On Tuesday, UBS analyst adjusted the price target on shares of Ermenegildo Zegna Group (NYSE: ZGN) to $9.00 from the previous $10.00, while maintaining a Neutral stance on the stock. The revision follows the company's reported third-quarter operating sales (OSG), which saw a 7% decline, slightly underperforming UBS estimates of a 6% decrease.
The performance of Zegna's brands varied, with the flagship Zegna brand outperforming expectations by achieving a 3% growth against the forecasted 2% decline. However, the brands Thom Browne and Tom Ford (NYSE:F) Fashion experienced double-digit declines, affected primarily by weaker wholesale numbers.
The analyst highlighted the contrasting trends among consumer clusters, noting a distinct polarization. The Zegna brand's direct-to-consumer (DTC) segment reported a double-digit increase, bolstered by American, European, and Middle Eastern customers. This growth was in stark contrast to the significant downturn in Chinese consumer spending, which saw a mid-teens percentage decline.
Despite the current challenges, the analyst expressed confidence in the core health of the Zegna brand, especially since it was the only brand to report resilience in its DTC segment during the third quarter. The analyst anticipates that Ermenegildo Zegna Group will navigate through the current difficulties presented by the Chinese market and eventually return to positive earnings revisions, recommending to maintain a Neutral position on the stock.
In other recent news, Ermenegildo Zegna Group faced a challenging third quarter, reporting a revenue decline of 8% year-over-year to €397 million. Despite this, the Zegna brand achieved 3% organic growth, driven by direct-to-consumer sales, with strong performance in the Americas and EMEA.
However, the Thom Browne and Tom Ford Fashion lines experienced significant revenue declines. Goldman Sachs (NYSE:GS) revised its EBIT forecasts for fiscal years 2024 to 2026 downwards by 5-7% in response to this performance, reducing the price target to $14.20 but maintaining a Buy rating on Zegna Group shares.
The company also opened new stores and converted wholesale locations to retail, impacting revenue timing. Despite difficulties in the Greater China region, Zegna Group plans to streamline operations and unveil new collections for Thom Browne and Tom Ford by mid-2025.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Ermenegildo Zegna Group's (NYSE: ZGN) financial position and market performance. The company's market capitalization stands at $2.02 billion, with a P/E ratio of 20.28, reflecting investor expectations despite recent challenges.
Zegna's revenue for the last twelve months as of Q2 2024 reached $2.10 billion, marking a 17.68% growth. This growth aligns with the analyst's observation of the brand's resilience, particularly in its direct-to-consumer segment. The company boasts an impressive gross profit margin of 65.36%, underscoring its ability to maintain pricing power in the luxury market.
InvestingPro Tips highlight that Zegna has raised its dividend for three consecutive years, with a current dividend yield of 1.5%. This consistent dividend growth, coupled with the company's profitability over the last twelve months, may provide some reassurance to investors amid market volatility.
However, it's worth noting that Zegna's stock has experienced significant pressure, with a 26.47% decline over the past three months and a 32.19% drop over six months. This aligns with the analyst's reduced price target and reflects the challenges faced by the luxury sector, particularly in the Chinese market.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Zegna, providing deeper insights into the company's financial health and market position.
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