Ermenegildo Zegna N.V. (ZGN) Earnings Call Transcript & Summary

Good afternoon. Good morning, everyone. Thank you for joining the Ermenegildo Zegna Group First Half 2026 Preliminary Revenues Earnings Call. Please note that today's material and presentation are available under the zennroup.com website. Before we begin, we need to point out that the team will make certain forward-looking statements during the call. The group actual results may be materially different from those expressed or implied by those forward-looking statements. Also, these statements are subject to a number of risks and uncertainties, including those described in our SEC filings. Please refer to the forward-looking statement cautionary statement included at Page 2 of today's presentation. I'll now hand over to Paola Durante Durante, Chief of External Relations and Sustainability.

Thank you. Thank you, operator, and good morning, good afternoon, everyone, and welcome to today's call. As usual, Gianluca Tagliabue, Group CEO, will share the call, while I will begin with a brief comment on our second quarter revenue results before handing over to Gianluca for some final comments on key events of the quarter that you can see also highlighted in the opening page of the presentation and for some closing remarks. I remind you that, as always, when commenting on revenue trends, we will focus on organic performance, which excludes foreign exchange impacts and therefore, better reflects the underlying business dynamics. Let's skip the first pages and move directly to Page 12 of the presentation. In the second quarter of the year 2026, our group revenues reached EUR 517 million, up 11%, marking a sequential acceleration compared to the previous quarter. Zegna brand continued to outperform recording EUR 324 million revenues with a 70% growth also in sequential acceleration driven by a strong DTC channel performance across all regions. Thom Browne reported EUR 65 million in second quarter revenues, up 3% organic with a positive double-digit growth in the DTC channel, partially offset by the ongoing rationalization of wholesale. On TOM FORD fashion, the business reported EUR 89 million in second quarter revenues, plus 7% organic with a solid performance of the DTC supported by the very good reception of the spring/summer collections. And finally, on second quarter textile performance that was down 3% is largely due to different phasing of deliveries. I will not comment much on other revenues, which, as you know, related to ready-to-wear garments produced for third-party brands because this is now a marginal business and so changes are really not meaningful. So let's move now to Page 13 of the presentation where we look at the revenues by geographic areas. Starting with EMEA. EMEA, which in the first half of this year represented 33% of the group's revenues in the second quarter was up 2% organic with DTC direct-to-consumer up solidly across all the 3 brands, counterbalanced by the reduction in the wholesale, which reflects the group strategic decision to prioritize a retail-first business model. Also the Middle East will turn positive in the second quarter. The Americas, which represented 31% of group revenues in the first half recorded a very good 22% growth, making another quarter of sequential acceleration, supported by double-digit growth across the 3 brands in the DTC channel. Greater China region, which in the first half of this year accounted for 24% of total revenues. In the second quarter, it was up 9% organic further acceleration compared to what we achieved in what we reported in Q1 this year. And finally, the rest of APAC, which contributed to 12% of group's H1 revenues in the second quarter reported a 19% organic growth with all markets contributing, especially Korea and Japan. I will skip really commenting Page 14 of the presentation since we will look in details the trend by channel for each brand. Let me just highlight one number. In the first -- in the second quarter, sorry, of this year, accounted for 86% of group's branded revenue. You know that branded revenues exclude the textile and other revenues, which are by definition and by nature, B2B businesses. So let's go to Page 15, and let's concentrate on Zegna brand revenue by distribution channel. In the second quarter, Zegna DTC, which was -- which reached 90% of the brand's H1 revenue sequentially accelerated compared to the previous quarter and posted 18% organic growth, a growth entirely comp driven with all regions contributing to this performance. The Americas continued to be very strong. Revenues in Greater China region improved sequentially and the rest of APAC continued to strengthen. Europe also performed good, very good. And the Middle East, as I said, improved sequentially during the quarter and a return to a positive growth despite the disruption caused by the war. The brand network remain unchanged. In the wholesale channel, revenue was down 3% organic as we continue to focus on the direct-to-consumer model based on exclusive customer experience. We confirm here the indication of a low double-digit decline by year-end. So moving to Page 16 and commenting Thom Browne. In the second quarter, Thom Browne reported a solid D2C momentum, plus 16%, driven by the Americas, Korea and Japan. Thom Browne DTC performance was also helped by space contribution. In terms of retail network in the quarter, the brand opened 3 nets, including Chicago and Vancouver. The wholesale channel reported a minus 29% organic performance, reflecting both the decision to streamline the channel and the conversion of the distribution in Hong Kong. We confirm that by year-end, this channel wholesale, which I underline is increasingly less relevant for the brand in the first half was only 17% of the brand revenues will be negative in the minus 30% area. Let's now move to Page 17, and let's talk about TOM FORD Fashion. DTC revenues for TOM FORD Fashion grew 13% organic in the second quarter, which was led primarily by the Americas. Also Rest of APAC in the quarter outperformed. This performance was excused driven by the comp store sales growth, which is a further proof of the client appreciation of the spring/summer collections. In terms of store network, TOM FORD Fashion closed boutique during the quarter. Looking at wholesale, gross sale was down 3%, reflecting also in this case, the group's retail first strategy. The performance in the quarter benefited from some anticipated deliveries of the fall collections, which have been driven by better and good production timing. By year-end, the channel should be down low mid-single digit, and this is a confirmation of what we already said in past calls. Moving now to Page 18. As usual, here, you can find a summary of the group store network. And with this, I completed my hopefully short presentation, and I will hand over to Gianluca for his important remarks.

