Ermenegildo Zegna N.V. Ordinary Shares

Hello, everyone, and thank you for standing by. Today's Amenajildo Xenia Group H1 2025 Financial Results Call will be beginning in just two minutes' time. We thank you for your patience. Thank you. Good afternoon. Good morning, everyone. Thank you for joining the Emele Gildo Zania Group H1 2025 Financial Results Call. Please note that today's material and presentation are available under the zaniagroup.com website. Joining us today, the Zania Group leadership team, including Gianluca Tagliabue, Group CFO and COO, and Paola Durante, Chief of External Relations. Before we begin, we need to point out that the team will make certain forward-looking statements during the call. The group actual results may be materially different from those expressed or implied by these forward-looking statements. Also, these statements are subject to a number of risks and uncertainties, including those described in our SEC filings. Please refer to the forward-looking statements cautionary statement included at page two of today's presentation. I'll now hand over to Paola Durante. Thank you.

Thank you. Good morning and good afternoon, everybody. Thank you for being here today on our H1 2025 results conference call. As already has been said by the operator, I'm Paola Durante. And here with me, there is Gianluca Tagliabue, our CFO and COO, and Alice Poggioli, our director. I will briefly comment on first, six months financial results. And then we'll leave the floor to Gianluca for some final remarks. First half 2025 revenues have been confirmed at €928 million, minus 2% organic, driven by a very good plus 6% DTC organic performance. But I will keep commenting more on revenues since we have already seen and commented during our call at the end of July. So let's then move on the presentation at page 7. First of all, we start deep diving on our metrics, looking at the gross profit. First, the 2025 gross profit reached €626 million, with a margin on sales of 67.5%. The 110 basis points margin improvement has been driven mainly by a better channel mix, since the DTC revenues generated 82% of our group branded revenues, which is higher, 6% higher, compared to the 76% in the first six months of 2024. And as you know, you perfectly know, DTC gross margin is higher than the wholesale. Moving to selling general and administrative costs. you know that these costs are, on the other hand, the other face of the coin when strengthening the DTC channel. This cost reached, in the first six months, €502 million, in line with the €498 million in the first six months of 2024. The incidence on revenues has grown to 54.1%, which compares to 51.8%. And this higher incidence on revenue has been largely driven due to three main effects. The first one, a negative operating leverage, particularly at Thom Browne. the cost related to support our long-term growth trajectory, in particularly in building talent team, in building a stronger IT infrastructure, and CRM platform. This in particularly, not only, but in particularly at Tom Ford Fashion. The third element is higher initial cost incidence for the newly opened stores. you know it is normal that at the beginning stores do not reach the long-term revenue, run rate revenue, so the incidence of cost related to the openings is normally initially higher. At the same time, we undertook actions to contain cost across all the three brands, which has helped maintaining under control the selling, general and administrative cost. Moving to marketing, marketing expenses reached 63 million euros, around 7% incidence on revenue, so substantially in line with what we reported last year. And this notwithstanding some important events that took place in the first six months of 2025. You perfectly remember the last day in Dubai, but I also remind you that also last year we had some important events. OK, so with page 7 I would not comment more. Let's move. Let's skip to page 8 of the presentation where we analyze our adjusted EBIT for the group and by segment. First of all, you know that adjusted EBIT is the main performance metric that we use to analyze our business both at group at the segment level. For the reconciliations between adjusted EBIT and operating profit, you can look, you can see on the appendix of this presentation. So, in the first half of 2025, adjusted EBIT reached 69 million euros, with an EBIT margin of 7.4%, down 100 basis points versus the first six months of last year. The reason of this decline is clearly linked to what I already commented when talking