Hello all, and welcome to Ermenegildo Zegna Group's First Quarter 2024 revenue. My name is Lydia, and I will be your operator today. [Operator Instructions]. I'll now hand you over to Paola Durante, Chief of External Relations, to begin.

Thank you, and good afternoon, good morning to everyone. Thank you for being here with us for this Ermenegildo Zegna Group First Quarter 2024 revenues conference call. All the materials of the presentation is on our website, and you should also have received it. Just let me introduce the management. Today on the call, we have our Group CEO, Gildo Zegna and our group COO and CFO, Gianluca Tagliabue. Before we begin, as usual, I need to point out that we will make certain forward-looking statements during the call. Our actual results may be materially different from those expressed or implied by these forward-looking statements which are also subject to a number of risks and uncertainties, including those described in our tax filings. Please refer to the forward-looking statement included in today's presentation. After this boring part, I'll leave the floor to our Chairman and CEO, Mr. Gildo Zegna.

Hello, everybody. Good morning, and good afternoon. Thank you for joining today's conference call on the First Quarter 2024 revenue results for Ermenegildo Zegna Group. A few weeks ago, as you recall, we shared how the group is continuing to develop our three brands for the long term and how we are tackling what we believe are short-term challenges in the luxury sector. You will see today that our Q1 revenue came in line with what we had anticipated. Let me give you an overview of our performance this quarter, then Gianluca will go through the numbers in detail. I want to underscore that our Q1 results have led me reassured. The Zegna brand continues to show its strength with a solid 7% organic growth this quarter and double-digit organic growth in most markets, including the U.S. and EMEA, where the brand is delivering outstanding results. I'm also confident in the state of our other two great brands. Tom Ford Fashion is only beginning its journey with the group and some key project will be announced in the coming months. Thom Browne is opening an important new chapter, which I want to provide some color on. Thom Browne has been a critical factor of our success since it became part of our group delivering sound double-digit growth every year, tripling its revenues. Its superior performance has been fueled by the capacity of the brand to closely engage with this community and capture certain sectors, trends, especially in Asia. In recent months, we have made the difficult decision to reduce Thom Browne exposure to the wholesale channel. We took direct control of the brand's operation in Korea, where the brand has a strong recognition and is performing ahead of the sector. In China, we have reinforced our regional management team. We've…

Thank you, Gildo. Good afternoon, everybody. Let's move to Page 9 of the presentation, where you find our consolidated revenues for the quarter and the by segment information. First of all, let me make a general comment. As you know, Q1 consolidated revenues include Tom Ford fashion business, which was integrated in the group since April 29 of '23 and includes also the consolidation and acquisition of the South Korean business for Thom Browne on July 1 of last year and for Zegna, the Korean business on January 1 of this year. Pursuant to which the group started to directly operate the business for Thom Browne and for Zegna in that market. Therefore, when we refer to organic revenue growth, we neutralize from the group perimeter, the effect from Tom Ford fashion edition and the Korean related changes in scope, and we apply also the constant currency approach. In line with Q1 outlook provided during the last conference call on April 5, in the first quarter of this year, group revenues reached EUR 463 million, up 8% year-over-year, 11% when we exclude 3 percentage points of negative currency headwind. On an organic basis, revenues were down 5%. Zegna segment recorded positive growth, plus 2% on a reported basis and plus 4% on an organic basis, notwithstanding the textile product line, which recorded a flattish performance. Currencies have been a headwind in the quarter for the group and also for the Zegna segment, mainly related to renminbi and to a lesser extent to the yen and to the U.S. dollar depreciation compared to one year ago. As anticipated in the quarter, Thom Browne segment revenues declined 30% reported and 35% on an organic basis. I will comment in detail later on this performance. Let me only anticipate that the decline has…

[Operator Instructions]. Our first question today comes from Chris Huang of UBS.

I have three. Firstly, on current trends, can you maybe give us an early indication of how things have shaped up recently as we're three weeks into the quarter? If it's too early to comment, maybe perhaps add some sense of how March has performed relative to the overall Q1? Secondly, on trends by consumer nationality for the Zegna DTC. I know you commented a little bit high level, but is it possible to further quantify is it fair to say that Chinese is probably down low to mid-single digit year-over-year? And how are the local European is doing for Zegna in Q1? Last but not least, on Thom Browne. I know you commented that you're expecting some more wholesale impact for the coming quarters, but with a smaller magnitude. Can you just maybe deep dive more a little bit into what kind of magnitude are we expecting here? Is it still going to be double-digit, high teens? Any color on that would be super helpful.

