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Zegna Latest Firm Dented by Currency Woes

The privately owned Italian clothing and textile firm is investing in the future despite uncertain times ahead.

Ermenegildo Zegna Group, the privately owned Italian clothing and textile firm, is investing in the future despite uncertain times ahead, a slowdown in key emerging markets and continuing currency woes.

On Wednesday, the company said net profits in 2013 dropped 12.1 percent to 116.3 million euros, or $154.7 million, while earnings before interest, taxes, depreciation and amortization climbed 2.6 percent to 257 million euros, or $341.8 million. Net profits in 2012 were 130 million euros, or $166.4 million.

All figures have been calculated at average exchange rates for the 12-month period.

Revenue in the period rose 0.7 percent to 1.27 billion euros, or $1.69 billion, at actual exchange rates, and climbed 3 percent at constant rates. Exports continue to generate more than 90 percent of the company’s sales.

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“The supereuro does not make any sense,” said Gildo Zegna, chief executive officer of the group, adding that the company had raised prices “moderately” during the year to compensate for the strength of the currency.

“It’s hard not to pass on a part of the depreciation in local currencies — in Japan, China, and Brazil — to the market,” Zegna said in a telephone interview. “We cannot keep getting hit on our margins.”

On the currency front, Zegna added that the company also fought back “aggressively with a record level of investment, and a further improvement of EBITDA, thanks to the careful management of working capital and a significant rationalization of our production, which will continue to show its potential in the coming years.”

Zegna said Brazil and India proved to be challenging markets last year, and that the company was not reaping the returns it was expecting in those regions. High duties on foreign brands continue to inflate prices in Brazil, and it’s difficult to make a profit there, he said.

China, despite its recent slowdown, continues to be the brand’s largest market, followed by Europe and the Americas. Zegna said growth in China has been slowing for a number of quarters, and he doesn’t see that trend changing soon. Fewer Russians are traveling worldwide, Zegna said, and the economy there is slowing as well.

On a more upbeat note, Zegna said the results in Europe last year were “positive, especially in Italy, France and Great Britain,” while the most significant uptick in sales came from Hong Kong, Macau, the Middle East, America and parts of Europe, thanks to the “strong increase in tourism from China, Russia and Brazil.”

Zegna said the current year is proving to be more challenging than expected, and he does not think that top-line growth will gain much momentum. “I think it’s going to be a bumpy year, but we are a strong company with good management,” he said, adding that the company would continue to invest in the future.

The company plans to invest 107 million euros, or $148 million, in capital expenditure.

Zegna said in the current year, the group would continue its commitment to its women’s wear brand Agnona with “major investments in the organization,” including boutiques and communications.

The company also plans to fortify its supply chain, and has completed a formalwear garment-production center at the new Inco plant in San Pietro Mosezzo, near Novara, Italy, and a product-development facility for leather and footwear in Parma.

Zegna’s own retail represents 78 percent of total sales, and this year several openings and store expansions are planned in cities including New York, on Madison Avenue; Singapore; Miami; Düsseldorf, Lisbon and in several Chinese cities including Beijing. The latter will open in the second half and be one of Zegna’s largest units worldwide. Two stores in Japan, in Osaka and Tokyo’s Ginza district, are also in the pipeline.

At the end of 2013, the group had 546 monobrand stores, of which 312 were directly operated. Zegna added the company plans to take its Middle East operations in house via a joint venture agreement, but he declined to give further details.

He also said the group would continue to earmark more than 3 percent of its net profits for projects to protect the environment and to help local communities, such as the Oasi Zegna and the Ermenegildo Zegna Founders Scholarship.

At the end of 2013, the company’s net financial position grew 10.4 percent to 304 million euros, or $421 million, while net assets increased to 967 million euros, or $1.34 billion.