Italian sofa emporium Natuzzi (NYSE:NTZ) reports Q2 2006 earnings results tomorrow afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Wall Street is no help here; no U.S. analysts follow the stock.
  • Revenues. Lacking analysts, we also lack revenue estimates.
  • Earnings. Same story with profits. But according to Capital IQ, one European analyst tracks the company, projecting $1.64 in profits for the year.

What management says:
On D-Day, 2006, Natuzzi announced the appointment of a new supreme commander. New CEO Ernesto Greco comes to the firm from a former position as CFO for luxury goods maker Bulgari, and has worked at international firms such as Wang Labs and Hewlett-Packard (NYSE:HPQ). Commenting on his new job, Greco said "we will have to work hard, with the aim of innovating ... and strengthening all the distinguishing and unique features that have made Natuzzi a symbol of the Italian style worldwide."

What management does:
Although the company has struggled in recent quarters, Greco joins it at a propitious time, immediately after it announced a particularly strong sales quarter, in which units sold increased 6.1% year over year and revenues increased 13%. Gross profits increased even faster, at 17.1%, and the business booked a substantial profit ($0.14 per share) in comparison to the previous year's net loss.

As I warned last March, however, it's going to take several more such successful quarters to pull Natuzzi's rolling margin numbers back up into the black. As reflected in the chart below, the rolling operating and net margins remain negative, and down significantly from where the company was running 18 months ago.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

35.7

35.2

30.8

32.7

31.4

31.8

Op.

5.3

3.4

(2.3)

(1)

(2.2)

(0.7)

Net

2.5

0.8

(2.2)

(3.4)

(1)

(0.6)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Putting last quarter's results into context, former CEO and current chairman Pasquale Natuzzi mentioned that 2005 was the "first time ever" that the company reported a full-year net loss. But thanks to "more efficient cost management and the closing of non-performing retail units" -- which we also discussed back in March -- Natuzzi looks to be back on the upswing.

Now, don't expect the company to get much better than this. For one thing, it seems to take every possible opportunity to comment on how "challenging" the business environment is for furniture makers these days. Also, six months ago management opined that the firm would achieve "at most a 3% margin" this year. But when a company is selling at just 70% of its tangible book value, and earning any profits at all, that's a situation that any Foolish value investor should find interesting. Tune in tomorrow to make sure the second part of that equation holds true.

Competitors:

  • Bassett Furniture (NASDAQ:BSET)
  • Ethan Allen (NYSE:ETH)
  • Furniture Brands (NYSE:FBN)
  • Hooker Furniture (NASDAQ:HOFT)
  • Stanley Furniture (NASDAQ:STLY)

For further Foolish reading on Natuzzi, pull up a chair and read:

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Fool contributor Rich Smith does not own shares of any company named above.