about selling general and administrative higher incidents, and also has been slightly negatively impacted by the currencies movement. You remember that since April, currencies euro appreciated in particular compared to us dollar and renminbi which are the two most important currencies for our group let me also comment or add something that we already said during the call in july We confirm that also in 2025, in the second part, adjusted EBIT will be higher compared to the first part of the year. Of course, we are aware that the sector remains challenging and volatile. However, we know that we have implemented actions to protect our profitability. Let's now look to our results by segment. First of all, talking about the Zegna segment, which, as you know, includes not only Zegna brand, but also the textile division and the third party brands. This segment generated an adjusted EBIT of 94 million euros with a margin of 14.3%, which compared to 12.8% in the first semester of 2024. This important 150 bps increase has been led by higher operating leverage, largely as a result of a more efficient DTC channel, and cost control measures. Tom Brown. Adjusted EBIT for the Tom Brown segment was 4 million compared to 20 million in the first six months of 2024. This adjusted EBIT contraction was driven by the sharp decrease in revenues in the period, in particular in the wholesale funnel, and an increase in the selling cost, in particular, due to the DTC network expansion. Let's now move to Tom for Fashion segment, which has recorded a €19 million adjusted EBIT loss, which compares to the €12 million negative last year. This is a result of the plan expected investments that we made in the store network expansion in talent team in building a talent team in building a better, stronger IT infrastructure to create the right size platform to support the business expansion. I leave for further comments and questions at the end. Let's now move to page 9, income statement. Here I just commented on the net profit line, which reached, in the first six months of this year, 47.9 million euros, up 53% compared to the 31 million last year. The increase in profit is the result of higher financial income and foreign exchange gains. These two items combined moved in the semester from a negative 25 million to a positive plus 6 euro million. And this reflects largely, I would say, the fair value measurement of liability for put option. held by non-controlling interest. The most important liability is actually held in US dollars. So the euro appreciation has also benefited this line. And the second important effect to consider is looking at the tax rate, the income taxes. which was of 20.1 million euro in the first six months of 2025, corresponding to a tax rate of 30% versus last year, 35, as you see from the table. I can also anticipate that the tax rate in the region of 30%, 28 to 30% is more aligned to our expectations for year end. And now, Let's look at capital expenditure. So let's move to page 10 of the presentation. CapEx reached 54 million with the incidence of revenues of around 6%. This 54 million has been two-thirds related to investments in the development of the store network across the three brands. And the remaining part is mainly related to the investments in production. You know, we are building the important plant for the shoe business in Parma and also some IT investments. For year-end, you remember we anticipate a CAPEX, an incidence on CAPEX on revenue of around 6-7%, and I can confirm this expectation, also because in the second part of the year, investment for the greenfield production site for footwear will actually kick in even more importantly. Trade working capital at the end of June was equal to €442 million, which compared to €467 million last year. This reduction has been driven by better inventory management, as you can see from the chart, and also lower receivable. The last one clearly also linked to the streamlining of the wholesale business. Finally, on page 11, free cash flow, I just commented that the free cash absorption has been of 23 million this year, euro, and last year it was around 7 million, and this higher absorption, as you can see, has been driven by the lower operating cash flows. No much to comment on page 12, just saying that the net death at the end of June of around the night of 92 million euros was actually fell in line with what we reported at the end of December 2024. I will finish here my brief comments and leave now the floor to Gianluca for the final remarks. Thank you.

