Ermenegildo Zegna NV Q2 FY2024 earnings call

• Zegna is doubling down on the One Brand strategy, evolving communication to targeted audience, clientele to experience, and collections to icons; VILLA Zegna New York was a success.
• Thom Browne is reinforcing management, with new leadership in marketing and merchandising; focusing on strengthening local teams and securing flagship locations.
• Tom Ford announced Haider Ackermann as new Creative Director, confident in his contribution to long-term ambition.
• Filiera impacted by soft demand but has innovation and production capacity; investing in new Italian shoe and leather accessory plant in Parma.
• CapEx in H1 reached EUR60 million, ~6% of revenues, with ~55% for store network and remaining for production, IT systems, etc.

Zegna segment: In H1 2024, the Zegna segment's margin was 12.8% vs 15.5% in H1 2023. Factors include concentration of marketing costs in H1 2024, selected business structures, and slower ramp of newly opened/re-modeled stores. Thom Browne: Adjusted EBIT margin performance was affected by revenue decline, partially offset by better channel mix and inventory management. Tom Ford: Recorded an adjusted EBIT negative result of EUR12 million, reflecting investments and strategic decisions despite top-line below initial expectations.

• 2024 has been below initial expectations due to internal and macro reasons, but ambitions for China remain; may take longer but committed to delivering promises.
• CapEx expected to be slightly above 6% of revenues in 2024 and 2025, focusing on key projects like shoe factory and store network.

• Luxury sector normalization challenges; macroeconomic factors affecting wholesale; potential store consolidation in China to rebalance and optimize door network.

Q: How was China trading in July and August, and are midterm targets confirmed?

A: China trading was challenging in July and August, with August softer than July. Midterm targets for China remain, but '24 was below initial expectations due to internal and macro reasons, though ambitions haven't changed.

Q: Can you quantify the impact of China in regional mix on gross margin and inventory boost?

A: Gross margin by country isn't disclosed, but actions on prices and inventory offset China's softness; inventory management contributed to half of the gross profit margin improvement.