Earnings call transcript: Zegna's Q4 2024 revenue up 3%, eyes China cautiously

Zegna Group reported a 3% organic growth in revenue for Q4 2024, driven by strong performance in its direct-to-consumer channel and the Zegna brand. Despite a volatile Chinese market, the company's stock saw a modest increase in aftermarket trading, reflecting cautious optimism among investors.

Key Takeaways

• Zegna's Q4 2024 revenue grew 3% organically.
• The direct-to-consumer channel saw an 8% organic growth.
• The Chinese market remains volatile, with strategic caution advised.
• Plans for a new shoe factory are underway, expected by 2026.
• Stock increased slightly in aftermarket trading.

Company Performance

Zegna Group demonstrated resilience in Q4 2024, achieving a 3% organic increase in revenue. This growth was primarily fueled by the Zegna brand's 7% organic expansion and an 8% rise in the direct-to-consumer channel. While the company faced challenges in its textile product line due to declining business-to-business demand, it maintained strong performance across the Americas, Europe, and the Middle East. The Greater China Region, however, presented volatility, prompting a cautious approach moving forward.

Financial Highlights

• Revenue: Increased by 3% organically in Q4 2024.
• Zegna brand growth: 7% organically.
• Direct-to-consumer channel: 8% organic growth.
• Revenue composition: EMEA (35%), Americas (27%), Greater China Region (26%), Rest of Asia Pacific (12%).

Market Reaction

Following the earnings announcement, Zegna's stock price experienced a slight increase in aftermarket trading, rising by 0.05% to $9.52. This movement reflects a cautious yet positive investor sentiment, especially given the company's strategic initiatives and focus on expanding its direct-to-consumer channels. The stock remains within its 52-week range, with a high of $15.26 and a low of $7.13.

Outlook & Guidance

Looking forward, Zegna plans to continue investing in brand development and expanding its direct-to-consumer channels. The company is also focusing on opening new stores in key markets such as the U.S. and Asia. Despite the challenges in China, Zegna remains committed to a cautious approach in the region. The company anticipates low single-digit pricing increases to counter inflationary pressures.

Executive Commentary

CEO Gildo Zegna emphasized the company's commitment to maintaining a full-price sales strategy, stating, "Zegna only sells at full price. We did 100% full price in December." He also highlighted the company's transition towards becoming a luxury retailer across all three brands, underscoring the importance of high-end client segments.

Q&A

During the earnings call, analysts inquired about the potential of the Tom Ford (NYSE:F) brand under its new creative director, as well as Zegna's strategy for targeting high-end clients. The company also addressed geographic performance variations and clarified its approach to inventory management.

Risks and Challenges

• Volatility in the Chinese market poses a challenge to growth.
• Declining demand in the textile product line affects revenue.
• Inflationary pressures may impact pricing strategies.
• Supply chain disruptions could hinder production and delivery.
• Market saturation in key regions may limit expansion opportunities.

Full transcript - Ermenegildo Zegna NV (NYSE:ZGN) Q4 2024:

Moderator/Operator, Zegna Group: Good afternoon and good morning, everyone. Thank you for joining us on Full Year 20 24 Preliminary Revenues. Please note that today's material and presentation are available under our xeniagroup.com website. Joining us today are the Amanna Gildo Xenia Group leadership team, including the CEO, Gildo Xenia and CFO, Gianluca Talibui. Before we begin, I need to point out that we will make certain forward looking statements during today's call.

Our actual results may be materially different from those expressed or implied by these forward looking statements. Also, statements are subject to a number of risks and uncertainties, including those described in our SEC filings. Please refer to the forward looking statements cautionary statement included at Page 2 of today's presentation. I'll now hand over to Gildo Xenia.

Gildo Zegna, CEO, Zegna Group: Good morning and good afternoon. Thank you for joining today's call. After 3 challenging quarters, I'm pleased to be here today to talk about the quarter that showed some important progresses, even if we all know the sector is still facing uncertainties. Let me start with few highlights. Q4 'twenty four revenue grew by 3%, both organic and reported, thanks to 3 main contributors: the Zia brand, which grew 7% organic the drive to consumer channel, which grew 8% organically at group level.

In the quarter, in particular, Zinnia and also tone for fashion reported solid results, plus 9% organic in acceleration in all regions. North America, which delivered 15% organic growth and the region's success was driven by sequential acceleration, growth at ZENIA, whose performance was significantly better than the group average. Also, the Middle East performed exceptionally well, in particular for Genya brand. These results are the outcome of long term strategies implemented over recent years, as well as some important lesson learned in 'twenty four. In 'twenty four, we reinforced our talents and organization at brand level.

We strengthened the business division at Top 4 Fashion. We invested in CRM and Made to Measure personalization at XENIA and enhanced merchandising our retail operation across regions at Tom Brown. We achieved a more balanced geographic presence by increasing focus on core markets like the U. S. And the Middle East, the latter in particular at Zenia.

And last, we improved integration across the group. We strengthened strategic committees of our brands and moved towards a more integrated model across corporate functions to drive efficiency and cohesion. Most importantly, the challenge of 24 have led us to be more selective about key projects, while deciding to continue to invest in those that are priorities for us. Let me start by showing what the key priorities for Zena brand are. 'twenty four was the year of bringing Zena to the world, further cementing Zena unique legacy in timeless luxury.

The recent 25 winter season fashion show is another testament to this. At Milano Fashion Week, we unveiled the ZEA Velusarum project, the crown jewel of wool textile created by our filiera. Velusarum is the finest wool in the world. This amazingly light, warm and breathable coat has been created thanks to the Wood Trophy Awards our family established in Australia since 1963. The collection presented in the show mostly made by Velo Saram was also inspired by some of my grandfather on clothes, giving it the typical Italian, I would say, tourney taste of our founder and myself.

