Hello, and thank you for your patience. Today's Ermenegildo Zegna Group 3Q 2023 revenues Call will begin in just a few moments time. Today's call will be hosted by Francesca Di Pasquantonio, Director of Investor Relations. [Operator Instructions] Hello, and welcome to today's Emendeendia Group 3Q 2023 Revenues Call. My name is Bailey, and I will be the moderator for today. [Operator Instructions] I'd now like to turn the call over to our host, Francesca Di Pasquantonio, Director of Investor Relations. Please go ahead.

Hello, everyone, and thank you for joining us as we discuss Zegna Group results, revenues for the third quarter and first 9 months of '23. I am Francesca Di Pasquantonio, Director of Investor Relations at Zegna, and I will kick it off today. Please note that today's presentation materials are available on our website together with the press release. Today, joining the call are the Group Chairman and CEO of Zegna; the COO, CFO, Gianluca Tagliabue. And for the Q&A, we will also have Rodrigo Bazan, CEO of Thom Browne. Before we begin, I need to point out that we may make certain forward-looking statements during the call. Our actual results may be materially different from those pressure implied by these forward-looking statements. All such statements are subject to a number of risks and uncertainties, including those discussed in our SEC filings. I refer you to the safe harbor statement, which is included on Page 2 of today's presentation. And of course, this call will be governed by that language. I am pleased to now hand the call over to Gildo Zegna.

Thank you, Francesca, and welcome to everyone who are joining us today. Before we start, let me say that we are deeply troubled by the tragic events in the Middle East, and our thoughts go to all the people who live -- whose lives have been affected during these difficult times, and we do hope that peace will be restored in the region as soon as possible. On the number that we have published, I'm very proud of the execution of our brand transformation so far. And I'm pleased to share that we recorded a rather strong quarter, continuing the successful performance we have been experiencing since the beginning of the year as we continue to execute the group's strategy. In fact, our growth has been strong for several years now with a 2-year compound growth rate of close to 25%. We are a stronger player today. And thanks to our strong management team, we have been further shapening our execution. We have a diversified portfolio of brands and activities and an increasingly more balanced geographic mix. Our brand resonance with customers around the world, supported by our sophisticated clienteling and CRM capabilities is also driving market share gains, and we are particularly proud of the process that Jane has made since the rebranding. And our exposure to womenswear initially to from Brown and now also with [indiscernible] is also contributing to these gains. The geographic diversity of our business is one of the main reasons for the positive results we are seeing. Our business across different markets remains very healthy, and it is a clear result of where our focus has been. Europe, Middle East and the U.S. continue to be particular areas of strength for us. Importantly, our engagement with customers from these regions remains dynamic and American…

Thank you, Gildo. Good afternoon. I take it from Slide 6. Today, I will be discussing our revenues both for the third quarter and for the 9 months year-to-date. As you remember, in July, with the first half revenues, we introduced organic growth as a key new metric. We would like to focus in the narrative, mostly on organic growth metric as it helps us looking at the true underlying business trends since it neutralizes not only the impact from FX in a constant currency logic, but also neutralizes the change in scope, which for us means 2 things: first, the change related to Tom Ford which last year was a third-party client within the Zegna segment, while this year gets consolidated line by line since the end of April. Second aspect, the change related to the internalization of the South Korean business for Thom Brown as of July 1. So far, in the first 9 months of the year, our revenue, as Gildo has mentioned, have reached EUR 1.334 billion, up 19.2% year-to-date organic growth, driven by a solid high double-digit growth, both for Zegna and Browne segments. Our revenues for the quarter reached EUR 431 million with continued growth for the Zegna and Thom Brown. Growth in the third quarter was led primarily by the strength of the Zegna branded product, especially in the DTC channel. The third quarter witnessed a material negative effect on revenue from currency, which is in the range of 4 percentage points after a partial positive mitigation offered by our currency hedging policy. Revenue for Zegna segment reached EUR298 million for the quarter, a 3% increase over the same period of last year on a reported basis and 12.7% organic growth. On the organic metric, the effects of Tom Ford, which was a…