Thank you, Paula. Good afternoon, everybody. Let me give you a brief update on the actions that we did in the last few weeks since we last spoke before going to the Q&A session, starting with Zegna. We just launched the Zegna Fall-Winter 25 marketing campaign labeled It's Not a Suit, It's a Zegna. For Fall 25, a new chapter has been presented rooted in a century of style. The focus of the campaign is Zegna Torino, the suit that comes directly from our founder's closet, and we made it with our unique new fabric, the Velusaurium, the finest wool in the world. In the campaign, the Torino suit is matched with pecta shoes that are the winter version of our triple stitch to create a unique, charismatic, and in one word, Zegna look. The campaign accompanies the launch of drop two of the fall-winter collection, which has received in the stores initial positive feedback since we began pre-sales and pre-orders a couple of weeks ago. Moving on to the Zegna DTC network, we are pleased to announce the opening of our new store in Miami Design District, marking another important step forward in the strategic expansion of our presence in the US market. Additionally, we just opened a new Salotto, which are the permanent by appointment stores for our very important client at Plaza 66 in Shanghai, bringing the total to three globally following the openings in Shinkon Place, Beijing and Paragon Singapore. As you know, as I said, the Salotti is a by appointment only store offering exclusive collections that you don't find in the regular stores and the unique shopping experience that reflects the essence of Xenia luxury and personalization offer. Moving to Thom Browne, we just launched the Fall 25 campaign, which in line with the brand communication strategy, reflects an evolution of uniformity to include lifestyle-oriented visuals with distinctive DNA that makes Thom Browne authentic and unique, remaining unmistakably present. On Thom Browne, let me also remind you that since September 2nd, that is this week, we are pleased to have Sam Lobman that has officially started his mandate as CEO of the brand. And finally, Tom Ford Fashion. The first Tom Ford campaign signed by Ida Rakeman has been released and it has been very well received, as confirmed by many comments made by journalists and media experts. Ida's collection touched the store's floor at the end of August. It is therefore early to commence but the first very initial reactions in the stores have been really positive. All in all, I can say we have entered September with good energy across all three brands, but it's essential to remain cautious and vigilant as initial signs should not be considered yet as a consolidated trend. The sector continues to face. Which calls for a cautious and thoughtful approach. As a final comment, I can add that by region, we still continue to see strong momentum in Europe, Middle East, and Americas. GCR remains challenging and volatile. It is true that in some recent weeks, the trend in GCR has slightly improved, also thanks to easier comparison base, but still staying on the negative side. So it is yet early to draw a solid conclusion about this latest trend of GCR. I think I can stop here and we can now open to the Q&A session. Paola.

Thank you. Thank you Gianluca. Please operator, can you open to the first question from our audience? Thank you.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please do so now by pressing Start followed by the number 1 on your telephone keypad. Our first question comes from Anthony Charfagy with BNP Paribas. Please go ahead.

Yes, good morning. It's Anthony from BNP. Thank you very much for taking my question. I have just two. The first one would be on the current performance in terms of margin. It seems that the gross profit margin is still continuing its upward direction since last H124. Could you maybe give a bit more color on the bridge of this plus 110 bps, maybe given the pricing FX impact on top of channel mix? That would be my... My first question and also if we should still see 67% at least gross margin in H2 despite the tariffs. My second question would be on H2 and I would say expectation. So thank you for giving a bit of color on the current trends. Seems that consensus is expecting close to 4% organic in H2, which is a nice improvement from Q2. You already commented that you were happy with consensus being around 173 million at the EBIT level, which would imply a flat margin. Are you still expecting this development in terms both of top line and margin? That would be my second question. Thank you.

thank you anthony and i leave clearly all the two questions to gel luca the first one on gross profit both analysis on the first half and what we expect for the second part of the year and then on the consensus expectations

Gross margin I Anthony, by the way, gross margin. The evolution is definitely a result of the DTC revenues that are reaching at this point. 88% versus 86 last year and within the DTC we have been pushing. I think we have discussed many times. Also the quality of that DTC. It's not something that we report, but we carefully monitored the South through. and sell through at full price, which definitely is a step ahead on the brand versus the other two brands. But in the three brands with different level of maturities, we are pushing up the sell through, implicitly creating the opportunity to reduce the number and the incidence of outlets. So those are one number is evident. The DTC weight within the DTC is the quality of the DTC. That is the underlying factor that is helping us move forward. The gross margin where we think we we we deserve to be and. Apart from channel, of course the the journey of personalization is also a driver. The fact that we are able to transfer into the price, the quality and the service unique that we deliver to our customers. So I think that is an indicator, a synthetic indicator of our ability to stay full price and be recognized for the quality that we deliver. In terms of H2, if you remember, we indicated a low single digit growth on the revenue side. Uhm, for the year we confirm that in organic terms. So we clarify that in organic terms when we provided the indication the USD, Euro and renminbi Euro were very different from today. So of course we need to take this into account and that today the consensus that we see at one 1,000,923. I go by art nobody to the right number 1923. We believe that correctly reflects also the change in currency. So if you look at that number on an organic basis corresponds to low single digit organic and on the. Adjusted EBIT I think that our consensus that we had in front of us that is 173. Indeed, it's incorporating the same thing about the currency swing, and we believe that this adjusted EBIT at concessions 173 is. Realistic.

