Ermenegildo Zegna N.V. (ZGN) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Despite strong net profit growth and improved margins in the Zegna segment, the company faces challenges such as declining EBIT in Thom Browne and Tom Ford segments, and higher cash absorption. The cautious outlook on China and flat EBIT guidance temper optimism. The Q&A highlighted risks, particularly in China, and management's reluctance to provide detailed guidance. Given these mixed signals and the company's market cap, a neutral stock price movement is expected.
Key Financial Performance
Revenue EUR 928 million for H1 2025, a 2% organic decline year-over-year. The decline was offset by a 6% organic growth in the DTC channel.
Gross Profit EUR 626 million with a margin of 67.5%, an improvement of 110 basis points year-over-year. This was driven by a better channel mix, with DTC revenues accounting for 82% of group branded revenues, up from 76% in H1 2024.
Selling, General, and Administrative Costs EUR 502 million, up slightly from EUR 498 million in H1 2024. The incidence on revenues increased to 54.1% from 51.8%, driven by negative operating leverage, investments in talent and IT infrastructure, and higher initial costs for newly opened stores.
Marketing Expenses EUR 63 million, around 7% of revenues, consistent with the prior year despite significant events in both periods.
Adjusted EBIT EUR 69 million with a margin of 7.4%, down 100 basis points year-over-year. The decline was due to higher selling, general, and administrative costs and negative currency impacts.
Zegna Segment Adjusted EBIT EUR 94 million with a margin of 14.3%, up from 12.8% in H1 2024. The 150 basis point improvement was driven by higher operating leverage and cost control measures.
Thom Browne Segment Adjusted EBIT EUR 4 million, down from EUR 20 million in H1 2024. The decline was due to a sharp decrease in wholesale revenues and increased selling costs from DTC network expansion.
Tom Ford Fashion Segment Adjusted EBIT EUR -19 million, compared to EUR -12 million in H1 2024. The loss was attributed to planned investments in store network expansion, talent acquisition, and IT infrastructure.
Net Profit EUR 48 million, up 53% from EUR 31 million in H1 2024. The increase was driven by higher financial income and foreign exchange gains, as well as a lower tax rate of 30% compared to 35% in the prior year.
Capital Expenditure (CapEx) EUR 54 million, approximately 6% of revenues. Two-thirds of the CapEx was allocated to store network development, with the remainder for production and IT investments.
Trade Working Capital EUR 442 million, down from EUR 467 million in H1 2024. The reduction was due to better inventory management and lower receivables, linked to wholesale business streamlining.
Free Cash Flow EUR -23 million, compared to EUR -7 million in H1 2024. The higher cash absorption was due to lower operating cash flow.
Net Debt EUR 92 million as of June 2025, consistent with December 2024 levels.
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Operating Highlights
Zegna Fall/Winter '25 marketing campaign: Launched with a focus on Zegna Torino suit made from Vellus Aureum fabric and Vetta shoes. Initial positive feedback received from presales and preorders.
Tom Ford Fashion campaign: First campaign by Haider Ackermann released, receiving positive feedback from journalists and media experts. Initial reactions in stores are also positive.
Zegna DTC network expansion: Opened a new store in Miami Design District and a by-appointment store at Plaza 66 in Shanghai, marking strategic growth in the U.S. and China.
Cost management: Actions taken to contain costs across all three brands, despite higher initial costs for new stores and investments in IT and CRM platforms.
Adjusted EBIT: Group adjusted EBIT reached EUR 69 million, with a decline due to higher selling costs and currency impacts. Zegna segment showed improvement, while Thom Browne and Tom Ford Fashion segments faced challenges.
Leadership change at Thom Browne: Sam Lobban started as CEO of Thom Browne on September 2, 2025.
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Risk or Challenges
Selling, General, and Administrative Costs: Higher incidence on revenues (54.1% compared to 51.8% in 2024) driven by negative operating leverage, costs for long-term growth (talent acquisition, IT infrastructure, CRM platform), and higher initial costs for newly opened stores.
Adjusted EBIT Margin: Decline in adjusted EBIT margin (7.4%, down 100 basis points) due to higher selling, general, and administrative costs and negative currency movements (euro appreciation against USD and renminbi).
Thom Browne Segment: Sharp decrease in adjusted EBIT (EUR 4 million compared to EUR 20 million in 2024) due to revenue decline in wholesale channel and increased costs from DTC network expansion.
Tom Ford Fashion Segment: Adjusted EBIT loss increased to EUR 19 million (from EUR 12 million in 2024) due to planned investments in store network expansion, talent acquisition, and IT infrastructure.
Market Conditions: Challenging and volatile sector conditions, particularly in the Greater China Region (GCR), which remains negative despite slight recent improvements.
Free Cash Flow: Higher free cash absorption (EUR 23 million compared to EUR 7 million in 2024) driven by lower operating cash flow.
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Guidance & Outlook
Adjusted EBIT for 2025: The company confirms that adjusted EBIT for the second half of 2025 will be higher compared to the first half. However, the sector remains challenging and volatile. Actions have been implemented to protect profitability.
Capital Expenditures (CapEx): CapEx for 2025 is expected to have an incidence on revenue of around 6%-7%. Investments in the second half will focus on the greenfield production site for footwear and store network development.
