They say the rain in Spain falls mainly on the plain; it's looking pretty cloudy in Italy these days, too.
At least it is for Italian sofa magnate Natuzzi (NYSE: NTZ), which last evening reported a crushing 14% decline in the number of "seats" (i.e. units) sold during its fiscal 2007 third quarter. Price increases helped pull the number back up a bit for sales by revenue (to an 11% decline). Still, the firm's Q3 operating loss of yesteryear ballooned 10 times in size, and when all was said and done, Natuzzi was left with a 14.1 million euro hole in its income statement -- that's a $19 million loss, 'Merican.
As you would expect in a strong euro/weak dollar world, the bulk of the sales shortfall took place right here at home, where the incredible shrinking greenback is buying fewer and fewer imported goods with every passing day -- and even when a sale is made, the proceeds translate into fewer and fewer euros of profit. Sales to the Americas dropped 19% year over year in euro terms, but other markets suffered as well. In Euro-land, Natuzzi's sales declined 6%; in the "rest of the world," 8%.
Natuzzi's still making the best of a bad situation, however. Continuing the trend we saw last quarter, the firm is opening more and more of its stores in currency-exchange-rate-neutral areas like France, the U.K., the Netherlands, Germany, Romania, and Poland, and also in countries with strengthening currencies -- namely China and Russia. Notably, Natuzzi didn't open a single store in the U.S. this past quarter. If you're unsure why that is, just ask La-Z-Boy (NYSE: LZB), Stanley (Nasdaq: STLY), Hooker (Nasdaq: HOFT), or any other company in the industry about the retail furniture environment.
Put it all together, and there's just no two ways about it: Natuzzi's in bad shape. Ignore the GAAP accounting, and focus on real cash profits, and here's where we stand today: The firm's operations burned through $15.8 million this quarter. Add to that $26 million in capital expenditures, and free cash flow for the quarter amounted to negative $41.8 million. That's a far, far cry from the $17 million in cash profits generated during the third quarter last year. And I fear it will be a long, long time before we see results like last year's again.
Fluff up a sofa cushion, and get familiar with Natuzzi's recent news by reading:
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