Yes. Thank you. Please turn to Slide 19. And I think that so far, we can say that we had a very good year. I do believe the addition of Tom Ford fashion was a big step for the group. And this meant that we need to look at our financial goals with a new lens as a group consisting of 3 iconic brands, not 2. And in addition to our great Meditel Luxe platform remains a very important support for all 3 brands. That is why on December 5 will be welcoming our investor many of and analysts to the New York Stock Exchange for our second ever Capital Market Day. At that time, we will share our updated financial goals, including the Tom Ford fashion business and Ermenegildo new CEO, will be with us, and you will get to hear from our leadership team about the group strategy and plans for the future.

Thank you. Thank you, Luca. Thank you Gildo. Will now open the call up for questions, please.

Thank you. [Operator Instructions] Our first question today comes from the line of Susy Tibaldi from UBS.

The first one on China and the Chinese cluster overall. I remember that H1 you said on a 2-year stack, the Chinese were more or less flattish. Can you comment what was the trend in Q3? And given that the growth has been a bit weaker in the Chinese compared to some of the years. Could you elaborate a bit what you think is the issue if it's really no macro driven or you feel like maybe the rebranding is not resonating as well as in the West perhaps given your long in China, the brand is not yet perceived as high end as cities in Europe or in Asia or in the U.S? And then my other question to linked to this. The fact that Asia is underperforming the rest of the group, does it have a negative implication for margins? Because I think in the past, you mentioned that China as a region, is more profitable. So I don't know if now this has changed given that your sales densities in other markets must have gone up so much over the past years.

Thank you for the interesting question, which I think the first part I partially answered in my script, but I will go over again I think that there is some slowdown in China this quarter. But I think that -- I do believe that overall business continues to perform well because I think that with the 20% organic growth over the past 9 months, I can't -- I do believe that we can be positive for the rest of the year and for the coming year '24. That said, I've been 3x challenge here. And unfortunately, I could not go before. So I would say that the rebranding is a little bit behind as compared to other important geographies, in particular, Europe and the United States. And also, I must say that there has been an impact by the data Zegna conversion that, as you recall, was represented quite interesting part of the total sales by '21. So I think that we are well ahead of our journey that has not completed. And so there is some work in products to do, but we remain extremely confident with our team that the transformation will come through pretty soon. And as I said, we are implementing all sort of means to make it happen, like training to the staff, by organizing events like relocation and ramping and exactly what we have been doing in the United States and Europe. So I think that we see with a positive are overall regardless of what will happen for next year. But overall, we remain strongly positive on China, which is a very important market and which we will continue to invest not only with Zegna, but also with Tom Browne and Tom Ford. On the margin side, I think...

Margin side...

Will answer you.

So no, we are not concerned about dilution by growing on the rest of the business. What happened actually, we have been raising prices more on the western side of the world in order to move towards global pricing logic that we are happy with. So if you take, for instance, our iconic triple-stage sneaker, now we are at an index price around 120. And typically, we were enjoying a different, much higher price range in China. So we have been rebalancing prices -- raising prices in Europe and in U.S. And therefore, the effect of the moving -- of moving a lot business westwards, we are not concerned because we have taken a move towards more global pricing logic. So I think that we are ready for a balanced at this point do mix.

Okay. And are you able to say what for the Chinese of doing in...

