Ermenegildo Zegna(ZGN) - 2024 Q2 - Quarterly Report

Financial Performance - Revenues for the six months ended June 30, 2024, were €960,122 thousand, an increase of 6.3% compared to €903,059 thousand in 2023[13] - Profit for the same period decreased to €31,332 thousand from €52,116 thousand in 2023, reflecting a decline of 39.9%[13] - Adjusted EBIT for the first half of 2024 was €80,910 thousand, down 32.5% from €119,904 thousand in 2023[13] - Operating profit for the six months ended June 30, 2024, was €73,081 thousand, representing a margin of 7.6%, down from €116,509 thousand or 12.9% in 2023[18] - The Group's profit before taxes for the six months ended June 30, 2024, was €48,550 thousand, compared to €78,278 thousand in 2023, reflecting a decrease in profitability[18] - The Group's profit for the six months ended June 30, 2024, was €31.3 million, a decrease from €52.1 million in the same period of 2023, representing a decline of 39.9%[116] - Adjusted EBIT for the same period was €80.9 million, down from €119.9 million in 2023, reflecting a decrease of 32.6%[116] - Adjusted EBITDA for the six months ended June 30, 2024, was €189.5 million, compared to €206.9 million in 2023, a decrease of 8.4%[120] - Adjusted Profit for the first half of 2024 was €37.2 million, down from €54.9 million in 2023, a decline of 32.4%[124] Revenue Breakdown - The TOM FORD FASHION segment generated revenues of €148,493 thousand, an increase of €84,478 thousand or +132.0% compared to €64,015 thousand in 2023, benefiting from a full six months contribution following the TFI Acquisition[21] - The ZEGNA brand reported revenues of €566,067 thousand, an increase of €24,748 thousand or +4.6%, primarily driven by strong growth in the Direct to Consumer (DTC) channel[21] - Thom Browne revenues decreased by €40,230 thousand or -19.4%, reflecting the decision to streamline the wholesale business[22] - Revenues for the Thom Browne segment decreased to €166,935 thousand, a decline of €41,024 thousand or -19.7% from €207,959 thousand in 2023[71] - Zegna segment revenues for the six months ended June 30, 2024 were €660,538 thousand, an increase of €16,228 thousand or +2.5% compared to €644,310 thousand in 2023[66] - Revenues for the Tom Ford Fashion segment increased by €84,466 thousand or +131.9% to €148,493 thousand for the six months ended June 30, 2024, compared to €64,027 thousand in the same period of 2023[78] Cost and Expenses - Selling, general and administrative expenses increased by €81,820 thousand or +19.7% to €497,612 thousand, with expenses as a percentage of revenues rising from 46.0% to 51.8%[39][41] - Marketing expenses for the six months ended June 30, 2024, increased by €19,221 thousand or +40.4% to €66,751 thousand, with marketing expenses as a percentage of revenues rising from 5.3% to 7.0%[45] - The Group's financial expenses decreased to €29,267 thousand, down from €44,592 thousand in the previous year[18] - Cost of sales for the six months ended June 30, 2024, was €322,678 thousand, with cost of sales as a percentage of revenues decreasing to 33.6% from 35.8%[33][34] Cash Flow and Liquidity - Net cash flows from operating activities increased by €12,865 thousand to €120,448 thousand for the six months ended June 30, 2024, compared to €107,583 thousand in the same period of 2023[84] - Net cash flows used in investing activities amounted to €81,741 thousand for the six months ended June 30, 2024, compared to net cash flows from investing activities of €60,958 thousand in the same period of 2023, a negative change of €142,699 thousand[86] - Cash and cash equivalents at the end of the period decreased to €225,316 thousand from €255,040 thousand in the same period of 2023, a decrease of €29,724 thousand[83] - Net Financial Indebtedness increased to €65,509 thousand at June 30, 2024, compared to €10,810 thousand at December 31, 2023, primarily due to negative Free Cash Flow and cash used for acquisitions[96] - Cash and cash equivalents decreased by 24.0% to €225,316 thousand at June 30, 2024, from €296,279 thousand at December 31, 2023[107] Strategic Initiatives - The TFI Acquisition, completed on April 28, 2023, allows the Group to expand its luxury offerings in both men's and women's fashion and accessories[5] - The Group's strategy includes enhancing its position in the luxury womenswear and leather goods segments through acquisitions and brand development[10] - The Group's unique supply chain, Filiera, provides a competitive advantage by integrating high-end textile production with luxury manufacturing capabilities[12] - The Group's management emphasizes the importance of safeguarding brand integrity and responding to changing customer preferences as part of its strategic outlook[7] Market Performance - Revenue growth in the Americas was €55,934 thousand or +29.4%, driven by strong performance of the ZEGNA brand and 9 net store openings, with a total of 64 DTC stores as of June 30, 2024[29] - The Greater China Region experienced a revenue decline of €40,511 thousand or -13.2%, attributed to challenging conditions in the luxury sector[31] - EMEA revenues increased by €13,911 thousand or +4.3%, primarily due to high double-digit growth of the ZEGNA brand[29] - Rest of APAC revenues rose by €27,800 thousand or +33.8%, driven by double-digit organic growth in Japan[29] Financial Risks and Management - The Group's financial risks include exposure to foreign currency exchange rates, interest rates, and liquidity risks[150] - The Group's management uses several non-IFRS financial measures to assess performance, including Adjusted EBIT, Adjusted EBITDA, and Adjusted Profit, which provide insights into underlying operational performance[112] - The Group's financial performance is impacted by significant costs related to severance, legal disputes, and transaction costs associated with acquisitions[123] Store Operations and Expansion - The Group operates a total of 437 direct-to-consumer stores, including 279 ZEGNA, 102 Thom Browne, and 56 TOM FORD FASHION stores as of June 30, 2024[13] - The Group opened 36 net new stores for Thom Browne as of June 30, 2024, compared to the previous year, reflecting ongoing expansion efforts[73] - New store openings in the Zegna segment included locations in EMEA, Greater China, and APAC, while Thom Browne and Tom Ford Fashion segments also expanded with new stores in key regions[92][94] Other Notable Information - A new Creative Director, Haider Ackermann, was appointed for TOM FORD on September 4, 2024, following Peter Hawkings' departure[152] - The Group's interest in Consorzio Re.Crea was reduced from 15.5% to 15.4% due to a capital increase, reflecting ongoing adjustments in its investment portfolio[188] - The average exchange rate for the U.S. Dollar for the six months ended June 30, 2024, was 1.081, compared to 1.105 at December 31, 2023, indicating a strengthening Euro[181]