Thank you, Chris. I think there are all questions for Gianluca. Just on the first one, when you asked about the exit rate, did you ask China or in general? Sorry, I didn't get it.

If possible, in general and also in China the more color, the better.

Hi Chris, the March exit rate at group level was roughly in line with the quarter a trend, of course, here, it makes sense. My comment is more on the exit rate of the DTC because wholesale follows its delivery schedule. So I would say that DTC is basically not different March versus the quarter. In terms of nationality, I think you asked about China. We are closer to the mid-single digit, double digit, not double digit for Zegna. We have observed a good increase in Europe and Japan. As we have already commented in other terms anyway, more than 90% of the spending of residents in Greater China fall into the stores of Greater China itself. So, we are talking about an important growth on a smaller part of the business because as we have already commented, our clients tend to appreciate more the service on a local basis, also considering operations for instance. So, it's an important growth, but on that slice of the business, which is slightly less than 10%. Europe demand is very solid. I think our growth is across all the markets, it's above the double-digit mark. So we are in Europe, Continental Europe. I think we always detached the good performance in Middle East and Dubai, but also in Continental Europe, we are seeing a very, very healthy trend. So, I think that is on the Zegna side, the only point that Gildo remarked was the execution of the One Brand strategy in Greater China and where we have a positive sign of traction on the on the high end consumers and the rest of the world is performing extremely well.

We'll see them browner the next quarter.

The next quarter, we are not expecting a 50% decline, much lower, probably still in the double-digit range.

Our next question comes from Anthony Charchafji from BNP Paribas.

Yes. It's Anthony Charchafji from BNP Paribas. I hope you well. I just have three questions, please. So, the first one, if you can tell us the price increases year-to-date by brand. That would be the first question. My second question would be on Tom Ford Fashion at EUR 65 million in Q1. Would you be able to say if it was up year-on-year versus the pro forma of Q1 '23? And as well, I mean I understand that there might be some delay in terms of spring/summer deliveries. So maybe it can be beneficial to Q2. And my third question would be on marketing. It's very interesting, the activation in Milan with great traction. Oasi Zegna sales are highly concentrated to a few customers. Do you think that opening the brand to a greater audience is the way to go? Or do you prefer to further increase the business with existing clients? So, in a way, staying very exclusive. Thank you.

Thank you, Anthony. The first one are for Gianluca, and then I'll leave for the third interesting one on the marketing to Gildo.

Anthony, so the price increase after fall/winter '24, we anticipated that our price increase would be on the low single-digit side. So more to offset costs rather than increasing really the price on a price strategy positioning. So we are growing with this pattern. We have gone with this pattern on spring '24 and also for '24 is following the same logic small adjustments. So, the big step up we said is already behind us. In terms of EUR 64 million for Tom Ford, yes, as I said, the 20% and not 25% includes the fact that we are expecting the next quarters, Q2 to be higher than Q1 also through timing of deliveries, but also thanks to all the actions openings that we are planning to do. In terms of marketing, I think, Gildo do you want to take it on the market side whether we are exclusive or not.

On marketing, I think that what we have done in Milan proves our authority and the opportunity that we have to increase the visibility for the brands. So I think we'll be acting in two avenues. On one side, increase our forte in very important clients. Today, we have 4% of the client that gives us 40% of the revenue. I think that we probably can grow slightly higher than that in the future. By doing what we did in Milan around the world. So, I think the Shanghai event, we expect quite a lot. We will have in September, another important event in New York to go in the same direction. And so that will take advantage of our personalization project that takes in consideration bespoke, take in consideration specialization, take in consideration a very high valuation that the customer can buy [ appointment ] or and they cannot find it in the store. And so, I think that this is one thing. The other side is icons. The Triple Stitch, SECONDSKIN has been the highlight of the season in terms of icons product. And I must say that an industry part of those customer knew it. So that surely will drive an additional business. And the goal is to have those customers come back to us, not only sticking and buying one product. And I do believe that amplification we want in Milan with all these young people can drive additional customers into the store and into the online business. I must say that the e-tailer business, this season has been quite good for the Zegna brand. I'm surely all these promotions helped to go in that direction.

The next question comes from Oliver Chen of TD Cowen.

This is Katie on for Oliver Chen. Congratulations on the strong growth within the U.S. We just want to ask a quick question around that U.S. growth and how much of that is related to strength within the DTC channel? And how would you characterize the relative health of the U.S. consumer versus other clientele across the globe between Europe as well as China and Japan? And then the follow-up to that is really around tourism. What are your expectations for tourism this year specifically from China?

