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Earnings Transcript for ZGN - Q4 Fiscal Year 2024

Operator: Good afternoon and good morning, everyone. Thank you for joining us on Full-Year 2024 Preliminary Revenues. Please note that today's material and presentation are available under zegnagroup.com website. Joining us today, the Ermenegildo Zegna Group leadership team, including the CEO, Gildo Zegna; and CFO, Gianluca Tagliabue. 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 two of today's presentation. I'll now hand over to Gildo Zegna.
Gildo Zegna: Good morning and good afternoon. Thank you for joining today's call. After three challenging quarters, I'm pleased that -- to be here today to talk about the quarter that showed some important progress, even if we all know the sector is still facing uncertainties. Let me start with a few highlights. Q4 ‘24 revenue grew by 3%, both organic and reported, thanks to three main contributors. The Zegna brand, which grew 7% organic, the drag to consumer channel, which grew 8% organically at group level. In the quarter, in particular at Zegna and also TOM FORD 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 in Zegna whose performance was significantly better than the group average. Also, the Middle East performed exceptionally well, in particular for Zegna brand. These results are the outcome of long-term strategies implemented over recent years, as well as some important lesson learned in ’24. In ‘24, we reinforce our talents and organization at brand level. We strengthened the business division at TOM FORD FASHION. We invested in CRM and made-to-measure personalization at Zegna, and enhanced merchandising and retail operations across regions at Thom Browne. We achieved a more balanced geographic presence by increasing focus on core market like the U.S. and the Middle East, the latter in particular at Zegna. 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 Zegna brand are. ‘24 was the year of bringing VILLA ZEGNA to the world. First, the cementing Zegna's unique legacy in timeless luxury. The recent ‘25 winter season fashion show is another testament to this. At Milano Fashion Week, we unveiled the Zegna Vellus Aureum project, the crown jewel of wool textiles created by our Filiera. Vellus Aureum is the finest wool in the world. This amazingly light, warm and breathable cloth has been created thanks to the wool trophy awards our family established in Australia since 1963. The collection presented the show mostly made by Vellus Aureum was also inspired by some of my grandfather’s own clothes giving it the typical Italian I would say truly a niche taste of our founder and myself. The show has been acclaimed as one of the best of the Men's Fashion Week and one of the best ever for our brand. Looking ahead, the ZEGNA brand path to ‘25 is clear. Our product population is strong, not just Vellus Aureum, but much more. A legacy made in Italy and customer experience, we’ll 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 guests. And our text innovation capabilities will continue to give Zegna the forefront of the industry, something highlighted by Vellus Aureum at our most recent show during Men's Fashion Week. We want to grow and strengthen further our community of Zegna brands and further consolidate Zegna leadership in timeless luxury. Let's move now on a few comments on Thom Browne. In ‘24, 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, needs, 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 reinforced the team, both at headquarter and at regional level, including recently new commercial director in the U.S. and EMEA. Looking ahead, we know the devolution of Thom Browne into a more DTC company is not yet complete. Are 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’ll continue to invest in a few selected projects where the brand has already started to build. DTC, women accessories, the invention of the classic collection and some important new openings, particularly in the United States. Let's now move to TOM FORD FASHION. TOM FORD FASHION in ‘24 was the year we focused on building a strong organization, laying the foundation for future growth. As you know, along with the sale of their company, we also decided to appoint a new creative director. We have chosen Haider Ackermann for a number of reasons, not only for the clear connection to the TOM FORD legacy, but more importantly, because it's able to create collections that are consistent between men’s and women, supported by strong leader accessories collections. The positive trend in DTC in Q4, driven by healthy com growth, especially in the U.S. and EMEA, is an early initial sign that our actions are starting to pay off. Obviously, the higher the fashion show will be an important stage to reinforce this. Looking ahead for TOM FORD FASHION ‘25 will continue to be a year of investment. We will invest with two 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 ‘24, 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&L