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On Wednesday, Ermenegildo Zegna Group reported profits of €52.1 million for the first six months of 2023, up 147.9 per cent, compared to €21 million for the same period last year. The company cited improvement of productivity across stores at Zegna as part of its ‘One Zegna’ brand strategy and success with its ultra-luxury price repositioning, but flagged a “softer performance” in mainland China in the third quarter.
“In the Chinese cluster compared to 2021, we are seeing a flattish year-to-date situation,” Zegna COO and CFO Gianluca Tagliabue told analysts during a call Wednesday. “It’s uneven.” He said that while traction is strong in Hong Kong and Macau and in some mainland China cities like Shanghai, tier 2 and 3 cities were softer. This was echoed by Gildo Zegna, chairman and CEO of Zegna Group, who recently visited China with Lelio Gavazza, the new CEO of Tom Ford Fashion to “prepare the ground for a stronger inroad of Tom Ford Fashion in China”.
Tagliabue also noted that while Q3 2022 was a broadly normal quarter in China, Q4 was affected by store closings. “Looking ahead we are seeing an easier comparison basis,” Tagliabue said. “We remain positive on the mid-term [prospects],” Gildo Zegna added.
All eyes are on the Chinese slowdown as luxury companies are slated to report their third-quarter earnings next month. Luxury stocks slid last week following a comment from Richemont chairman Johann Rupert on inflation denting demand. “We’ve seen the squeeze,” Rupert told shareholders at the company’s annual meeting in Geneva on 6 September.
In July, Zegna reported group Q2 sales up 24.5 per cent in the EMEA and up 16.2 per cent in North America. On Wednesday, Gildo Zegna stressed the “resilience of the American consumer”, while “Europe has had a hot summer, not only for climate but also for retail, and we are seeing good productivity gain.”
Zegna reported revenues of €903.1 million for the six months ending 30 June, up 21.5 per cent year-on-year. That includes €651.7 million for Zegna, €207.9 million for Thom Browne and €64 million for the Tom Ford Fashion segment (from 28 April, when the acquisition was completed, to 30 June).
“I particularly appreciated the increased retail space productivity, bringing EBIT margin expansion with it,” Luca Solca, senior analyst at consultancy Bernstein, says. “Front foot improvement of sales per square metre would be the most important metric for Zegna to move into a higher league, as they have fixed all of the key marketing pillars already.” (Marketing expenses for the group grew 37.4 per cent in the first half year-on-year ending 30 June.)
Pressed by analysts to comment on the new strategy for Tom Ford Fashion, whose creative director Peter Hawkings will present his debut show during Milan Fashion Week, Gilda Zegna replied: “Just be patient. Lelio [Gavazza] is starting a couple of days before the show. We are preparing a strong team led by him. You’ll see the reaction to the glittering show on 21 September in Milan.”
The group will host a Capital Markets Day on 5 December in New York, where it expects to unveil its updated medium- to long-term financial goals, including the Tom Ford Fashion segment. In May 2022, the group announced it anticipated revenues of more than €2 billion by the end of 2025.
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