The first question is on the U.S. market or the nationalities? Maybe it was not that clear to us.

The first question is on the U.S. growth. And what were the key drivers for the growth in the U.S. market?

Clearly, for Zegna.

Zegna brand. I think we are quite unique in the growth. If you see the traction, we gave last year and this year, we have proven quite different from most of other brands because we decided to focus on the high end of the market. And we decided to become more retail than wholesaler. And I think that we increased the specialization factor. We increased the service factor and we have created this incredible part of outreach phenomenon by which we can attract customer by an application that our sales associates have and they can propose a new starting direction or the new drop that we receive on merchandise on a monthly basis. So I think that it has been a mix of focus going on hand and converting more wholesale into concession. And so I can make it the last example of the Saks Fifth Avenue store that will be converted, what, last year has proven to be extremely productive. We'll be converting our biggest [ retail market ] store in L.A. in the second half of the year. We'll be converting [indiscernible] our major customer in Canada, Harry Rosen several doors in the second half of the year. And this doesn't mean a drop the wholesale customer its working with them because I do believe that there is a number of good customers, a wealthy customer likes the shop at Neiman, at Saks, at Nordstrom. And so we'd like to make sure that stay with us, but with a different approach, more utilizing all the strength of our brand and making sure that we can create scale in sales staff, in merchandise, in marketing and following I mean, the different journey of the customer. So I think that this has been the strength that we utilize in America,…

Just one point to be sure. So the growth in America is, of course, the conversion [ and old ], but there is also very positive comps. So, it's not just about moving wholesale dollars into retail, but the like-for-like more of Zegna brand are a very solid team, positive. So that was [indiscernible].

I think it's something that was referring that when we become retailers, not only we convert, but actually, we accelerated the growth of those.

The productivity, we said the productivity, we increased 50%. And to be honest with you, there is an opportunity also to open more store. Yes, that's another. We have done some opening this year and most probably more will come next year.

And on tourism, how we see the tourism flow in the globally for [ products ] and in general?

We are seeing Americans very present in Europe like last year, also in Q1. We are seeing Chinese very present in Japan to a lower extent, Southeast Asia, of course, Hong Kong. Probably less so in Macao, probably less so than it used to be. That is the area where we are not seeing yet solid traction. We are seeing Middle Eastern, very solid in Europe.

We had a record season last summer in Europe with America and Middle East, and we do expect to have a similar traction this year in particular, because in Europe, we have several openings in some good resort areas, some resort area which we were not. And I can tell you that the few winters out there have proven to be successful. There are small stores, but the customer sees the brands and relate to that. And I think this will accelerate.

The next question is from Louise Singlehurst of Goldman Sachs.

Just in terms of the outlook, I wondered if you could just confirm, I'm obviously happy with the above 10% sales CAGR, the 20% EBIT CAGR at medium term? And if there's anything in the period that you've seen that makes you feel differently about any of the regions. Obviously, we've talked about the China, U.S. and European cluster. And then my second question, just given the weakness in China, which isn't a surprise given the tough comp base, but is there anything that we should be considering for the margin implications for the Zegna brand with a negative drag from China for the first half?

So yes, we are confirming the outlook for the midterm we disclosed in New York. So there are no changes in our outlook. And as it refers to China, of course, being cautious, we are activating also actions to protect the bottom line on the cost side without hurting the long-term health of the brand. So for instance, the big event in Shanghai in May, we keep on doing it. We are not changing totally the direction. But there's of course, some discretion OpEx that we can control are in our target in order to offset the revenue softness also working on the cost line in China.

I think that one important point is that we are managing the inventory in a careful way this year. And so probably some special attention will go to the level of inventory to make sure that we have the right things, but we don't have too much. I think that the fact that we manage -- we never talk enough about the fact that we have an integrated chain, thanks to also the [ Textile ] platform. And I think that through this integrated supply chain, we can surely do a good job to control the level of inventory. And I think that is probably the area in which we are moving a lot of potential. As a matter of fact, we will have our headquarter team traveling to several cities in China to understand if the merchandising degree among cities has to be changed or what we can do to enhance the attraction of our brand, and in particular, to contribute to the new development of the new Zegna branding as we did in the space.

Any case, I just get the opportunity to thank everybody. I'm sure that there will be a follow-up question for us. So first of all, thank you for all the questions that as usual are very, very interesting for us. We are here at each [indiscernible] we are here for any follow-up questions if you need, just call us. And we will together convene in this call for the first half of 2024 preliminary revenues on July 25. Thank you to everybody, and speak to you soon. Thank you.

This concludes today's call. Thank you for joining.