Release Date: April 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can you provide any color on how the China cluster has so far performed in 2024?
A: (Ermenegildo Zegna Di Monte Rubello - CEO) The Chinese market is challenging but positive in the mid-term. There is less traffic, and the approach is more relationship-driven. The Zegna brand is seeing positive signs, especially with demand for high-end products. The One Brand strategy is starting to show rewards in China, although the region is still challenging due to the geopolitical and macro environment. The company remains focused on and committed to reinforcing brand awareness in the region.
Q: What is the guidance for Q1 with organic sales growth expected to be down mid-single digit?
A: (Gianluca Tagliabue - CFO) Thom Browne wholesale revenues are declining high double digits due to a different timing in deliveries and a challenging comparison base. The trend in Greater China for Thom Browne has been influenced by the environment and the need to reinforce the retail organization. However, other markets for Zegna, like the United States and Japan for Thom Browne, are showing strong double-digit DTC growth.
Q: What should we expect in terms of the cadence of margin expansion in the coming years?
A: (Gianluca Tagliabue - CFO) The growth of EBIT is not expected to be linear, as 2024 is a foundational year, especially for TOM FORD FASHION. The company is building a structure, opening stores, and investing in the business, which may lead to an acceleration in EBIT growth in the years following 2024.
Q: Can you share your thoughts on the US market currently?
A: (Ermenegildo Zegna Di Monte Rubello - CEO) The company remains positive on the US market, as Zegna has successfully penetrated the perception of the upscale American consumer. The rebranding strategy, focusing on luxury leisurewear and accessories, has been well received, and the company is seeing no price resistance, offering superior service and increasing store productivity.
Q: Should we expect a marketing step-up at Thom Browne to drive EBITDA?
A: (Rodrigo Bazan - CEO of Thom Browne) Thom Browne continues to invest in marketing and communications, focusing on fashion shows and client-focused events. The brand is seeing a positive performance from presenting collections to significant clients, which translates into actual bookings and business growth.
Q: Do you see further growth in gross margin for 2024 and beyond?
A: (Gianluca Tagliabue - CFO) The company still sees opportunities to grow the gross margin, driven by the disappearance of PPA on cost of sales, managing the price lever, and a positive channel mix effect. The company expects the gross margin to be an area of expansion in terms of margins for 2024.
Q: What's happening with aspirational customers, and what do you see happening for them?
A: (Ermenegildo Zegna Di Monte Rubello - CEO) Zegna has shifted focus from aspirational customers to top-end customers, offering unique, high-quality products with superior service. The company is confident in its strategy and sees the trend of luxury continuing.
Q: Is the rationalization of the wholesale channel expected to go into the multiyear for Thom Browne and TOM FORD?
A: (Gianluca Tagliabue - CFO) The company's growth does not come from wholesale, and the mindset is to keep wholesale business flattish going forward. The strategy includes a channel mix, positive effect in gross margin, and SG&A, with conversions and openings expected to pay back after the first 12 months.
Q: Should we start to see an improvement on the gross margin as we move through into the next couple of years too?
A: (Gianluca Tagliabue - CFO) Yes, there is an opportunity to continue to expand on gross margin, particularly as the company continues to manage the price lever and improve the channel mix.