The show has been acclaimed as one of the best of the men's professional week and one of the best ever for our brand. Looking ahead, the Dia brand path to 25 is clear. Our product pipeline is strong, not just cellulosaro, but much more. Legacy made in Italy and customer experience will continue to drive our 360 degree brand strategy from the way we think about our collections to the way we communicate our brand and how we serve our customer or better, our guest. And our taxi innovation capabilities, we continue to give ZENIA at the forefront of the industry, something highlighted by VeloStarum at our most recent show during Men's Fashion Week.

We want to grow and strengthen further our community of Xenia friends and further consolidate Xenia leadership in timeless luxury. Let's move now on a few comments on Thom Browne. In 'twenty four, at Thom Browne, we started to evolve our marketing approach to emphasize not only the sense of our brand, but also the depth of product offering able to cover different tastes, knees and body shapes. Customer centricity and personalization are also increasingly important to Thom Browne, which can also draw on a remarkable number of influential friends of the brand to raise awareness of the brand and of its product. We have further enforced the team both at the quarter and at a regional level, including recently new commercial directors in the U.

S. And EMEA. Looking ahead, we know that the evolution of Thom Browne into a more DTC company is not yet complete, and we are seeing some early encouraging signs. Full price sales in our stores are driving retail performance, and the brand is doing well in market where the team is strong and well established, like Japan and Korea. However, we remain vigilant and we continue to invest in a few selected projects where the brand has already started to build.

DTC, women accessories, I mentioned the classic collection and some important new opening, particular in the United States. Let's now move to Tom Ford Fashion. Tom Ford Fashion in 'twenty four was the year we focused on building a strong organization, laying the foundation for Gucci Grow. As you know, along with the scale of their company, we also decided to appoint a new creative director. We have chosen Hyder Acumen for a number of reasons, not only for the clear connection to the Top 4 legacy, but more importantly, because it's able to create collections that are consistent between men's and women, supported by strong linear accessories collections.

The positive trend in DTC in Q4, driven by healthy comp growth, especially in the U. S. And EMEA, is an early initial sign that our actions are starting to pay off. Obviously, the Hyattar fashion show will be

: an important stage to reinforce this. Looking ahead for Tom for Fashion, 'twenty five will continue to be a

Gildo Zegna, CEO, Zegna Group: year of investment. We will invest with 2 priorities in mind, brand value and the U. S. Market. Let me finally comment on our important Filiera.

We continue to invest in our Filiera, our fully integrated Italian supply chain, which sets us apart and gives a unique competitive advantage allowing to be at the forefront of excellence, innovation and traceability. In 'twenty four, we also initiated a plan for a new shoe factory, which should be ready by 2026. Before we get into the financial detail, let me make a few additional remarks. In anticipation of some of the questions I know you will ask. Regarding profitability, we will talk in March when we release our full P and L results.

Today's call is indeed on revenue. But let me make a brief comment. We all know that 'twenty four profitability is expected to be impacted by the challenging environment. You also know that in 'twenty four, we decided to confirm some strategic initiatives that are key to strengthening our brands. I believe it is important for me in this call to report the message that the decision to bear some short term pains was not easy.

But today, we are even more convinced that this decision were crucial to strengthening our brand's value and drive long term results. As far as 25 is concerned, the year just begun. So it is premature to draw conclusion about market trends. However, I can anticipate that we are seeing regional trends similar to the end of last year. America remains strong.

Europe is doing well with both local customer and tourists. The Middle East continues to do very, very good. In the GCR, current trend is largely influenced by the timing of the Chinese New Year. And it is today still too early to comment on China. With that, I leave it to Gianluca for his comment on the numbers.

Thank you.

Gianluca Talibui, CFO, Zegna Group: Thank you, Gildo. Good morning, good afternoon, everybody. Let's start from Page 9 of the presentation where we break down our consolidated revenues by segment. Before going into the numbers, I remind you that I will primarily focus on organic growth, which neutralizes changes in the consolidation perimeter and on ForEx. The changes in the perimeter that are neutralized by the organic growth

: are:

Gianluca Talibui, CFO, Zegna Group: 1st, Comfort Fashion business, which is consolidated since April 29, 2023 2nd, the acquisition of the Korean business for Frombrand, which occurred on July 1, 'twenty 3 and third, the acquisition of the ZENIA Korean business, which occurred on January 1 this year. Important to underline that only the last one, so ZENIA Korea business impacted Q4 organic performance. And I can also anticipate that starting from Q1 of 2025, organic growth will only neutralize ForEx movements. I also anticipate that in the rest of my presentation, I will focus mainly on Q4 performance, our so called exit speed. In Q4, the ZENIA segment, which includes both ZENIA brand as well as textile and the minor third party brand revenues recorded plus 4 organic, driven by the ZENIA brand, while the textile product line continued to be impacted by a declining B2B demand.

Thom Browne segment revenues declined minus 4% with an improving trajectory compared to the 1st 9 months of the year, while Thom Browne Fashion segment recorded a good plus 4 revenue growth. So, let's now move to Page 10, where we detail revenue performance by brand. Let me allow at this point to make only few general comments, while we will go more in detail on the dedicated by brand pages. Notwithstanding the sector's uncertainties, Zena brand continued to show a very solid performance, supported by a clear brand vision, which has been further enforced in 'twenty four. Luxury leisurewear and shoes contributed to the growth.

Thom Browne revenue, although negative, showed some improvements, even if we know that the journey to evolve the brand's culture to become a DTC driven company is still in the making. Tom Ford Fashion recorded a nice acceleration in the quarter, in particular driven by the DTC channel, also thanks to the work that has been done in creating a stronger commercial organization. Talking about textile, performance was negative at minus 13 percent organic, substantially in line with Q3, largely due to a decrease in demand from luxury good brands outside the group, which purchased from our platform. Finally, the other revenues line can be now considered marginal after the acquisition of the Tom Ford International Group and the change in the accounting of the Tom Ford products. Moving to Page 11, we see revenues by geographic area, starting from Europe, Middle East and Africa, which represents now 35% of total revenues in full year 'twenty four.

