Ermenegildo Zegna (ZGN) Q2 2025 Earnings Call September 05, 2025 08:00 AM ET Company ParticipantsPaola Durante - Chief - External RelationsGianluca Tagliabue - CFO & COOAnthony Charchafji - Equity Research Associate - Luxury GoodsTom Nass - VP - Equity ResearchLouise Singlehurst - Managing DirectorConference Call ParticipantsChris Huang - AnalystOperatorHello everyone, and thank you for standing by. Today's Ermenegildo Zegna Group H1 2025 financial results call will be beginning in just two minutes' time. W ...

Financial Data and Key Metrics Changes - In H1 2025, revenues reached €928 million, a decrease of 2% organically, despite a strong DTC organic performance of 6% [3][4] - Gross profit was €626 million, with a margin of 67.5%, reflecting a 110 basis points improvement driven by a better channel mix [4][10] - Adjusted EBITDA for H1 2025 was €69 million, with an EBITDA margin of 7.4%, down 100 basis points compared to the previous year [6][8] - Net profit increased to €48 million, up 53% from €31 million in the previous year, attributed to higher financial income and foreign exchange gains [10][11] - Capital expenditure (CapEx) was €54 million, representing about 6% of revenues, primarily for store network development [12] Business Line Data and Key Metrics Changes - The Zegna segment generated an adjusted EBITDA of €94 million, with a margin of 14.3%, up from 12.8% in H1 2024, due to higher operating leverage [9] - Thom Browne's adjusted EBITDA fell to €4 million from €20 million in H1 2024, driven by a significant decrease in revenues, particularly in the wholesale channel [9] - Tom Ford Fashion recorded an adjusted EBITDA loss of €90 million, compared to a €12 million loss last year, due to planned investments in store expansion and IT infrastructure [10] Market Data and Key Metrics Changes - Strong momentum was noted in Europe, the Middle East, and the Americas, while the Greater China Region (GCR) remains challenging and volatile [17][59] - Initial signs of improvement in GCR were observed, but the market is still considered volatile, with a cautious outlook [17][59] Company Strategy and Development Direction - The company is focusing on expanding its DTC network, with new store openings in key markets like Miami and Shanghai [15] - A strategic emphasis on quality and personalization in the DTC channel is expected to enhance gross margins [23] - The company plans to maintain investments in brand development while managing discretionary costs [42] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging and volatile sector environment but expressed confidence in actions taken to protect profitability [8][17] - The outlook for H2 2025 includes expectations for low single-digit organic growth, with a cautious approach to the Chinese market [24][59] Other Important Information - Free cash flow absorption was €23 million in H1 2025, compared to €7 million in the previous year, driven by lower operating cash flow [13] - The company confirmed a tax rate of around 30% for the year, down from 35% last year [11] Q&A Session Summary Question: Current performance in terms of margin and expectations for H2 - Management explained that the gross margin improvement is linked to DTC revenues and emphasized the importance of quality in driving margins [20][23] - For H2, management confirmed expectations of low single-digit growth and realistic EBIT consensus [21][25] Question: Margin improvement in the Zegna segment and Thom Browne's margins - Management indicated that Zegna's margins could trend between 13% and 14% for the year, with long-term potential for 15% [30][32] - For Thom Browne, management expects a reduction in the decline of wholesale revenues and aims for a return to double-digit EBIT margins [34] Question: Current trends in the Chinese market - Management noted early signs of improvement in the Chinese market but remained cautious about drawing conclusions from short-term trends [38][59] Question: Pricing strategy and risks for H2 - Management confirmed a systematic low single-digit price increase to offset costs and tariffs, with no significant consumer pushback observed [51][53] - The main risk for H2 is still the volatility in the Chinese market, with a focus on planning for a "new normal" [56][59]