Tax Rate: The tax rate for 2025 is expected to be in the range of 28%-30%, aligning with year-end expectations.
Regional Market Trends: Strong momentum is expected to continue in Europe, the Middle East, and the Americas. The Greater China Region (GCR) remains challenging and volatile, with recent weeks showing slight improvement but still negative trends.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the reason behind the upward trend in gross profit margin and the expectation for H2 gross margin despite tariffs?
A:The upward trend in gross profit margin is attributed to the increase in DTC revenues (88% vs. 86% last year), improved sell-through at full price, and reduced reliance on outlets. Personalization and the ability to transfer quality and service into pricing also contribute. For H2, the company expects to maintain at least a 67% gross margin despite tariffs.
Q:What are the expectations for H2 in terms of organic growth and EBIT margin?
A:The company confirms low single-digit organic growth for the year, with consensus revenue at EUR 1.923 billion reflecting currency changes. Adjusted EBIT consensus of EUR 173 million is considered realistic, implying a flat margin.
Q:What are the opportunities for margin improvement in the Zegna segment and the Thom Browne segment?
A:For Zegna, the margin is currently above 14%, with a short-term target of 13%-14% for the year and a long-term goal of 15%. For Thom Browne, the focus is on reducing wholesale decline (expected to be -20% in H2) and adopting a DTC-centric approach to achieve double-digit EBIT in the long term.
Q:What are the current trends among Chinese consumers, and how do they impact the company's performance?
A:The company observes early signs of improvement among Chinese consumers, with traffic and conversions showing positive trends. However, the decline is still in the single-digit area for the first two months of the quarter. The company remains cautious and plans to provide detailed updates in the Q3 revenue results call.
Q:What is the pricing strategy for Fall/Winter '25, and how has it impacted the U.S. market?
A:The company implemented low single-digit price increases to offset costs and currency dynamics, including incremental tariffs in the U.S. for Fall/Winter '25. There has been no significant consumer pushback, and the U.S. market continues to show strong momentum.
Q:What are the risks to achieving the low single-digit growth outlook for the full year?
A:The main risk lies in the volatile Chinese market. While there are signs of improvement, the company remains cautious and is planning for a 'new normal' scenario in China for 2026.
Q:What is the expected marketing expense as a percentage of sales for the full year?
A:The marketing expense is expected to be around 6% of sales for the full year.
Q:What are the company's plans for strategic investments in H2?
A:The company plans to continue strategic investments, including an event in Miami around Art Basel in December, while cutting discretionary costs. The focus is on long-term brand growth rather than short-term EBIT delivery.
Q:What is the outlook for H2 and the main risks associated with it?
A:The outlook for H2 includes low single-digit growth, with the main risk being the volatile Chinese market. The company is cautious about drawing conclusions from recent trends and is planning for a stable 'new normal' scenario in China for 2026.
Q:Review of Unclear Management Responses
A:Management avoided providing detailed comments on current trends among Chinese consumers, deferring detailed updates to the Q3 revenue results call in October. Additionally, they did not commit to specific short-term margin targets for Zegna, citing uncertainties and the need for strategic investments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
DTC network
Durante
EUR EBIT
EUR incidence
EUR line
EUR margin
EUR month
Fall Winter
Thom Browne
Zegna Fall
absorption
appointment store
campaign suit
cash
currency
end EUR
euro
floor remark
group segment
incidence revenue
incident
income
investment
liability
month EUR
network expansion
point month
segment EUR
selling
talent infrastructure
tax rate
trend GCR
ZGN Transcript
Ermenegildo Zegna N.V. (ZGN) Q4 2025 Earnings Call Transcript
Positive3-20
The earnings call summary indicates a solid financial performance with improved free cash flow and net cash surplus. The Q&A section highlights cautious but optimistic guidance, especially in China and the Middle East, and strong DTC growth. Despite some currency headwinds and uncertainties, the overall sentiment is positive, supported by strategic pricing and marketing plans. Given the market cap of approximately $2.9 billion, the stock is likely to see a positive reaction, between 2% to 8%.
Ermenegildo Zegna N.V. (ZGN) Q2 2025 Earnings Call Transcript
Unknown9-5
Despite strong net profit growth and improved margins in the Zegna segment, the company faces challenges such as declining EBIT in Thom Browne and Tom Ford segments, and higher cash absorption. The cautious outlook on China and flat EBIT guidance temper optimism. The Q&A highlighted risks, particularly in China, and management's reluctance to provide detailed guidance. Given these mixed signals and the company's market cap, a neutral stock price movement is expected.
Ermenegildo Zegna N.V. (ZGN) H1 2025 Sales/ Trading Statement Earnings Call Transcript
Neutral7-31
Ermenegildo Zegna N.V. (ZGN) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call highlights a mix of positive and negative elements. While there is growth in the U.S. and EMEA DTC channels, significant declines in Greater China and wholesale revenue, along with economic uncertainties and tariff impacts, weigh heavily. The lack of a share buyback program and management's unclear responses further contribute to a negative sentiment. Despite some optimistic guidance, the overall market reaction is likely to be negative due to these challenges, especially given the company's market cap.
ZGN Report
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