In Q4, EMEA recorded a +5 percent organic growth, which is the result of a double digit growth at Zinnia brand and Comfort Fashion and the negative performance at Thom Browne, mainly due to the wholesale channel. Americas, which represents 27% of full year revenues, recorded a strong sequential acceleration in Q4 compared to the prior quarter with plus 15% organic growth in Q4. All 3 brands reported positive performances. Zevnia brand in particular recorded an outstanding double digit growth led by the DTC. Americas and U.

S. In particular are doing very well for Zevnia, also looking at the performance by nationality. Drenia brand saw a strong sequential acceleration of the U. S. Nationality in Q4, both for clients buying domestically and those buying abroad.

Moving to Greater China region. Let me highlight that in full year 'twenty four, UCR accounted for 26% of total revenues, significantly lowering the incidence of group revenues from the 46% that we have seen in full year 'twenty one when we landed into the public market. In Q4, GCR revenues declined by 11%. This represents a sequential improvement compared to Q3 when it was minus 22, although we reckon that visibility on that market remains limited. In the quarter, Zing and Tom Brown showed a similar performance, while for comfort fashion, GCR is less relevant.

Looking at the results by nationality, in Q4, revenues from GCR clients were down low teens, slightly improving compared to Q3. I remind you that according to our CRM data in the ZENIA brand, around 90 percent of GCR clients are buying domestically. I finished with the rest of Asia Pacific, 12% of full year 'twenty four revenues, which reported a +8 percent organic in Q4, with Japan and Korea driving the growth, in particular at ZENIA and Tom Brown. Let me now move to Page 12, the revenues by distribution channel. Just a very quick comment since we will comment on the following slides the detail of revenues by channel for each brand.

In Q4, DTC grew plus 8% organic with positive growth at all the brands. Wholesale branded performed in Q4 at minus 7%, driven by a decrease at all brands, partially impacted by the conversions of some wholesale stores in concession in retail. Let's move to Page 13, where we did dive on the ZENIA brand revenues by distribution channel. In Q4, ZENIA DTC revenues grew by a healthy 9% organic. The channel now accounts for 86% of the ZENIA brand revenues on a full year basis.

Americas, Europe and Middle East continue to report very solid double digit growth rates, while as already commented, GCR was low double digit negative, thus with a sequential slight improvement versus Q3. In the quarter, the brand closed 4 net stores, including 2 openings in Monaco and Wuhan and offset by closure of small stores and of 1 outlet. Moving to wholesale. Xenia recorded a minus 4% organic in Q4, mostly as a result of conversions that we have already mentioned and that occurred before Q4. Excluding the impact of the conversions, the performance of the channel for the Zenia brand would have been flattish in the quarter.

Let's move to Page 14, thumb run revenues by distribution channel. In Q4, DTC for thumb run was plus 4 organic, driven by store openings. Japan, Korea and Americas reported double digit growth in the quarter, while GCR continued to be negative. In the quarter, we opened 10 net directly operating stores, including the opening of Beijing Thai PULI and some conversion of small shopping shops in Canada from wholesale into retail. In Q4 'twenty four, wholesale was down minus 13 percent, impacted by the well known decision to streamline parts of the business.

The improvement in trend compared to prior quarters is also related to early spring collection deliveries compared to prior spring summer, given that good part of springsummer 'twenty five products were already available to be shipped. As also Gildo commented, Sombran evolution into a DTC led organization is ongoing and will continue also in 'twenty five with an impact on the brand's wholesale performance. Based on the orders in our hands, I can anticipate that we expect H1 'twenty five wholesale revenues for Thom Browne to be still down significant double digit with Q1 more impacted given the above mentioned early delivery of spring, which have been falling into Q4 of 'twenty four. Let's now move to Page 15, Tom Ford's fashion revenues by channel. In Q4, Comfort Fashion reported a 9 plus 9 percent organic growth in the B2C channel with a strong double digit growth in EMEA and the solid performance in the U.

S. During the quarter, Comfort opened 2 DAFs, including Singapore Paragon, you also saw a picture at the beginning of the presentation, and in Madrid, Canada, Texas. Wholesale and in Madrid, Canada, which was also the impact of 2 main wholesale conversions into retail, ARROS Men and Saks Women, and the decision to further strengthen the DTC channel. I will now stop on the next slide where you can see the facade of the Zegna store in San Moritz with the fall winter 'twenty four collection. And I hand it over to Paola for the Q and A.

Moderator/Operator, Zegna Group: Yes.

Paolo, Investor Relations, Zegna Group: Thank you. Thank you, Gianluca. Thank you, Gildo. Operator, can you open the Q and A session? Thank you so much.

Moderator/Operator, Zegna Group: Thank you. We'll now begin the question and answer session. Our Our first question today comes from Anthony Chachowski with BNP Paribas (OTC:BNPQY). Please go ahead, Anthony.

Anthony Toni, Analyst, BNP Paribas: Thank you. Good morning. It's Stefaan Toni from BNP. I have just two questions, and I will refrain from asking on EBIT. So the first one would be on Tom Ford in positive territory.

How to think about 2025 as we know that either Eikemann will present only his first collection in March. Should we see 2025 as a transition year? My second question would be on the ZENIA brand, very strong performance in also in DTC. Knowing that the top 5% of your clientele is the high end is contributing to 40% of the brand sales. Could you maybe quantify their performance versus the rest?

Did they outperform? And maybe if you can give us some color of this performance of the high end by region?

Paolo, Investor Relations, Zegna Group: Thank you. Thank you, Anthony. I'll leave the first question on the Tom Ford to our CEO, Lida.

