Solid growth across geographies and channels for both the Zegna and Thom Browne labels, in particular in Europe, the U.S. and the Middle East, boosted the Ermenegildo Zegna Group’s top line in the third quarter. And Gildo Zegna, chairman and chief executive officer, believes the Middle East “can be the new China.” During a conference call with analysts on Thursday to comment on the quarterly results, he said he was in the Middle East two weeks ago, visiting five countries in a few days, which led him to a confident take on the region. “We are well-placed there and will be open stores with an aggressive five-year strategy. They are interested in what we do there,” he observed.
In the three months ended Sept. 30, the group reported unaudited revenues of 357 million euros, up 27.5 percent year-over-year. Sales in the first nine months of 2022 reached 1.09 billion euros, up 22.9 percent compared with the same period in 2021.
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The Zegna segment, which includes Zegna branded products as well as the textile and third-party brands product lines, reported a 27.2 percent increase in sales in the quarter, reaching 289 million euros and showing an acceleration in the third quarter.
The Thom Browne label grew 29.5 percent in the quarter, reaching revenues of 69 million euros.
“This quarter was one of our strongest yet thanks to exceptional performance by both Zegna and Thom Browne in Europe, the Middle East and the U.S., as well as a rebound in the Greater China region,” said Gildo Zegna. “We achieved a number of milestones this quarter as we continue to execute on our strategy and commitments while remaining true to the values that have guided us for 112 years.”
He highlighted the launch of Oasi Cashmere, “a significant step on our road to traceability,” with the goal of 100 percent of the cashmere used in this collection being fully traceable by 2024. He also underscored that Oasi Zegna received this year’s Biodiversity Conservation Award at the CNMI, or Camera Nazionale della Moda Italiana, Sustainable Fashion Awards in September at the tail end of Milan Fashion Week.
Zegna also congratulated Thom Browne on his appointment as the next chairman of the Council of Fashion Designers of America, “a testament to his creativity, his incredible success and his leadership in the fashion industry in the U.S. and around the world.”
Also, Zegna’s artistic director Alessandro Sartori was named WWD’s 2022 Menswear Designer of the Year “in recognition of his innovative vision that has taken the brand in new directions.”
In the quarter, Zegna products revenues grew 18.6 percent, reaching 224 million euros. The company attributed the strong performance to the success of the rebranding strategy presented at the end of last year and fully launched in stores in early July, with a focus on luxury leisurewear. Zegna said knitwear is growing steadily and the footwear business “remains robust.” Tailoring and made-to-measure have also seen a strong rebound in the quarter, particularly in the U.S. Zegna said “the suit business is solid, although not yet to 2019 levels, but personalization is up.”
During the call, the executive also highlighted the partnership with Real Madrid announced in August through which Zegna will become the official luxury travelwear partner for the successful football club. “This will introduce the brand to a whole new generation of customers,” he said.
Thom Browne revenues grew 29.8 percent in the quarter compared with the same period last year, reaching 69 million euros. Womenswear continues to grow faster than menswear, now accounting for almost 30 percent of the brand’s revenues. The namesake designer returned to Paris to show his spring 2023 collections.
Growth across the brand is supported by strong wholesale demand, e-commerce growth through Tmall in the Greater China region, and four new store openings during the quarter, bringing the total of directly operated stores to 57 as of Sept. 30, four more units compared to the end of June.
Thom Browne CEO Rodrigo Bazan confirmed that the brand will have 62 directly operated stores by the end of the year and that it was committed to its 2023 retail strategy that sees an expansion of its network of stores from 51 to 150 in five years, including franchised units and shops-in-shop. “We remain confident despite the volatility and we keep the penetration of clienteling,” Bazan said during the call.
The group’s textile revenues for the quarter reached 30 million euros, up 33.3 percent, with growth across Lanificio Ermenegildo Zegna, Bonotto and Dondi. Tessitura Ubertino, which was consolidated as part of the group in June 2021, in the first nine months of 2022 contributed an additional 3.9 million euros in revenues.
Third-party brands revenues grew 64.2 percent, reaching 32 million euros for the quarter thanks to strong contributions from Tom Ford and Gucci, the latter having more than doubled in comparison to the third quarter of 2021.
At a group level, the Greater China region has returned to growth for the quarter, showing a solid rebound in July and August before new lockdowns started having a negative impact in September. Revenues in that region amounted to 116 million euros for the quarter, up 3 percent on the same period last year, following the easing of COVID-19-related restrictions across several cities in China. Chief financial officer Gianluca Tagliabue said during the call that the company was now assuming a negative performance in China in the fourth quarter of the year, compared to a previous flattish forecast, due to the volatility and continued restrictions to curb the pandemic in the region, after “a very positive July and August” in China but a “soft” September. This leads to an overall guidance of a 15 to 16 percent increase in group sales for the year. “Nobody has a crystal ball and every week is different” in China, he said, responding to analysts.
The Asia Pacific region reported 13.7 percent growth for the quarter, with revenues reaching 153 million euros, boosted by the positive direct-to-consumer performance of both the Zegna and Thom Browne segments before the lockdowns in September in major Chinese cities, including Chengdu, Shenzhen and Tianjin.
The Europe, Middle East and Africa region showed the strongest growth for the quarter, up 42.8 percent to 119 million euros in revenues. Of that, 16 million euros came from the Middle East and Africa region, an 86.4 percent increase in the quarter. The U.K. also continued to grow, with revenues for the quarter up 61.6 percent to 15 million euros.
Sales in North America climbed 38.6 percent and 33.2 percent in Latin America, to respectively 77 million euros and 7 million euros in the quarter. Revenues in the U.S., an area of focus for the group, rose 38.3 percent to 69 million euros in the quarter. In the U.S., “the affluent customer is still traveling and spending and we do not expect the wholesale or retail channels to be affected,” Zegna said.
Retail revenues, including e-commerce, rose 20.7 percent in the quarter to 217 million euros. Of that, 180 million euros was from Zegna branded products and 37 million euros from Thom Browne — a growth of about 21 percent for both segments over last year.
Wholesale revenues grew 32.2 percent in the quarter to 139 million euros, with Thom Browne showing particularly robust growth of 41 percent in the quarter to 33 million euros. Third-party brands and textile also grew at nearly 50 percent to 63 million euros.
Assuming no further macroeconomic deterioration, the group confirmed its full-year revenue guidance of mid-teens growth, anticipating solid improvement in its adjusted earnings before interest, taxes, depreciation and amortization, despite the step-up in marketing and central costs, and the unfavorable country mix. Marketing costs, together with capital expenditures are expected at 5 percent of full-year 2022 revenues.
The company also continues to expect a cash surplus increase in the second half of the year.
In May, at its first Capital Markets Day, the group announced its medium-term financial goals, aiming for revenues to exceed 2 billion euros and for adjusted operating profit to reach at least 15 percent of revenues.
Starting in Europe, in response to the ongoing energy crisis, Zegna launched a group-wide energy efficiency plan that is targeting a 10 percent reduction in energy consumption from 2021 levels by 2023 in non-industrial sites.
Zegna said the group has increased its pricing in the high-single digit for this season and for spring and that he had seen “no resistance. We will proceed in the same direction regardless of Forex to cover costs and protect our margins.”