inventory level. We are also focusing on this point to create value for the company, try to maximize our inventory, and to decrease the stock, while we did decrease our trade payable and other liabilities.

On top of that, it's extremely important that in our investing activities, the main, let's say, contributor has been the EUR 9.9 million collected in connection with the completion of the sales of two non-strategic assets, namely, the land in Romania for EUR 2.4 million and the completion of the sales of High Point for EUR 7.5 million. As Mr. Natuzzi was mentioning, the rationalization of our industrial process will bring us with some assets that we'll be able to sell and contribute to our restructuring process. We have been discussing in our press release of the legal framework that we will operate to be more efficient in this restructuring process.

I'm not a legal person, but I would like to give you more clarity and more, let's say, information about this process because it's important that we have all a clear information about this framework. The board of director has granted Mr. Natuzzi to initiate a specific procedure under the Italian corporate law framework called Composizione Negoziata della Crisi, CNC so-called. This will be confirmed because our submission will be, let's say, official in the coming weeks. What is the CNC? It's a voluntary out-of-court restructuring procedure specific to Italian companies only and designated to facilitate an early and orderly management of the group position while preserving business continuity, industrial value, and the interest of all the stakeholders.

It's extremely important to underline that under this procedure, the company is able to continue its normal daily operation under the guidance of the current management team and the shareholders continue to exercise their ordinary rights as equity holders of the company. There will be no change. There will be the presence of an independent expert appointed by the competent chamber of commerce, and this procedure aims to reach mutually agreed solution with all the stakeholder to facilitate the process of turnaround. To give you a brief summary, the target of this procedure that as mentioned, is totally voluntary and out of the court, is to protect the group industrial and commercial value, to strengthen the group financial structure, improve our operational efficiency and cash generation. Again, it's important to reiterate that the company will continue to operate normally.

There will be full continuity in our industrial and commercial activity, as well in our relationship with clients, suppliers, and employees. This was extremely important because like we did introduce in our press release. Now I will leave the floor for questions.

Thank you. If you'd like to be placed into question queue at this time, you can open up the Q&A function. You could do so by using the Q&A part on your screen. Once again, if you do have any questions, please use the Ask a Question feature that's appearing on your screen now. One moment please while we poll for questions. Once again, ladies and gentlemen, if you do have any questions today, you're gonna see the Ask a Question feature on your screen. You may press that to ask the question, if so. One moment please while we poll for questions. We'll just stand by and see if anybody does have any questions. Okay.

If there are no questions at this time, I'm just gonna say I'm gonna poll one more time and say, if you have any questions, please use the Ask a Question feature on your screen. If there are no questions at this time, I'd like to turn the floor back over for any further closing comments. If there are no questions at this time. Do you have any further closing comments?

No, from our side, we don't have any. I don't know if Mr. Natuzzi want to have a final comments, but I want just to underline that we're always available for questions, and you can reach us out, and we can arrange a phone call, or we can reply through email. It's important that if there is any question, we are ready here to reply from our side.

I agree with you, Carlo. Thank you very much. Sorry, I mean, you know, I would expect some question, just, you know, to clarify what we are doing and why we are, I mean, acting in that direction. Certainly, we are working here as always and more than ever, you know, really to address this situation in the best way possible. This company has...

Thank you.

...67 years history. You know, we are planning to write down the next 67 years history. That's, certainly is the intention and the determination that the management and myself we have in this company. Thank you very much for listening us. Thank you again. Let's be confident because this horrible situation around the world, we all hope that we will change and will really improve. Thank you again. Thanks a lot for everyone, to everyone. [Foreign language]

Thank you. That does conclude today's webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thank you.

Thank you.

Thank you for standing by. Welcome to the Natuzzi S.p.A Third Quarter 2025 Financial Results Webcast. As a reminder, anyone who would like to dial in please dial +4 -- I'm sorry, +1 (412) 717-9633, then Passcode 39252103#. Once again, if you'd like to be dialed in via the phone, in addition to the link already provided to join via video please dial +1 (412) 717-9633 then Passcode 39252103#. [Operator Instructions] Joining us on today's call are Pasquale Natuzzi, Executive Chairman, Chief Executive Officer, Ad Interim; Carlo Silvestri, Chief Financial Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. It's now my pleasure to turn the call over to Piero. Please go ahead.

Thank you very much, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 3rd quarter financial results. After a brief introduction, we will give room for the 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 filed 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 this call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you very much. Good morning, everyone. And thank you for taking part in this quarterly call. To what already communicated in our press release, I would like to add some more details and remarks. While the geopolitical situation has not changed and in some respect, is worsening as a result, consumer confidence remain weak. Despite our investment in marketing, foot traffic in our stores, particularly in the United States and Europe continues to lag while in some cases, we are seeing improvement in conversion rates. These gains are not sufficient to offset the decline in overall traffic. Despite the current challenging business environment, we have improved our gross margin this quarter, surpassing the levels recorded in the first 2 quarters of the year, this achievement was made possible by a more favorable sales mix. In fact, sales of Natuzzi Italia, which delivered higher margin than other product lines grew by 18% compared to the third quarter of last year. While sales of unbranded products, which are not core to our business decreased by 20%. We intended to continue in this direction, supporting the branded sales that offer higher margin. The closing of the Shanghai factory last year, which enabled us to realize the cost saving on industrial operations in China. However, it is important to note that the improvements in margin remain limited by labor cost in Italy, following the reshoring process from China to Italy, of the Natuzzi Edition production from the North America market, completed in the second half of 2024. Commercial and administrative costs deserves a separate mention, while wages and transportation expenses decreased this quarter, overall SG&A costs remain higher relative to our current revenue base. Therefore, both myself and the management team remain committed to support the sales while reduced fixed cost at the group level. We certainly continue our discussion with the Italian government, which has recognized the company as an enterprise of strategic relevance for the country. I would like to inform you that next Monday, I will personally be Rome at the relevant Ministry to seek measure aimed to improve quality, reducing transformation costs at our Italian factory and thereby increasing production efficiency. Lastly, we continue to invest the time and resources in participating in international trade events as well as the in-store visual merchandising and external architecture design in order to offer customers an engaging and compelling shopping experience. Recently, we were in India. And just yesterday, we completed a commercial road show in China, meeting with the leading architectural firms to develop a project similar to the Natuzzi Harmony resident presented in Dubai and Jerusalem. I'm sorry, we are really doing not our best, more than that really to satisfy the expectation of our shareholders and our stakeholders, and we will continue to do so. So if there are any questions, I would be pleased to answer together with Carlo, our CFO. Thank you very much for listening.

[Operator Instructions] Our first question today is coming from David Kanen.

Are you guys able to hear me?

Yes.