results. Today's call is indeed on revenue. But let me make a brief comment. We all know that ‘24 profitability is expected to be impacted by the challenging environment. You also know that in ‘24, we decided to confirm some strategic initiative that are key to strengthening our brands. I believe it is important for me in this call to reinforce the message that the decision to bear some shorter 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 customers 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 Tagliabue: Thank you, Gildo. Good morning, good afternoon, everybody. Let's start from page nine 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 first TOM FORD FASHION business, which is consolidated since April 29 of 2023. Second, the acquisition of the Korean business for Thom Browne, which occurred on July the 1 ‘23. And third, the acquisition of the Zegna Korean business, which occurred on January 1 of this year. Important to underline that only the last one, so Zegna Korea Business, impacted Q4 organic performance. And I can also anticipate that starting from Q1 of 2025, organic growth will only neutralize ForEx movement. 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 Zegna segment, which includes both Zegna brand as well as textile, and the minor third-party brand revenues recorded plus 4% organics driven by the Zegna brand, while the textile product line continued to be impacted by a declining B2B demand. Some round segment revenues declined minus 4% with an improving trajectory, compared to the first nine months of the year, while TOM FORD 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 a few general comments, while we will go more in detail on the dedicated by brand pages. Notwithstanding the sector's uncertainties, Zegna brand continued to show a very solid performance, supported by a clear brand vision, which has been further reinforced in ‘24. Luxury leisure wear and shoes contributed to the growth. Thom Browne revenue or blue negatives shows 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 the nicest 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 30% organic, substantially in line with Q3, largely due to a decreasing 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 ‘24. In Q4, EMEA recorded a plus 5% organic growth, which is the result of a double-digit growth at Zegna Brand and TOM FORD FASHION, and the negative performance at Thom Browne, mainly due to the wholesale channel. Americas, which represent 27% of full-year revenues, recorded the strong sequential acceleration in Q4, compared to the prior quarter with plus 15% organic growth in Q4. All three brands reported positive performances. Zegna brand in particular recorded an outstanding double-digit growth led by the DTC. America's and U.S. in particular are doing very well for Zegna, also looking at the performance by nationality. Zegna 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 ‘24, GCR accounted for 26% of total revenues, significantly lowering the incidence of group revenues from the 46% that we have seen in full-year ‘21 when we landed into the public market. In Q4, GCR revenue has declined by 11%, this represents a sequential improvement, compared to Q3 when it was minus 22%. Although we present visibility on that market remains limited. In the quarter, Zegna and Thom Browne showed a similar performance, while for TOM FORD FASHION, GCR is less relevant. Looking at the results by nationality, in Q4 rallies from GCR clients, we're down low-teens, slightly improving compared to Q3. I remind you that according to our CRS data in the Zegna brand, around 90% of GCR clients are buying domestically. I finish with the rest of Asia Pacific, 12% of full-year ‘24 revenues, which reported a plus 8% organic in Q4, with Japan and Korea driving the growth, in particular, in Zegna and Thom Browne. Let me now move to page 12, the revenues by distribution channel. Just two very quick comments since we would comment on the following slide, the detail of revenues by channel for each brand. In Q4, DTC grew plus 8% organic with positive growth at all the brands. Wholesale brands have performed in Q4 at minus 7%, driven by a decrease in all brands, partially impacted by the conversions of some wholesale stores in concession in retail. Let's move to page 13, where we deep dive on the Zegna brand revenues by distribution channel. In Q4 Zegna DTC revenues grew by a healthy 9% organic. The channel now accounts for 86% of the Zegna brand revenues on a full-year basis. Americas, Europe, and the Middle East continue to report very solid double-digit growth rate, while as already commented, GCR was low-double-digit negative, thus with a sequential slight improvement versus Q3. In the quarter, the brand closed four net stores, including two openings in Monaco and Wuhan, and offset by closure of small stores and of one outlet. Moving to wholesale, Zegna 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 Zegna brand would have been flattish