Ermenegildo Zegna(ZGN) - 2022 Q4 - Annual Report

Financial Performance - In 2022, Zegna recorded revenues of €1,492.84 million, a 15.5% increase from €1,292.40 million in 2021[400] - The company reported a Profit of €65.28 million in 2022, recovering from a loss of €127.66 million in 2021[400] - Adjusted EBIT for 2022 was €157.73 million, up from €149.12 million in 2021, indicating a positive trend in operational efficiency[400] - Total revenues for 2022 reached €1,492,840 thousand, a 15.5% increase from €1,292,402 thousand in 2021[420] - Operating profit for 2022 was €147,777 thousand, representing 9.9% of revenues, a significant recovery from an operating loss of €94,028 thousand in 2021[452] - Other income for 2022 amounted to €13,949 thousand, an increase of €5,689 thousand or 68.9% compared to 2021, primarily from lease agreements[1] - Income taxes for the year ended December 31, 2022 amounted to €35,802 thousand, an increase of €5,100 thousand (+16.6%) compared to €30,702 thousand for 2021[558] - The effective tax rate for 2022 was 35.4%, a significant increase from -31.7% in 2021, indicating a shift in profitability[560] Revenue Breakdown - Revenue breakdown: Euro (34.8%), Chinese Renminbi (27.8%), U.S. Dollar (18.5%), with U.S. Dollar revenue increasing by 48.2% from €185,944 thousand in 2021[420] - Zegna branded products generated €923,942 thousand in revenue, up €76,631 thousand (+9.0%) from 2021, driven by strong performance in shoes and luxury leisurewear[462] - Thom Browne revenues increased by €66,617 thousand (+25.3%) to €330,014 thousand, supported by strong wholesale demand and the launch of the TMall platform in Greater China[462] - Textile revenues rose by €34,525 thousand (+33.8%) to €136,769 thousand, attributed to higher orders for new collections and the acquisition of Tessitura Ubertino S.r.l.[462] - Direct to Consumer (DTC) revenues totaled €918,207 thousand, a 7.8% increase from 2021, with Zegna branded products contributing €772,505 thousand[465] - Wholesale revenues increased by €133,830 thousand (+30.7%) to €570,310 thousand, driven by strong growth in Thom Browne and Third Party Brands[466] - EMEA revenues increased by €139,901 thousand (+36.8%) driven by significant growth in Italy and the UK, with a notable performance in the DTC channel[1] - North America revenues rose by €103,403 thousand (+54.1%), primarily due to strong DTC sales for Zegna and Thom Browne products[1] - APAC revenues decreased by €51,542 thousand (-7.4%), mainly due to temporary store closures and lower customer traffic in the Greater China Region[1] Market Presence and Operations - Zegna operates 239 direct-to-consumer (DTC) stores and 63 Thom Browne stores as of December 31, 2022, compared to 245 and 52 respectively in 2021[401] - Approximately 80 countries are served through Zegna's DTC and wholesale distribution channels, enhancing global market presence[401] - The company faced significant impacts from COVID-19, particularly in the Greater China Region, leading to temporary store closures and reduced customer traffic[413] - Zegna's operations have normalized in the Greater China Region as of early 2023, following a recovery in DTC revenues[413] Cost Management - Cost of raw materials and consumables totaled €311,320 thousand, representing 20.9% of revenues, slightly down from 24.0% in 2021[431] - Inflationary pressures in 2022 led to increased costs for energy and raw materials, but margins were protected through pricing strategies[424] - Personnel costs for 2022 were €395,087 thousand, accounting for 26.5% of revenues, compared to 28.5% in 2021[452] - Purchased, outsourced and other costs for 2022 amounted to €437,928 thousand, an increase of €84,299 thousand or 23.8% compared to 2021[491] - The increase in purchased, outsourced and other costs was driven by higher sales volumes and increased outsourcing, with advertising and marketing expenses rising by €19,394 thousand[492] Strategic Acquisitions and Investments - The acquisition of a 25% interest in Norda Run was completed for $7.1 million, with potential for increased stake over nine years[434] - Zegna plans to acquire the Thom Browne retail business in South Korea, consisting of 17 stores, expected to be completed by July 1, 2023[435] - The TFI Acquisition, aimed at acquiring an 85% interest in TFI, is pending antitrust approvals and expected to close in Q2 2023[436] - The acquisition of Tessitura Ubertino S.r.l. contributed an additional €4,590 thousand in revenue in 2022 compared to 2021[467] Future Outlook - The company expects to commence the TFI License for TOM FORD products in Q2 2023, pending regulatory approvals[463] - Zegna's management expects continued volatility in raw material prices, particularly wool and cashmere, impacting future costs[428] - The company plans to continue capital investments for new store openings and renovations, as well as enhancements to production facilities and IT systems[589]