The first one pertains to your meeting next Monday in Rome with the government. And if you could give us some sense as to the outcome maybe -- sometimes we talk in terms of the bear case scenario, the moderate reasonable scenario and then the bull case. What do you expect to come of the meeting? And then on a go-forward basis, what our cost structure will look like given the concessions that we hope to get from labor and so forth?

We are working on restructuring plan and one of the main action that we need to do for that is to rationalize our factory here in Italy. In Italy, we have 6 factories and one logistic center. We plan to reduce the production in 3 factory instead of 6. In order to do that, we need to move people from one city to another city, but in the same region, we are not -- the city -- the plan are not so far one to the other. So -- but we need to move people from one factory to another factory. And that requires, let's say, an agreement from the government and the union also to let us do that, okay? That's one. Number two, as everyone knows that we have today in Italy, 1,350 workers, but we need 750, 800 people. The other people, we need now to -- I don't know exactly the english word, but we need to use some help from the government that provide to use 800 people instead of 1,350. We call [Foreign Language] in Italian. Carlo can you help me with the appropriate word probably?

I start from here. So David, if I can add on top of Mr. Natuzzi, we have like we need to tool different level of measures, what is called a kind of furlough, right, to keep on going. But I will be, let's say, more strategic in this situation. Our target is to have, let's say, when you talk about time frame, it's to have a negotiation based on some terms that need to be deployed within next year and then a more medium-term plan to achieve what we discussed last time in terms of financial sustainability. So it's a double layer negotiation.

I see. And is your goal, assuming you can get these concessions and rightsize the workforce, do you anticipate at the current levels of revenue that we would actually be profitable and stop burning cash because obviously, it's unsustainable to continue burning cash.

Let's say that the target is always to have a -- to be profitable around, let's say, what we discussed also in the other call, EUR 28 million, EUR 29 million per month. So -- and it means that's the target. So always going through some different tools because like here, we are discussing about the measures that involve the workforce. Then we are talking about marginality. That means it implies a review of the price list when our strategic positioning allow this and then also to look into our retail network, rationalizing it. So with through all these different measures, David, with those numbers that I mentioned before in terms of monthly turnover, we will not burn cash, but we will create positive cash flow.

And as I indicated to you on a go-forward basis, if you can achieve these concessions and we can achieve profitability, we would certainly be interested in putting more money in perhaps through a pipe transaction to support the company and help you grow and thrive well into the future. We believe in the brand and we believe there's a lot of potential given the right conditions.

Consumer confidence will make the difference, David. I mean, because unlikely the traffic is -- I mean, it's reducing unbelievable. I mean, unlikely consumers are not getting in the store despite the marketing investment that we are doing and the new product, wonderful new product. Unlikely, I mean, so -- but our -- but anyway, despite that, despite of the consumer confidence, we cannot guarantee what will happen from the geopolitical situation and give, again, confidence to the consumer that the life will improve. We are certainly committed to work on cost reduction, no question about it. We should reduce cost, and we are very much -- and we should improve the margin also. So improve the margin by our price list because our brand has a good recognition. We should reduce the cost, improve the margin and improve the sales a little bit if then the consumer confidence. But we are confident that we can achieve better sales next year compared with 2025. And consequently, if we are -- I mean, if we are lucky and capable to achieve that, we will deliver good profit to our shareholders. So that's our challenge certainly.

[Operator Instructions] We do have a follow-up from David Kane.

So if you could give us an update on the commercial division that PJ has been spearheading. There are companies that exclusively in that sector, the commercial sector that is doing more revenues than us as a combined entity, meaning $0.5 billion. So I see this as a huge opportunity, and I think we have the right product and the brand to succeed there. Can you give me a sense as to the progress that we've made since last quarter and you know -- I'm sure you see the pipeline of opportunities that you're bidding on. How big of an opportunity do you think this could be next year 2026.

To be honest, it's not easy to forecast, but I can tell you that we are making huge investment in order to increase the trade contract business. Certainly, we signed -- I mean last November, no last November, November 2024, we did -- we launched the first Natuzzi Harmony residence. We designed the building with 50 apartments, we designed the furniture, everything. People are purchasing Natuzzi apartment in Dubai. As far -- we already are in the process to sign the second contract with the same dealer, the same developer in Dubai and we signed another contract already in Jerusalem, where -- and we designed the building, we designed the apartment, we designed common baths everything. Again, Natuzzi residence proves the value of the Natuzzi brand, okay? They are paying just royalty, $1.2 million, $1.3 million, just to use the name. And then obviously, they are going to pay the furniture, the cost of the furniture. Now just because we believe in this new business to leverage our brand awareness. This year, we attended an exhibition in Riyadh, Saudi Arabia, an exhibition in Dubai this year, 2025, 2 times in Mumbai in India, September and November. December -- last December, a few weeks ago, we were in Miami, Miami Design Week another huge event to meet architect designers. And then we just finished last week. My son has done a roadshow in China for 1 week meeting the biggest firm architecture firm to engage them and do a project for them. There is a long list of projects that we are discussing.

So I mean I see that you're working very hard and I appreciate that. But if you can give us some sense as to the magnitude of the opportunity. I'm sure you have an internal goal for 2026. Again, kind of the bear case, the base case and the bull case. Can you give us a sense as to what that opportunity is?

David, I'll -- thank you very much for your question. First of all, because I'll allow us to give you more color about what we are doing. So we are treating the Contract Trade Division as a start-up, right? Because in this phase, as Mr. Natuzzi was mentioning, we are doing a lot of bidding, right? But we don't have yet statistics on the success rate, okay? Because we are, let's say, providing and exposing our capabilities in a lot of road show, and we are receiving a lot of positive feedback from the market. And now we are going into the bidding phase that is taking us some time to understand the real potential. In order to play conservative for 2026, we do not have a very aggressive plan because we don't want -- we want -- we are considering it as a cherry on the cake on our numbers. So the magnitude of the business that we forecast for 2026 it will be between EUR 5 million and EUR 10 million. But then it's an exponential business once you start deploying all the projects. So just to be fair, is a cherry on the cake, we are not very aggressive on that, just to close the topic. I hope I do -- I did answer to your question.

Yes. No, I appreciate that. And then I guess one more question. You had indicated -- you had implied in the prepared remarks in the press release that you're in the final rounds of a CEO selection, if I'm interpreting correctly. Any additional color you can give there? How many candidates would you say it's been narrowed down to? Do you have -- is it 2? Is it 5? Is it 10? And what do you think the time frame is for a decision to be made?

The decision will be made based on the lack of meeting the appropriate person to cover the position. I'm using my weekend time because unlikely to interview people during the working day is very difficult. So I'm using Saturday and Sunday interviewing people. And it's my -- to be honest, absolutely, we are going forward. We hope to give a good news in a very short period of time.