in the quarter. Let's move to page 14, Thom Browne revenues by distribution channel. In Q4, DTC for Thom Browne 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 Taikoo Li and some conversion of small shopping shops in Canada from wholesale into retail. In Q4 ‘24, wholesale was down minus 13%, impacted by the well-known decision to streamline part 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 spring summer ‘25 products were already available to the ship. As also Gildo commented, some ground evolution into a DTC-led organization is ongoing. And we'll continue also in ‘25 with an impact on the brand's wholesale performance. Based on the orders in our hands, I can anticipate that we expect H1 ‘25 wholesale revenues for Thom Browne to be still down significant double-digits with Q1 more impacted given the above-mentioned early delivery of spring, which has been falling into Q4 of 2024. Let's now move to page 15, TOM FORD’s professional revenues by channel. In Q4, TOM FORD FASHION reported a nice plus 9% organic growth in the DTC channel with a strong double-digit growth in EMEA and the solid performance in the U.S. During the quarter, TOM FORD opened two DOS, including Singapore, Paragon, you also saw a picture at the beginning of the presentation, and Madrid, Canalejas. Wholesale reported minus 4% organic in the quarter, reflecting also the impact of two main wholesale conversions into retail; Harrods Man 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 full winter ‘24 collection. And I hand it over to Paola for the Q&A.
Paola Durante: Yes, thank you. Thank you, Gianluca. Thank you, Gildo. Operator, can you open the Q&A? Thank you so much.
Operator: Thank you. We'll now begin the question-answer-session. [Operator Instructions] Our first question today comes from Anthony Charchafji with BNP Paribas. Please go ahead, Anthony.
Anthony Charchafji: Thank you, good morning, it's Anthony from BNP. I have just two questions and I will refrain from asking on a bit. So the first one would be on TOM FORD in positive territory. How to think about 2025 as we know that either I [command] (ph) with we present only his first collection in March? Should we see 2025 as a transition year? My second question would be on the Zegna brand, very strong performance in DTC. Knowing that the top 5% of your clientele is in 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? Thank you.
Paola Durante: Thank you. Thank you, Anthony. I'll leave the first question on TOM FORD to our CEO, Gildo.
Gildo Zegna: Yes. Well, 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 products that it will present in the fashion show. I think we need a strong consistency between the men's ready-to-wear and the women's 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 ‘24, 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, but the wholesale also is positive. We are off a full winter ‘25 season, which we did what we had to do, even though we didn't have the collection. So overall, 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 Zegna, TOM FORD and Thom Browne, some good trend continuing in the U.S. and so we are ready to go with this new cycle of the brand, of the TOM FORD for brand.
Paola Durante: 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 Tagliabue: Yes, so, hi, Anthony so the top 5% as we already represent, represents 40% of the revenues for the Zegna brand. And definitely the top end part of our client pyramid is the one that is driving the most the growth. The cluster, of course, we have the cluster of Zegna friends that are the ones that are above EUR50,000 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 a Zegna friend on one side, bringing more friends into the club, focusing what [Technical Difficulty] viewers. The viewers are the ones, it's a segment that is spending less than 50% per year, but that's the potential to go above. And we see from the average ticket per transaction, but a relatively low frequency, kind of 2 times, 3 times a year. The goal is to bring up the spending of the doers. And that is for us, I would say not a low-hanging food, but is intensifying the intimacy with customers that already trust Zegna 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: I just wanted to add one thing, Anthony, on the 4% top client, what we call our Zegna friend. We are continuing to foster the initiative on those customers, starting from our fashion show and from the relative 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 were 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 Filiera that is capable to deliver and not only showing a 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 Thom Browne and TOM FORD brand, you know, thanks to our integrated supply chain. So I think this is the direction to go and we see a lot of benefit to that.
Paola Durante: Thank you. Just for clarification, top 100 customers were the one invited at the show. I'm not sure that was clear so just to clarify. Anthony do you have follow-up?
