Q1 2024 Earnings Summary
- Robust DTC and retail conversion strategy: Management highlighted strong organic growth for Zegna’s DTC channel, especially in the U.S., driven by converting wholesale dollars into retail operations, which improves margins and reflects higher customer engagement.
- Strategic brand integration and resilience: The integration of Tom Ford Fashion along with selective adjustments in the Thom Browne channel—maintaining midterm guidance for a 10% sales CAGR and 20% EBIT CAGR—demonstrates management’s ability to optimize brand mix and protect profitability amid market challenges.
- Focused cost management and inventory discipline: Executives emphasized careful inventory control and targeted cost reductions (for example, in China), ensuring that margin pressures are contained despite regional softness, thereby supporting sustainable long‐term performance.
- Thom Browne’s revenue decline: Reported revenues declined by 30% and organic revenues by 35%, driven by a demanding comparison base and strategic steps to reduce wholesale exposure, which could weigh on near-term performance.
- Weak performance in key markets: The Chinese market, a major revenue base for Zegna, is exhibiting mid-single digit negative trends for DTC and underperformance in Thom Browne, potentially pressuring margins and future revenue growth.
- Risks from channel conversion: The aggressive conversion from wholesale to DTC channels and shifting merchandising calendars pose execution risks, with potential short-term disruptions and inventory management challenges that could impact overall profitability.
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Guidance & Margins
Q: Confirm midterm outlook and figures?
A: Management confirmed their midterm guidance remains unchanged at 10% sales CAGR and 20% EBIT CAGR, reflecting steady expectations despite current challenges. -
China Impact
Q: Any China-related margin pressures?
A: They acknowledged softer performance in China and are actively managing costs to protect margins, ensuring the long-term health of the brand. -
U.S. Growth
Q: What drove the U.S. market strength?
A: The robust U.S. performance was driven by a strategic shift toward retail, enhanced service, and a strong luxury positioning by the Zegna brand, fostering double-digit growth in key markets. -
Pricing Update
Q: What are the year-to-date price increases?
A: Price adjustments have been modest, on the low single-digit side, mainly to offset rising costs rather than reposition pricing, signaling a measured strategy. -
Early Q1 Trends
Q: How did exit rates in March compare?
A: The exit rate for the DTC channel in March remained in line with quarterly trends, suggesting stable early-quarter performance without significant deviation. -
DTC Consumer Trends
Q: How are consumer nationalities trending in DTC?
A: For Zegna DTC, the Chinese consumers are down in the low-to-mid single digits year-over-year while local European markets are posting stronger, double-digit gains. -
Thom Browne Impact
Q: What decline magnitude is expected for Thom Browne?
A: While Q1 saw a pronounced decline, management expects the wholesale selection for Thom Browne to continue in the next quarters at a more moderate, double-digit reduction. -
Tourism Outlook
Q: What are the tourism expectations from China?
A: They anticipate a cautious trend with Chinese tourists being less prominent in certain key locations, reflecting broader market normalization. -
Tom Ford Performance
Q: Was Tom Ford Fashion up year-over-year?
A: With EUR 65 million in Q1 and a contribution anticipated at about 20% of yearly revenues, the performance was in line with expectations, with further improvements expected in upcoming quarters. -
Marketing Strategy
Q: Should the brand expand its audience or remain exclusive?
A: Management intends to balance enhancing visibility through innovative events with maintaining exclusivity for its top clients, thereby strengthening brand equity through both personalization and broader appeal.