Zegna Shares Fall 18% as Middle East War Clouds Luxury Demand

This article first appeared on GuruFocus.

Ermenegildo Zegna (NYSE:ZGN) is signaling a more uncertain luxury backdrop as geopolitical tensions begin to weigh on visibility. The Italian fashion group said the ongoing Middle East conflict is making demand harder to forecast, even as China, the US, and Europe continue to show resilience. Executive Chairman Gildo Zegna noted that the situation remains fluid, with the three-week-old war adding pressure to the global economic outlook. Despite this, direct-to-consumer sales in the first quarter are tracking above the fourth quarter of 2025, suggesting momentum has not yet materially slowed.

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The Middle East remains a relatively small but important contributor, accounting for about 67% of group sales. Zegna said operations in the region have normalized after earlier disruptions, with all stores now open, and believes its positioning at the high end of the market could offer some resilience. Still, investor sentiment appears cautious, with shares down 18% since late February following US and Israeli strikes on Iran. The company continues to anchor its strategy around 2027 targets, though it indicated these could be adjusted depending on how long the conflict persists.

At the same time, Zegna is dealing with the ripple effects of Saks Global Enterprises' Chapter 11 restructuring. The retailer's bankruptcy reduced adjusted EBIT by 10 million to 163 million in 2025, down from 184 million a year earlier. Zegna has resumed shipments to Saks for its spring-summer collections, indicating a measured approach as the retailer reorganizes. Looking ahead, the group plans to maintain its overall capital spending and marketing commitments, while potentially reallocating investments across regions depending on where demand proves strongest.

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