Anthony Charchafji: Yes. Very clear. Thank you.
Paola Durante: Thank you. Thank you.
Anthony Charchafji: Maybe just one if I may. So thanks a lot for the comprehensive answers. Maybe can you just give us the cluster for the Zegna brand in DTC out of the plus 9%. I understand that the Americans were significantly strong. Maybe if you can quantify. Thank you very much.
Paola Durante: Sorry, if we can quantify, Anthony, what the DTC, but I didn't get to what?
Anthony Charchafji: The clusters, the cluster for the Zegna brand.
Paola Durante: The clusters. No, we don't. I mean, clearly the clusters when you talk about clusters, this is a 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, Zegna, DTC mainly.
Gianluca Tagliabue: Yes, but we don't provide further details. The only numbers that we have provided so far is 5% of customers representing 40% of revenues, so…
Paola Durante: And the first 5%, yes.
Gianluca Tagliabue: The only data point we have published and we are not going further.
Paola Durante: And this is something that we are seeing actually confirming and consistently be there. So it's a very good sign, so that -- of our strength in CRM and in all the activities we are doing towards our top of the table.
Gildo Zegna: Is there one other point on this is that we are seeing an increase of Zegna friends across the region. This is 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. We started from there and we beat our muscle and now it's becoming really a global project which I think is going to be bringing interesting results going forward.
Paola Durante: Okay, can we move to the second question, Anthony, thank you so much. Thank you. Operator?
Operator: Our next question comes from Oliver Chen with TD Cohen. Please go ahead.
Oliver Chen: Hi, Gildo and Gianluca. Thank you. At the Zegna brand, the Americas continues to impress. What are your thoughts on the continued growth of America? The U.S. consumer has been very strong. We'd also love your comments at the Zegna brand as you think about product 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 and dynamic environment? And finally, with Thom Browne, 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.
Paola Durante: Thank you Oliver, Thank you so much. So I think the first and the third one is for our CEO. So Zegna, our thought of Zegna brand in Americas going forward in terms of also merchandising and then on Thom Browne, then I’ll leave inventory for Gianluca after.
Gildo Zegna: No, interesting question, Oliver. I think America is very much for Zegna. 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 Zegna, this personalization of Zegna, this uniqueness of Zegna. Also by having a selective distribution and by raising the level of merchandising. Overall, I think that is bringing more excitement to the current Zegna friend in America and opening up to new customers. I think the phenomenon of the prestige that we expanded the family in an exclusive way, I think it's bringing new customer. And I think that this Vellus Aureum 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 SAS Group where Zegna is number one in men's, I think will bring new results in terms of working together in a more focused way. We just had our top specialty store [Michel] (ph), which now has consulted about six stores, the best specialty store in America, in which, again, there, we are number one, 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 focus raising the bar in terms of uniqueness. And I think the privilege of our service. I think that the outreach, I think that these events that we create in the stores, mind you, the Vellus Zegna project got started in America six months ago, and we had incredible traction and that has led us to think that this phenomenon 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 Zegna friend and wholesaler, and they liked our approach into textile. I think that today, our Filiera is a unique way to create unique textiles. And I think the best innovation in textile came from our show. And American has been also very clothing country. And, so the way that Sartori transformed the closing from a rigid clothing to a soft clothing, really makes a difference just people want it. We just want to dress up differently. And that's what I have to say.
Paola Durante: On Thom Browne, thought on the brand awareness.
Gildo Zegna: Thom Browne, listen, brand awareness, I think that is different around the world. I think that one of the goals for this year with Rodrigo and Thom is to increase the brand awareness in America. I think that each brand has to focus on something. And I think that Thom Browne focus will be in having a merchandising that keeps being innovative give important -- more important 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 scattered around geographies. 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] (ph) and SAS Group has expressed interest to start working together. We have turned now our business with North Summit into concessions. So we have opened a few stores. So I think we are moving in the right direction. TOM is strong in Japan and Korea and we want 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.