I reiterate what I said in July. So we are flattish to 2021. And I reinforce what Gildo mentioned, that 2021, there was a very strong leasing business. So being flat, it's -- of course, it's the outcome of a reshuffle of moving out from the brand using a business and bringing in higher price point, more affluent business. So Zegna incidents was much higher in Greater China than anywhere else, not only because we had a few 5, 6 monobrands rising, but because the incidence of some product lines of the Zegna like Merino was much bigger. So when you look at flattish to 2021, it's a transformation, which, as Gildo mentioned before, we see it as an untapped opportunity because we started moving out the Zegna business accessible price point to a real luxury. And as Gildo was mentioning before, now we have lots of levers still to exploit in China, which we were a bit ahead in the Western world also because of capacity of traveling. So we are, at this point, in terms of merchandising in terms of marketing events, CRM activities, reshuffle of stores. So we are, at this point, ready to make the 360-degree transformation in China, which occurred a few quarters ahead in U.S. and EMEA. That's why we see China as a big opportunity looking forward because we are in the middle of the transformation there.

Let me add one thing, Susy. We have seen an increase of Chinese buying in Asia recently. I was just -- I'm just back from Japan and Korea, and particularly in Japan. Part of the increase in Japan is thanks to Chinese shopping high end Zegna, particularly in our Ginza Osaka shop. Not to mention the super high double-digit increase in onco. We cannot give you the specific on the number, but we surely are very happy on Hong Kong bouncing back and also Macau. So I think that these are some talented we do believe that by taking over the distribution of Corio from Brown and Zegna. I think this strictly will also be manifested in Korea for 2024. So overall, we do believe that the Chinese will keep shopping in Mainland China not so of the world.

So just to make a final point to be explicit on your question, do we believe that the brand transformation is not happening in China? The answer is no. The answer -- we are announced and as mentioned is happening and is going to deploy the results that we've seen elsewhere in China with Chinese as everywhere. So yes, there is a strong note to your question if we are not happy with our trajectory in China and with Chinese.

Okay. That's very clear. Just one last follow-up. 2 others, but if you have a quick...

Go ahead. Hello, Susy? Okay. Operator, I think I can operate that.

I'll move on to the next question. If you would like to -- the next question today comes from the line of Matthew Garland from Deutsche Bank.

I just had a quick question around, again, the China cluster. I think from memory in September, you were saying that clusterin total had turned negative. When I look at obviously 3Q growth for China, for the Greater China region, it looks more like, I guess, high single digit. I just wanted to clarify, it was my understanding that the cluster going to negative growth in 3Q incorrect? Or was there a benefit to regions outside of China?

Matt, Gianluca. No, we didn't say that the clusters were negative. We said that the cluster in the first half was flat to 2021, and we confirm the same trajectory also for Q3. That is what we said. We said in first half, we never said that the cluster was negative. We said it was flat 2021 and it's flat also in Q3.

And then...

Make a further step, which I think I anticipate a question by you or by others, on the current trading, we are not seeing any major swings in nationality, and we are seeing still a solid double-digit growth for both Zegna DTC and solid -- solid double-digit growth for Tom Brown DTC. So the same solid trajectory we are seeing also in the 3 weeks beginning Q4. No changes in terms of European, North American dynamic and the same pattern for Chinese. We are seeing more and more Chinese outside of Greater China. But for us, as we remember, we are not seeing the same incidence of Chinese out of Greater China as other brands. Most of our Chinese spending occurs structurally occurs within the domestic market.

Okay. And then in terms of, I guess, the outlook for sort of 2024, are you able to give any details at this stage around your view on sort of the growth given some of the macro headwinds that we've seen in 2024? I know you've already spoken about China, but any of your thoughts on one of the city other regions, Europe and the U.S.

We cannot give you any numbers. And I'm sure you don't mind that -- but we remain on a positive mind. I can tell you one thing. We were really in pain during COVID and we came out very, very strong. Whatever it will happen in '24, we are ready to react in a positive way. And I can tell you that we've been discussing with Gianluca the team budget for the past few weeks between one trip and the other, and we have been very attempt on cost control and cash protection. But we are ready to go either way, but we remain positive still on '24, let's call it this way.

