Zegna Group Outlines Plan to Reach 2 Billion Euros
Both the Zegna and Thom Browne brands show strength and chairman and CEO Gildo Zegna identified the end of fiscal 2025 as the target to reach sales of 2 billion euros.
Backstage at Zegna Men's Fall 2023 VANNI BASSETTI/WWD
MILAN — The Ermenegildo Zegna Group closed 2022 on an upbeat note, seeing “an encouraging and very exciting start of 2023,” to a level that was even “well above our expectations,” said chairman and chief executive officer Gildo Zegna on Thursday, commenting the performance of the group last year.
The group is seeing “a solid double-digit growth at retail for both Zegna and Thom Browne,” continued the executive during a call with analysts, expressing his optimism for the reopening of Greater China, after pandemic restrictions, and the strong response of European and American customers that are driving growth. Zegna’s made to measure is showing a double digit growth compared with 2019, which already “was a top year,” he noted.
The outlook led Zegna to set a date to reach 2 billion euros in sales — the end of fiscal 2025 — a goal first expressed during the group’s Capital Markets Day last May. The year 2023 will “comfortably” support the growth trajectory of the company, he said, also expecting an operating profit margin of 15 percent by the end of 2025.
These projections exclude the Tom Ford fashion business and bar a further escalation of the war in Ukraine, significant macroeconomic or financial markets deterioration, and further disruption linked to the COVID-19 pandemic.
Analysts were left wondering about the future of the Tom Ford fashion business with the Estée Lauder Cos., as Zegna said he would be able to share more details about plans “for this exceptional brand,” after the closing “a few weeks away,” most likely in the second quarter of this year.
As reported in November, The Estée Lauder Cos. is acquiring the Tom Ford brand in a transaction valuing the brand at $2.8 billion. As part of the deal, the Zegna Group is entering a long-term license agreement to develop the Tom Ford fashion categories. Zegna has had the license for Tom Ford menswear since around 2006.
In the 12 months ended Dec. 31, group profits amounted to 65.3 million euros compared with a loss of 127.7 million euros in 2021, but this was mainly attributed to the costs incurred that year in connection with the business combination with Investindustrial Acquisition Corp., completed in December 2021, and the IPO on the New York Stock Exchange that month. Profit for 2022 was also impacted by higher net financial charges and higher taxes.
Last year, adjusted operating profit rose 6 percent to 157.7 million euros compared with 149.1 million euros in 2021, in line with the “moderate improvement” guidance the group communicated on Jan. 25.
Confirming preliminary figures released that day, group revenues amounted to 1.49 billion euros, up 15.5 percent compared with 1.29 billion euros in 2021.
Excluding the Greater China region, which was affected by the COVID-19-related restrictions last year, particularly from mid-March to the end of May and then again in the fourth quarter, sales were up 42 percent year on 2021.
Revenues of the Zegna segment were up 14 percent to 1.17 billion euros compared with 1.03 billion euros. Sales of the Thom Browne segment were up 25 percent to 330.9 million euros compared with 264 million euros.
Adjusted operating profit for the Zegna segment rose 7 percent to 141.5 million euros, and was up 26 percent to 48.1 million euros at Thom Browne.
Zegna acknowledged “that current financial uncertainties and an ever-changing global environment have the potential to affect consumer attitudes and buying patterns,” remaining focused on the execution of the group’s strategies. The goal is to further strengthen its “market-leading position” and the group’s Made in Italy manufacturing platform, expanding into footwear and clothing. He revealed the company is planning 300 new hires in the medium term and has launched the training school Accademia dei Mestieri.
“We have pushed to become sophisticated retailers and we are seeing very good results, we are extremely pleased. We want to keep this up, make sure we are on top and we don’t see a reason why this should slow down in the year,” Zegna said.
The executive touted the success of the rebranding of the Zegna collections, the acceleration of the clienteling strategies, renaming the consumer app Zegna X, to be presented in a few days under this new moniker, and which already generated 35 percent of retail revenues in 2022. He cited new collaborations such as the one with the Los Angeles-based brand The Elder Statesman, which help to amplify the brand message.
Thom Browne CEO Rodrigo Bazan spoke of the retail expansion of the brand, with the addition of 11 directly operated stores, which now total 63. He said Thom Browne will further capitalize its direct-to-consumer network with the full integration of the South Korean market during the second half of 2023 and “is well positioned to fully capitalize on the Greater China region” reopening this year.
The Japanese market in particular performed very well last year and represents a solid base to accelerate growth in 2023 for the brand, observed Bazan.
Thom Browne will celebrate 20 years in business “with celebrations around the world” starting in December.
Asked by one analyst if the group was seeing a slowdown in the U.S., as some of its peers, chief financial officer Gianluca Tagliabue responded in the negative, reporting “a solid performance everywhere in the first quarter, also in the U.S.,” and in the region “in retail mostly for Zegna.”
Higher investments are expected in 2023 to expand the Thom Browne retail footprint, and Tagliabue said “there are now opportunities to expand the Zegna retail perimeter after the rationalization that took place last year. We now see an expansion in North America, Europe and China and a tactical growth.”
Investments will also be directed into the supply chain, to continue to expand the group’s internal capacity in some product lines and to further drive IT in digitalization, he said. “Knitwear is a very important entry door to the Zegna brand, as are overshirts, which are an attractive hook for new clients,” he offered.
The company is also expanding in markets including Saudi Arabia, Central Asia, South East Asia and India.
As of Dec. 31, the group’s cash surplus amounted to 122.2 million euros, down 16 percent from 144.8 million euros at the end of December 2021. The decrease was attributed mainly to a dividend pay-out of 26 million euros; 73.3 million euros of capital expenditure, mostly on the store network; 41.3 million euros increase in trade working capital, and approximately 33 million euros in non-recurring real estate settlements.
The company plans to pay a dividend of approximately 25 million euros this year.
Zegna also underscored the group’s sustainability initiatives, submitting its net-zero targets to the Science-Based Target initiative (SBTi), launching the Oasi Cashmere collection, with a commitment that all cashmere used in the collection will be fully traceable by 2024, and embracing the Re.Crea Consortium to manage products at end-of-life, in partnership with Camera Nazionale della Moda Italiana and other Italian luxury brands.