Paola Durante: Okay. And the last one was on GCR. How we manage inventory, so I’ll leave Gianluca.
Gianluca Tagliabue: You would answer with two buzzwords. One 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 '25 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.
Paola Durante: Okay. Oliver, if you are fine, we can move to the third one or…
Oliver Chen: Thank you very much. Thank you. I appreciate it.
Paola Durante: Thank you. Thank you so much. Operator, can you move to the third question? Then we have also a couple of questions from the web, but I will wait.
Operator: Thank you. Our next question comes from Louise Singlehurst with Goldman Sachs. Please go ahead, Louise.
Louise Singlehurst: Hi, everyone. Thanks for taking my questions. Just a couple of follow-ups if I could do, please. I wondered if you're -- just going back to the U.S. and also China, but that scope, 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 give 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 '24. 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? Thank you very much.
Paola Durante: Okay. So I'll leave -- maybe Gianluca will comment on the DOS performance. If it was traffic ASP, we mentioned good comp, so what was driven? And I think Louise, this was a question more general globally. And then I don't know if there was a specific on China. I might ask Gildo to comment on the overall 2025 outlook for China.
Gianluca Tagliabue: So in terms of drivers, that’s for retail, the one major driver is ASP. ASP has been up strong through the year and that goes along with also the answer that we gave to Anthony before. So we are elevating the focus of our action, elevating the clients, 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 two things, 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.
Paola Durante: Yes.
Gianluca Tagliabue: Well, the same comment applies to China.
Paola Durante: Exactly.
Gianluca Tagliabue: 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 ASP. So it's not traffic we are not seeing solid traffic inflection point.
Paola Durante: Of course, China not -- I mentioned, but clearly everybody knows today impacted by the difference of timing of the Chinese New Year. So reading China in the first weeks of 2025 is a little bit can be misleading, because of the anticipated Chinese New Year. But I ask Gildo if he wants to give us some more colors on China overall for 2025.
Gildo Zegna: 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 two weeks ahead the Chinese New Year, as compared to last one. We see some slight positive signs. In that, we just had the drop one. Drop one is the first delivery of our collection in the season. And part of that was Vellus Aureum. 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 ‘24. But whenever you come with some new ideas, 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 one year, we did a good move on that. We are going to continue with the suite project by which we come in, in the cities and we do special events by focus on some particular project or some particular icon. We’re on the pipeline a couple of Salotto opening. Salotto are, as you know, our private rooms in two -- in very important cities. One in Shanghai with plus 66% and the one in Beijing with second place. And I think there we put all our strength of our innovation and personalization at the advantage of those customers that 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 these rebalancing geographies I think has come out positive and same applies to the other two brands for that is surely less strong or than Browne and Zegna in China. And so, I think that it's a good exercise to this geographical 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: That is very clear. Thank you. And I wondered if I could just have one other follow-up just on Thom Browne and TOM FORD. Obviously, great to see the inflection and 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 '25? Thank you.
Paola Durante: Yes, absolutely. I leave Gianluca to answer on Thom Browne for…
Gianluca Tagliabue: Yes. TOM FORD on DTC, we have reported a solidizing 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 Zegna. So it's not space. So we are seeing some finance and some momentum on the TOM FORD side despite as Gildo was mentioning, the fact that the newly designed collection by IDA is not yet in the stores. So it's -- at this point, it's commercial execution, it's merchandising execution.
Gildo Zegna: And these people, I think that we brought in some new talent in retail that made a difference.
Gianluca Tagliabue: Yes. So I think that is a -- comfort sign on Ford. On Thom Browne, I think we are more still in the making. The positive sign on DTC comes from space on Thom Browne. We have been changing people as for TOM FORD 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 intensity. 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 next year, 2025 this year. Yes, it's always. So this year we are opening a few stores in U.S., in New York, in L.A., which for Thom Browne 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 flagships. Going back to a question before, I think by Oliver in terms of awareness, the flagships will help also raising the awareness of Thom Browne above and beyond the community of the lovers of the brand.
