Zegna Group Closes Stellar Year, Chairman Confirms Guidance Eyeing Further Growth
MILAN — Closing what he considers “a stellar and milestone year,” Gildo Zegna, chairman and chief executive officer of the Ermenegildo Zegna Group, is looking ahead to 2024 with confidence.
The group, which comprises the Zegna, Thom Browne and Tom Ford brands, last year more than doubled its net profit, which reached 135.7 million euros, compared with 65.3 million euros in 2022, on revenues that rose 27.6 percent to 1.9 billion euros.
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“I am positive in general on all the group’s brands,” the executive told WWD in an interview on Friday, saying he expected first-quarter revenues “to grow in the region of 10 percent at constant exchange rate.”
The group is strengthening its “retail culture,” continuing to streamline its wholesale accounts, and Zegna believes “passing from a transaction to a relation is fundamental in the high end range.” For this reason, the first quarter will see the biggest impact from the rationalization of wholesale, he pointed out.
“Organic performance is expected midsingle-digit negative due to wholesale revenues expected to be down high double digit. Starting from the second quarter and going more into the second part of the year, we are expecting to see an improved performance largely driven by a stronger direct-to-consumer, while the wholesale streamlining will continue.”
He said he was “fairly confident” that the revenue consensus of 2 billion euros for the year “is achievable. For sure it’s challenging, given the global macroeconomic and geopolitical issues, but I am absolutely confident we are taking the right actions to deliver it.”
Mid-term guidance was also “unchanged and fully confirmed.”
“We are on track with the integration of Tom Ford and seeing the first positive signs from the brand’s fashion collection, available now for the past couple of months, and for Thom Browne we are focusing on retail and streamlining the number of wholesale accounts, also through the conversion into concessions, without exiting the department stores,” said the executive, underscoring that now for the Zegna brand retail accounts for 85 percent of total sales. “This allows consistent pricing, visuals and so on. And we are not seeing any resistance to prices.”
In 2023, the DTC channel recorded sales of 1.26 billion euros, up 37.8 percent compared with 918.2 million euros in 2022.
Wholesale revenues amounted to 634.7 million euros, up 11.3 percent year-over-year.
Sales in the Europe, Middle East and Africa region rose 26.6 percent to 658.7 million euros and revenues in North America soared 41.6 percent to 417.3 million euros. Sales in Latin America were up 25.6 percent to 37.5 million euros and revenues in the Asia-Pacific region climbed 22.2 percent to 788 million euros.
Speaking about the first months of 2024, Zegna said “China is not really slowing down, but is reacting more slowly to the change of the Zegna one brand identity, compared to the U.S. and the Middle East, where the reaction was much faster.”
That said, he clarified that the Chinese cluster is “responding well” to the offer and the events the company is staging in the country. “The aspirational customer is lacking, and is spending less, but we are positioned in the high-end range. It could be a longer journey compared to the U.S., because Z Zegna contributed to a big portion of our sales in China, but gradually Zegna will replace that.”
He admitted that the volatility in Asia, mainly in Greater China, is “higher than expected,” and mainly for Thom Browne, influenced by the challenging environment but also “by the need to reinforce the organization that was not at the level we wanted and needed to face an increasingly challenging market.”
During a conference call with analysts, Rodrigo Bazan, CEO of Thom Browne, said the brand is “very committed to China,” and that streamlining its wholesale distribution represents “short-term pain for long term gain.” Last year the brand generated revenues of 380.3 million euros, up 14.9 percent on 2022. Adjusted operating profit for the brand amounted to 59 million euros, up 22.7 percent on the year before.
The Zegna segment generated revenues of 1.32 billion euros, up 12.4 percent on 1.17 billion euros in 2022. Adjusted operating profit totaled 193.5 million euros, up 36.7 percent on 2022.
The Tom Ford Fashion segment, now designed by Peter Hawkings, generated revenues of 235.5 million euros and adjusted operating losses of 1.7 million euros, mainly attributable to the 15.6 million euro one-off charges related to the purchase price allocation.
During the call, Tom Ford Fashion CEO Lelio Gavazza, who joined the brand last September, said China was still “a small market and a great opportunity,” and that a store will open in Beijing at the end of June. “We are planning massive marketing activities to connect with the Chinese consumer, one of the most important with the American” one, he said.
The importance of structuring the company with a new management organization was made during the call and, on LinkedIn, Joyce Weng now appears as president of Tom Ford Fashion, Greater China, South East Asia and Oceania. Simon Kendall has been named president of Tom Ford Fashion, Americas.
Zegna underscored the importance of investing in the group’s supply chain and the latest addition is a state-of-the-art footwear and leather goods production facility in Parma, Italy, expected to be completed by the end of 2026, as reported. Designed by ACPV Architects Antonio Citterio Patricia Viel, it will employ 300 people, and primarily produce men’s shoes and leather goods. But Zegna pointed out that “it is very important and it is much more than a plant, it’s a project of design, branding, research and development and training center and will house the academy.”
Asked if he was eyeing further acquisitions, Zegna said “there is nothing on the horizon,” but that in any case he was “not looking at buying brands, and a supplier would be more interesting for us.”
He concluded saying that the group “is a guardian of brands, and while short-term results are important, our top priority must always be their overall trajectory. What we should do is well defined; there will be challenges, but we know how to tackle them and how important it is to plan for the long term.”
In 2023, capital expenditure rose to 77.9 million euros, compared with 73.3 million euros a year earlier, mainly related to the expansion of the DTC stores’ network for all brands and, in particular, for Zegna.
As of Dec. 31, net debt stood at 10.8 million euros compared to a cash surplus of 122.2 million euros at the end of 2022, reflecting the investments in subsidiaries and associates, mainly related to the Tom Ford acquisition and the dividend distribution, partially offset by a free cash-flow generation of 71.8 million euros.
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