That's really all I have. I'd like to wish you and your team, a wonderful holiday and Merry Christmas. I know that you have the real Saint Nicholas is right there in Bari. So I hope you bring some good gifts.

Thank you.

Thank you very much and happy holidays.

No other question?

At this time, it appears there are no further questions. I'm going to turn the floor back over to management for any further or closing comments.

[Foreign Language] So thank you very much. If there is no other further questions, we are always available to be reached out for any clarification you may need on our results and performance also in the next days. So thank you very much for your kind attention from all of us.

Thank you. [Foreign Language] Thank you very much again.

That does conclude today's webcast. You may disconnect your lines, and have a wonderful day. We thank you for your participation today.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi S.p.A Second Quarter 2025 Financial Results. [Operator Instructions] Joining us on today's call, as usual, are Pasquale Natuzzi, Executive Chairman and Chief Executive Officer, Ad Interim; Carlo Silvestri, Chief Financial Officer; Mario De Gennaro, Chief HR Organization and Legal Officer. Furthermore, also joining us on today's call are Ms. Marilena Scaramuzzo, Treasury Vice President; Domenico Ricchiuti, Chief Operations Officer; and then Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I will now turn the conference over to Piero. Please go ahead.

Okay. Thank you, Donna, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 2nd quarter financial results. After a brief introduction, we will give room for the 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 filed 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 this call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you. Good morning, everyone, and thank you for attending this conference call. While all the information regarding the performance of the first 6 months have been available on the press release, which we sent to all of you. I believe that for all stakeholder information, I would like to add also some additional information, which I believe are very important for everyone. What has caused the result, which everyone is lumpy, okay, starting by me, by the shareholder, by all the stakeholders and by the management has been caused primarily from the Chinese market and the American market. And I like to explain that, which I believe is very important. In China, China is an important market for us. So that's why like [Technical Difficulty] in china regarding the tariff. And that has caused in China a crisis, which has impacted on our business. The volume that were forecasted for China were very much higher, much, much higher than what we are doing today. To give you an idea, just in 2025, we closed 77 stores in China. But -- and we opened 30 new stores. So while we closed 77 stores between Natuzzi Italia and Natuzzi Editions, we opened 30 new Natuzzi store in China. So there is really a situation, let's say, complicated situation. But the fact that we are closing the store and opening a new store, 30 stores with the partners that are investing on our brand, this is something that needs to be told, needs to be understood from everyone. Now in many time, the tariff and the uncertainty between how much it would cost to import the product from China. In China, China has been always an important market for us, not only for distribution, but also for production. So our production for the United States for the second line and Natuzzi Edition has been always manufactured in China. But since the tariff war started in 2019 where was announced tariff of first 15% and then an additional 10% that caused decline in sales from China to America and was affected on our volume and consequently on balance sheet. Recently -- and that was last year, October when, again, tariff uncertainty and the relation between United States of America and China were arguing every morning. We decided to shut down our factory in Shanghai and open a small factory -- new small factory in Quanjiao is a province where the cost would be much lower than Shanghai. And we moved the production from Shanghai to Italy to supply the American market and cut down the fixed cost of obviously, the factory in China and improving production and cost efficiency in the Italian plants. That was last year -- October last year. Obviously, a few weeks later, start again tariff between Europe and China. So -- but when we decided to move the production from China to Italy, there was no idea that one day, the United States of America would ask a tariff also from Europe. And obviously, that has been also impacting negatively on our margin. Back to China. So again, we shut down 77 stores. We closed 77 stores in China and we opened 30 new stores in China, while also in the rest of the world, we opened also 12 new stores, and we shut down 17 stores. So I mean, the -- to improve our retail division by eliminating stores that are not qualified for the brand position. And to substitute with a new store in the appropriate location with update consumer experience, it's a process that we are pursuing, investing continually. And that's because of that for the all stakeholder interest, I would like just to show a little bit -- I mean, we don't give up as a company. We have been continuing to invest on our brand in terms of new product, new merchandising, I mean, exhibition. I'd like just to show you a little bit, okay? It's something very interesting for all stakeholders to understand. Piero, can you help me please to show the -- let's start from beginning. Want to start from here? No, no. I mean we go after, please, Piero. So in order to support the commercial development, we implemented several initiatives in 2025, trade fairs, client congress and design shows. Can we look that, please? Go ahead. Go ahead. I don't need to read all those things. Just show image. So last April, in Milano, the picture that you will see here that you see on this slide is our participation to Milano Fair last April. The reason why we -- and since the COVID, we haven't participated to fairs because unlikely retailer, they were not traveling. So after 6 years, we decided to attend again this fair in Milano and was really a success. Then you can see -- have all the information regarding the visitors, the number of company, the number of country, whatsoever. You will find all the information on the website, and we will provide also to send as we do with the press release, okay? Go to the next, please, Piero. So consequently, even in High Point, that building that you will see on green is our Natuzzi America headquarter in High Point, North Carolina. We attended 2 fairs this year, one in April and one in October, where obviously, we meet the customer, we show new project, we show new marketing plan. So these are all efforts that the company has made in 2025. Go to the next, Piero. Then we also organized the headquarter congress here in our -- in Italy where we invite the customer from emerging market primarily. Invite the customer from Italy, from Europe. They come in to our congress and they spend 1 to 2 days here in our headquarter to choose new project, new product, new marketing plan, update their store. It's really a very important activity that we do. For example, we have the summer edition, 80 clients from Europe and Far East and our Divani&Divani partners. So all the customers. This is another huge investment to organize those 2 congress in Italy, in our headquarter. We go to the next. Then we also organized this year 3 congress in China. One was in March with the launching of Feelwell concept, is a concept of comfort, which is very innovative, and we introduced it to 200 journalists, VIP and institutional guests and 320 dealers. That was March this year, 2025. In July, also in Wuxi was launched the new Natuzzi Italia store concept, 7 media interview, 40 articles published, 143 architects designed, 21 VIP dealers were there. Natuzzi Editions, another event, very important in last October in China with 150 dealers, 100 VIP and 5 media. So in other words, China, which is a very important market, which is unlikely is facing a crisis that we never would imagine before, we are closing stores that are not performing. We are opening 30 new stores, but we have been attending exhibition, congress and meeting the customer and promote the business. Go to the next, please, Piero. And then we have the design show. We had 10 design show. In February, we were in Riyadh Downtown Design. In April, Milano Design Week. In May, ICFF, New York, we were present there. June, Design Show Melbourne in Australia. July [ Casa Decor ] in Madrid. September, we were Dubai -- Mumbai Design Week. In November, we will attend again Mumbai -- no, Dubai, we were last week in Dubai with Design Week, and we will be next week in Mumbai again in India. And then the first week of December in Miami Art Basel. All those exhibition where we show our novelty, our new project are very, very important to get -- to be in touch with the market, with the customer, with the designer architect. And we were also in Osaka last April, the Expo Osaka. We were there 791 events organizing in Italian pavilion. 1,300 official delegation were there, 7,500 company representative. Okay. Next, please, Piero. Highlights, Trade and Contract. Those building that we show you we launched last November in Dubai, the first Natuzzi Harmony Residences. Then because the building is under construction, we already sold several apartment, Natuzzi apartment, all furnishing by Natuzzi. And so we already signed the second contract in -- always in Dubai with the same developer for another 80 apartments. And we signed another contract with an entrepreneur developer in Jerusalem in Israel, where we designed already the building, and we have the contract in our hands to develop this tower. Many other projects are in the pipeline. So that's all those information I gave to you just to show that despite the headwind we are facing in terms of business, we strongly believe that all those initiatives, all those, I mean, initiatives that we have made and we developed more than 30 new projects because obviously, when we attend the fairs and congress and those events specialized for architect, we show a new project, new project in order to stimulate interest in our brand, in our company. So again, we don't give up. We strongly believe in the future and all the investment made in 2025 makes me personally and makes the company confident about the potential growth of the business. So I can stop here for now, and I can -- I'm ready for any stakeholder to ask a question. Thank you very much for listening.