Gildo Zegna: Yes. You know, 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 Zegna the hard way. The success comes with merchandising. And I think that in both Browne and FORD, we are reassessing our merchandising mix as we did in Zegna. And I think that we are -- '24 has been a year where we put our act together and in '25 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 three 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.
Paola Durante: And there is also a question, sorry Louise, from the webcast attached to it on Thom Browne, which ask 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 Thom Browne, given that Louise gave me the chance to.
Gianluca Tagliabue: 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 is in our end. So I would say that H1 will be very much like '24 in terms of decline. I think that later in the year in the second part, we should see a bottom out, bottoming the decline. But until H1 is included, we see the same decline as done in '24. At that point then afterwards we should be in a new normal environment.
Paola Durante: Thank you. Louise. I don't know if you have any follow-up questions. Sorry, I interrupted.
Louise Singlehurst: No, that's great. Really clear and wonderful to see the momentum in Q4. Thank you. Thank you very much.
Paola Durante: Thank you. Operator, can we -- do we have another question?
Operator: The next question comes from Natasha Bonnet with Morgan Stanley. Please go ahead.
Natasha Bonnet: Hi, this is Natasha. Thank you for taking my questions. I've got three. 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, leisurewear, 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 '24? The second one was just on Thom Browne. Just one clarification, because you mentioned that space contributed to the strong sequential acceleration you saw at retail. Can you may be 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 profound on increasing pricing into 2025. Thank you very much.
Paola Durante: Thank you. Thank you, Natasha. On the first one on Zegna Brand and how has been the acceleration among categories? I ask Gianluca -- Gildo to comment. And on the Thom Browne like-for-like, I think Gianluca just said that in the previous answer that Thom Browne 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 AUR price, I leave to Gianluca. So starting with Gildo on the acceleration by category.
Gildo Zegna: The acceleration I think is part of the drop strategy by which we hit with the right product at the right time, with the 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 four different styles and product is becoming very, very important to, if you want to make sure that you know 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 one. Number two, I think that we had a good season in terms of outerwear. The Fall/Winter season is stronger for outerwear than the Spring/Summer season. And third one, we had a very strong season in Made to Measure and in the personalized approach to the product. So I think it has been a mix of icons or focus 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 outreach 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 act 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 are -- there is connectivity which before it was not enough. And I must say this will hold true also for the Browne and for the FORD. Just be create shows that are more commercial at the luxury level and less theatrical or less to fashion. And this is what the customer wants. And so, I think these are the highlights of the season.
Paola Durante: Yes. Okay, so in terms of average unit rate or average selling price increase, what…
Gianluca Tagliabue: The driver is the mix as it was coming out from sort of…
Paola Durante: Yes.
Gianluca Tagliabue: 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…
Paola Durante: Triple Stitch, yes, Natasha was asking a 15% of -- in 2025 is a reasonable number, I think.
Gianluca Tagliabue: Yes. We are in the mid-teens range. We are in the mid-teens range for the Triple Stitch 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 Stitch, [Indiscernible] which are the mid-yield or high-yield boots and so they carry average a higher price.
Paola Durante: Okay, I don't know if there is any other…
Gianluca Tagliabue: Now with a question, of course, I said it's driven by new openings. So the comfort n Browne 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 best 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 Thom Browne.
Paola Durante: Thank you, Natasha.
Natasha Bonnet: That was very helpful. Thank you very much. Thank you.
Paola Durante: Thank you. Thank you, Natasha. Shall we go for another question from the call and then I have a couple from the webcast.
Operator: Thank you. Our final question from the telephone lines comes from Daria Nasledysheva with Bank of America. Please go ahead.
Daria Nasledysheva: 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 third quarter 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 dynamic is getting better? Hope it makes sense. Thank you very much.