As a hint on what we are discussing during the budget sessions, we are we keep on investing in fueling the long-term midterm health for the brand by increasing marketing by increasing CapEx, both for relocation and new openings. The new openings that you have seen for Zegna, especially in Europe and North America will continue the relocation in China are part of our budget and 3-year plan. The openings for Thom Browne and Tom Ford are a big driver for next year. So we are not pulling the brake on marketing and CapEx dollars as a mindset for next year, of course, with the consciousness and flexibility that do was mentioning. But the attitude is packing not defending for next year.

Perfect answer. If so, I would move to the next person.

The next question today comes from the line of Adrien Duverger from Goldman Sachs.

I have 2 if possible. So the first one is, could you please comment on the resilience from the higher spending cohort? Have you seen any increase in the proportion this year versus last year? And if so, have you seen any difference between geographies, so Europe versus the U.S. and China? And the second question would be, if you could give us an idea of the breakdown between pricing and volume in Q3 and how you think about pricing going forward?

Yes, I'll take the first one, and Gianluca will take the second one. In terms of resilience, I think that we have seen a good trend by the wealthy buying more luxurious product. That's why we are adding an uber luxury product to our product offer because I think that for those folks, price is not an issue, and they just want to still go in with [indiscernible] project and product around the world. I must say that among the nationalities in America, I would say, remain #1. And I would say this trend we have seen in both in the United States but also in Europe. And we do hope that American will continue shopping in Europe. So that's my takeaway from this year as compared to the past one. And that means that most of the wealthy shopper are attracted by the new Zegna strategy and of our branding. And I must say that maybe, Rodrigo, you can comment also on Thom Browne because surely, the same is happening in Thom Browne, and I'm surely the same will happen in Tom Ford. Can you just maybe develop the resilience on your customer, Rodrigo?

Yes, absolutely. In Thom Browne, we are extremely excited about what we're seeing in terms of the measure in the for high-end closing. And just to clarify, our business is largely closing and in a very committed and very high spending a true luxury client, and we're seeing great refence as Gildo mention on a global basis from that point of view. In fact, I'm speaking from Shanghai right now.

Thank you. Gianluca, do you want to take?

Yes, I take the breakdown of volume mix price. So in terms -- I look at the organic growth for the quarter, which was 11.3%, knowing that we have typically a mid-single-digit growth in terms of pricing every season, season oversea over counter season. So you can expect that slightly less than 50% of that growth comes from price. And the remainder, it's more volume than mix because last year, we had already the Zegna new brand strategy up in place. So the mix effect at this point, I would say, 40-40-20, 40% price, 40% volumes and then 20% mix because at the end, the big step-up in terms of brand and collection elevation started with the fall winter '22. So we are comparing against already rebranded collection.

And if I may, just a quick follow-up on my first question. Would you be able to give us an estimate of the proportion of the higher spending cohort of your sales?

On the Zegna side, it's 5% of the revenues, 5% of clients represent 40% of revenues. And I defer to Rodrigo. This is DTC, of course, because on the wholesale side, we cannot. I don't know if Rodrigo you want to give some flavor on the Thom Browne side probably.

From the Thom Browne actually fairly similar, early similar to clients above 35,000 a year, make at least 35% of our revenue in DTC.

[Operator Instructions] Our next question today comes from the line of Anthony Charchafji from BNP Paribas.

It's Anthony Charchafji from BNP Paribas. So I have I have a few questions, please. So the first one would be on FX. So it was a 4% drag in Q3 after hedging, which is less of a drag versus the sector. So wondering what should we expect for the full year...

Sorry, Anthony, can I interrupt you. Can you repeat because the line is not very clear. Just to maybe...

So first question on the FX. So 4% drag in Q3 after hedging, which is less of a drag versus the sector. I was wondering what we should expect for the full year in '23. On margin for full year '24 and probably in H1 '24, we should expect some headwind. I was wondering how you're planning to offset this if it's price increases like mid-single digit or if it's rather cost control or cutting some marketing. My second question would be on Tom Ford. Also, if you can give us some feedback you received from the September spring '24 collection. And if you already have any view on the order book, as I'm not sure about the seasonality of Tom Ford, should we expect Q4 similar to Q3? Or is Q4 much higher like the rest of the sector in general? And yes, my last question would be on Thom Browne. So the wholesale was up 8% organic in Q3, which is year-to-date mid-single digit, which is quite weak. I was wondering, you've been mentioning women's wear outperforming for quite some time now. It represents 30% of sales. So does the push of womenswear compared to menswear is something you're planning or because maybe women's wear have maybe better margins? That would be my question.