Gildo Zegna, CEO, Zegna Group: Yes. Listen, the expectations are high, Anthony, on the fashion show. First of all, because I think we have the right designer, right for the time, right for the brand, right for us. So the first thing is to work on the brand legacy and work on the collection to make sure that the store have the right mix of product that we will present in the fashion show. I think we need a strong consistency between the men's ready to wear and the women ready to wear supported by strong leather accessories.

I believe that there is not only some room in the retail. We have opened a few stores in 'twenty four. And I think that the new collection will help reaching productivity of the stores. We have a few more stores that we will open this year. And then I must say that the expectation by the wholesale also is positive.

We are off a fall winter 'twenty five season, which we did what we had to do, even though we didn't have the connection. So overall, a positive in particular thinking about the U. S. Market. You saw the number of Q4 of DTC Tom Ford.

I think we got there in particular, thanks to U. S, even though in Europe, we did okay. So we expect both for Zinger, Tom Ford and Tom Brown, some good trend continuing in U. S. And so we are ready to go with this new cycle of the brand, the Tom Ford brand.

Paolo, Investor Relations, Zegna Group: Thank you. Anthony, I go to the second question. And if you have any follow-up, we are here. The second question is for Gianluca on the top 5% of our clients, if I understood well.

Gianluca Talibui, CFO, Zegna Group: Yes. So, hi, Anthony. So, the top 5% as we already represent, represents 40% of the revenues for the Zdenia brand. And definitely the top end part of our client pyramid is the one that is driving the most growth. The cluster of course, we have the cluster of Zynia friends that are the ones that are above €50,000 per year, it's not the 5% representing 40%.

It's a subset of that. That is definitely growing on a very solid double digit, led by Americas and followed closely also by Europeans. Then, we are seeing also nice growth on the segment that is slightly below that top threshold, that is the ones in the range of 20%, 25% per annum. And I think that the opportunity we see, of course, is continue performing well with the senior friend on one side, bringing more friends into the club, focusing what we told the viewers. The viewers are the ones, it's a segment that is spending less than 50% per year, but has the potential to go above and receive from the average ticket per transaction, but a relatively low frequency, kind of 2, 3 times a year.

The goal is to bring up the spending of the deliveries, and that is for us, I would say, not a low hanging fruit, but is intensifying the intimacy with customers that already crossed Zhenia and can have a higher spending. So for us, the high spending cluster in broad sense is the one that is driving growth so far and will continue to drive.

Gildo Zegna, CEO, Zegna Group: I just wanted to add one thing, Anthony, on the 4% top client, what we call our senior friend. We are continuing to foster the initiative on those customers starting from our fashion show and from the Villa Ginn initiative. And we see that every time we create a personalized collection or we provide something special to them, I mean, they respond to our request. So again, we had about 100 top customers that we are really excited about the collection. And they saw the pieces they can buy to be delivered later on.

And this is the force of having a Figueroa that is capable to deliver and not only showing beautiful product and make them for you only. So I think it's a competitive advantage that we'd like to be able to transfer also more to the pomeranian for the brand, thanks to our integrated supply chain. So I think this is the direction to go, and we see a lot of benefit to that.

Paolo, Investor Relations, Zegna Group: Thank you. Just for clarification, top 100 customers were the one invited at the show. I'm not sure that was clear, just to clarify. Anthony, do you have a follow-up for

Anthony Toni, Analyst, BNP Paribas: it? Maybe just one, if I may. So thanks a lot for the comprehensive answers. Maybe can you just give us the cluster for the ZENIA brand in DTC out of the plus 9%? I understand that the Americans were significantly strong.

Maybe if you can quantify.

Paolo, Investor Relations, Zegna Group: Sorry, if we can quantify, Anthony, what the DTC, but I didn't get to what?

Anthony Toni, Analyst, BNP Paribas: The clusters, the cluster for the Zenia brand.

Paolo, Investor Relations, Zegna Group: The clusters. No, we don't. I mean, clearly, the clusters, when you talk about clusters, this is the DTC because our CRM is based on data that comes from our retail network. So when we refer to CRM data, you should always think about our retail network, the senior BTC mainly.

Gianluca Talibui, CFO, Zegna Group: Yes. We don't provide further details. The only numbers that we have provided so far is 5% of customers representing 40% of revenues. And the first 5%, yes. The only data point we have published and we are not going further.

Paolo, Investor Relations, Zegna Group: And this is something that we have seen actually confirming and consistently be there. So it's a very good sign that of our strength in CRM and the activities we are doing towards our top of this.

Gildo Zegna, CEO, Zegna Group: And sorry, one other point on this is that we are seeing an increase of Zenia France across the region. This is the important things. And also in China, where the environment remains more volatile. So I think it's a global process. It's not only an American project, which we started from there.

And we beat our master and now it's becoming really a global project, which I think is going to be bringing interesting results going forward.

Paolo, Investor Relations, Zegna Group: Okay. Can we move to the second question?

Moderator/Operator, Zegna Group: Our next question comes from Oliver Chen with TD

: Hi, Gildale and Jean and Luca. Thank you. At the Zinnia brand, the Americas continues to impress. What are your thoughts on the continued growth of Americas that the U. S.

Consumer has been very strong. Would also love your comments of the Zinnia brand as you think about products in the year ahead. What parts of the assortment do you think will show the most growth? And then the China news in terms of it's an evolution, the negative trends in China. How are you managing in terms of inventory trends there in that dynamic environment?

And finally, with Tom Brown, what are your thoughts on awareness as you continue to grow it? It sounds like you're looking to have this brand be more relevant to a broader audience. But what are the factors that are important for growing awareness there? Thank you.

Paolo, Investor Relations, Zegna Group: Thank you, Oliver. Thank you so much. So I think the first and the third one is for our CEO. So Zenya, our total of Zenya brand in Americas going forward in terms of also merchandising and long term brown, the lead inventory for Zegna look after?