Paola Durante: Okay. That is very, Daria. Okay. So the first question is basically how the quarter has moved sequentially if there was a sequential improvement. If I understood well are you asking DTC, I believe? So yes, I ask Gianluca to answer by each brand. But in any case…
Gianluca Tagliabue: In general we have seen a strong acceleration on -- in America in Q4 was by far much stronger than Q3 for Zegna and TOM FORD.
Paola Durante: Also in the quarter, month-by-month...
Gianluca Tagliabue: December was the best month out of the three, December was the best month. I think there is something specific of us of the Zegna, especially on the Zegna side. It's, of course, the mood has been welcoming but Zegna 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 is positive. I think we are very pleased to see positive signs across all the stores on TOM FORD in the U.S. and that is very...
Gildo Zegna: Also Europe. I think also Europe, we had a good December in Europe too.
Gianluca Tagliabue: Yes. I think the major step-up was U.S., the major step up. I think also in 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 Zegna, Zegna brand. Greater China slightly improved -- good improvement versus Q3, slight improvement if we compare it to the other quarters, but it's early to draw a conclusion, as Gianluca was mentioning. We have seen a sequential good performance in the rest of APAC that was also a positive before better than Q3 on? So I think overall, we have seen an acceleration last...
Gildo Zegna: Latin America. Nobody ever talks about Latin America because there are not many brands. But I think Zegna is a key leader in men's and we have been doing very, very well in Latin America too. You know, 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 Latin America buy around the world, they buy locally if 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 Zegna. And one day, you know, we get there, surely with TOM FORD, it's good, highly demanded also.
Paola Durante: The second question I think is partially -- already answered by Daria 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, characterize if I has to dwell Daria the performance of the brand. And I think we can comment that Tom Browne 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 respond and to award the brand. Zegna, again we said about Americas several times, Middle East and Europe. These are the three main and key geographies that did very well. And TOM FORD is Americas and Europe, as we said. So I -- there was any other, let's say, question or that if we were able to answer to your questions.
Daria Nasledysheva: 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.
Paola Durante: Yes. So you are right. Again, we underlined also previously because we want to be absolutely fair that the acceleration for Thom Browne was also thanks to the -- There was also better comp but also thanks to new openings.
Gildo Zegna: Listen, one important point which I don't want to be forgotten is Zegna only sell at full price. So the incredible performance we had in December, all at regular price. If you go around and you ask how we did in December, ask this question, how much full price? How much on sale? We did 100% on full price. So this is an incredible achievement in two years coming from the wholesale world, coming from sale world. So I think 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, because it's the way to go.
Daria Nasledysheva: Thank you very much. This is very helpful.
Gildo Zegna: Can I -- thank you, Daria. And I just take one quick -- two quick questions actually from the webcast and sorry if we are a little bit longer today. 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, so we might be more -- also yes, more details in March. But the underlying assumption that you should have is that in particular for Zegna Brand and even for TOM FORD, there would be a much bigger contribution from comp than space only limited space while Thom Browne will have a state 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 that is for Gianluca. It says during the speech, Mr. Zegna talked about important projects that has been confirmed during 2024. And he talked also about the decision to bear some short-term pains. However today, revenues were, if I'm right, above consensus. Is it fair to assume that 2024 results consensus now a bit conservative?
Gianluca Tagliabue: Gildo said that we have taken some difficult decision in the -- decide 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 is reported in our public consensus in the website today. And I remind it's roughly in the range of 1.75%. Of course, books are not yet closed. But since we are coming from decisions of not taking out the pedal from the metal, must continue investing. I would expect still to see consensus where we have reported in the public consensus in the website.
Paola Durante: 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, Alice and myself, we are available anytime. And just a reminder, full-year financial results will be released on March 27. Thank you again and have a nice afternoon or evening.
Gildo Zegna: Good-bye. Thank you.
Paola Durante: Ciao Bye.
Operator: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.