Rodrigo, can you go with Thom Browne, please? You start.

Thank you for the question. No, there's no difference to be honest on profitability per category. We don't do it for that. The reason we started to really push women's on 7, almost 8 years ago was just to balance the business to have the brand potential to be both men's and women's overall. Today we are extremely pleased that there's a very significant women's business to comparable when it was 6 years ago. On top of that, the quality of client is extremely high. It's a very committed clothing client. And we are -- what we're doing fundamental point, we also want to make sure that we continue to have the very loyal client engage with Thom Browne and buy more Thom Browne. And we manage the growth of Thom Browne men's to make sure that we don't lose that original clients, and we mindfully add key clients to the brand. So women's business still is a great opportunity. and by traveling right now and doing what we did brand events, i.e., present Q&A at on diving several new homes around the world our 20th year and also the presidential book. We've also done client events. So we saw incredible profile of clients, both in London, in Tokyo in Solan right now, 2 just completed one in Shanghai for a couple of days, 3 days actually. And the quality of clients, both in women's and mens outstandingly high, really, really high. And in women, this was a dream that we had 8 years ago and has begun reality.

Okay. I'll take the forward one. Even though Larios the new CEO is on the call listening to us, and it will be with us, as I said, New York for Capital Market Day. First of all, I think we had a strong commercial response to the Spring/Summer4 fashion show in September and [indiscernible] -- and we wanted to come out with a strong women ready-to-wear collection, and we did, and so has been the response by our world customer. And as a matter of fact, you will see some of the line already in the early delivery by the year-end, and we are enhancing their collection in the store that we have. So we are on a good start with that part. In terms of in terms of control of the business, I think the is laying out the strategy and this includes product merchandising marketing everything. And to strengthen the organization, but more details will be giving you with numbers for Capital Markets Day. I think that the other -- the third point, which is very important, is sharing some of the synergy synergetic effect with Zegna group from the industry side, from the service side and so that we really think that starting an integration among the business would be very helpful. So overall, I think that we are -- everything is going according to plan, and we are ready to invest more in marketing and in new store openings next year. Gianluca?

So I think the third question was the fourth quarter, if it's similar dissent third quarter, of course, if I give you -- the answer is substantially higher fourth quarter than third quarter. If I give you the percentages like declaring the full year guidance of revenues, but I can give you an indication that definitely our full year. So fourth quarter is substantially different because July and August to present some soft months of retail sales. So we are expecting a solid Q4, much higher than the third quarter. In terms of FX, how we work, we definitely have a hedging policy that covers the risk of margin. And so we sell currencies well ahead of the -- when the revenues come up. So that justified for instance, for the quarter, the fact that.

Thank you for your question. There are no additional questions waiting at this time. So I'd like to pass the call back over to Francesca for any closing remarks. Please go ahead. Thank you for your participation. We'll be back with you momentarily. Thank you for your patience, we are now back. Please go ahead Francesca.

Yes, I just would like to understand what we should repeat when were we at all? Or if the audience has been able to hear all the answers that we have provided.

We had the end of the question.

Yes, but we were disconnected while answering to the last couple of questions. So can you confirm that this audience as far our reply.

To the past you asked the question has disconnected, but the answer was received.

Okay. So I think if that's it, we are at the end of our call, and we will re-adjourn in New York on the 5th of December for our Capital Markets Day. So for the inconvenience, but I hope you got all the answers in the technical problem didn't affect the food -- the full conference call. Thank you very much. Bye.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.