Ermenegildo Zegna N.V. (ZGN) H1 2025 Sales/ Trading Statement Earnings Call Transcript

Ermenegildo Zegna N.V. reported H1 2025 revenues of EUR 928 million, down 2% organically, with Q2 revenues at EUR 469 million, down 3% organically. Despite a challenging macro environment, the direct-to-consumer (DTC) channel demonstrated strong performance, growing 6% organically for H1 and accelerating to 8% in Q2, largely driven by solid momentum in the Americas (+10% in Q2) and EMEA. The company is strategically streamlining its wholesale channel to enhance brand exclusivity and DTC focus, which significantly impacted Thom Browne's Q2 organic sales (-24%) and Zegna's (-31%), though this shift is expected to largely conclude for Thom Browne by year-end 2025. Greater China remains a challenging market (-17% in Q2), while the U.S. consumer shows resilience. Key strategic developments include Temasek's acquisition of a 10% stake as a long-term partner and the appointment of Sam Lobban as the new CEO for Thom Browne, tasked with accelerating its DTC transformation. Management maintains a positive outlook for the second half, anticipating similar trends, and views current consensus EBIT as directionally reasonable, reaffirming its commitment to its public listing.

Analysis

Ermenegildo Zegna N.V. reported a consolidated revenue decline of 2% on an organic basis for H1 2025 to €928 million, a figure that masks a significant strategic pivot and underlying operational strength in key areas. The core narrative is a stark divergence between channels: the direct-to-consumer (DTC) segment demonstrated robust health, accelerating to 8% organic growth in Q2, while the wholesale channel is being deliberately and aggressively streamlined to enhance brand exclusivity. This strategic contraction in wholesale was the primary driver of negative performance for both Thom Browne (Q2 sales -24% organic, with wholesale -56%) and the Zegna brand (Q2 wholesale -31%). Geographically, performance is polarized, with the Americas showing remarkable strength (+10% organic growth in Q2), signaling resilient high-end consumer demand. Conversely, the Greater China region remains a significant headwind, with sales declining 17% in Q2, a situation management refers to as the 'new normal'. Key corporate developments provide long-term catalysts; Temasek's acquisition of a 10% stake validates the group's strategy and adds a powerful partner for Asian expansion, while the appointment of Sam Lobban as Thom Browne's new CEO is a clear signal of intent to accelerate that brand's DTC-centric transformation. Management's guidance anticipates these trends will persist through H2 and has effectively anchored expectations by deeming the consensus EBIT of €176 million 'directionally reasonable'.

Key Decisions for Investors

• Investors should look beyond the headline revenue decline and focus on the accelerating organic growth in the direct-to-consumer channel, which reached 8% in Q2, as this is the primary indicator of brand health and the core of the group's long-term strategy.
• Monitor the execution of the Thom Browne turnaround under its new CEO, focusing on DTC growth metrics rather than the overall top line, which will remain suppressed by the planned wholesale channel rationalization expected to last until year-end 2025.
• Factor in the significant geographic divergence, weighing the sustained momentum in the Americas against the persistent weakness in Greater China, as this regional mix will be critical for margin performance.
• View the 10% strategic investment by Temasek as a significant de-risking event that provides a long-term capital partner and a potential catalyst for growth in the Asia-Pacific region.
• Use management's endorsement of the circa €176 million consensus adjusted EBIT as a key anchor for valuation, while remaining mindful of short-term margin pressures from the wholesale channel reduction and new store opening costs.