“Whatever happens in China in 2025, it will be better than 2024.”
So believes Gildo Zegna, chairman and chief executive officer of the Ermenegildo Zegna Group, commenting on the group’s performance in the first nine months of the year.
An increasingly challenging Greater China region and a soft wholesale channel at Thom Browne dented the group’s revenues in the third quarter and impacted its performance in the nine months, but the executive is thinking long-term.
“The year 2024 was different from what we had planned but we must work for the long-term,” said Zegna during a call with analysts on Tuesday, ticking off the streamlining of the wholesale channel at Thom Browne, the investments made in all brands, and attracting the right talent to leverage the labels’ full potential in 2025. Although uncertainties remain, particularly in Greater China, “we will be in much better shape, planning carefully, strengthening the group to deliver on our promises. Next year is unpredictable, but we are prepared with a clear vision to stay the course,” he said.
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In the nine months ended Sept. 30, the Zegna group reported unaudited revenues of 1.35 billion euros, up 1.7 percent compared with 1.33 billion euros in the same period last year. Organically, sales fell 4 percent.
In the third quarter, revenues were down 7.8 percent to 397.3 million euros.
Brand Performance
While acknowledging the slowdown in the third quarter, Zegna said he was “reassured by the continued positive performance of the Zegna brand, boosted by the direct-to-consumer channel, and also by the quality of talent we have brought into Thom Browne and Tom Ford Fashion as we work to strengthen those teams.”
By brand, in the nine months, Zegna sales rose 3.4 percent to 810.6 million euros. In the third quarter, revenues inched up 0.9 percent, driven by solid double-digit growth in the Europe, Middle East and Africa region, in the Americas and Japan.
In the nine months, Thom Browne sales fell 21.4 percent to 220.1 million euros.
Revenues for the Tom Ford Fashion brand amounted to 213.9 million euros, a 3.8 percent decrease.
In September, Haider Ackermann was named creative director of Tom Ford Fashion, succeeding Peter Hawkings, who exited in July. Ackermann’s first collection will bow in February in Paris. Zegna took on Ford’s fashion as part of the Estée Lauder Cos. deal in 2022, which valued the beauty and fashion brand at $2.8 billion.
Expectations for China
Revenues in the Greater China area fell 15.8 percent to 353.1 million euros, accounting for 26 percent of the total. In the third quarter, sales in the region tumbled 22.8 percent due to progressively deteriorating consumer confidence level in the region.
As expected, analysts during the call pressed Gildo Zegna for visibility and comments on that market. “I am leaving for China tomorrow [Wednesday] and this shows how important China remains to us and how we believe in it, and I will be able to share more after I return,” he said.
He acknowledged the region was “challenging” in 2024 and said he expected it to continue to be so “at least for the first part of 2025,” cautious about expressing comments he believes would be premature.
However, he said there are “positive signs,” and that he is “more confident for the long-term. Zegna is growing nicely, and the brand is attracting younger customers and this is a very strong sign that the new strategy is working, we are gaining more and more traction, stores have been renewed in China and they are in top locations in malls. We have strong relations with landlords and may work on renewals and relocations in the future.”
Reflecting the importance of the market, the executive said that Villa Zegna is headed to Shanghai. In September, the Villa Zegna installation was unveiled in New York, offering an immersive experience connecting to the brand, and meant to travel to different markets and communities.
“Uber luxury is growing,” said Zegna, touting the made to measure project, which led him to be “hopeful about China with an even higher spending. There has been a deep culture change for the brand and the people, from transaction to interaction. We are not yet where we aim to be but the path is clear.”
Zegna said Golden Week “was a bit ahead of our expectations, compared with last year, but revenues were still below. However, at Zegna we saw a higher-quality traffic coherent with the positioning, at Thom Browne there were small initial signs, although we remain cautious about the uncertainties there. Tom Ford has a minor exposure to China.”
Strength of the Americas
In the nine months, revenues in the rest of Asia-Pacific climbed 23.9 percent to 158.8 million euros.
Sales in the Americas climbed 15.7 percent to 358.2 million euros, representing 26 percent of the total.
“Americans are in love with what we do,” said the executive. “Zegna’s Triple Stitch Monte shoes and the Conte jacket are flying out. We are very pleased and there is no reason to believe it should stop.”
Tom Ford “is very strong in the U.S. and has a long way to go in Asia,” offering untapped potential. A store opening is in the pipeline for Singapore, and the first flagship offering also women’s collections in China opened last week in Beijing’s China World Mall.
In the nine months, EMEA revenues rose 2.2 percent to 485.6 million euros, representing 36 percent of the total.
Asked about current trading, Zegna said August was more challenging, September saw a slight improvement and, although only a few weeks into October, he characterized it as “overall slightly better than the third quarter,” while adding “let’s not get excited, the current environment is uncertain and volatile.”
Retail Versus Wholesale
In the nine months, group DTC revenues rose 10.2 percent to 953.6 million euros.
The Zegna brand’s DTC revenues led the increase, gaining 4.4 percent, boosted by double-digit growth in the Europe, Middle East and Africa region, with a sequential acceleration of growth in particular in the Middle East, the Americas and Japan.
At the end of September, Zegna counted 285 directly operated stores, with six net openings in the third quarter, including in New York Meatpacking, Honolulu and some conversions from wholesale into retail in Canada and of one store in Riyadh. Zegna had just returned from the opening of a namesake store opening in Monte Carlo.
In the nine months, Thom Browne DTC revenues inched up 0.7 percent but organically were down 12.9 percent. This reflected the challenging environment, especially in Greater China, despite the positive performance in Japan and Korea. At the end of September, Thom Browne counted 106 DOS, including four net openings in APAC in the third quarter.
Tom Ford Fashion DTC revenues rose 2 percent to 136.2 million euros, accelerating in the third quarter lifted by the U.S. and EMEA counterbalanced by a continued softer performance in APAC. At the end of September, Tom Ford Fashion had 62 DOS, including six net openings in the third quarter.
In the nine months, wholesale revenues fell 13.7 percent to 291 million euros.
Zegna wholesale revenues edged down 1.7 percent to 120.4 million euros. The negative performance in the third quarter, down 12.9 percent, was driven by a different timing in deliveries and the conversion of certain wholesale shops into DOS.
Thom Browne wholesale revenues tumbled 39.6 percent to 92.9 million, reflecting the streamlining of the wholesale channel decided at the beginning of the year, as well as some wholesale conversions into DOS.
Tom Ford Fashion wholesale revenues decreased 11.1 percent to 77.7 million euros. In the third quarter, a dive of 29.6 percent organic was largely due to a different timing in deliveries.
Responding to an analyst, chief financial officer Gianluca Tagliabue said “the architecture of pricing in general is right and balanced. Going forward there will be moderate price increases due to currency fluctuations and inflation, but there will not be a structural repositioning.”
“We’ve been through a learning curve, setting up a platform of icons and now we speed up the execution to go when the market is ready,” concluded Zegna.
