Current Trading Supports Increased Guidance: Mid-teens Revenue Growth and Solid Improvement to Adjusted EBIT1 for 2022
Continued Execution of “Our Road” Strategy Creating Global Growth for Zegna and Thom Browne, on Track to Achieve Mid-term Targets
Zegna’s Newly Announced Partnership with Real Madrid Expected to Cement One Brand Strategy and Target New Customers
MILAN--(BUSINESS WIRE)--Ermenegildo Zegna N.V. (NYSE:ZGN) (“Zegna Group,” “the Group,” or “the Company”) today announced revenues of €729.0 million for the six months ended June 30, 2022, up 21%2 year-on-year (“y-o-y”), and profit of €21.0 million. Adjusted EBIT for the period was at €82.7 million, with an Adjusted EBIT margin of 11.3% (+20bps y-o-y).
Ermenegildo “Gildo” Zegna, Chairman & CEO, said:
As we conclude the first half of the year, I am proud of the progress that Zegna Group continues to make as we execute our strategic plan, despite ongoing macroeconomic and geopolitical instability, which added to the still ongoing global health crisis, with the US, Western Europe and UAE more than offsetting the impact of Covid-19 related measures in the Greater China Region (“GCR”).
Looking forward, our emphasis will remain on the three pillars of the Our Road strategy. First, we will continue to focus on the Zegna One Brand, which launched in July with a collection of highly recognizable iconic products. Second, we will work to achieve Thom Browne’s full potential, seeking to double revenues by expanding the number of (end) clients, and leveraging customer loyalty and the brand’s unique appeal. Third, we will further strengthen our one-of-a-kind Made in Italy Luxury Textile Laboratory Platform, which is currently seeing sustained levels of production benefitting from healthy orders flows. And we will do all this while staying true to our values, ensuring that sustainability remains at the heart of everything we do and embedding it even further into our business and strategy.
We are already improving store productivity through investment in our people, investments in our stores and the proactive reshaping of our store footprint, the addition of new iconic products and the improvement in sell-through. We are very focused on client outreach through our omnichannel approach, and on innovative partnerships that also target younger consumers. I am particularly excited about our recently announced partnership between Zegna and football club Real Madrid – one of the most recognizable brands in the world with a loyal and enthusiastic fanbase. This partnership will be a tremendous amplifier of our One Brand strategy.
While our current performance is strong, including a healthy rebound in the Greater China Region, the global geopolitical and economic outlook remains uncertain. Through flexibility and discipline, I am confident that we will remain on track, as we execute our strategy to achieve our new 2022 guidance and meet the medium-term targets set out during our Capital Markets Day hosted “at home” in Oasi Zegna on May 17.
_______________________________ 1 Adjusted EBIT is a non-IFRS financial measure. See the Non-IFRS Financial Measures section starting on page 12 of this communication for the definition of such non-IFRS measure. 2 All growth rates in this release are year-on-year unless differently specified, and are expressed at actual foreign exchange rates.
Key Financial Highlights from the first half of 2022
For the six months ended June 30,
(€ thousands, except percentages and per share data)
Diluted Earnings per Share in €
Adjusted Diluted Earnings per Share in €
Adjusted EBIT and Adjusted EBIT margin by segment
Net Financial Indebtedness/(Cash Surplus)
Review of First Half 2022 Financials
For the first half of 2022, Zegna Group posted revenues of €729.0 million, up 21% y-o-y. In the second quarter of 2022, sales rose by 16% y-o-y to €351.4 million.
Zegna: The Group’s overall performance was driven by the continued strength of the Zegna segment, whose revenues increased 19% y-o-y to €553.0 million. This was a result of the success of the Zegna One brand strategy and repositioning for Zegna-branded products lines. Shoes and luxury leisurewear continued to perform strongly, while tailoring and Made to Measure have rebounded, particularly in the US and EMEA. As illustrated below, the first half of 2022 also saw a strong rebound in the B2B activities of our Made in Italy Luxury Textile Platform and our Third-Party Brands manufacturing.