Thank you, Paola. Good morning, good afternoon, everybody. Let me share a few final remarks on some important brand initiatives and on our business. First, as Paola also mentioned, I would like to celebrate once again the extraordinary event that Zegna brand hosted in Los Angeles this June, which we call the [ Labillageotura ]. In Los Angeles, we told another chapter of the Zegna story. This time, the story was rooted in the Italian tradition of Villa Jar, which means to spend the summer in a villa. We brought to life the Zegna family summer Villa inspired by a time in the '70s when the entire family would spend the summer together in a house, always open to relatives and friends. This is what we did in Los Angeles. At [ Châoarmonte Hotel ], we welcome friends of the brand to discover exclusive collections, and we invited them to experience the runway presentation on the Malibu Pier while living the Zegna legacy. Those were memorable 5 days, delivering results in terms of coverage, recognition and client interest that exceeded our expectations. I want to express again my sincere congratulations to the entire Zegna brand team, starting with Eduardo and Angelo Zegna and Alessandro Sartori for the focus, creativity and quality brought to this project and for the outstanding execution that made these results possible, all underpinned by Gilda's vision, guidance and unwavering encouragement to keep the -- to keep the bar always high. But [ LillaZegna ] Los Angeles was not the only major initiative the brand pursued in the quarter. At Arca in June, the Zegna brand continued to champion art as a force for responsible progress through its support of artists who engage directly with communities, society and the environment. This initiative reflects a belief that has long been part of the Zegna brand and overall of our group's identity that business, culture, people and nature can create lasting value when they evolve together, just as our founder and vision more than a century ago with the creation of Aussie Zegna. As you can see, everything Zegna does is part of a career and vision. Every ingredient is already there, written in the Zegna family book. We simply have to open it and bring to life its values, culture and way of living. That's how we express what makes Zegna unique, an authentic Italian lifestyle that goes far beyond products. Let's now return to Italy, where we proudly welcomed Thom Browne for his first ever show during June Men's Fashion Week in Milan. This debut was a powerful expression of the brand's tailoring heritage and commitment to craftsmanship. At the same time, it demonstrated TOM's ability to continue to evolve its iconic creative codes, introducing a broader color palette and exploring a sophisticated range of fabrics, textures and techniques. We were very pleased with the show, which attracted significant positive attention from industry, media and clients. At the same time, Sam Lobman, the CEO of Thom Browne, is making progress on the brand's objective to drive a stronger retail-first culture across the organization. This includes investing in talent at every level, ensuring that the brand's creativity and merchandising stories are effectively brought to life in the stores. There is still important work ahead, but we believe that the team is moving in the right direction. Moving now to TOM FORD Fashion. The recent 26 Metgall and Cannfil Festival in May marked 2 defining moments for the brand. Through a curated celebrity presence at both events, the creative and marketing teams contributed to enhance global visibility while driving significant earned media coverage. Combined with increasingly focused collections and with improved CRM capabilities, these efforts are supporting the development of the retail business, as shown by recent sales performance in the directly operated stores. Leo Gavassa, the CEO of TOM FORD Fashion and his team continue to work actively across all these levers, marketing, merchandising, CRM, selected new openings to drive future growth of the business. Indeed, we believe that TOM FORD Fashion ongoing success will come from a combination of comparable store growth, new space contribution, development of existing clients and acquisition of new ones. Today, our priority is to selectively expand the retail network while deepening our relationship with existing customers. Over the medium term, the focus is also to drive comp store growth also through new customer acquisition. Before taking your questions, let me conclude highlighting that the strong performance we saw over the last quarter is the result of actions we began implementing years ago and which are bearing the fruits now. We know we have much more to do as important projects remain underway. These projects will continue to require resources before delivering sustainable value, but they are strategic and relevant for our future. As we enter the second half of the year, let me offer a few general observations on what we are seeing across our business. While we are only a few weeks into Q3, and therefore, we have yet limited visibility, what we are seeing today is that the underlying DTC trend of the business remains very solid. That said, it is important to recognize that Q2 benefited from some specific initiatives that are not expected to be repeated in the same way in the remainder of the year. For instance, Villa Zegna Los Angeles and the ASI launch for Thom Browne. The momentum we see -- we continue to see reflects the work undertaken over the past several years to strengthen the Zegna brand. While at Thom Browne and TOM FORD Fashion, it reflects the early progress of the initiatives we have put in place, fully aware that we are still in the early stages of the journey and many things remain to be done. As a final remark, our commitment to investors remain unchanged. We remain focused on delivering our 2027 targets. The second part of the year might be a bit more challenging in terms of comparison. However, we are confident that 2026 full year consensus is reasonable. With that, we will now open the Q&A session.

