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Ermenegildo Zegna(ZGN) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Trade working capital increased by EUR148 million, with EUR86 million attributed to the consolidation of TOM FORD trade working capital as of June 2023 The remaining increase in inventory is considered healthy, driven by planned growth in the Essential Zegna One Brand collection products [1] - Revenue for the first half of 2023 increased by 239% year-over-year to EUR903 million, with organic growth accounting for 215% of this increase [82] - Adjusted EBIT rose by 45% year-over-year to EUR1199 million, with an adjusted EBIT margin of 133% [82] - The company reaffirmed its medium-term target of reaching EUR2 billion in revenue and an adjusted EBIT margin of at least 15% by 2025 [2] Business Line Performance - The Zegna segment recorded a 179% increase in revenues to EUR651 million, with adjusted EBIT up 478% to EUR1005 million and an adjusted EBIT margin of 154% [98] - The Thom Browne segment saw revenues increase by 119% to EUR208 million, with adjusted EBIT slightly down by 01% to EUR315 million due to costs associated with store network expansion [100] - TOM FORD FASHION, consolidated from April 28, contributed EUR64 million in revenue and EUR37 million in adjusted EBIT over two months [102] Market Performance - Growth by consumer nationality showed significant increases, with American, Middle Eastern, Latin American, and Southeast Asian customers doubling their spending compared to 2021 European customers also saw a significant step-up, though not doubling [13] - Chinese consumer spending was flat year-to-date compared to 2021, with softer performance in the third quarter, particularly in Tier 2 and 3 cities in Mainland China However, Hong Kong and Macau showed strong rebounds [14][17] - The American market remains resilient, with strong demand for Made-to-Measure products, which have exceeded 2019 levels [27] Strategic Direction and Industry Competition - The company is focused on expanding its store network and increasing store productivity, with seven new direct stores opened in the first half of 2023, including locations in New York, Copenhagen, and China [76] - Marketing investments are being prioritized, particularly for Zegna and TOM FORD FASHION, with increased spending expected in the second half of 2023 [95] - The company is leveraging partnerships, such as the one with Real Madrid, to enhance brand awareness and customer engagement [33] Management Commentary on Operating Environment and Future Outlook - Management remains positive on the mid- to long-term outlook for China, despite short-term softness in Mainland China, with strong performance in Hong Kong and Macau [17][51] - The company anticipates continued growth in the American market, driven by strong customer demand and new product launches [27] - The integration of TOM FORD FASHION is progressing well, with more details on the brand's potential to be shared at the upcoming Capital Markets Day in December [21] Other Important Information - The company will host its second Capital Markets Day on December 5 in New York, where it will provide updated medium- and long-term targets, including those for TOM FORD FASHION [5] - Marketing expenses are expected to increase by 05 percentage points or slightly more in the second half of 2023, driven by events in Singapore and Chengdu [23] Q&A Session Summary Question: Growth by consumer nationality excluding TOM FORD and Q3 trends - American, Middle Eastern, Latin American, and Southeast Asian customers have doubled their spending compared to 2021, while European customers saw a significant step-up Chinese spending is flat year-to-date, with softer performance in Q3, particularly in Tier 2 and 3 cities in Mainland China [13][14][17] - Marketing expenses are expected to increase by 05 percentage points or slightly more in H2, driven by events in Singapore and Chengdu [23] Question: Medium-term guidance and price mix impact - The company reaffirmed its medium-term target of at least 15% adjusted EBIT margin by 2025, with more details to be provided at the Capital Markets Day in December [38] - Price mix has been a significant driver of growth, with double-digit increases in average ticket prices due to product elevation and like-for-like price increases [36] Question: Real Madrid partnership and its impact - The partnership with Real Madrid is seen as a tool to enhance brand awareness and customer engagement, though quantifying incremental sales is challenging [33] Question: Softness in China and marketing expenses by brand - Softness in Mainland China is attributed to uneven performance across cities, with strong rebounds in Hong Kong and Macau Chinese spending outside China, particularly in Asia, remains below 2019 levels [51][55] - Marketing expenses are being prioritized for Zegna and Thom Browne, with significant investments in brand awareness and client-focused events [47][49]