This quarters results were solid and generated good cashflow for the company. Something which management emphasised during the CC.
By quarters end there has been 467 galleries and 262 stores rolled out in the US and around the world.
The strong gross profit margin of 38.9% was due to the initiatives they announced last year to strip out costs (30-40m euro) in their manufacturing facilities. This seems to be working as planned and is flowing through earlier than I had expected. It is always good to see management setting targets and then achieving them.
It is likely that the strong oil prices will lead to higher material and transport costs in the next couple of quarters.
Great to see net margins tracking north of 6% again. The next two quarters especially the 4th should be very interesting as the new Italsofa production lines start up. One is in Brazil which will produce an extra 1500 seats/day and the other is in China which will produce 2400 seats/day. When these facilities are operated near capacity they will produce another $200m/yr of furniture.
In $US terms the company did $244.1 in sales (+6% fom Q2 03), Gross profit was 94.8 (+20%)and EPS was 0.28 (+12%).
NTZ should break through $US1 billion in sales this year! At 6% margins this works out to EPS of around 1.10. Damn cheap at current share price of $10. Especially when you back out over $2/share of cash.
"When these facilities are operated near capacity they will produce another $200m/yr of furniture."
Italsofa ramped from 0 to $200mm in only 3 years. The extra capacity (~double) should ramp & sell through in 3 years also.
NTZ SE/sales ratio has risen from 18% to 25% because of $50mm p.a. advertising and galleria spending. As sales rise the SE/sales ratio will drop (if the ads & galleria spending stays fixed @ $50mm p.a.) and net margin will rise.
2007 sales should be @ $1250mm+ and net margin @ 8%+
Roughly $1.80 - $2.00 eps
Given that they like to pay out 30%, dividends should be @ $0.60