Prepared remarks
Good afternoon, and good morning, everyone. Thank you for joining the Ermenegildo Zegna Group H1 2025 Financial Results Call. Please note that today's material and presentation are available under the zegnagroup.com website. Joining us today, the Zegna Group leadership team, including Gianluca Tagliabue, Group CFO and COO; and Paola Durante, Chief of External Relations. 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 these 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 statements' cautionary statement included at Page 2 of today's presentation. I will now hand over to Paola Durante.
Thank you, operator, and good morning, and good afternoon, everyone. Thank you for joining us today for our H1 2025 results conference call. I'm Paola Durante, and with me are Gianluca Tagliabue, our CFO and COO, and Alice Poggioli, our IR Director. I will briefly discuss the financial results for the first six months, and then Gianluca will provide some final remarks. First half 2025 revenues totaled EUR 928 million, a 2% organic decline, influenced by a strong 6% organic performance in DTC. I won't elaborate further on revenues since we covered that during our call at the end of July. Let's move on to Page 7 of the presentation. Starting with our metrics, first half 2025 gross profit was EUR 626 million, with a margin of 67.5%. The 110 basis points margin improvement was largely due to a better channel mix, as DTC revenues accounted for 82% of our group branded revenues, up 6 percentage points from 76% in the first half of 2024.
Additionally, DTC gross margin is higher than wholesale. Regarding selling, general and administrative costs, these reached EUR 502 million in the first half, similar to EUR 498 million in the same period last year. The revenue incidence increased to 54.1%, compared to 51.8% last year. This higher incidence can be attributed to three main factors: first, negative operating leverage, particularly at Thom Browne; second, costs associated with supporting our long-term growth, including building our talent team and enhancing our IT infrastructure, especially at Tom Ford fashion; and third, higher initial costs for newly opened stores, which typically do not achieve long-term revenue targets immediately. At the same time, we took steps to control costs across all three brands. Moving to marketing, expenses reached EUR 63 million, representing about 7% of revenues, consistent with last year, despite significant events in the first half of 2025, including the Villa Zegna Dubai event.
Now, let's turn to Page 8, where we review our adjusted EBIT for both the group and segments. Adjusted EBIT is our primary performance metric for analyzing business at both group and segment levels. In the first half of 2025, adjusted EBIT was EUR 69 million, with an EBIT margin of 7.4%, a decrease of 100 basis points compared to the same period last year. This decline is primarily linked to higher selling, general, and administrative costs, as well as a slight negative impact from currency fluctuations. Since April, the euro has appreciated against both the U.S. dollar and renminbi, which are crucial currencies for our group. We also confirm that in the second half of 2025, adjusted EBIT will exceed that of the first half, although we acknowledge the persistence of challenges and volatility in the sector. However, we are confident in our strategies to safeguard profitability. Now, examining our results by segment, the Zegna segment, which includes the Zegna brand, the Textile division, and third-party brands, generated an adjusted EBIT of EUR 94 million, with a margin of 14.3%, an increase from 12.8% in the first half of 2024, mainly driven by improved operating leverage through a more efficient DTC channel and cost control.
The Thom Browne segment reported an adjusted EBIT of EUR 4 million, down from EUR 20 million in the first half of 2024. This decline was due to a significant drop in revenues, particularly in the wholesale channel, as well as increased selling costs stemming from DTC network expansion. Moving to the Tom Ford Fashion segment, it recorded an adjusted EBIT loss of EUR 19 million, compared to a EUR 12 million loss last year. This reflects our planned investments in expanding the store network, building a strong talent team, and enhancing IT infrastructure to support business growth. Next, on Page 9, looking at the income statement, net profit for the first six months reached EUR 48 million, compared to EUR 31 million last year, a 53% increase. This rise in profit was due to higher financial income and foreign exchange gains, which turned from a negative EUR 25 million to a positive EUR 6 million during the semester.