Gildo Zegna, CEO, Zegna Group: Listen, no, interesting question, Roger. I think America is very much for Xenia. I mean, they just love what we have put together and they just keep asking more of what we have. I think this rebranding of Xenia, the specialization of Xenia, the uniqueness of Zhenya, also by having a select distribution and by raising the level of merchandising. Overall, I think that is bringing more excitement to the current Zener brand in America and opening up to new customer.

I think the phenomenon of the Zebra Stitch that we expanded the family in an exclusive way, I think is bringing new customer. And I think that this Velo Saron project surely, I think will be a must have for the top American customers. Our retail business is expanding. I think we see the productivity going up. We have a couple of new doors planned for this year.

And plus, I think that we have a very strong leadership in with our wholesaler. In particular, the new formed SaaS Group, where ZENIA is number 1 in men's. I think we bring new results in terms of working together in a more focused way. We just had our top specialty store, Mitchell, which now has consoled about 6 stores, the best specialty store in America, in which again, there we are number 1 and we keep seeing growth factors. So I think that we are just doing the right things that the American luxury customer likes and expect from us.

So I remain positive, but focused raising the bar in terms of uniqueness. And I think they privilege our service. I think that the outreach, I think that these events that we create in the stores, mind you, the Villa Zegna project that got started in America 6 months ago, and we had incredible traction. And that has led us to think that these phenomenal could be brought around the world. As a matter of fact, it will be.

We cannot share yet where next will be, but there are high interest around that part. So, I just can tell you that also the last fashion show, we had many Zena friend and wholesaler, and they liked our approach into textile. I think that today, our filier is a unique way to create unique textiles. And I think the best innovation in

: textile

Gildo Zegna, CEO, Zegna Group: came from our show. And America has always been also very clothing country. And so the way that Sartorius sold the clothing from a rigid clothing to a soft clothing really makes a difference. It's just people want that. We just want to dress them differently.

And so, that's what I have to say.

Paolo, Investor Relations, Zegna Group: On Tom Brown, thoughts on the brand awareness

Gildo Zegna, CEO, Zegna Group: Tom Brown is brand awareness. I think that is different around the world. I think that one of the goal for this year with Rodrigo and Tom is to increase the brand awareness in America. I think that each brand has to focus on something and I think that Tom Brown focus will be in having a merchandising that keeps being innovative, give importance, more importance to the women. I think he has some beautiful women pieces, strengthen their accessories and go after an American market where I would say probably the brand awareness is stronger than the business we do.

So I think that is and I think that is cut around geography. So I think that we need to raise the brand awareness across the country. And I think we have to increase our business with more doors. I must say that today, again, the Niemann and Saks Group has expressed interest to start working together. We have turned now our business with North Middle concession.

So we have opened a few stores. So I think we are moving in that direction. Tommy is strong in Japan and Korea, and we're able to make sure to keep going at that speed. And we just need a stronger China altogether. And but I think that is clear what our focus has to be also in terms of brand awareness for 2025.

Paolo, Investor Relations, Zegna Group: Okay. And the last one was on GICIRA. We manage inventories. I'll leave John Lopez. In.

Gianluca Talibui, CFO, Zegna Group: You will answer with 2 buzzwords. 1 is the flexibility in planning, both production planning and inventory planning. And the second is cautiousness on open to buy on 25. So flexibility is being vertically integrated, allows us to take decisions later than the others. So we can decide to block some production.

We can decide to divert some products that were meant to be directed to China to other markets. So we have been flexible along the year, navigating through the uncertainty of China. Looking forward, in 2025, we have been cautious on the open to buy, both on spring and fall winter 'twenty five, being ready for a year that is soft. Of course, again, having the supply chain behind us, we have short time to react. If we see the market picking up, we will be quick in taking actions and not to lose the opportunity.

Paolo, Investor Relations, Zegna Group: Okay. Oliver, if you are fine, we can move to

: the third question. Thank you very much. I appreciate it.

Paolo, Investor Relations, Zegna Group: Thank you. Thank you so much. Operator, can you move to the third question? And we have also

Moderator/Operator, Zegna Group: Our next question comes from Louise Singlehurst with Goldman Sachs.

Louise Singlehurst, Analyst, Goldman Sachs: Just a follow-up, if I could do, please. I wondered if you were just going back to the U. S. And also China, but that's great. I mean, you've done a phenomenal, a great improvement going to the back end of the year.

Was that more traffic driven, a bit more on ASP? And just obviously, the high end consumer remains obviously in very good health as you've clearly demonstrated on this call. But I just wondered if it's more about traffic going right into the end of the year, particularly for the U. S. And then on China, you do get the comments with regards to expecting a little bit of volatility in 2025.

I think that's very fair given the backdrop that we've seen in 'twenty four. But I wondered if you could just go a little bit deeper in that for us and whether it's more about spending around particular events? I know we're on the cusp of the Chinese New Year, but do you think it's more about particular events and more event driven in China?

Paolo, Investor Relations, Zegna Group: Okay. So I'll leave maybe a couple Gianluca to comment on the DOS performance. If it was traffic ASP, we mentioned a good comp, so what was driven. And I think, Luis, this was a question more general globally. And then I don't know if there was a specific.

And then on China, I might ask Gizmo to comment on the overall 2025 outlook for China.

Gianluca Talibui, CFO, Zegna Group: So in terms of drivers for retail, the one major driver is ASP. ASP has been up stronger through the year and this goes along with also the answer that we gave to Anthony before. So we are elevating the focus of our action, elevating the client and therefore elevating the assortment. So AUR is up strong. Traffic, especially dragged down by GCR, has been negative.

