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Zegna Sees Luxury Revenue Growth Under Pressure Until Mid-2014

Ermenegildo Zegna said he expects revenue growth at the namesake luxury goods maker will remain under pressure for at least another six months as demand moderates in China and the yen’s weakness persists.

“October and November were not good months overall,” the chief executive officer of the Italian company said yesterday in an interview in Milan. “The first half of 2014 will still see this lower pace, which I hope will come back in the second half,” he said, forecasting growth of less than 10 percent for the full year.

Zegna’s outlook contrasts with more bullish comments last week by Swatch AG (UHR) CEO Nick Hayek, who predicted “dynamic growth” for all of 2014 after a “strong start,” boosting the Omega watchmaker’s shares. The luxury goods sector expanded 2 percent in 2013, the slowest pace in four years, as unfavorable currency swings weighed on growth and demand softened in China amid a crackdown on gift-giving to officials, Bain & Co. estimates.

Currency fluctuations wiped 3 percent off Zegna’s sales last year, meaning revenue was “flattish” on a reported basis, the CEO said. Revenue rose at a “single-digit” pace in China, slowing from 2012, while European sales would have declined had it not been for spending by travelers to the region, Zegna said.

“The only real positive” is the U.S., the executive said. “We have seen a positive trend that started in the course of last year, which we believe will continue.”

The maker of $3,995 pea coats didn’t provide actual figures for 2013. Zegna reported revenue of 1.26 billion euros ($1.72 billion) in 2012.

Raising Prices

Zegna raised prices to compensate for some of the currency swings in countries including Brazil, India, Japan, Korea and Turkey, the CEO said. Still, “we weren’t able to transfer all” the costs to consumers, he said.

“When you have to adjust these prices through the course of the year, you create a distraction for the customer who might decide to hold off shopping domestically,” Zegna said.

While Zegna sees the dollar appreciating against the euro this year, boosting the Trivero, Italy-based company’s margins, he added he doesn’t expect a strengthening of the yen, declining to specify his hedging rates.

The closely-held company plans to open between 20 and 30 stores from Angola to the United Arab Emirates in 2014, keeping last year’s pace, Zegna said. Other areas of investment include leather accessories, which are performing well, and online, the CEO said.

Zegna also ruled out selling shares publicly or privately as the sector consolidates.

“There is still room for individual companies like ours that can stand on their own two feet and fight independently,” Zegna said. “We want to stay private. The family is united.”

To contact the reporter on this story: Andrew Roberts in Milan at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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