Thom Browne: Thom Browne continues to contribute strongly to the Group’s overall growth, with revenues up 30% y-o-y for the period, reaching €185.8 million. This is thanks to growth across all lines, and particularly womenswear, and to the rollout of e-commerce through Tmall in the Greater China Region, which was launched in the second half of 2021.
Revenues increased significantly across all major geographies, despite a global environment that remains disrupted by the COVID-19 pandemic and other geopolitical factors. The only exception was the Greater China Region, our largest geographical market, which was affected by COVID-19-related restrictions, primarily from mid-March through the end of May of this year.
Revenues in the Greater China Region amounted to €247.2 million for the first half of 2022, down 14% y-o-y. This is essentially a retail market, hence the decrease was due to lower DTC revenues resulting from temporary store closures and lower customer traffic due to restrictions in major cities across the region. Notably, however, DTC revenues in the Greater China Region for the month of June 2022 increased compared to June 2021 due to the significant increase in e-commerce sales for both the Zegna and Thom Browne segments, and a rebound in sales at our directly operated stores, following the relaxation of COVID-19-related restrictions. In particular, Thom Browne DTC revenues rebounded by double digits compared to June 2021 as a result of strong e-commerce sales and the additional contribution from three new net store openings.
Revenues in the rest of the world amounted to €481.8 million for the first half of 2022, up 53% y-o-y, with an acceleration in 2Q 2022 to 59% from 48% in 1Q 2022. The increase was mainly driven by a 91% y-o-y increase in revenues in the US, reaching €124.3 million, a 43% y-o-y increase in revenues from EMEA to reach €260.6 million, and a strong performance in Japan and the rest of Asia.
Group sales from our directly operated retail network, including e-commerce, were €428.0 million for the first half of 2022, up 13% y-o-y and representing 59% of total revenues. They amounted to €209.9 million in the second quarter of the year, decelerating to a growth rate of 4% relative to the second quarter of 2021. The performance was driven by the success of the brands’ products with local customers and the resumption of tourism in Western Europe, partly offset by the impact of the zero-COVID policies in the GCR.
In particular, DTC revenues from Zegna-branded products were up 6% in the second quarter, compared with 23% in the first quarter. This underlines a strong organic growth and to a lesser extent the contribution of three net store openings compared to June 30, 2021 (including the conversion from wholesale to directly operated stores of twelve Nordstrom points of sale). Similarly, for Thom Browne, second quarter DTC sales were down 2% y-o-y, from +22% in the first quarter. Growth was high double digit in the United States, EMEA and Japan, and included eight net store openings worldwide compared to June 30, 2021.
Importantly, in the month of June DTC revenues in GCR rebounded for both Zegna and Thom Browne, with the former close to June 2021 and the latter up double-digit relative to June 2021.
Wholesale trends in the first half of 2022 (+37% y-o-y) and the acceleration in the second quarter (+45%) is not affected by substantial changes in the timing of the deliveries, with Thom Browne up 89% in 2Q 2022 with broad-based demand strength. Wholesale sales for Zegna-branded products (-3%) reflect the cancellation of Russian orders and the start of FW22 shipments only from July onwards. Elsewhere wholesale revenues grew reflecting the good acceptance of the new One Brand collection by our wholesale partners.
At the end of June 2022, the Group store footprint was comprised of 519 stores (295 DOS) compared with 530 on December 31, 2021 (297 DOS) and 525 on June 30, 2021 (284 DOS).
All product lines grew double-digit in the first half of 2022 compared to the same period of last year. Zegna branded products were up 13% y-o-y, primarily driven by the continued positive performance of shoes and luxury leisurewear, as well as the rebound of tailoring and Made to Measure offerings, particularly in the United States and EMEA, as well as the effects of price repositioning as part of the One Brand Strategy. Thom Browne’s 30% growth was driven by strong demand for both seasonal and classic products. Textile revenues were up 55% as a result of strong demand across the whole platform and the residual consolidation impact of Tessitura Ubertino (€4.6 million). Finally, Third Party Brands revenues grew 44% thanks to strong deliveries to Tom Ford and Gucci in particular.
The Group’s profit for the first half of 2022 was €21.0 million, down 35% y-o-y.