We have seen an offset of traffic through conversion. So if you combine the 2 sales, the number of tickets at the end of the year, I would say that in the last period was flattish with traffic down, conversion up, neutralizing basically the traffic. So the growth has been mostly driven by conversion and AUR, which were more than offsetting the traffic softness. I think that the rest was on Gildo. Yes.

The same comment applies to China where we are not seeing if you neutralize from the different calendar of Chinese New Year, we should say that the traffic is sales of China. And so, our improving trajectory comes from AST. So it's not traffic. We are not seeing solid traffic inflection point.

Paolo, Investor Relations, Zegna Group: Of course, China, not I mentioned, but clearly everybody knows if they impacted by the differential timing of the 22 year. So reading China in the 1st weeks of 2025 is a little bit certainly misleading because of the anticipated 2022 year. But I asked Guido if he wants to give us some more colors on China overall for 2025.

Gildo Zegna, CEO, Zegna Group: Well, listen, China, we like to be conservative. We said that it's going to be volatile. So for sure, in particular for the first half of the year, so far we are positive. But as Paolo said, it's too weak ahead in the challenging years compared to last one. We see some slight positive signs in that we just had the drop 1.

Drop 1 is the first delivery of our collection in the season. And part of that was Velozarra. I mean, we had a capsule collection already anticipated for spring. And we have seen that these two new delivery showed a good traction, in particular by affluent customer and also new customer that seems to be younger than the one we used to know in the past. So I think that the traffic surely is nothing different than the traffic was in 'twenty four.

But whenever you come with some new orders, they respond. And I think that the stress that we emphasized last year in which we have to go for a more one to one approach, less transactional and more personalized is the way to go. And I think that in 1 year, we did a good move on that. We are going to continue with the sweet project by which we come in, in the cities and we do special rents by focus on some particular project or some particular icon. We are on the pipeline a couple of Salotto openings.

Salotto are, as you know, our private rooms in very important cities, one in Shanghai with Class 66 and one in Beijing with ship in place. And I think there, we put all our strength of our innovation and personalization at the advantage of those customers will be attracted. So, we are doing everything possible to make it happen. And we remain anxious to be ready that China will be what we used to be. On the meantime, we are strengthening other markets.

So I think that overall, I think this rebalancing geographies, I think has come out positive and same applies to the other 2 brands, Ford that is surely less stronger than Brown and in China. And so I think that it's a good exercise to this geographic rebalancing of the different brands. But we all leave this with a constructive eye and it's going to strengthen and be ready to go whenever China will come back strong. Is that clear?

Louise Singlehurst, Analyst, Goldman Sachs: That is very clear. Thank you. And I wondered if I could just have one as a follow-up, just on Tom Brown and Tom Ford. Obviously, great to see the inflection and an improvement into Q4. I realize there's still some wholesale action happening.

But if we look at the DTC for both of those businesses, are we quite confident now of like the positive trajectory for 'twenty five?

Paolo, Investor Relations, Zegna Group: Yes, absolutely. Gianluca to answer on some of that. Yes.

Gianluca Talibui, CFO, Zegna Group: So on 4th, on DTC, we have reported a solid high single digit organic. And of course, there has been some openings, but the vast majority of that comp comes from like for like. So that is also the same for Genia. So it's not space. So we are seeing some momentum on the Tom Ford side, despite, as Jim was mentioning, the fact that the newly designed collection by Aida is not yet in the stores.

So, at this point, it's commercial execution, it's merchandising execution.

Gildo Zegna, CEO, Zegna Group: And it's people. I think that we brought in some new talent in retail that made a difference. So I

Gianluca Talibui, CFO, Zegna Group: think that is comfort sign on Ford. On Tom Brown, I think we are more still in the making. The positive sign on DTC comes from space on Tom Brown. We have been changing people as for comfort in the region, in the market, in merchandising. I think we are still in the making in terms of DTC real transformation, but we continue with the same impact.

I think next year, the focus will be much more on U. S. In terms of openings. We are going to open some stores in U. S.

That not this year, 2020 5, this year. So this year, we are opening a few stores in U. S, in New York, in L. A, which for Tom Brown will be kind of new markets because they have very few stores in U. S.

And we are going also to open a couple of flagship. Going back to a question before, I think by Oliver in terms of awareness, the flagships will help also raising the awareness of Tom Brown above and beyond the community of

: the lovers of the brand.

Gildo Zegna, CEO, Zegna Group: Yes. The truth of the matter is that we are becoming a luxury retailer in all three brands. So, I think that we have learned by Genia the hard way. The success comes with merchandising. And I think that in both Brown and Ford, we are reassessing our merchandising mix as we did in Kenya.

And I think that we are 'twenty four has been a year where we put our act together and 'twenty five, we start seeing some results. So, I think that we are putting our knowledge, best knowledge on the table to share it. And I think that this integration of functions and working together as a group made out of 3 brands, luxury brands, each one going after a different customer, always on the high side, I think is very positive. So I think that we will see a development, a positive development of this very, very hard work that we put together in terms of organization effort in 2024.

Paolo, Investor Relations, Zegna Group: And there is also a question, sorry, with from the webcast attached to it on Tom Brown, which asks, and how advanced is the progress in streamlining the wholesale presence? How long before it's fully done? So I asked Gianluca just to complete on Tom Brown given that Luis gave me the chance to.

Gianluca Talibui, CFO, Zegna Group: We have a clear visibility until H1 because at this point, we are not making any forward looking statement because we have the portfolio of orders in it is on our end. So, I would say that H1 will be very much like 'twenty four in terms of decline. I think that later in the year, in the second part, we should see a bottom out bottom in the decline. But until H1 included, we see the same decline as done in 'twenty four. At that point, then afterwards, we should be in a new normal environment.

Paolo, Investor Relations, Zegna Group: Thank you. Louise, I don't know if you have any follow-up questions. Sorry, I interrupted.