[Operator Instructions] Our first question today is coming from David Kanen.

The first one is I see that you've extended personally a credit line to the company of $15 million. What are the terms of that in terms of the interest rate and then also, you've referenced noncore assets that you can dispose of. Could you quantify for us some of those assets, what they're worth, tannery other property that you can potentially dispose of while we're transitioning the company to profitability?

So as anticipated in the press release, the Board of Directors has just approved the guidelines of a multiyear restructuring plan basis and optimizing the cost structure, increasing the flexibility and developing the retailer business. To implement these activities in the plan targeted investments are likely to be required such as marketing, retailer, the managing and redundant workers and et cetera. Therefore, the board will be evaluating measures aimed to strengthen the capital structure to support the restructuring plan. Once the restructuring plan is finalized and approval by the competent corporate body, we will provide further information on the capital strengthening measures required. I have granted credit line to the company because as the majority shareholder, I'm firmly convinced that the effective implementation of the restructuring plan guidelines, particularly those relating to the Italian production hub and the general optimization of fixed cost together with our commercial initiatives can help the group to relaunch its activities and pursue sustainable profitability. This credit line will provide the resources needed to address the short-term needs and ensure the financial stability required to achieve the group strategic objectives set out in the restructuring plan. However, as I previously mentioned, together with the Board of Directors, we are evaluating a measure to strengthen the company's capital structure. In the current year, we -- that's it. So that's the story.

David to further add is a 0 interest loan. And as you know, we are looking always for opportunity to, let's say, monetize some of our noncore assets. In specific for the tannery, we don't have any news so far, but we are actively looking for other opportunities to offset some of our noncore assets. And this would be also one of the point of our strategy for the near future regarding also the rightsizing of our industry operations facilities.

Okay. That's helpful. Carlo, could you quantify for us 2 things. First, on the assets, give us a sense as to the value of some of these noncore assets as well as the tannery. How many millions are these assets worth? And then if you could give us some sense of the restructuring, once we move past it right now, our gross margins are last quarter at these volumes was only 34%. After the restructuring let's assume similar revenues, what type of gross margin do you think we can achieve. And then in terms of operating expenses, what kind of a reduction do you think we can get in operating expenses? And will we be positioned to be profitable as a $320 million company?

Thank you very much for all the questions, David. Let me elaborate a little bit because it's a bit long. I will try to summarize it to be effective. First of all, in terms of assets. Okay. Our total net asset value is around EUR 70 million, okay. To specify which is core and noncore, for the moment, I cannot give you the precise figures because all the investigation and internal analysis and discussion with the Board are ongoing. So this will be, let's say, quantified in a way once the final setup of our operations is done. But as I said before, this is one of our strategic point. If talking about the tannery, the tannery had a value of EUR 5 million specifically, that was the last evaluation we had. But of course, David, we need to be aware that then we need to go on the market. And these are the latest valuation and specifically for tannery is not an easy market to find a buyer in this moment. For the other assets, when I talk about EUR 70 million is composed by the plants and the machinery. So also on this, we need to play careful. It's not a value that we can totally monetize because like for the machinery, it's a different way of evaluating. So this is for the assets. Allow now to discuss a bit about the gross margin. And as far I can give you indication on what we are working because, of course, the work is on process and so I can't disclose any further detailed information, but allow me to give you the sense of what we are doing. With Mr. Natuzzi and all the team, we are working to be sustainable, especially from the financial point of view. So when we talk about increasing marginality, this is one of the main points. The 34% has some factors that need to be specifically addressed. The first one is the impact -- direct impact on the lower retail sales that, as you know, has a higher margin. And this, we are working with Mr. Natuzzi and the commercial team to bring back the sales that will grant us a higher marginality. On the other topics, we are working on both operational efficiencies that they will increase the margin and will decrease as one of the reply to your question, all the industrial costs in a permanent way and working on the price list to adopt the profitability to the changing environment of business. So all of these activities together with other actions that are aimed to be more efficient from the cost point of view, targeting of decreasing and increasing the speed of that activity to the economic environment will improve our marginality. Therefore, we will go back to the trajectory with increasing margin and decreasing the sales to be breakeven. I hope being clear and replied to all your questions, David?

Yes, that's very helpful. I appreciate the clarity and the detail. So are you saying at these levels, these depressed levels we're running at after the restructuring, your objective is to be breakeven. Did I hear that correctly?

Yes, the trajectory of the plan is to be profitable. Yes, the trajectory of the plan is to be profitable, David, absolutely.

Okay. Okay. And then in the past, I guess this would be a question for Pasquale Jr. I don't know if he's on the call, but if you can speak to the commercial initiatives, Mr. Natuzzi highlighted some of these large projects in Jerusalem and Dubai, et cetera. For next year, could you give us a sense as to your internal goal for annual run rate in commercial revenue? Is it $10 million a year, is it $20 million, $40 million? What is a realistic internal goal in terms of run rate? Because this is incremental, and I know there are companies that are doing hundreds of millions of dollars in this business. It seems like there's enormous upside to it. So if you can give us a sense as to the magnitude that would be really helpful.