The improvement in the operating profit was offset by the €28 million increase in the value of the put option liability on the 10% Thom Browne stake which the Group does not own. The remeasurement of the liability has been driven by (i) a higher present value of the obligation under the put option, in line with the Thom Browne performance and its mid-term ambitions disclosed at the Capital Markets Day; and (ii) the negative foreign exchange impact from a stronger US dollar against the euro. This compares with a €21 million income reported in the first half of 2021 in relation to the purchase of a 5% stake in Thom Browne. Income taxes for the period were €27.1 million, compared to €32.3 million in the first half of 2021, due to a lower pre-tax profit.
Adjusted Profit was €22.8 million. For additional information regarding Adjusted Profit, a non-IFRS measure, please see page 13.
Adjusted EBIT and Adjusted EBIT Margin
The Group’s Adjusted EBIT for the first half of 2022 was €82.7 million, up 24% y-o-y. Adjusted EBIT Margin was 11.3%, up 20bps y-o-y from 11.1%. Adjusted EBIT benefitted from price increases and price repositioning as part of the Zegna One Brand strategy. It also benefitted from purchasing and production efficiencies, which more than offset an increase in costs mainly coming from corporate structure costs, marketing expenses, and other operating charges, which reflect the Group’s growth strategy, and the increase in costs related to being a publicly listed company.
Adjusted EBIT for the Zegna segment was €51.1 million, +31% y-o-y, with an Adjusted EBIT Margin of 9.2%, compared to 8.4% in 2021. This was driven by price increase/repositioning as part of the One Brand strategy, cost efficiencies and positive operating leverage, despite the less favourable country mix and an increase in operating expenses, higher advertising and marketing costs on rebranding activities, higher corporate costs and higher depreciation and amortization. It is worth noting that corporate charges are fully allocated to the Zegna segment.
For the Thom Browne segment, Adjusted EBIT was €31.6 million, up 13% y-o-y, with an Adjusted EBIT Margin of 17.0%, compared to 19.5% in 2021, with scale benefits more than offset by growth-related expenses, including costs for expanding the direct-to-consumer store network (+ 8 net DOS compared to the end of June 2021) and investments to improve central administrative functions and processes.
For additional information regarding Adjusted EBIT and Adjusted EBIT Margin, which are non-IFRS measures, see page 12.
Net Financial Indebtedness / (Cash Surplus) and Capital Expenditure
Cash Surplus was €103.1 million as of June 30, 2022, compared to €144.8 million as of December 31, 2021, and €73.3 million Net Financial Indebtedness as of June 30, 2021, reflecting €28.5 million outflow in capital expenditure (mostly on the store network), compared to €24.6 million in the same period last year), higher Trade Working Capital by €55.2 million and €29.6 million litigation settlements, among other things.
Trade Working Capital as of June 30, 2022, was €331.0 million, compared to €275.8 million as of December 31, 2021, and €289.8 million as of June 30, 2021, reflecting mainly higher inventories (+17% growth y-o-y), built up in preparation for the launch of the One Brand merchandise after June-end and partially deriving from the unsold stock in GCR.
For additional information regarding Net Financial Indebtedness / (Cash Surplus), Trade Working Capital and capital expenditure, which are non-IFRS measures, including a reconciliation of such non-IFRS measures to the most directly comparable IFRS measures, see page 16.
The first half of 2022 was marked by considerable macroeconomic and geopolitical uncertainty, adding to the volatility of the still ongoing global health crisis. While the Group remains vigilant in the face of these continued uncertainties, (i) we have been witnessing an ongoing positive performance continuing in July and August, and (ii) a strong success of the SS23 selling campaign. We are raising our guidance and now expect revenue growth in the mid-teens (prior guidance was “low-teens”) and a solid improvement (prior guidance was “improvement”) in our Adjusted EBIT, with an Adjusted EBIT margin in the range of last year’s, considering the step-up in marketing and central costs. We also expect a Cash Surplus increase in the second half of the year. This outlook assumes no further deterioration or geographic extension of the war in Ukraine, a continuing normalization of the COVID-19 pandemic in GCR, no significant macroeconomic deterioration and no other unforeseen events.