This largely results from fair value remeasurement of liabilities for put options held by non-controlling interests, primarily in U.S. dollars, thus benefiting from euro appreciation. The tax rate was EUR 20.1 million for the first half of 2025, reflecting a tax rate of 30%, down from 35% last year. We anticipate a tax rate aligned with our year-end expectations in the 28% to 30% range. Now, moving to Page 10, capital expenditure reached EUR 54 million, approximately 6% of revenues. This figure is largely tied to investments in our store network across the three brands, with the remainder focused on production, including building a new plant for our shoe business in Parma and additional IT investments. We project a capital expenditure incidence of around 6% to 7% by year-end, and this expectation remains given our upcoming investments in the footwear production site. Trade working capital at the end of June was EUR 442 million, down from EUR 467 million last year, driven by better inventory management and reduced receivables, the latter linked to the streamlining of wholesale operations.
Finally, on Page 11, free cash flow absorption was EUR 23 million this year, an increase from around EUR 7 million last year, driven by lower operating cash flow. On Page 12, net debt at the end of June stood at around EUR 92 million, consistent with our December 2024 reporting. I will conclude my comments here and now turn it over to Gianluca for his final remarks. Thank you.
Thank you, Paola. Good afternoon, everybody. Let me give you a brief update on the actions that we did in the last few weeks since we last spoke before going to the Q&A session, starting with Zegna. We just launched the Zegna Fall/Winter '25 marketing campaign labeled, 'it's not a suit, it's a Zegna.' For Fall '25, a new chapter is being presented rooted in a century of style. The focus of the campaign is Zegna Torino, the suit that comes directly from our founder's closet, and we made it with our unique new fabric, Vellus Aureum, the finest wool in the world. In the campaign, the Torino suit is matched with Vetta shoes that are the winter version of our Triple Stitch to create a unique charismatic and in one word, Zegna Look. The campaign accompanies the launch of Drop 2 of the Fall/Winter collection, which has received in the stores initial positive feedback since we began presales and preorders a couple of weeks ago.
Moving on to the Zegna DTC network. We are pleased to announce the opening of our new store in Miami Design District, marking another important step forward in the strategic expansion of our presence in the U.S. market. Additionally, we just opened a new invitation-only store, which are the permanent by-appointment stores for our very important clients at Plaza 66 in Shanghai, bringing the total to 3 globally following the openings in Shin Kong Place, Beijing and Paragon, Singapore. As you know, as I said, the by-appointment-only store offers exclusive collections that you don't find in the regular stores and a unique shopping experience that reflects the essence of Zegna luxury and personalization offer. Moving to Thom Browne. We just launched the Fall '25 campaign, which in line with the brand communication strategy reflects an evolution of uniformity to include lifestyle-oriented visuals with distinctive DNA that makes Thom Browne authentic and unique remaining unmistakably present.
On Thom Browne, let me also remind you that since September 2, that is this week, we are pleased to have Sam Lobban, who has officially started his mandate as CEO of the brand. And finally, Tom Ford Fashion. The first Tom Ford campaign signed by Haider Ackermann has been released, and it has been very well received, as confirmed by many comments made by journalists and media experts. Haider's collection touched the stores' floor at the end of August. It is, therefore, early to comment on the trends, but the first very initial reactions in the stores have been really positive. All in all, I can say we have entered September with good energy across all 3 brands, but it's essential to remain cautious and vigilant as initial signs should not be considered yet as a consolidated trend. The sector continues to face difficult circumstances which call for a cautious and thoughtful approach. As a final comment, I can add that by region, we still continue to see strong momentum in Europe, the Middle East, and the Americas.
GCR remains challenging and volatile. It is true that in some recent weeks, the trend in GCR has slightly improved, also thanks to an easier comparison base, but still staying on the negative side. So it is yet early to draw a solid conclusion about this latest trend of GCR. I think I can stop here and we can now open to the Q&A session. Paola?
Thank you, Gianluca. Please, operator, can you open to the first question from our audience.
Questions and answers
Our first question comes from Anthony Charchafji with BNP Paribas.