Okay. I can answer, David. Certainly, you're right. But to be honest, I mean, we want to communicate the real contract that we have in our hand. So we started with one contract in Dubai. Then we -- because it's been successful, now we have the second contract. And because it has been successful we have also contract in Israel. There are already 3 towers that we should develop. I mean, and we have other very important, very exciting project in the pipeline. But I mean, we are not ready now to tell you how much volume we are going to develop with the Trade and Contract business. Certainly, the fact that we've been attending two events in Mumbai and then in Dubai, in Riyadh, then even in New York, where we invest money and we need the architect, where a developer just -- I mean, we are promoting the business. And certainly, we are expecting to get good return, to be honest, okay?

Yes. May I add also on this Mr. Natuzzi, David, to give you a magnitude, it is a start-up. So the number will be low in the beginning, but then there will be a multiply effect. The more projects we do, the more they know, the more we have. And specifically, when we talk about revenues on a yearly basis, there are 2 sides of the contract. The first one is design fees that we will get in the first phase of the contract. The second one is when we realize the project and we deliver all the merchandise that has a time line that we don't know and we cannot predict. So as a total ballpark, we are in a start-up phase and then on top of that, it's difficult for us as of today to understand the phasing of the delivery of the product.

Okay. That's very helpful. And then is there a way that perhaps I can extrapolate if you can give me a sense maybe per unit, let's say there's a building that has 150 units in it, okay? What do you think the spend is, on average, what is the normal spend per unit? Is it, 4,000, 7,000? If you can give me some sense...

It really depends on the project, David. It really depends on the kind of project.

No. I mean if I understood well the question, David, I mean, we promote the Natuzzi Harmony Residences, and we promote apartment of different size. Then we give the liberty to the consumer to choose the Natuzzi product. So it depends. We can -- I mean so the amount of cost to furnishing each apartment could be very much different. It depends. Because as you know, each project we make is available in leather or is made in fabric. Could be -- the configuration could be a big one or a small one. It depends from the customer needs, the consumer needs. So I mean the price could be different. We believe that next year, while after we furnishing, we decorate several apartments. We should make -- we must be in the position to average them, and we can give you this information.

Okay. And then let me move on to my last question, and then I'll go back into queue if there's anyone else that would like to pose questions is, could you give us an update on the permanent CEO search. Do you have candidates that you feel you're close to deciding on? And is that something that you expect perhaps by early next year will be finished?

We engaged a head hunter company and started to propose some candidates. I already made one, I tell you one and I spent 2 hours time. Certainly, we need to find a CEO that should understand how to develop and manage high-end brand. One, we need to -- the same CEO needs to have experience also in managing a retailer. And the last and not the least, should also experience in operation because we are a company which we design a product, we manufacture product, we sell the product through the retailer. We are a global company so I mean it's not easy, but certainly, we will continue to do the search. There are certainly some people capable to manage our company. But that's -- we are going forward, be sure about that because I like to be the president of the company. I cannot be everything. I'm here to add to the company, obviously, because I feel responsibility for that.

I'm going to try and squeeze one more question in there. My apologies. So the last quarter you reported was second, the June quarter. Clearly, the third quarter is over, are we basically maintaining the levels that we saw in Q2? Or have things gotten worse? Or are they slightly better in terms of the written orders?

I mean I already declared on the press release, David, okay? I mean it's -- I mean, I hope I have been clear. I'm sure that I have been clear because I wrote, I read, I re-read again the press release. So do the same please, all right, and you will then understand the company direction.

[Operator Instructions] We're showing no additional questions at this time. I'd like to turn the floor back over to management for closing comments.

So no further questions.

That is correct.

Okay. So thank you very much to everyone, to every listener. And I really appreciate your attendance. Thank you. Thank you very much.

Bye-bye.

[Audio Gap] First Quarter 2025 Financial Results Webcast. [Operator Instructions] Joining us on today's call, as usual, are Antonio Achille, Chief Executive Officer; Pasquale Natuzzi, Executive Chairman; Carlo Silvestri, Chief Financial Officer; Mario De Gennaro, Chief HR, Organization & Legal Officer. Furthermore, at the explicit request of the Executive President, Mr. Natuzzi, also joining us on today's call are Pasquale Jr. Natuzzi, Executive Director, Chief Trade and Contract Officer; Diego Babbo, Global Retail Division Officer; Codrin Coroama, Chief Wholesale Officer; Daniele Tranchini, Chief Marketing & Communication Officer; Domenico Ricchiuti, Chief Operations Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference call over to Piero. Please go ahead.

Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's Conference Call for the 2025 First Quarter Financial Results. After a brief introduction, we will leave room for the 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 security 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 filed with the SEC for a complete review of those risks. The company assumes no option to update or revise any forward-looking matters discussed during this call. And now, I would like to turn the call over to the Chief Executive Officer. Please, Antonio.

Thank you, Piero. Let me start, as usual, by sharing the highlight of the first quarter. We're going to be particularly brief since we want to leave more space -- Piero, [Foreign Language], to leave more space for a quality discussion with the management. As you see, we invited the core people from the grid. So looking at the light, we closed the quarter at EUR 78.1 million. This is down from the last year by 7.6%, and we're going to be commenting the specific reason for this shortfall of revenue in addition clearly to a challenging market condition. Gross margin was down to 34.1% compared to 36.9% of the previous quarter. We will elaborate on this because it's particularly important. The primary reason is because in the first quarter, we had a transition phase, which was planned of the shift of production for Natuzzi Editions for North America from China to the Italian market. I will elaborate later on why this contributed for a slight decrease in margin in this quarter. So the combination of revenue below what we need from scale and margin led to a loss in terms of operating loss of EUR 0.8 million in the quarter. Net financial costs were EUR 2.9 million compared to EUR 2.2 million in the previous quarter -- the quarter of the previous year, mostly due to currency movement. As you know, the currency has been particularly volatile in the first quarter. Despite all these elements, we continue investing roughly EUR 2 million primarily on the factory side. In terms of cash, we closed the quarter with EUR 22.2 million in cash, slightly above from EUR 20 million at the end of the year. In this regard, important to note is that this was also the quarter where we completed the transaction of High Point, which contributed to the cash position. We will have plenty of opportunity to discuss with you what we are experimenting as an industry, I would say, global sickness of the world as well in a market that continues to be clearly very challenging. I don't, let's say, expand on this element because it's obvious the reason why I'm doing this statement. I was just reading the data on consumer confidence, the Board confidence for U.S., which went back to the beginning of 2023. I also saw the data for confidence in Europe, which was down 3.1 percentage point. So it's quite evident that we are still working in a market where consumers tend to postpone durable purchases. So as I mentioned, I keep it very short and light. I will return later to comment some of the elements. Let me now pass to Pasquale for an overview of the commercial achievement in the quarter.

