“The COVID-19 disruptions and the new contagions in China had a negative impact on the fourth quarter but we saw a very positive response in the Middle East and the U.S., a major area of growth, and Europe was also very dynamic. And when China comes back, it comes back strong,” Zegna said during a conference call with analysts on Wednesday, commenting on a 15.5 percent increase in group revenues last year. Preliminary sales in the 12 months ended Dec. 31 rose to 1.49 billion euros compared with 1.29 billion euros in 2021.
Sales in the fourth quarter of 2022 totaled 407 million euros, inching down 0.5 percent compared with the same period in 2021.
Excluding the Greater China region, group revenues rose 42 percent in 2022, and were up 24.7 percent in the last quarter.
Zegna was one of the first luxury fashion executives to travel to Hong Kong and Macao as soon as the Chinese borders opened. “I wanted to see my people after three years, and I am more positive than expected, I felt the energy in landlords, consumers, investors and final clients. Hong Kong is still in good shape and Macao had full bookings for Chinese New Year. Mainland China is off to a good start. In the first three weeks, traffic was not what it used to be, but it’s still up double digit[s] in China.”
Citing a report he read, the executive said the first destination for the Chinese at the moment is Hong Kong, the second is Japan and the third is Thailand. “I don’t expect they will travel much to the U.S. or Europe in the first half, hopefully they will in the second half, but I expect they will be consuming more at home and traveling in Asia.”
Group revenues in the Greater China region were down 30.3 percent in the fourth quarter to 131 million euros. In the year, sales decreased 16.1 percent to 494 million euros, due to the COVID-19 disruptions and temporary store closures caused by a shortage of staff.
Responding to a question about any potential price gaps with Asia, chief financial officer Gianluca Tagliabue said the company has raised its prices in Europe more than in China for a realignment.
Analysts focused their questions on China again and again, but Zegna also shared his views on North America and the success of made-to-measure and a return of eveningwear.
“I never understood the negative press about Europe and the U.S., which have been enjoying growth higher than expected,” Zegna said.
To be sure, sales in North America in the fourth quarter increased 26.7 percent to 82 million euros, with the U.S. amounting to 77 million euros, up 26.1 percent on the same period in 2021. Revenues in North America reached 295 million euros in 2022, up 54.1 percent. The U.S. in particular was up 53.5 percent to 270 million euros in the year.
Zegna is looking at opening more stores in the U.S., also in mid-tier cities, and a new boutique will open on Fifth Avenue in New York. Another door will open at Bloomingdale’s.
The executive noted how handmade tailoring and the most expensive fabrics are such hits in the U.S. that the company “can’t keep in stock. Certain customers go for the super special and super exclusive fabrics, worsted cashmere and vicuna is back.” He said there are only a few brands that offer these top fabrics, in addition to Zegna, citing Loro Piana, Brunello Cucinelli and Kiton.
There is a gradual return to suits, but in particular he’s seen a request for eveningwear, where price is not an object. “It’s a niche market, but these men want a unique, special and different offer, evening is not only tuxedo, but a casual style in upper luxury. Tom Ford is the best example of that. I have two sons in their 30s and they are going to more weddings in a year than I have in my 60 years and everyone wants to wear something different every time,” he opined, adding that his namesake brand has been attracting a younger customer.
Sales in Europe, the Middle East and Africa region in the fourth quarter rose 22.8 percent to 140 million euros, of which the Middle East and Africa region represented 24 million euros, a 34.9 percent year-over-year growth. In 2022, EMEA revenues reached 520 million euros, up 36.8 percent from 2021. Revenues from the Middle East and Africa region constituted 69 million euros, a 56.1 percent gain.
Revenues for the Zegna segment, which includes Zegna-branded products as well as the textile and third-party brands product lines, reached 334 million euros in the fourth quarter, down 2.2 percent year-over-year, impacted by the performance of Greater China and the end of the Tom Ford International distribution license agreement. As reported, Zegna will be taking over the operation of the Tom Ford men’s and women’s fashion businesses under a long-term license from The Estée Lauder Cos.
In 2022, the Zegna segment reported sales of 1.17 billion euros, up 13.7 percent year-over-year.
Sales of the Thom Browne brand in the fourth quarter rose 11.5 percent to 76 million euros. In the year, it posted revenues of 331 million euros, up 25.3 percent on 2021. The growth was largely driven by wholesale demand.
Thom Browne saw women’s products growing slightly faster than men’s, while children’s almost doubled, said CEO Rodrigo Bazan.
The executive, who underscored how pleased he was that a jury recently determined that Thom Browne Inc. did not infringe on any of the trademarks of Adidas America Inc., revealed that the former will now directly operate its Korean business through a newly formed and wholly owned company, Thom Browne Korea, which will assume direct responsibility for all activities within the Korean market, with external support from its partner of 12 years, Samsung C&T Corp. Effective July 1, Samsung will manage Thom Browne’s wholly owned network of 17 stores in South Korea.
In 2022, Thom Browne opened 11 stores bringing the total number of directly operated stores to 63 at the end of 2022.
Bazan said the brand is on track to double its sales.
Zegna-branded product revenues totaled 274 million euros in the fourth quarter, down 2.7 percent year-over-year, but up double digit year-over-year excluding Greater China.
Revenues in 2022 were 924 million euros, up 9 percent on 2021.
Shoes showed exceptional performance throughout the year, while growth in the luxury leisurewear segment remained steady.
Textile revenues were up 7.1 percent in the last quarter, reaching 38 million euros. Revenues for the year were up 33.8 percent to 137 million euros.
Third-party brands revenues reached 18 million euros in the fourth quarter, down 18.8 percent year-over-year, impacted by the termination of the Tom Ford International distribution license, which ended with deliveries of the fall 2022 collection, replaced by a supply agreement.
Excluding this impact, third-party brand revenues were up strong double-digit in the last quarter.
In 2022, third-party brands revenues were up 30.5 percent year-over-year to 98 million euros, driven by higher Gucci orders and Tom Ford deliveries for spring and fall 2022.
On Monday, Zegna inked an agreement to buy a minority stake in Canadian technical trail running shoe company Norda Run, with the option to gradually increase its stake over the next nine years.
Despite the headwinds, and assuming no unforeseen event, Zegna said the company met its full-year guidance and expects “a moderate improvement in operating profit and a substantial improvement in profit, with confidence in our strategy, maintaining our medium-term target of 2 billion euros [in] sales and 15 percent EBIT margin.”