It's Anthony from BNP. I have just 2. The first one would be on the current performance in terms of margin. It seems that the gross profit margin is still continuing its upward direction since last H1 '24. Could you maybe give a bit more color on the bridge of this plus 110 bps, maybe given the pricing and FX impact on top of the channel mix? That would be my first question. And also if we should still see 67% at least gross margin in H2 despite the tariffs? My second question would be on H2 and I would say, expectation. So thank you for giving a bit of color on the current trends. It seems that consensus is expecting close to 4% organic in H2, which is a nice improvement from Q2. You already commented that you were happy with the consensus being around EUR 173 million at the EBIT level, which would imply a flat margin. Are you still expecting this development in terms both of top line and margin? That would be my second question.
Thank you, Anthony. And I'll leave clearly all the 2 questions to Gianluca, the first one on gross profit, both analysis on the first half and what we expect for the second part of the year and then on the consensus expectations.
Gross margin is evolving due to direct-to-consumer revenues now reaching 88% compared to 86% last year. Within the direct-to-consumer sector, we have been focusing on quality, which we monitor through sell-through rates at full price. This is stronger for the Zegna brand compared to the other two brands. Across all three brands, we are enhancing sell-through rates, which allows us to decrease reliance on outlet stores. The direct-to-consumer segment's weight and quality are key factors driving our gross margin improvement. Additionally, our personalization efforts contribute to our pricing power, allowing us to reflect the quality and unique service we offer our customers. As for the second half of the year, we previously indicated a low single-digit revenue growth, and we reaffirm that in organic terms. The consensus we have today, which is EUR 1.923 billion, takes into account previous currency fluctuations and reflects low single-digit organic growth. Our consensus adjusted EBIT estimate of EUR 173 million also considers currency changes and we believe it to be realistic.
Okay. Anthony, I think we answered, but if there is any follow-up, we are here. If not, we can go to the second question or the second analyst from the... Operator for the second one.
Our next question comes from Oliver Chen with TD Cowen.
This is Tom Nass on for Oliver. I wanted to ask about the margin improvement in the Zegna segment. Specifically, if you could speak to some of the opportunities you think may be on the road ahead as to where segment margins could trend over the longer term? And then as a follow-up, I wanted to ask on margins in the Thom Browne segment and the progress you've been seeing there with the wholesale rationalization. I guess, more specifically, how should we think about modeling margins in the Thom Browne segment over the long term?
Thank you, Tom. Thank you for the 2 questions. They are both on operating margins, on EBITDA. The first one is for Zegna and the opportunities on the long term. And the second one is on Thom Browne. So again, Gianluca is your man.
Yes. In terms of margin for Zegna, we have managed to increase it beyond 14%. If you ask about our journey with this, it's important to remember that we will continue investing in Zegna, so we need to separate short-term results from long-term goals. In the short term, we won't commit to a specific number, but we definitely see something between 13% and 14% for the year. We have always mentioned a growth goal of 15% for Zegna, which is our initial target. We believe the brand has the potential to reach that, although not within this year. For Thom Browne, we've faced a 52% decline in wholesale in the first half. We have stated that for the year, the wholesale decline will not be as severe as minus 50%. We expect the second half to show a reduced decline in the range of minus 20%. The first half was significantly impacted by this revenue drop, which was notably higher in the first quarter of 2024. Bringing in Sam Lobban as the new business leader, who will adopt a direct-to-consumer-focused approach starting from merchandising and retail training, is central to our strategy for Thom Browne. We aim to restore Thom Browne to a double-digit EBIT, which is where it should be.
Perfect. I don't know if we answered your questions or any follow-up. Otherwise, we go to the next one. Operator, is there any other questions?
Our next question comes from Chris Huang with UBS.
I have two questions. The first one is about current trends. Gianluca, you mentioned some early signs of improvement with Chinese consumers. If I remember correctly, Q3 last year was when we started to see significantly easier comparisons for the Chinese consumers. Can you provide us with more details on the signs you're observing? Is there an increase in foot traffic? Are conversion rates going up? Also, could you clarify if Chinese consumer numbers in the first two months of the quarter are still declining, and if so, are we talking about a decline that’s less than double digits, possibly in the single-digit range? My second question is regarding margins, specifically about the Zegna segment. If I understood you correctly, you're projecting Zegna segment margins to reach around 13% to 14% for 2025. However, that seems to suggest significant contraction in H2 compared to the previous year. Given that there will likely be more marketing investments weighted towards H1, how do we reconcile this situation?