Louise Singlehurst, Analyst, Goldman Sachs: No, that's great. Really clear and wonderful momentum in Q4. Thank you. Thank you very much.

Paolo, Investor Relations, Zegna Group: Thank you. Operator, can we do we have another question?

Moderator/Operator, Zegna Group: The next question comes from Natasha Bonner with Morgan Stanley (NYSE:MS). Please go ahead. Hi, Natasha. Thank you for taking my questions. I've got 3.

First of all, on the Zegna brand, so it saw a 500 basis points acceleration between Q3 and Q4 retail. You mentioned the Zegna brand that there was very solid performance, especially at luxury, leisure wear and shoes that contributed to the growth. Can you probably can you please give us some more color by categories? And particularly, can you give us an update on the Triple Stitch franchise? Because I believe it was 13% of sales in 2023.

Would it be fair to estimate the Triple Stitch had closer to 15% of sales in 'twenty four? The second one was just on Tom Brown. Just one clarification, because you mentioned that space contributed to the strong sequential acceleration you saw at retail. Can you maybe split space versus like for like growth? Because I know you opened 10 stores in Q4.

And then the third question I have is just on pricing, because you mentioned AURs were up strong in 2024. Can you remind us of the pricing you took in this year? And then if you have any thoughts on increasing pricing into 2025?

Paolo, Investor Relations, Zegna Group: Thank you. Thank you, Natasha. On the first one, on Zena brand and how it's been the acceleration among categories, I ask Gianluca, Gille to comment. And on the Tom Brown, like for like, I think Jaluca just said that in the previous answer that Tom Brown was largely driven by new space. So this was the comment that was made.

I don't know if you wanted something more detailed. And you are right, I'll leave to Gianluca. So starting with Gildo on the acceleration by category.

Gildo Zegna, CEO, Zegna Group: The acceleration, I think, is part of the drop strategy by which we hit with the right product at the right time with a strong marketing support and by organizing special event in the store across the board. In terms of category, surely, the Triple Stitch family, we now have a family composed of 4 different styles and product is becoming very, very important to, if you want, make sure that the distribution is under control. So we are making those products less available to many stores and keep them focused in our retail. And I think that this exclusivity factor, I think, is bringing some more interest and not less interest. So that, I would say, is number 1.

Number 2, I think that we had a good season in terms of outerwear. The fall winter season is stronger for outerwear than the springsummer season. And third one, we had a very strong season we made to measure and in the personalized approach to the product. So I think it has been a mix of icons or focused project supported by strong marketing campaign and by putting targets to people very clear that they have to obtain and just by making sure to out hedge customers and get them in at the right time and making the new arrival kind of wanted. And I think that this strategy of think slow and not fast is bringing some good results.

And last but not least, I think the fact that we do more commercial show, we do show less fashion driven and more, if you want, style driven to the product that you have in the store makes it very attractive to the customer. So they see the show, they go to the store and there is connectivity, which before it was not enough. And I must say this, we hold true also for the Brown and for the Ford. Just be create shows that are more commercial at a luxury level and less theatrical or less too fashion. And this is what the customer wants.

And so I think these are the highlights of the season.

Paolo, Investor Relations, Zegna Group: Yes. Okay. So in terms of average unit rate or average selling price increase? What driver is the mix as it was coming out from the speech of Gilleux.

Gianluca Talibui, CFO, Zegna Group: It makes the like for like price increases are set on a low single digit to offset basically the cost component inflation and that would be also the case for 2025. I think there was also a question about the incidence of the Also, yes.

Paolo, Investor Relations, Zegna Group: Natasa was asking, is 15% in 2025 is a reasonable number?

Gianluca Talibui, CFO, Zegna Group: I think. Yes, we are in the mid teens range. We are in the mid teens range for the Tricontes family as a whole. The incidence has, of course, gone up both for volumes, but also for the mix, again, because we have increased the incidence of the more sophisticated items like second skin, triple stage, bente and monte, which are the mid eel or high eel boots. And so, they carry average a higher price.

Okay.

Paolo, Investor Relations, Zegna Group: I don't know if there is any other Now, Dan, it

Gianluca Talibui, CFO, Zegna Group: was a question, of course. I said, it's driven by new openings. So, the comfort on Brown has been negative. They have been negative also in Q4. Q4 less negative than Q3 and less negative than the average of the year.

So it's been negative the past quarter of the year, but still negative. And we have seen the improvement across the regions. That is the picture. So, yes, it's a space on top ground.

Paolo, Investor Relations, Zegna Group: Thank you, Novartis (SIX:NOVN).

Moderator/Operator, Zegna Group: That was very helpful. Thank you very much.

Paolo, Investor Relations, Zegna Group: Thank you. Thank you, Natasa. Shall we go for another question from the call? And then I have a couple from the webcast.

Moderator/Operator, Zegna Group: Thank you. Our final question from the telephone lines comes from Daria Nazlacher with Bank of America. Please go ahead.

Daria Nazlacher, Analyst, Bank of America: Good afternoon. Congratulations on a solid set of results. This is Daria from Bank of America, and I have two questions. The first one would be, could you please comment on sequential trends throughout the quarter? Has there been an improvement throughout?

Or was there any particular turning point after Q3 when you started to see the reacceleration in trends? And my second question would be if within the quarter, you could comment on any particular differences in geographic performance across your brand portfolio that you also expect to carry on into next year? And if you could please help us contextualize within different brands in the portfolio, the outperformance that you attribute to brand specific versus the underlying market improving? Because I think that's what investors are trying to answer today, all the good results that we're seeing so far in the sector. Are they really driven by individual brands are performing or generally the market sentiment and underlying dynamics getting better?

Moderator/Operator, Zegna Group: I hope it makes sense. Thank you very much.

Paolo, Investor Relations, Zegna Group: Very clear, Dara. Thank you. Okay. So the first question is basically how the quarter has moved sequentially, if there was a sequential improvement, if I understood well. But are you asking DTC, I believe?