Well, good morning, everyone. Just for everyone information, okay, I'm Pasquale, my position is operative President. So in other words, I'm working together with our CEO to put all my experience at the company disposal considering the situation, I mean, which is complicated. No question about that. I mean, the business environment is very, very difficult. So because I have the commercial responsibility, I'd like just to recap what I wrote on my press release in order to stimulate question, which would be very welcome from all of you shareholders, analysts or bankers, whoever. And that's why also I invite the Channel Director, Diego Babbo. Diego Babbo has the responsibility for the retail channel. And Codrin has responsibility for wholesale channel. And Pasquale Junior Natuzzi has the trade and contract responsibly, while Daniele Tranchini is our Chief Marketing Officer. Again, I will read what I wrote on the press release just to remind everyone or to stimulate everyone to ask eventually any questions. And Chanel Director, Marketing Director, that's why they have been invited here to answer to any of your questions because they have been very much involved in all the activities that we have been implementing. So no question about the markets in which we operate have not shown those signs of improvement that we expected. The business environment has been further affected by the introduction of United States trade duties on April 2, the perduring Russia-Ukrainian conflict, and more recently, the escalation of tension in the Middle East. In this context, we have intensified our effort to support commercial deployment. We continue to implement our brand commercial strategy that integrates collections, marketing and customer experience while closely monitoring its effectiveness in a challenging market environment. The brand guidelines have now been centrally codified to accelerate the global and consistent rollout. This year marked our return to the Salone del Mobile Fair in Milano after 5 years absence that coincided with the pandemic and post- pandemic period. At the Milano Fair, we unveiled the new Natuzzi Editions collection, Feelwell, Dolce Vita and Neo Heritage. During the Milan Design Week in April, we have also presented the Natuzzi Italia Comfortness and Circle of Harmony collection, which reflect our evolution in a global lifestyle brand. True to our heritage, Natuzzi Italia collection has been enriched through collaboration with international designers such as Andrea Steidl, Karim Rashid, Marcantonio and Mauro Lipparini for both Natuzzi Italia and Natuzzi Editions. The new collection has been supported by tailored high-quality marketing campaign, which I'm sure if you want to have deeper information, Daniele will give you plenty explanation. We have worked to support and innovate the 3 channels in which we operate: Retail, DOS and franchising; Galleries; and the newly established Contract channel. In Retail, we have made a significant investment to improve analytics and intelligence. We have built the infrastructure to monitor store performance in real time, focusing on key indicators such as foot traffic, conversion rate, average ticket and product category performance. This enable a data-driven diagnostic of each store across our network with the objective of progressively improving the performance of our retailers. The Reimagined Gallery format that was introduced late last year has become operational in the first quarter 2025. While still in its early stage, it has started to show some initial signs of positive impact, both in terms of new offering and remerchandizing, particularly in the United States. Following the launch of Natuzzi Harmony Residences in Dubai last November, we are seeing early signs of growing interest in our Contract division, an area we consider having significant growth potential and strategic relevance for our group. Pasquale Junior Natuzzi will give you all the explanation you need. Our immediate focus in the full and effective deployment of this strategy in our main market, we have prioritized initiative aiming to strengthen sales and engagement across all regions, although the full impact will depend on market dynamics and execution over time. Natuzzi America remains a strategic priority. We have implemented a new organization with the appointment of new Vice President of Retail, Justin Christensen; and the new Vice President, Human Resources, Sharri McIntyre, who will focus on improving our retail and commercial operation. Justin has over 25 years of experience in the retail industry, particularly in fashion, having worked with European and American fashion groups, which include Brioni and Ralph Lauren. Sharri, with over 20 years of experience, has held the position of Vice President, Corporate Human Research at Louis Vuitton and Human Resources Director at Williams-Sonoma. In Europe, we have taken direct control of our largest market, United Kingdom, by appointing a new Country Manager, Antoine Nicolay, to lead the commercial development for both the retailer and wholesale channel. Antoine brings over 10 years of experience in the luxury and consumer goods. In Italy, the recently appointed Country Manager, Rocco Rella, is contributing positively to improve the quality of both our direct and franchising distribution. In China, we have worked closely with our local JV team to enhance the quality of our retail network and strengthen brand presence. In July, we will present a new Natuzzi Italia collection to our dealers, replicating the Milan Design Week format at a local level. Our new collection has generated interest among both existing and prospective clients, leading to commitment to open new galleries in France and Germany. We believe that the steps we have taken on collection, marketing and retail management represent a solid foundation for improving our commercial performance over time. Our objective remains to strengthen the brand and enhance operational efficiency with the aim of delivering sustainable value for our stakeholders. However, the actual results will depend on market conditions, consumer sentiment and the effective execution of our strategy. That's the reason why I involved the Channel Director and also the Marketing Director. If you have any questions, we will be very pleased to give you all the explanation. Thank you.

[Operator Instructions] Our first question is coming from David Kanen.

Dave, I'm afraid you're on mute. Or I don't know, Kevin, can you help David to unmute [indiscernible] you manage it.

David, your mic should be open [indiscernible] and please ask your question.

Okay. My apologies. Are you able to hear me now?

Yes, please go ahead.

Okay. In the prepared remarks, you highlighted that you moved production for various reasons out of China and over to Italy and then that caused some disruption in gross margin. Furthermore, you explained that you enacted a price increase of 10%. So last quarter, Q4 gross margin was 38.1%. So we went backwards about 400 basis points. With the moves now completed, should we expect a return back to the 38% level, assuming we're doing EUR 75 million to EUR 80 million a quarter. Is that a good assumption or it's going to take some time?

So it's definitely something we want to manage. As you know, since 2nd of April, which is after this quarter, we're just commenting, the administration also introduced a 10% out of -- yes, can you partially mute, David? There is a return in the voice. So after this quarter, we are commenting, the U.S. administration also introduced a duty of 10% for products exported from Italy. So we are definitely reviewing also this aspect in light of the 9 April, which was -- the 9 July, which was the deadline anticipated by the American administration to potentially review this duty because absolutely, we want to take all the measures to reinforce the margin, especially for this component. In addition, as anticipated in the press release, we're also considering more sustainable production location for Natuzzi Editions for North America. We have, as you know, factory, including Romania. Any movement of that production need to be clearly considered in the light of the rigid precondition we have in terms of agreement with the public institution and the contract in Italia. So the protection of margin, it will be pursued with 2 actions. Short term, we're going to be reviewing our, let's say, price list also in consideration of the duty, which has been introduced and would be most likely confirmed. More midterm, we are also considering potentially allocation of the production for Natuzzi Editions outside Italy, but this is something which needs to be consulted also with the local institution beyond as industrial transition carefully be planned from an operational standpoint. In case you want to have, which is a very important element, more context of the constraint and the preexisting agreement, Mario is the best person in this team to provide them.

