Ermenegildo Zegna Group (ZGN) FY2024: Adjusted EBIT Declines 16% Amid Strategic Investments and Market Challenges

March 27, 2025 | By EarningsIQ Research

Ermenegildo Zegna Group navigated a complex 2024 with a 16% decline in adjusted EBIT driven by investments in talent and retail expansion, alongside difficult market conditions in Greater China. The Group’s focus on direct-to-consumer (DTC) channels supported margin improvement despite revenue softness in key segments. Updated mid-term targets reflect a cautious outlook with an emphasis on sustainable brand growth and selective wholesale rationalization.

Summary

• Strategic Investment Commitment: The Group prioritized talent acquisition, retail network expansion, and marketing to underpin long-term brand value.
• Operational Channel Shift: Direct-to-consumer revenues increased to 78% of branded sales, driving gross margin expansion despite wholesale declines.
• Market and Channel Challenges: Greater China weakness and continued wholesale rationalization, especially at Thom Browne, tempered near-term growth prospects.

Business Overview

Ermenegildo Zegna Group operates as a global luxury menswear company with three core brands: ZEGNA, Thom Browne, and TOM FORD FASHION. The Group generates revenue primarily through its direct-to-consumer (DTC) and wholesale channels, with a vertically integrated supply chain known as the Filiera that supports product innovation and quality. The business segments include Zegna (including Textile and Other), Thom Browne, and Tom Ford Fashion, each targeting distinct market niches within the high-end fashion industry.

Performance Analysis

In FY2024, the Group reported revenues of €1.95 billion, a 2.2% year-over-year increase driven mainly by the Zegna brand’s 4.9% growth. However, organic revenues declined 1.9%, reflecting softness in wholesale channels and regional headwinds, particularly in Greater China. Gross profit margin improved notably to 66.6%, up 230 basis points, supported by an increased DTC mix which reached 78% of branded revenues, compared to 73% in 2023. This channel shift enhanced profitability despite a 16.4% decline in adjusted EBIT to €184 million, reflecting elevated investments and a challenging environment.

The Zegna segment maintained positive momentum with a 2.0% revenue increase and a 13.9% adjusted EBIT margin, though slightly down from 14.6% in 2023 due to investments in talent and retail expansion. Thom Browne experienced a 17.2% revenue decline and a steep 53.7% drop in adjusted EBIT, impacted by wholesale channel reductions and restructuring costs. Tom Ford Fashion posted a 33.5% revenue increase but remained unprofitable at an adjusted EBIT loss of €10.1 million, primarily due to investments in organizational capabilities and retail footprint development.

• Margin Expansion via DTC Growth: Higher DTC sales contributed to gross margin improvement despite revenue pressures.
• Wholesale Rationalization Impact: Thom Browne’s strategic reduction of wholesale exposure led to significant revenue and profit declines.
• Investment-Driven Cost Increase: SG&A expenses rose to 51.8% of revenues, reflecting talent acquisition, store network expansion, and marketing.

Overall, while profitability contracted, the Group sustained positive free cash flow of €10.1 million amid increased capital expenditure focused on retail and production capabilities, including a new shoe factory in Parma.

Executive Commentary

Strategic Positioning

1. Accelerated Direct-to-Consumer Focus

The Group’s deliberate shift to DTC channels, now representing 78% of branded revenues, is central to its margin expansion strategy. Zegna brand is approaching 90% DTC penetration, reflecting a move away from lower-margin wholesale. This channel transformation supports greater customer intimacy and control over brand experience, aligning with luxury market trends favoring personalized service and exclusivity.

2. Wholesale Rationalization and Selective Distribution

Thom Browne continues to reduce wholesale exposure, expecting double-digit declines in 2025, as part of a broader strategy to reinforce retail client centricity. Zegna and Tom Ford also pursue selective wholesale distribution, focusing on icon protection programs and converting wholesale points into DTC or concession stores, which typically yield higher productivity.

3. Brand Investment and Product Innovation

Investments in talent, marketing, and retail infrastructure underpin the Group’s long-term growth ambitions. Notably, Tom Ford Fashion’s acclaimed Fall Winter 2025 show under new creative leadership has generated strong media impact and customer interest. Zegna’s Velu Sarum collection and personalization initiatives have exceeded expectations, while Thom Browne is evolving its product assortment to better engage local markets.