Okay. Thank you. Thank you, Chris. Let's start with the second one on margin for Zegna, and I will leave Gianluca to answer. On the China current trend, we can give you some initial more comments or colors. But really, I would like to leave any detailed comment to our Q3 revenue results conference call that, as you know, is in October. This is not a conference call that is meant to comment deeply on current trends. So leaving to Gianluca on margins.
On margins, we know we need to make some investments in the second half of the year. For example, we have an event in Miami during Art Basel in December. We still have four months ahead that are uncertain, so we want to avoid setting expectations that could lead to disappointment. Given this situation, we ask you to remain within that range. I would be glad to be proven wrong on the optimistic side at the end of the year. However, we are committed to not cutting strategic actions because we want to continue promoting the brand, which is experiencing positive momentum. We do not intend to compromise the numbers for the second half of the year for the sake of short-term EBIT. We see significant potential in the long-term future of the Zegna brand and we are already seeing results. Therefore, we want to ensure we have the right events and investments moving forward, and we are only cutting discretionary costs, not anything essential.
And can I just follow up on marketing? Can you just confirm that for the full year group level is still going to be around 6% of sales?
Yes, around 6%, Chris, for the group. Thank you so much, Chris, and leave it to the next one.
Our next question comes from Louise Singlehurst with Goldman Sachs.
I have two quick follow-ups. First, regarding pricing, could you remind us where we stand as we head into the Fall/Winter season, the pricing changes that have been implemented, and any plans for the second half? You've mentioned commentary related to the U.S. market, and we've heard from peers about luxury positioning and the price increases this year. There hasn't been any noticeable impact on volumes or consumer pushback, has there? Secondly, I understand this call isn’t focused on current trading trends, but considering the low single-digit outlook for the full year as we approach September, where do you see the biggest risks? Is it primarily related to China and the pace of recovery, or is it more about managing expectations across different regions? I’m curious about your thoughts, Gianluca, especially since the U.S. market has performed stronger than we expected so far this year, and there seem to be some tentative signs in China, although it's still early.
Louise, so the pricing. Start from pricing, as we declared, we have been acting always on a low single-digit price increase. That's on a systematic approach to offset cost dynamics and currency dynamics. In Fall '25, when there was the addition of incremental tariffs, we have acted in order to reflect this into our U.S. Fall/Winter '25 prices, which have been live since August of this month. So we have simply taken care of covering the burden of incremental tariffs in U.S. We are not seeing a substantial boomerang from the consumers. As I said before, we keep on seeing good momentum in U.S. So we have not seen a change, an inflection point in our solid trajectory of growth in U.S., first in the Zegna brand, but also more recently with the other collection, we can say the same positive momentum also on Tom Ford, also Thom Browne, despite being smaller in the U.S. environment, they have just opened some stores, but the business size is smaller. So that is the comment on the Fall/Winter '25 pricing. The second is — Paola, remind.
The second was the outlook for H2 and where we see the main risk is China or.
China. It's China because we are still in a volatile environment. So we don't want to draw conclusions from a few weeks where we are seeing the trend less negative. So...
easier base of comparison.
Easier base of comparison. So we want to — we would be much more comfortable in a situation when we see China solid. As Gildo mentioned last time, we are entering the next year into a cautious mode that we have labeled as China into a new normal. Gildo mentioned that. So we want to think and we want to plan and be ready for 2026, which is steady to this year. So that is we are not banking on a rebound for next year of China. Then if it comes, we will be ready to take advantage and enjoy the growth. But we are planning to stay in this new normal situation through next year.
Thank you, Louise. Okay. Is there any follow-up questions? Any other questions from the audience?
We have no further questions registered. So Paola, I'll hand back to you.
Thank you. Thank you to everybody. As always, a very interesting and nice questions to us. We always enjoy spending some time with you. And because we enjoy, we will soon see on October 23. So let's see and catch up on Q3 revenues in 1.5 months. Thank you, everybody. Have a nice weekend.
Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.