Okay. So my question is, in Q2 and for the balance of the year, notwithstanding, yes, it looks like there's going to be a 10% tariff for product coming in from Italy unless Trump makes a special deal with Meloni. They seem to get along pretty well, but we'll assume 10%. So should I continue to assume that gross margin will remain at the 34% level in Q2 and beyond with the tariff, let's say, landing at 10% or will it improve with the price increase and some of the moves? That's what -- I don't think [indiscernible] got a clear...

It's a central question. As you know, we don't provide specific guidance on these figures. Not -- also because they are a result of a complex algorithm where there is price realization, product mix, production cost, materials. So we don't provide specific guidance. What I can reassure you at least in my capacity of CEO that we're going to be very determined in readjusting the marginality on Natuzzi Editions towards North America in light of also the tariff. We need to protect our margin because the tariffs don't depend on us as an industry standard. So definitely, we're going to take price adjustment there. In terms of -- production allocation is a more structural move, but also there, the company is very serious about having a discussion with the government to face some of the historical constraints that prevent a more effective allocation for this production.

Okay. And then operating expenses for the quarter were down to EUR 27.4 million in Q1. So have you done 38% in gross margin, you would have actually had almost a $3 million operating profit, $2.5 million to $3 million. So that's why I'm focusing on margin. That reduction in operating expense to EUR 27.4 million, is that sustainable? I know there's some variable costs, specifically transportation, commission, et cetera. But assuming all things equal, let's say, EUR 78 million with the same mix more or less in revenue, can you maintain that EUR 27.4 million operating expense level? Or there was something anomalous that drove it lower?

So I'm going to be -- going back to your question to make sure I answer in a correct way. Provided the scale is the one we are discussing because, of course, there's a matter of absorption of those expenses. I have good confidence that we are on a good track to reduce operating expenses. We're also doing a contingency. We just discussed and implemented with our CFO here, a contingency on all discretionary expenses. We launched with Domenico here and his procurement team an effort to review the cost of purchase of material and transportation. So provided the scale and the mix, which was in your opening question, stay at the level we are witnessing today, I have confidence that the expenses will go down in percentage. They will go down in absolute term is a matter also then to maintain or increase the scale of -- to witness also a reduction in percentage.

Okay. And then Mr. Pasquale Natuzzi called out some of the changes that you've made in your new, I guess, you would call it, software or technology platform to track retail locations, and he said something like you're seeing early signs of improvement. Could you just speak to that a little bit, what these differences are? And when did you see this improvement? And how profound is it?

I'll let Pasquale comment on this.

Sincerely, I mean I don't -- I mean the communication is not really the best one here, and I haven't understood what David said. Could you repeat, please, David again?

Yes. Mr. Natuzzi, you had said that you had implemented some changes in terms of, I'm assuming, technology, information flow between headquarters and your retail locations. And this new platform you said is showing early signs of improvement. I believe you said that both for the commercial unit -- the new commercial unit as well as your North American retail. So if you could explain what some of these changes are, before and after. What it was like before, and magnitude of the improvements that you're seeing and why? Just give us more color or depth on these early signs of improvement.

Okay. All right. So I ask Diego Babbo. Diego is our Retail Director. So he will give you explanation about that, okay? Diego.

Yes, David. Well, actually, Mr. Natuzzi is referring to the fact that we have, let's say, institutionalized a robust process of ongoing performance assessment with actionable insight translating into precise and timely action plan. This is part of our culture of continuous improvement, which has allowed us to swiftly address underperforming categories and capitalize on emerging opportunities. We are based on a software platform, which is the Power BI platform, which is allowing us on a rolling basis to look at each single store, not only directly operated, but also including all our dealers that decided to join our system, which are more and more embracing the idea. And we are now able to really make a sounding business decision based on facts and figures as was a practice probably in most of the advanced retail, but not very much in our industry. I have to say we achieved a good threshold and a good level of excellence in that. Through that, by the way, to give you some color, a cornerstone of our progress in that lies also in our remerchandising strategies, which has been measured through the system. And in terms of meticulously analyzing the behavior of consumer and in-store dynamics through the system, we have refined our product placement and visual storytelling, making our showrooms, let's say, more engaging and effective in driving conversion. It's a data-driven approach that is paired with enhancing performance analytics that somehow has empowered our teams to anticipate market trends and consumer needs with greater agility. To give you just a couple of examples, by looking at this trend in our store, we have been able to set action plan in order to try to offset what has been a quite strong decrease in traffic, let's say. And the key factor mitigating the decline in store traffic has been the dedication and professionalism of our store staff who have benefited from target training program. This has been achieved by using the system, measuring results, offsetting the decline in traffic, mostly in U.S., through 3 main pillars and actions. One, as PJ could be eventually commenting more than me, is the fact that we are addressing the trade business through the architect in our store, which is now part of our double check activity through our software, which has achieved considerable results. Mostly in U.S., we have stores where we are exceeding 25%, 30% of our business made through the trade business. And through the system, we also implement action in order to improve the conversion rate of the fewer customers are getting B2C and consumers that get into our stores together with actions that protect the average ticket of our stores. So everything is now, let's say, putting on a rolling basis in the system, which is also strengthening our internal collaboration, integrating feedback loops between retail operations, merchandising and supply chain to ensure optimal execution at every level.

Okay. I'm going to go back into queue in case someone else would like to ask questions. But I have a request, Antonio, if you would be kind enough to make an introduction to Justin Christensen, the new North American Retail VP. I would appreciate that.

Sure. You will put in contact with our local team, absolutely.

[Operator Instructions] David, there are no further questions at this time. You can proceed with any further questions you may have my friend.

If there are no other questions [indiscernible] people...

David, I have David. David is on, but I just want to make sure he is unmuted, okay.

Okay. Please, please, please. Otherwise, I would have moved to comment the figure more in detail with Carlo. Please go ahead, David.

David, can you hear me my friend? I'm just going to make sure you're unmuted.

Okay. So my last question is on the Commercial division. Also you called out that you're seeing early signs in that business. If you could give us an update. Longer term, what is the potentiality of the size of that business? And any color that you can give us in terms of the early signs that you're seeing now that are encouraging?

I'm not sure if you're referring to -- are you referring to the projects business, the trade and contract business?

Yes. Is that now what you call the Commercial division, like selling to hospitality...

Well, we call it -- I think that's the reason why the team was a bit puzzled. We call it the contract. Commercial is all the division. Contract is what we refer more with this, let's call it, B2B or B2BC opportunity, which is led by PJ. PJ, I believe you are the one best suited to address the David's question. Please go ahead.

