Ermenegildo Zegna Group said a 36.6 percent drop in profits last year as a result of declines in Greater China as well as investments in its manufacturing operations and in expansion in markets with strong growth potential.
In the 12 months ended Dec. 31, net profit decreased to 45 million euros, or $50 million, compared with 71 million euros, or $94.4 million, in 2014.
Earnings before interest, taxes, depreciation and amortization dropped 21 percent to 146 million euros, or $162 million, compared with 185 million euros, or $246 million, the previous year.
Revenues at the privately owned Italian clothing and textile firm rose 4 percent to 1.26 billion euros, or $1.4 billion, compared with 1.21 billion euros, or $1.6 billion, in 2014.
“The contraction of margins partly stems surely from the investments in the industrial reorganization, partly from the push on the expansion in markets that have a high potential, such as Japan and the Arab Emirates, from prudential choices on currency hedging and from the contraction of markets with high margins, such as Greater China, for example,” chief executive officer Gildo Zegna told WWD.
However, Zegna said that the results in 2015 “given the unpredictable geopolitical and financial turmoil which we had to face, are to be considered satisfactory.” He highlighted the group’s “optimization” of its retail network, starting with the “redefinition” of the brand’s presence in Dubai. Last year, the group formed a joint venture with the Dubai-based Al Tayer Group to expand its reach in the Middle East. According to the agreement, Al Tayer took over from its former partner, UAE Trading, as the main operator of Ermenegildo Zegna boutiques and other points of sale in the United Arab Emirates.
The group completed its industrial reorganization last year, investing in strengthening control of its supply chain. Zegna has created a state-of-the-art manufacturing center in San Pietro Mosezzo, near Novara, for its clothing division. This is in addition to three centers for the production of casual garments, outerwear and leather apparel, and accessories in Parma, Italy. A center specializing in knitwear was set up in Verrone, near Biella, Italy. These work alongside the historical textile mill in the country’s town of Trivero.
The executive said that the reorganization of the group’s manufacturing operations allows it to “meet the challenges of a global market characterized by instability and the lack of more certain reference points.” Zegna said the company has grown its made to measure division “double-digit,” “thanks to exclusive services and fabrics, and to the strong growth of MTM Casual Luxury and we improved results in the wholesale business.”
Zegna described the made-to-measure division as the group’s “jewel in the crown, the business in which we historically have a competitive advantage and on which we continue to invest, with success, also thanks to the exclusive Zegna fabrics.”
“Moreover, I am sure that the upcoming entrance of Alessandro Sartori as artistic director will open a new phase in the overall development of our brand by helping us intercept new consumer segments in our more traditional markets and conquer those consumers who, for instance in Asia, are appearing at the forefront of the global market,” Zegna noted.
Sartori, who left Berluti earlier this year, will have responsibility across all Zegna brands and for all creative functions and is to join the Italian men’s wear group in June. His first collection will be for the fall 2017 season that will be shown in Milan in January. This marks a return to Zegna for Sartori, who initially joined the firm in 1989 and was at the creative helm of Z Zegna for eight years. Stefano Pilati exited the group after a three-year stint at the helm of its couture line and fashion shows, as reported.
Changes took place at Zegna’s women’s brand Agnona, too, with Simon Holloway succeeding Pilati and debuting his first collection last February.
Exports continue to account for over 90 percent of total sales. Business has shifted in favor of Europe and the Americas, compared to Asian markets. “In Europe, the growth was single-digit, driven also from incoming tourist flows,” Zegna explained. “In the Americas, the growth stems from the good performance of Canada and Mexico and a good resilience in the U.S.”
Positive signs of growth came from the Japanese market. China continues to be the largest market. Greater China accounts for one-third of total sales, followed by the Americas, which represent 25 percent of total revenues. Zegna identified macrotrends in the U.S. as a “weakening tourist demand as a consequence of the strong dollar, especially in Miami and touristic locations,” and wholesale clients “cautious in their purchases due to high inventories, great attention to domestic and loyal customers [retention] and cross-selling on categories that have potential (informal and leather).”
At the end of 2015, the company counted 523 boutiques, of which 307 are directly managed. Last year, some of the most significant openings included units in New York, at Brookfield Place; in Miami, in the Design District; in Tokyo’s Ginza area; at the Dubai-Mall of Emirates; in Johannesburg, and Melbourne. Retail accounted for two-thirds of sales.
In 2016, openings are scheduled in Berlin, Istanbul, Tehran and Macau. Zegna will also renew existing stores, for example doubling the space of its Bond Street store in London.
The group has an ambitious omnichannel agenda, starting in Europe and the U.S. and followed by Asia, allowing “consumers to enjoy a seamless experience in terms of inventory availability, sales and product returns.”
The net financial position remains solid with net cash of 164 million euros, or $182 million.
Dollar amounts are converted at the average exchange rate for the periods to which they refer.
The group will also continue to support projects to help local communities, scientific research and environmental protection, allocating more than 5 percent of its net profits. Moreover, there is the commitment to the protection and development of the Oasi Zegna territory, and support for young talents through the financing of the Ermenegildo Zegna Founder Scholarship.