Medium-term Outlook: Our Path of Responsible Growth
On May 17, 2022, at its first Capital Markets Day, the Group announced its medium-term financial goals. The Group is aiming for revenues to exceed €2 billion and for Adjusted EBIT to reach at least 15% of revenues.
The Group expects, among other things, an increase in store productivity and continuing positive developments related to price and product mix to drive revenues, which, together with favorable operational leverage, should reflect positively on profitability. These improvements should more than offset the planned increase in marketing costs, which, together with capital expenditures (expected at 5% of full-year 2022 revenues), should support our growth.
The Group will continue to pursue its strategy with confidence and determination while monitoring the significant uncertainties, including global health developments, consumer spending in GCR, and global geopolitical and macroeconomic risks.
The ESG targets announced at the Capital Markets Day in May also reaffirm the Group’s commitment to a path of responsible growth, with financial goals rooted in the Group’s values.
As previously announced, at 8:00 a.m. ET (2:00 p.m. CET), the Company plans to host a webcast and conference call. A live webcast of the conference call will also be available on the Company’s website at ir.zegnagroup.com. To participate in the call, please dial:
United States (Local): + 1 646 664 1960 Italy (Local): +39 06 9450 1060 United Kingdom (Local): 020 3936 2999 All other locations: +44 20 3936 2999 Access Code: 565995
An online archive of the broadcast will be available on the website shortly after the live call and will be available for twelve months. An online archive of the broadcast will be available on the website shortly after the live call and will be available for twelve months.
The next scheduled announcement will be the third quarter revenues on October 27, 2022. To receive email alerts of the timing of future financial news releases, as well as future announcements, please register at https://ir.zegnagroup.com.
Founded in 1910 in Trivero, Italy by Ermenegildo Zegna, the Zegna Group designs, creates and distributes luxury menswear and accessories under the Zegna brand, as well as womenswear, menswear and accessories under the Thom Browne brand. Through its Luxury Textile Laboratory Platform – which works to preserve artisanal mills producing the finest Italian fabrics – the Zegna Group manufactures and distributes the highest quality fabrics and textiles. Group products are sold through over 500 stores in 80 countries around the world, of which 295 are directly operated by the Group as of June 30, 2022 (242 Zegna stores and 53 Thom Browne stores). Over the decades, Zegna Group has charted Our Road: a unique path that winds itself through era-defining milestones that have seen the Group grow from a producer of superior wool fabric to a global luxury group. Our Road has led us to New York, where the Group has been listed on the New York Stock Exchange since December 20, 2021. And while we continue to progress on Our Road to tomorrow, we remain committed to upholding our founder’s legacy – one that is based upon the principle that a business’s activities should help the environment. Today, the Zegna Group is creating a lifestyle that marches to the rhythm of modern times while continuing to nurture bonds with the natural world and with our communities that create a better present and future.
This communication, including the sections “Fiscal Year 2022 Outlook” and “Medium-term Outlook: Our Path of Responsible Growth”, contains forward-looking statements that are based on beliefs and assumptions and on information currently available to the Company. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “target,” “seek” or the negative or plural of these words, or other similar expressions that are predictions or indicate future events or prospects, although not all forward-looking statements contain these words. Any statements that refer to expectations, projections or other characterizations of future events or circumstances, including strategies or plans, are also forward-looking statements. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although the Company believes that it has a reasonable basis for each forward-looking statement contained in this communication, the Company cautions you that these statements are based on a combination of facts and factors currently known and projections of the future, which are inherently uncertain. In addition, risks and uncertainties are described in the Company’s filings with the SEC. These filings may identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements.
Investor Relations Francesca Di Pasquantonio francesca.dipasquantonio@zegna.com +39 335 5837669 Media Ermenegildo Zegna Group Domenico Galluccio domenico.galluccio@zegna.com +39 335 538 7288 Brunswick Group Brendan Riley / Daria Danelli / Marie Jensen briley@brunswickgroup.com / ddanelli@brunswickgroup.com / mjensen@brunswickgroup.com +1 (917) 755-1454 / +39 348 635 1149 / +33 (0) 6 49 09 39 54
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