Thank you, Gianluca. And please, operator, if you can open the Q&A session.

[Operator Instructions] Our first question is from the line of Adrien Duverger at Goldman Sachs.

I have 3, if possible. So the first one is on the performance throughout the quarter. Could you please comment if there is any material difference month-on-month? And also if you can comment on the last few weeks and if you have seen any change in the consumer environment? My second question would be on China. So I see there's quite a strong acceleration for 2 quarters in a row now. Could you please comment a bit more on what you are seeing in the region, particularly in terms of the DTC trends? And are you seeing any difference in performance between Mainland China and offshore spending? And my last question is on profitability. With the strong set of numbers today, is there anything we should be aware of in terms of phasing of costs for 2026? Do you also reiterate your comments that full year '26 margin should be broadly stable versus '25? And maybe lastly, does that give you a bit more confidence regarding your '27 EBIT guidance?

Thank you, Adrian. Many questions. So I'll leave Gianluca to start with the performance by -- in the quarter.

So the quarter had a solid performance across all 3 months, probably with a bit of acceleration in May and June, I would qualify also in these 2 months above our own expectations. In terms of China and to give you also some color, so for instance, in Zegna, I think that there are some elements of the offering since June like the Linen has been positively received. So I think that just to give you some colors on a month by month. China, China sequentially improved, as you noted. I think it's all about the consistency of our execution. We said that we were focusing on the key factors in China, namely some areas of underperformance need to measure Triple Stitch. And I think we are seeing some -- starting to see some traction there. We continue to see positive signs and a good brand momentum of the Zegna brand. Looking forward in China, I call out we will have important -- a couple of important openings, probably the most important one is in Hong Kong, Harbour City, we just opened an interesting and important second store in Shenzhen, [indiscernible] Bay. So while we focus, and I think we said last time, we will have some pruning on the footwear, footprint. We keep on investing in China in fewer, better doors. So this is the message I'm giving on China.

I think the question was also if I understood well on the cluster, but I would say there is no really difference between the results in China and the cluster. So also the cluster has been accelerating in the quarter.

Remember always that our Chinese consumers spend almost -- well, I'd say, 90% locally. So to us cluster and geography for Chinese very overlapped.

Profitability.

So as we said before, so we keep on investing on what is strategic. So that's why we believe that the consensus is reliable and feasible, both for the full year as well, I think commenting also on the first half because there is some cost incidence on first half. So that's why I believe that the consensus that is out there on the marketplace is reasonable for both H1 as well full year '26.

Next... Next question.

Just to give a color about the cost, I think that there are 2 direction of costs where we are investing, of course, supporting our brands, the 3 of them from a marketing standpoint and so on and investing in group initiatives to start creating a group layer that will then trigger some synergies and better group management going forward.

If there is a follow-up from, I would go to the second set of questions.

Our next question is from the line of Natasha Bonnet at Morgan Stanley.

Congratulations on the good set of results. Just the first question, obviously, the Zegna brand performance is quite impressive. Which categories and regions drove the outperformance? And then my second question would be, can you break down Q2 by volume price mix? Is mix still the biggest driver in Q2? And are you seeing an increasing number of new clients to your brands?