4. Geographic Focus and Market Challenges

The Group faces ongoing headwinds in Greater China, particularly Hong Kong, with expectations of negative growth in 2025. Conversely, the U.S., Europe, and Middle East markets demonstrate resilience and growth potential. The Group’s strategy emphasizes strengthening local customer engagement, especially in the U.S. and Japan, to mitigate regional volatility.

5. Capital Expenditure for Growth and Efficiency

Capex increased to €125.5 million in 2024, driven by retail expansion, IT infrastructure enhancements, and a new shoe production facility in Parma scheduled to become operational in the second half of 2025. This investment supports both brand experience and operational scalability, critical for sustaining competitive advantage in luxury manufacturing and retail.

Key Considerations

Ermenegildo Zegna Group’s FY2024 results reflect a balancing act between managing near-term market challenges and investing for sustainable long-term growth.

• Brand Differentiation Through Filiera: The Group’s integrated supply chain remains a core strength, enabling superior craftsmanship and innovation.
• Channel Mix Evolution: The accelerated DTC shift enhances margins but requires continued investment in customer experience and store productivity.
• Wholesale Channel Risks: Rationalization improves brand control but reduces near-term revenue visibility and increases dependency on retail execution.
• Geopolitical and Economic Uncertainty: Persistent weakness in Greater China and potential tariff impacts necessitate cautious guidance and flexible strategies.
• Organizational Strengthening: Investments in talent and infrastructure, especially at Tom Ford Fashion, are essential to realize brand potential but weigh on short-term profitability.

Risks

The Group’s exposure to Greater China presents significant risk given ongoing market softness and geopolitical uncertainty. Continued wholesale channel contraction could pressure revenue growth and margin stability if DTC expansion does not accelerate as planned. Additionally, elevated investments in retail and talent increase fixed costs, potentially impacting profitability if market conditions deteriorate or consumer demand weakens.

Forward Outlook

For Q1 2025, the Group anticipates a continuation of the challenging environment in Greater China and expects Thom Browne wholesale revenues to decline similarly to Q1 2024. Management projects low single-digit growth in revenues and adjusted EBIT for full-year 2025, with capex expected between 6% and 7% of revenues, reflecting ongoing investments in retail and production capabilities.

• Revenue growth expected in the low single digits, driven by DTC expansion and selective retail openings.
• Adjusted EBIT projected to grow modestly, with continued investment in marketing, talent, and infrastructure.

Management emphasizes a cautious approach, balancing investment to protect brand equity with disciplined cost management amid macroeconomic uncertainties.

Takeaways

The Ermenegildo Zegna Group is navigating a transitional phase marked by strategic investments and channel reshaping amid a complex macro environment.

• Margin Resilience Despite Revenue Pressures: The shift to DTC channels is driving gross margin expansion, offsetting some top-line softness and wholesale rationalization impacts.
• Brand Momentum Supported by Innovation: Tom Ford Fashion’s acclaimed creative direction and Zegna’s personalization initiatives signal potential for renewed growth and market differentiation.
• Execution and Market Risks Remain: Success depends on effective wholesale rationalization, retail execution, and recovery in Greater China, which collectively will shape medium-term growth trajectories.

Conclusion

Ermenegildo Zegna Group’s FY2024 results illustrate a disciplined commitment to long-term brand building through strategic investments and channel transformation. While profitability contracted amid market headwinds and elevated costs, the Group’s enhanced DTC focus and product innovation provide a foundation for future growth. Investors should monitor execution on wholesale rationalization, retail productivity, and regional market recovery as key drivers of the Group’s trajectory.

Industry Read-Through

The Group’s experience underscores broader luxury sector trends emphasizing direct-to-consumer channel expansion, selective wholesale distribution, and heightened investment in brand and product innovation. The cautious outlook for Greater China reflects ongoing regional challenges affecting many luxury players. Ermenegildo Zegna’s strategic balancing of investment and cost discipline offers a case study in managing growth amid sector volatility and shifting consumer dynamics. Other luxury companies should closely watch the effectiveness of DTC scaling and wholesale rationalization as critical levers for margin improvement and brand control.

ZGN Consumer Discretionary Luxury Apparel Direct-to-Consumer Wholesale Rationalization Brand Investment Filiera