Ermenegildo Zegna Group ((ZGN)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for the Ermenegildo Zegna Group painted a mixed picture of the company’s financial health. While there were notable successes, such as strong performance in the Zegna segment and a significant increase in net profit, challenges were evident in declining EBIT margins, particularly within the Thom Browne and Tom Ford Fashion segments. Additionally, increased selling, general, and administrative costs posed a challenge to overall performance.
Zegna Segment Margin Improvement
The Zegna segment demonstrated robust performance, generating an adjusted EBIT of EUR 94 million with a margin of 14.3%. This marks a significant improvement from the previous year’s margin of 12.8%, reflecting a 150 basis points increase. This growth underscores the segment’s operational efficiency and strategic focus.
Significant Net Profit Increase
Net profit for the first half of 2025 surged to EUR 47.9 million, representing a 53% increase from EUR 31 million in the previous year. This impressive growth was driven by higher financial income and favorable foreign exchange gains, highlighting the company’s effective financial management.
Strong DTC Performance
The Direct-to-Consumer (DTC) channel proved to be a significant growth driver, contributing 82% of group branded revenues, a 6 percentage point increase from the first half of 2024. This shift led to a 110 basis points improvement in gross margin, showcasing the effectiveness of the company’s direct sales strategy.
Adjusted EBIT Decline
Despite some successes, the company’s adjusted EBIT for the first half of 2025 was EUR 69 million, with a margin of 7.4%, down 100 basis points from the previous year. This decline was primarily due to increased selling, general, and administrative costs, which weighed on profitability.
Thom Browne Segment Challenges
The Thom Browne segment faced significant challenges, with adjusted EBIT plummeting to EUR 4 million from EUR 20 million in the first half of 2024. This decline was largely driven by a sharp decrease in revenues, particularly within the wholesale channel, indicating potential strategic adjustments are needed.
Tom Ford Fashion Losses
The Tom Ford Fashion segment reported an adjusted EBIT loss of EUR 19 million, compared to a EUR 12 million negative in the previous year. This was attributed to planned investments in store network expansion and IT infrastructure, reflecting a strategic focus on long-term growth despite short-term losses.
Selling, General and Administrative Cost Increase
Selling, general, and administrative costs rose to EUR 502 million, up from EUR 498 million, with their incidence on revenues increasing to 54.1% from 51.8%. This rise was driven by negative operating leverage and costs associated with store openings, posing a challenge to cost management.
Forward-Looking Guidance
The Ermenegildo Zegna Group provided detailed guidance for the remainder of the year. Despite a 2% organic revenue decline, the company highlighted a 6% increase in DTC organic performance, with gross profit margins improving due to a better channel mix. The company plans to maintain a CapEx-to-revenue ratio of 6-7% by year-end, focusing on store network development and production investments. The leadership remains optimistic about maintaining growth momentum, despite challenges in certain segments.
In summary, the Ermenegildo Zegna Group’s earnings call revealed a complex financial landscape, with strong performances in certain segments counterbalanced by challenges in others. The company’s strategic investments and focus on the DTC channel are promising, yet the rising costs and segment-specific difficulties underscore the need for careful management moving forward.