OK, Anthony, I I think I think we answered, but if there is any follow up we are here. If not, we can go to the second question or the second analyst from the.

All good, thank you.

Thank you, Anthony. Operator for the second one.

Thank you. Our next question comes from Oliver Chen with TD Cohen. Oliver, please go ahead.

Hi, this is Tom Nass on for Oliver. I wanted to ask about the margin improvement in the Xenia segment. Specifically, if you could speak to some of the opportunities you think may be on the road ahead as to where segment margins could trend over the longer term. And then as a follow-up, I wanted to ask on margins in the Tom Brown segments and the progress you've been seeing there with the wholesale rationalization. I guess more specifically, how should we think about modeling margins in Tom Brown's segment over the long term? Thanks.

Thank you all. Thank you for the two questions that are both on operating margins on a little. The first one is for Zegna and the opportunities on the long term and the second one is on Tom Brown. So again, the Luca is your man.

Yes, in terms of in terms of margin for Zegna, we were able to bring it up at this point higher than the 14%. If you ask us what is the journey of this, let's be mindful that we keep on investing on Xenia. We will have also investments. So we need to decouple short term from long term. If we talk about short term, didn't commit to a specific number, but definitely something between 13 and 14% is the number that we see as the number for the year. Definitely the journey of growth for Tom Bra for Xenia needs to go. We have always mentioned the 15%. That is the first step we need to get. So we see the potential for the brand to get there. Not for the year. For Tom Brown, of course we have paid the bill of the minus 52% of all sale in the first half. that for the year the decline of wholesale will not be minus 50%. We see the second half reducing the decline in the range of minus minus 20. So the impact in the first half as deeply being affected by this step down of revenues which were very higher, much higher in the first half, first quarter of 2024. And of course, having on board Sam Loban as the new business leader, bringing and injecting what we want to be a DTC centric approach, starting from merchandising, starting from training in the retail and all the different levers that then bring to life the stores is is what we are betting for. for Tom Brown to bring Tom Brown back to a double-digit EBIT that is where it should belong.

Perfect. I don't know if, Oliver, we answered your questions or any follow-up. Otherwise, we go to the next one.

That's all. Thank you. OK.

Operator, is there any other questions?

Thank you. Our next question comes from Chris Huang with UBS. Chris, please go ahead.

Hi, thanks for taking my questions. I have two. The first one on current trends. I think, Gianluca, you previously touched on some early signs of improvement when it comes to the Chinese consumers. If I remember correctly, Q3 was the quarter last year when you started to see meaningful, easier comes for the Chinese consumers. So can you maybe help us understand a little bit more the signs you're seeing? Is the traffic coming back? Is the conversions going up? And can you also confirm if Chinese consumers in the first two months of the quarter is I know it's still declining, but are we talking about maybe less than double-digit decline in the single-digit area? And secondly, on margins, just as a follow-up to the previous question on Zangas segment, if I heard correctly, you said that for 2025, you're expecting Zangas segment margins to land around 13% to 14%, but that would imply H2 to see quite a bit of contraction year over year and on the basis of probably more H1 weighted marketing investments, how do we square this equation? Thank you.

OK, thank you. Thank you Chris. Let's start with the second one on marketing for Zegna and I'll leave Gianluca to answer. On the China current trend, we can give you some initial more comments on colors, but really I would like to leave detailed comment to our Q3 revenue results conference call that, as you know, is in October. This is not a conference call that is meant to comment deeply on current trend, so leaving to Gianluca on margins.