So I asked Gianluca to answer by each brand. But in any case,

Gianluca Talibui, CFO, Zegna Group: yes. In general, we have seen strong acceleration in America in Q4, was by far much stronger than Q3 for Zenia and Bonfola.

Paolo, Investor Relations, Zegna Group: Also in the quarter month by month, I

Gianluca Talibui, CFO, Zegna Group: would tell December was the best month out of the 3. December was the best month. I think there is something specific of us of the Tania, especially on the Zena side. Of course, the mood has been welcoming, but Zena has been on a solid trajectory since some quarters. And I think that Q4 was the coming the determination of this strategic repositioning.

On Tom Ford, it's positive. I think we are very pleased to see positive signs across all the stores on Tom Ford in U. S. And that is the reason

Gildo Zegna, CEO, Zegna Group: Also Europe, I think also Europe. Yes.

Gianluca Talibui, CFO, Zegna Group: I think the major step up was U. S, the major step up. I think also Europe, we have had the best quarter of the year, driven both from the Continental Europe as well as Middle East where we are not seeing any sign of slowdown given also by macroeconomic uncertainties. We are performing very well. In Middle East, it's mostly ZENIA brand.

Greater China, slight improvement good improvement versus Q3, slight improvement if we compare it to the other quarters, but it's early to draw a conclusion as Gindo was mentioning. We have seen a sequential good performance in the rest of APAC that was also a positive Q4, better than Q3. So I think in overall, we have seen an acceleration of

Gildo Zegna, CEO, Zegna Group: Latin America. Nobody ever talks about Latin America because there are not many brands, But I think Zeny is a key leader in Men's. And we have been doing very, very well in Latin America too. Not many doors, but Brazil and Mexico. And I think that it's good to mention that.

If you are well positioned, if they know you with a good service, we are all direct there, you get a good traction. And instead of letting the Latino America buy around the world, they buy locally, they found the service and the product. So this is an interesting strategy, which is very few brands in luxury have that. And it's you have to go after niches. And we have been there 30 years.

And so we are taking advantage of this of the competitive advantage of Zener. And one day, we get there, surely we talk forward. It is good, highly demanded also.

Paolo, Investor Relations, Zegna Group: The second question, I think, is was partially already answered by Dara, is on the geographic difference per brand. So if there is something that really was different for each brand by geography that, let's say, characterized, if I understood well, Dara, the performance of the brand. And I think we can comment that Tom Brown did very well in particular in Korea and Japan. Of course, also other markets, but Korea and Japan in Q4 also through the year has been for sure geographies that continue to recompense to award the brand. Zena, again, we said about Americas several times, Middle East and Europe.

These are the 3 main and key geographies that did very well. And going forward, there is Americas and Europe, as you said. So I don't know if there was any other, let's say, question or that if we were able to answer to your questions.

Daria Nazlacher, Analyst, Bank of America: Yes, this is perfect. Thank you very much. So overall, if I put all of this together, definitely there is a big part that's idiosyncratic, all the work that you're doing with the brands, but there also has been a sequential improvement in the market and there was a broader acceleration into the end of the quarter?

Paolo, Investor Relations, Zegna Group: Yes. You are right. Again, we underlined also previously because we want to be absolutely fair that the acceleration for Tom Brown was also thanks to the there was also better comp, but also thanks to new openings.

Gildo Zegna, CEO, Zegna Group: Listen, one important point, which I don't want to be forgotten, is ZENIA only sell at full price. So the incredible performance we had in December, all at regular price. If you go around, and you asked how we did in December, I asked this question, how much full price, how much wholesale? We did 100% full price. So this is an incredible achievement in 2 years coming from the wholesale world, coming from a sales world strategy.

It's going to be known also for the other two brands. So our goal is to go in that direction with the entire branding system of our group. I think that is the way to go.

Daria Nazlacher, Analyst, Bank of America: Thank you very much. This is very helpful.

Paolo, Investor Relations, Zegna Group: Thank you, Dara. I'll just take one quick 2 quick questions actually from the webcast. I'm sorry if we are a little bit longer today. But the first one is how many stores do we plan to open in 2025? And I think here we are not going to provide numbers.

We might need more also, yes, more details in March. But the underlying assumption that you should have is that in particularly for Zegna brand and even for Sao Paulo, there will be a much bigger contribution from Pompe than space, only limited space, while Thom Browne will have a paid contribution in 2025. As Gianluca said, we are going to open a couple of important flagships, including Tokyo and New York through the year. The last question, and this is for Gianluca. It says, during the speech, Mr.

Zena talked about important projects that has been confirmed during 2024. And he talked also about the decision to bear some short term gains. I heard that today, revenues were, if I'm right, above consensus. Is it fair to assume that 2024 results consensus now a bit conservative?

Gianluca Talibui, CFO, Zegna Group: Izo said that we have taken some difficult decision and decided to move on with important projects, continue investing in people, in marketing, in structure. So I believe that this was already mentioned several times. That's why I don't see today reasons why we should depart from the consensus that is in terms of adjusted EBIT that is reported in our public consensus in the website today, and I remind you, roughly in the range of 175. Of course, books are not yet closed. But since we are coming from decisions of not taking out the pedal from the metal, but continue investing, I would expect still to see consensus where we have reported in the public consensus in the website.

Paolo, Investor Relations, Zegna Group: I think we have answered to all the questions also from the web. So I thank you, everybody, for all the, as usual, very interesting question and today also the many questions. So thank you. If you need any follow-up, Alich and myself, we are available anytime. And just a reminder, we have financial results that will be released on March 27.

Thank you again, and have a nice afternoon or evening.

Daria Nazlacher, Analyst, Bank of America: Goodbye. Thank you. Ciao. Bye.

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