So in terms of mix for the Zegna brand, I would call out Sumizura, so mix-to-measure is definitely outperforming. It's not just formally, it's across the board. The luxury leisure wear side is performing extremely well and the shoes. So those are the 3 drivers of growth for the Zegna brand. In terms of KPIs or mix, so AUR is the driver, is the main contributor to the DTC growth. And it's not just a pure price increase. It's a mix thing. It's the driving force are the second scene part of the collection, Badzarum, of course, maketo-masure, as I said before. On TOM FORD, it's the success of leather outerwear, which, by the way, going back to make-to-measure is now also available on a make-to-measure format. So I think all the most elevated part of our offerings are the ones that are being more credible in the eyes of the consumer. And in terms of new or existing and loyal clients, I think there has been one new element that is becoming more and more solid throughout the year. Of course, our strategy has always been the top of the pyramid as we have called out several times, and it's continued being so. So the events, the CRM and so on and so forth. But this is generating a side effect also bringing in new clients. I'm not saying new clients from the bottom of the pyramid, but new clients. Most of the times, these clients come in also for high-ticket items. So we are seeing also an increase of client base, namely on the Zegna brand, which you called out was the driving force of the growth, which is a new part of the equation for us is welcoming new clients into the brands.

I think there was a question on Zegna also what was the region driving the growth. But I would say, Natasha, all the regions has been really important to the Zegna performance.

Yes, probably what is happening in the marketplace, probably I call out the fact that Middle East as being positive in Q2 for us, so -- which talks about the resilience of the brand and the resilience of our customer base, namely the local ones, which have more than offset the shortfall of tourist demand in that market.

Your next question is from Oliver Chen of TD Cowen.

And Americas, really nice momentum there. What's happening on traffic relative to ticket? It sounded like you had nice contributions from both in different ways. Second question, when you mentioned new customers and TOM FORD, what's underlying that opportunity now versus prior? And third, as we think about new customers more broadly, how is that interplaying with how you're thinking about marketing spend and marketing spend composition?

Thank you, Oliver. The first one was traffic versus ticket. Are you referring to the 3 brands or Zegna only? I didn't get if it was specific.

Zegna would be helpful and China and Americas. China...

Yes, slightly positive. I think that the main driver, as I said before, is the AUR Oliver, by the way. The main driver has been AUR. So positive traffic, as I said also conversion and conversion. So -- but the biggest driver has been AUR and traffic driven also in China by the revamp, some good momentum that we start seeing around the brand.

New customer for TOM FORD.

The part of the collection that is growing the most is women. And that's an area of focus for the overall team, starting from design and merchandising. The women's side ready-to-wear is the one that is probably giving a bit more momentum. And of course, the untapped opportunity is on the daywear side of women because the evening and ceremony related is strong historically, but the daywear side of the collection is there that is -- we see more opportunity. And again, going back to what I said before, the make-to-measure, which is sitting on the basis of our unique supply chain capabilities, we started in TOM FORD to offer make-to-measure on tailoring for women, which is a unique proposition in the marketplace, taking advantage of our short lead times and unit capacity. So I would say that women is definitely an area of TOM FORD and somehow enlarging the client base.

Yes. Just wanted to underline or to specify when Gianluca first -- in the previous question was referring to new customers, we were -- he was talking mostly about Zegna. So that was a comment that was really on Zegna new customers that there is this snowball effect even if we are concentrating on talking to our community what we have seen is actually that this brings also new customers to the brand.

Last part was about TOM FORD...

Yes. No, no, in fact, just to clarify with Oliver. And in terms of talking about new customers, Oliver was asking about the marketing spending, how is -- what is our thought there?

Well, marketing spending on Zegna continues with the same cadence that we have done in the last 6, 12 months, so which is amplifying the message, especially through the right communities, events, creating unique experiences. On TOM FORD, you will see probably in the next 3, 4 months, adding into then the opening of the store in Paris in January, we will amplify a bit more the message, increase a bit the volume of our marketing spending to both increase awareness and consideration for the product. So that, I think, is the only change of direction in terms of intensifying a bit the marketing spending on TOM FORD because we believe that it is the moment to do so.

Okay. And on your comments, Gianluca, on Los Angeles, which was a great event. What's happening with what we should model with that benefit in terms of a more normalized Americas growth rate? The Americas numbers have been outstanding, but curious about what might be a run rate in terms of longer term of that region.

Well, of course, Villa is meaningful, but it doesn't move the needle of Zegna or the group in North America. So to give you a sense, Villa generates revenues that are the size of a midsized store in a year, more or less, give or take. So -- and the Villa, although being very successful, generates revenues that are recorded over the months since they largely depend from products that are not ready to buy, but need to be produced on order. So if your question was, is the Q1 or Q2 inflated by the Villa, I would say, to a very limited extent. So we will benefit the revenues of Villa partially in Q2, of course, because there was a part that was ready to buy, but then there will be also -- and I would say, Q3, there will be the manifestation of revenues of some products to be delivered.

Okay. Last question on AI. We're doing a deeper work here, as you know. What are some of your call-outs for how you're using artificial intelligence across the organization or key priorities and/or any benefits you've been seeing on that front?