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.
Research analysts covering Ermenegildo Zegna.