Marges, uh, we know that we have some investments to be done in the second half. We have, for instance, an event in Miami around the Art Basel to be done in December, so we have in front of us still four months that are uncertain, so we don't want to set expectations. That can be disappointing, so the combination of two let us Invite you to stay within that range. Happy to be. To at the end of the year to to say that I was wrong upside on the upper side, but we know that we have. We don't want to cut strategic actions. We want to keep on fueling the brand that is with positive tailwind, so we don't want to. squeeze the numbers of the second half of the year in order to deliver any bit on the short term. We see big potential on the long run of the brand. We see results, so we want to keep on having the right events, the right investments, and we are just cutting discretionary costs, not anything else.

And can I just follow up on On marketing, can you just confirm if for the four year group level is still going to be around 6% of sales?

6% yes, yes, around 6% increase for the group.

OK, thank you. OK, thank you.

Thank you so much Chris and. Leave it to the next one.

Thank you. Our next question comes from Louise Singlehurst with Goldman Sachs. Louise, please go ahead.

Hi, good afternoon, everyone. Jean-Luc and Paola. Thank you for taking my questions. Just two quick follow-ups for me, please. Firstly, on pricing, can you just remind us where we are now going to obviously the fall, winter, the pricing that's gone through and any plans for the second half? And I suppose the reference there is really on the commentary for the US because we've been hearing a lot from the peers recently in terms of the luxury positioning, the price increases that have gone through so far this year. There hasn't really been any impact on volumes or any consumer um pushback and then secondly i know this is a call it's not about current trading or we're going to get recent trends but if we think about that low single digit um outlook for the full year and where we are entering september i suppose where's the where's the biggest um where's where's the risk that we still see is it more on the china aspect and the pace of recovery or is it more the expectations management across the different regions. Just quite interested to hear your feedback, Gianluca, because obviously the U.S. is probably a lot stronger than we anticipated year-to-date, and hopefully there are some tentative signs in China, but I know it's early. Thank you.

So the pricing, start from pricing. As we declared, we have been acting always on a low single-digit price increase. That's on a systematic approach to offset costs dynamics and currency dynamics. In fall 25, when there was the addition of incremental tariffs, we have acted in order to reflect this into our US fall winter 25 prices, which have been live since August of this month. So we have simply taken care of covering the burden of incremental In US we are not seeing a substantial. Boomerang from the from the from the consumers. As I said before, we keep on seeing good momentum in US, so we have not seen a change in inflection point in our solid trajectory of growth in US. First in the thing a brand, but also more recently with the either collection we can say the same. positive momentum also on the Tom Ford. Also Tom Brown, despite being smaller in the US environment, they just opened some stores, but the business size is smaller. So that is the comment on the fall-winter 25 pricing. The second, Paola, remind me.

The second will be Outlook for H2, and where we see the main risk is China or... China.

It's China because we are still... In a in a volatile environment, so we don't want to to draw conclusion from few weeks where we have seen the trend. Less negative, so of a easier base of comparison, easier base of comparison. So we want to the. We would be much more comfortable in a situation when we see China. Solid as Jim mentioned last time, We are entering the next year into a cautious mode that we have labeled as China into a new normal. Gildo mentioned that. So we want to think and we want to plan and be ready for 2026, which is steady to this year. So that is, we are not banking on a rebound for next year of China. Then if it comes, we will be ready to take advantage and enjoy the growth, but we are planning to stay in this new normal situation through next year.

Thank you, Luisa.

Thank you.

Okay, is there any follow-up questions, any other questions from the audience?

We have no further questions registered, so Paola, I'll hand back to you.

Thank you, thank you to everybody as always very interesting and nice question to us. We always enjoy spending sometimes we do and because we enjoy we will soon see on October 23rd. So let's see and catch up on Q3 revenues in in a month, month and alpha. Thank you everybody. Have a nice weekend. Thank you everyone for joining us today.

This concludes our call and you may now disconnect your lines.