So Mr. David, as you well know, we're overseeing for sure, first of all, a phenomena, which is pretty positive on one end for consumers, which is the growth and the extended, let's say, lifespan of furniture products that is growing. And that is causing, as a matter of fact, a significant -- a slower pace in the repurchase cycle for consumer. That's a phenomenon that we're somehow looking at on the retail side. Then if you consider the macroeconomic pressures that we all feeling, clearly, that impacts like Antonio was opening in his remarks, it's definitely impacting consumers' confidence and purchase intention. Now there is -- we are seeing -- there is a shift in our retail business model. There is a somehow hybridization of what was a B2C purely type of commercial dynamic into a B2B2C model, where the business-to-business is represented by the relationship with the design community, which is what I'm looking and overseeing with what we call trade and contract division, which is a team and a business unit that overlooks on 2, let's say, business trajectories. On one hand, we do develop and deliver bespoke solutions to hospitality operator, hospitality and entertainment, commercial, residential, not to mention, of course, bespoke solution in the residential field, of course, which is very important. So that is what we call contract is bespoke. And it's what also gave life to incredible best practice of the Harmony Residences in Dubai, which was a relationship, let's say, an opportunity built over a relationship started with a real estate developer based in Dubai, and that is now being replicated in different geographies of the world that are adding on to the opportunity of Dubai by opening up to new opportunities of branded residential. On the other hand, we are also, in parallel, improving the organization by ensuring commitment and disciplined growth with design leadership, bespoke project development, integrated customization and leveraging, of course, the Natuzzi controlling of retail, but also leveraging on the Natuzzi supply base for whatever that is more related to retail. So the trade business in our retail fleet is what I also overlook at supporting Diego and his retail teams with, let's say, a dedicated set of skills, guidance and tools to promote the business with designers, architects or even developer and hospitality operator in all of those adjacent areas where our retail network lies today. And here, we're seeing that, of course, there is some market research of which one is, I want to quote, it's Pink Lab U.S. who reported that the average power of a design studio in America is 40x higher than an average American consumer. And the top 200 design firms in America have 140x the spending power potential of an average American consumer. So you can understand that this business-to- business relationship has much more loyalty and potential than whatever we were going after on the B2C side of our retail business. So let's say, consider the Trade and Contract division as a business unit that on one hand is trying to leverage on our global retail network, trying to have a localized type of relationship or Sentinel's business procures that do grasp here out for opportunities of any sort of development in their areas, and they relate to our corporate team, which is a team that I started up over the last year and that does, in effect, contract and bespoke solutions. But then we have our stores. And like Diego said, there is locations today in which implementing and focusing, especially in America, where the potential is definitely the highest. These locations where we're focusing on consider every Monday I speak to the overall American trade teams of the world in each and every locations. And we are seeing an incredible growth, where, like Diego said, some stores reached 30% and even more of a share of voice of trade sales in their stores, which is sales where, of course, it's not just delivering the design service, but it's also harvesting the relationship with design professionals, which will allow us to have loyalty and long-lasting B2B kind of connection with these design professionals. So to be frank, I do believe that this is the future of our industry. I also sit in the Board of Director of the Italian National Furniture Association, which also owns the Salone del Mobile Furniture Fair. And all of the peers and competitors or colleagues that we have on the international level, they all are seeing incredible results by pursuing the world of contract projects and trade because in these period of times, working once again with design professional, being specified by contractors, becoming loyal suppliers for big hospitality operators is what can mind the gap of what the global economy is unlikely showing to affect today.

Okay. Thank you for that commentary. Last question. I had made an introduction, Antonio, to probably the largest home furnishings e-commerce company. And I believe it was something that you were going to get stood up. Could you give us an update on that, when you expect to launch and give us an update there?

I will pass it to Codrin, who has been the person implementing this opportunity.

Thank you, Antonio. David, thank you for the question. So we are -- we have met quite a few times. They have visited us during Milano, during Salone del Mobile. We've had great time together. We have also met again. They have followed up with a meeting in High Point market in October. And we are now going through some technicalities in terms of finding the common ground in moving forward, technically speaking. I will also be meeting with their executive leadership team in Florida where they have a congress upcoming in September. We are confident that we will be able to positively conclude discussions by the time we meet in September in Florida. So first and foremost, thank you for bringing this opportunity forward. We're working on it, and we're cautiously optimistic about moving forward in a positive way.

As there are no further questions at this time. I'd like to turn the floor back over for any further or closing comments.

So in closing, maybe as typically we do, Carlo, you want to -- Carlo and Piero, you want to highlight some of the key dimension of the quarter as reported, even though I believe most of the audience is a well-educated audience, which had the opportunity to review with figures. But please, if you want to provide any commentary on the performance and more on the economics element.

Thank you, Antonio. Do you hear well?

Yes, we do.

Yes. Thank you, Antonio. I will provide a couple of comments that maybe is worth to underline again related to our performances while we have been discussing about the gross margin, given the situation in both channel mix and, let's say, between retail and wholesale and the new, let's say, production allocation. What is maybe worth to be, let's say, confirm is that in the other industrial cost, we see a decrease from EUR 4.9 million to EUR 4.4 million. So we have a saving of EUR 0.5 million given as a result of a lower related depreciation following the closure of all of our Shanghai plant and the move to the new plant of [indiscernible]. So this is a saving that will -- it's in our P&L as a result of this transition process. Then going back to the selling expenses. And while we have seen an overall increase in the transportation cost as a result of higher tariff of Italy, North American shipping route. On the other side, we have benefited of EUR 800,000 saving given this new industrial location. So we've lowered deliveries from China. So this is like a plus of all the process we are going through in terms of industrial location. And adding on the question of Mr. Kanen, we need to confirm that we had closed in 2024, 3 nonperforming stores, 1 in Spain, 1 in U.K. and 1 in Italy. And this is benefiting us with USD 700,000 saving in selling expenses. So these are data that confirm that our active portfolio management is indeed giving benefit to our P&L. On the other side, when, let's say, some few remarks on our financial cost, while we see the impact of the decrease of the interest rates that is reflected in financial costs from EUR 2.6 million last year to EUR 2.2 million, we have been overweighed by unfavorable currency movements on the trade receivable and payables. So we did not have any change in our hedging policy. This has been basically the results of the floating and unpredictable exchange rate of the U.S. dollar in the first quarter that has brought us EUR 1 million loss compared to EUR 200,000 profit last year. So these are, let's say, something on top of what we have fully described in our press release.

Okay. Thank you, Carlo. Kevin, I believe if there are no further questions, and as always, we also welcome the audience to reach us separately after the -- individually after the completion of the call. I believe, Kevin, if there are no further questions, we can thank the audience on behalf of Natuzzi. I also thank Pasquale and all the team who joined us today, and we can close the meeting.

Thank you. And thank you, everyone, for joining us today. That does conclude today's webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Thank you all.