When Christian Walker, son of former NFL great Herschel Walker, publicly broadcasted his views on rising gasoline prices through social media, he inadvertently committed a cardinal sin. No, the issue wasn’t about disseminating a contrarian talking point. Rather, Walker’s wardrobe — a nearly $1,300 hoodie — detracted from any insight he was attempting to offer.
As fashion experts advise, you want your attire to complement your purpose — not be the purpose. Had the younger Walker decided to share his views while wearing something classy but subdued, it’s very possible that the broader discussion would center on the substance of his arguments. Then again, the uproar about fashion choices is exactly what luxury apparel brand Ermenegildo Zegna needs.
During the initial onslaught of the COVID-19 pandemic, the global economy shut down as government agencies prioritized public safety over profits. But in so doing, the pain did not distribute itself evenly. Instead, the crisis created a waffle effect, with a few sectors absorbing the brunt of the damage. With people sheltering in place, the fashion industry bled red ink.
When Is the Zegna IPO Date?
Earlier in December, Reuters shocked onlookers with a startling revelation: “With weeks left to go till the turn of the year, U.S. IPOs have totaled $301.26 billion in 2021, scorching past last year's record of $168 billion, according to Dealogic.” Often, a skyrocketing of enthusiasm leads to a corrective lull, but that’s not what’s happening — at least not yet for the IPO market.
Despite rumblings on Wall Street as institutional players absorb the recent monetary policy shift from the Federal Reserve, the appetite for distributing new public market issues remains hearty. A clear example is Italy-based Zegna (pronounced ZEN-ya), which enters the IPO calendar on Dec. 20 via a reverse merger with Investindustrial Acquisition Corp (NYSE: IIAC), a special purpose acquisition company (SPAC). Shares will trade on the New York Stock Exchange under the ticker symbol ZGN.
Unlike a traditional IPO, which involves a private enterprise offering for the first time to the public an equity stake in its business in exchange for capital, a SPAC features no underlying operations. Instead, its main purpose is to launch an IPO to help fund an eventual merger with a viable private company.
Typically, SPACs have two years to complete a business combination. SPAC shareholders also have the right to redeem their equity stake (at the initial offering price) if they don’t agree with a proposed merger deal.
In many if not most cases, private firms agree to a SPAC merger because the process to enter the public arena is quicker and less onerous (due to fewer regulatory oversights) than a traditional IPO. As well, retail investors have benefits, primarily that they can participate in ground-floor opportunities that would otherwise not be available to them.
However, you must realize that Wall Street rarely (if ever) tilts the house advantage in your favor. According to Harvard Law School, the “primary source of SPACs’ high cost and poor post-merger performance is dilution built into the circuitous two-year route they take to bringing a company public. Along the way, SPACs give shares, warrants and rights to parties that do not contribute cash to the eventual merger.”
For ZGN stock specifically, one of the biggest challenges is the competitive nature of fashion, which tends to create a discrepant mix in the public trading arena. For instance, both Revolve Group Inc. (NYSE: RVLV) and Levi Strauss & Co. (NYSE: LEVI) debuted in 2019. Heading into the Dec. 20 session, the former is up over 68% since its first closing price while the latter is up only 8%.
Zegna Financial History
According to data from ResearchAndMarkets.com, its experts project that the global luxury fashion market could reach nearly $154 billion by 2026, representing a compound annual growth rate (CAGR) of 5.66% from 2020’s industry valuation of $110.64 billion.
Per the report, the “global luxury fashion industry is gaining momentum significantly with the rise in the number of high-net-worth individuals, the growing popularity among the young population belonging to the millennials and Gen Z generation, increasing brand loyalty among customers and increasing association of luxury brands by the individuals.” Such dynamics should bode well in theory for ZGN stock.
Of course, one of the biggest headwinds to fashion — and virtually any import-dependent sector — is the ongoing global supply chain crisis. However, based on a report from The New York Times, Zegna implemented a “program to reconfigure the scraps of fabric left on the cutting room floor so they no longer go to waste.” Therefore, the company uses recycled components to develop certain products such as sneakers.
Still, initiatives aren’t worth much if they don’t produce results. Fortunately, the numbers provide encouragement for prospective investors, especially compared against some of the highly speculative SPACs that entered the public fray over the trailing year.
Among the highlights in Zegna’s disclosure with the U.S. Securities and Exchange Commission (SEC), revenue in the six months ending June 30, 2021, was up 50% from the year-ago period. Further, net income for the first half of this year was 32.2 million EUR, roughly equivalent to $36.3 million using current exchange rates. This tally compared favorably to a net loss of $82.1 million EUR (approximately $92.6 million).
Given the current sales run rate, along with heightened consumer demand in the second half of 2021, it’s very possible that Zegna could reach, if not exceed, its 2019 revenue haul of $1.32 billion EUR ($1.4 billion). Also, its retained earnings — or cumulative profit after discounting dividends — as of June 30, 2021, is 925.5 million EUR ($1.04 billion), suggesting that Zegna runs a viable enterprise. Additionally, a positive figure in this line item keeps pace with trends among top fashion brands.
One of the underappreciated aspects of Zegna’s leadership ethos is that it refuses to rest on its laurels. For instance, when the COVID-19 crisis first struck the U.S., workers quickly adopted telecommuting measures to maintain their productivity. However, it might not have looked like it since America was having its pajama moment, to borrow a phrase from The Washington Post.
Well, Zegna’s management team took notice. Zegna “is increasing its focus on casual wear and digital content and outreach as the pandemic hastened changes already underway in how people dressed and interacted online.” But is that enough to maintain relevance for the brand and boost ZGN stock?
Although Zegna offers serious potential thanks to its influence and marketing appeal, the paradigm shift that COVID-19 imposed could turn again. For instance, once employees return to the office, wardrobe standards could elevate, presenting potential inventory glut threats.
More critically, though, competition has long been a specter for ZGN stock and any fashion-centric investment opportunity. Mainly, LVMH Moët Hennessy Louis Vuitton (PINK: LVMUY) has snagged up myriad luxury brands, becoming the Death Star to Zegna’s Rebel Alliance. While it’s not impossible for the smaller rival to spark an upset, there may be nothing more dangerous than a blue chip desperate to right the ship after more than a year of devastation.
How to Buy Zegna IPO (ZGN) Stock
With ZGN on the cusp of its debut, interested buyers must acquire shares at the open, necessitating knowing how to buy stocks. For a refresher, follow these steps.
Step 1: Pick a brokerage.
Everything starts with the right brokerage. With the best brokers competing on similar cost structures, you should narrow your list to platforms that ideally suit your needs.
Step 2: Decide how many shares you want.
IPOs are risky, and the fickle nature of fashion makes ZGN particularly tricky. Therefore, go with a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
ZGN Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
While ZGN is not available for pre-IPO purchase, Freedom Finance offers early bird access for some of the hottest debuts.
Fashion Forward or Off the Rack?
With global consumers eager to reclaim their everyday lives, more people will be out and about, presenting massive opportunities for a revitalized Zegna. At the same time, investors must be aware that fashion trends can be fickle. As well, competition stands ready to make the debut of ZGN stock comprehensively eventful.