Ermenegildo Zegna's Resilient Earnings Amid Revenue Softness: Strategic Performance and Growth Potential in Luxury Menswear

The luxury menswear sector has faced headwinds in 2025, with macroeconomic pressures and shifting consumer priorities dampening demand. Yet, Ermenegildo Zegna Group has demonstrated remarkable earnings resilience, posting a 53% surge in net profit to €47.9 million in the first half of 2025 despite a 3.4% year-on-year decline in total revenues to €927.7 million [1]. This divergence between top-line contraction and bottom-line growth underscores a strategic pivot toward operational efficiency, direct-to-consumer (DTC) expansion, and margin optimization—a combination that positions the brand for long-term competitiveness in a fragmented market.

Strategic Reinvention: DTC-Driven Margin Expansion

Zegna’s ability to boost profitability amid revenue softness hinges on its aggressive shift to DTC channels. Direct sales now account for 82% of branded group revenues in H1 2025, up from 76% in the prior year [2]. This transition has amplified gross profit margins, which expanded by 110 basis points to 67.5% [1]. The DTC model not only enhances pricing control but also reduces reliance on wholesale partners, a strategy that mitigates inventory risks and aligns with broader industry trends toward brand-led retail experiences.

However, this transformation has not been without trade-offs. The wholesale channel, which includes high-margin partnerships with luxury retailers, saw a 27.1% organic revenue decline [1]. While this contraction reflects deliberate streamlining efforts, it also highlights the need for Zegna to balance DTC growth with maintaining relationships with key wholesale partners to avoid overexposure to volatile consumer demand.

Segment Performance: Zegna’s Core Strength vs. Satellite Challenges

The Zegna segment, encompassing the ZEGNA brand and textile operations, remains the group’s financial bedrock. Adjusted EBIT margins here rose 150 basis points to 14.3%, driven by disciplined cost management and operating leverage [3]. This resilience is critical, as the core brand’s premium positioning in menswear—particularly in tailored suits and high-end fabrics—continues to attract affluent consumers seeking timeless craftsmanship.

In contrast, the Thom Browne and Tom Ford Fashion segments face significant hurdles. Thom Browne’s adjusted EBIT margin plummeted to 3.5% in H1 2025, down from 12.1% in the prior year, due to underperforming wholesale sales and elevated DTC costs [4]. Meanwhile, Tom Ford Fashion reported a negative adjusted EBIT of €19.4 million, a widening loss compared to €11.9 million in H1 2024, as the brand invests in store expansions and infrastructure [1]. These underperforming segments underscore the risks of overextending into sub-brands with distinct market dynamics, particularly in a sector where brand equity and heritage are paramount.

Operational Discipline and Long-Term Growth Levers

Zegna’s earnings resilience is further bolstered by cost containment and financial prudence. Despite increased SG&A expenses tied to DTC expansion, the group’s adjusted EBIT margin held at 7.4%, a modest decline from 8.4% in H1 2024 [1]. This suggests that management is effectively balancing investment in growth initiatives with profitability preservation. Additionally, non-operational gains—such as foreign exchange benefits and financial income—contributed to the 53% net profit increase [1], though these are less sustainable than core operational improvements.

Looking ahead, Zegna’s growth potential hinges on three levers:
1. DTC Optimization: Scaling high-performing digital and physical retail channels while mitigating the drag from wholesale.
2. Segment Rationalization: Reallocating resources from loss-making sub-brands like Tom Ford to high-margin Zegna core offerings.
3. Product Innovation: Leveraging its textile expertise to differentiate in a market saturated with competitors like Brunello Cucinelli and Hugo Boss.

Risks and Market Realities

While Zegna’s strategy is compelling, external risks loom. Global economic uncertainty could further dampen discretionary spending, particularly in North America and Asia, which account for a significant portion of luxury menswear demand. Additionally, the group’s reliance on the Zegna brand for 80% of EBIT raises concerns about overconcentration. A misstep in core product lines or brand perception could have outsized consequences.

Conclusion: A Model of Strategic Agility

Ermenegildo Zegna’s performance in H1 2025 exemplifies how strategic agility can drive earnings resilience in a challenging environment. By prioritizing DTC, optimizing margins, and focusing on its core strengths, the group has navigated revenue softness with discipline. However, sustained success will require addressing underperforming segments and maintaining innovation in a sector where differentiation is key. For investors, Zegna represents a compelling case study in balancing short-term profitability with long-term brand value—a rare combination in the luxury space.

Source:
[1] Ermenegildo Zegna Group Reports First Half 2025 Revenues of €928 Million With Profit at €48 Million and Adjusted EBIT at €69 Million [https://www.businesswire.com/news/home/20250905544086/en/Ermenegildo-Zegna-Group-Reports-First-Half-2025-Revenues-of-%E2%82%AC928-Million-With-Profit-at-%E2%82%AC48-Million-and-Adjusted-EBIT-at-%E2%82%AC69-Million]
[2] Ermenegildo Zegna Group Reports First Half 2025 Revenues [https://finance.yahoo.com/news/ermenegildo-zegna-group-reports-first-103200176.html]
[3] Ermenegildo Zegna N.V. (ZGN) Q2 FY2025 earnings call [https://finance.yahoo.com/quote/ZGN/earnings/ZGN-Q2-2025-earnings_call-325943.html]
[4] Zegna Group profit up 53 percent in H1 2025 [https://fashionunited.com/news/business/zegna-group-profit-up-53-percent-in-h1-2025/2025090568097]