Hello everyone, and welcome to the Ermenegildo Zegna Group Third Quarter 2022 Revenues Webcast. My name is Seb, and I will be the operator for your call today. [Operator Instructions].

I will now hand over to Francesca to begin the call. .

Thank you, Seb, and welcome to everyone joining us today to discuss Zegna Group's revenues for the third quarter and 9 months ended 30th of September 2022. We will be using the presentation materials posted on our website earlier today. You can find the material along with the related press release under the Investors page of the Zegna Group website.

Today, I am joined by Zegna Group Chairman and CEO, Gildo Zegna, as well as our COO and CFO, Gianluca Tagliabue; and Rodrigo Bazan, CEO of Thom Browne. First, Gildo will walk through our revenues at a high level, provide the group's business updates, and discuss the group's ongoing strategy guidance and ambition.

Gianluca will then spend some time going into the numbers in more detail, and at the end of today's call, we'll be leaving time for Q&A..

Before we begin, I also need to point out that we may 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. All such statements are subject to a number of risks and uncertainties, including those discussed in our SEC filings.

I refer you to the safe harbor statement, which is included on page 2 of today's presentation, and of course, this call will be governed by that language. Again, we thank you for joining us today..

And with that, I will turn the call over to Gildo Zegna. .

Hello to everyone, and thank you for joining us as we share our revenues for the 9 months and the third quarter of '22. I must say that it was a very exciting quarter for us with a number of significant accomplishments before showing you the numbers.

One of my personal favorite moment this quarter was the official launch of our partnership with Real Madrid on 30 September at the Ciudad Deportiva del Real Madrid in Madrid. This partnership will build on and amplify the Zegna One Brand strategy and introduce us to a whole new generation of customers among Real Madrid fans around the world..

I also want to take a moment to welcome Thom Browne, our partner and friend Thom, on being elected the new Chairman of the Council of Fashion Design of America. Thom has been an inspiring designer and leader in the industry for decades, and this is a great testament to his creativity and the success of the brand that he built.

We really look forward to more and more success with the brand in this company. And we always want to congratulate Alessandro Sartori, our Artistic Director [indiscernible] WWD award -- which I will discuss later -- that was delivered the day before yesterday in New York.

Finally, our loved Oasi Zegna, the heart of the Zegna Group, received a Fashion award biodiversity conservation award for '22 from the Camera Nazionale della Moda at alla Scala a few weeks ago. And this is a living example of our commitment to the environment and the natural resources to make our success possible.

So I think that after the summer, we had several good contributions to our new avenue- or better, to our new road that hopefully will take us a long way. .

If you now go to numbers, please focus on slide 4. I think that both with Zegna and Thom Browne, we have continued to perform strongly despite the challenging macroeconomic environment around the world, which you know better than we do.

As we wrap up the first 9 months of '22, our strategy is proving successful despite the challenging global environment. I would say that overall, we saw good growth across all segments, and I would say healthy growth in every geography where we operate, including a rebound in the Greater China region in the third quarter.

This third quarter, our revenue were up 27.5% compared to last year, reaching EUR 356 million. This brings our revenue for the first 9 months of '22 to almost EUR 1.1 billion, up around 23% on the same period last year. .

If we now go to page 5, I think that this shows the strength of our brand.

Without repeating myself, I think that these awards have been given to us both by the industry and by customers- we have Alessandro Sartori who has been given the award of Best Men's Designer of the Year by WWD, which I think is the key authority in the international fashion system, in particular in America.

It's very important, in particular, in a year in which America is very strong, and I think that we anticipated this development in America in the past calls, and we believe that this will continue..

I think that this tribute shows the good actions that are taking place in America, thanks to the repositioning of the brand and thanks to his creativity.

I think that besides the award of Thom, there was a nomination of Thom to his new role, the fact that he has shown in Paris during Paris Fashion Week in Spring '23- it's good that he has been able to host the VIP celebrities and can show the brand.

It shows that Thom Browne is a true international luxury brand, and very creative and innovative, expanding also the women's side beside the strong position in the men's..

And last but not least, Oasi Zegna, which shows the fact that we are very strong in the environmental approach to biodiversity, I think it's a tribute to where we're going.

I think that last but not least, living in an uncertain world where energy surely will be more expensive and scarcer, we launched an energy efficiency plan across the group -- starting in Europe, where we know that the cost of energy is probably 8 folds higher than in America -- which aims to decrease our consumption in our nonindustrial sites by 10% over '23.

So I think this is a contribution that we have to each of the 6,000 employees, but in particular, the ones in Europe, and I think it's a culture to work in a cost-saving energy environment. .

If we now turn to slide 6, we have more details on the revenue growth. I think the good thing is that during at least that quarter, we saw a rebound in China, thanks to the relaxation of the COVID-19-related lockdown in the month of July and August.

Despite a weak September -- as restrictions started to be re-introduced -- we saw revenue growth of 3% in Q3 in Greater China region from last year to reach EUR 113 million. The rebound in China meant that we saw growth in revenue across all our other geographies for the quarter..

I would say that it's important to look at what we did, excluding China, where our revenues were up 44% for the quarter compared to last year. This was despite a tougher base of comparison, especially in Europe and America, as the third quarter last year had fairly normalized following the disruption of the pandemic.

The U.K., the Middle East and the U.S. also had particularly strong growth with revenue increasing by 62%, 86% and 38%. In these 3 regions, EMEA overall grew 43%. This strong performance has also continued in the beginning of this quarter, excluding China, where sales are down and the situation is still difficult due to the new wave of lockdowns..

As we speak, cities like Zhengzhou, Xi'an, Wuhan, [indiscernible] are under lockdown, and the Beijing area has been very limited [indiscernible] for a few weeks. Based on these results so far this year, we are confirming our guidance for revenues and Adjusted EBIT for the year, which we will go into in more detail shortly. .

If we now look at the next slide -- before I turn to Gianluca, our CFO -- I would like to remind you of our strategic priority on the road on our own strategy. For Zegna, we continue to execute on our One Brand strategy. We have shown tremendous success to date, especially within luxury leisure product line.

We also continue to grow our customer base, reaching younger generation through partnerships like the one with Real Madrid and other initiatives and collaborations, which will be disclosed along the way..

As always, we will do all that with an eye to excellence across all retail operations. From Thom Browne side, we are on the path to doubling growth in revenue and have a clear road map for that. We're going to double the number of end customers while increasing engagement with existing ones.

Thom Browne has great potential through its product mix, and we are seeing impressive growth in womenswear, which we will continue to focus on. Finally, we are leveraging on increasingly sophisticated clienteling approach and a client engagement management that is procuring with results.

So this is all from my side, and now it is Gianluca's time to comment more on specifics for the quarter and the other results. Thank you. .

Thank you, Gildo. Good afternoon, everybody. Page 8, I will give you some highlights of the revenue trend, and then we enter in the next stages in detail by segment, geography, product line, channels. So overall, the revenues for Q3 were landing at EUR 357 million, plus 27%.

This brings the revenues for the first 9 months to EUR 1.86 billion, which is almost 23% over the same 9 months of last year. Similar to last quarter, the revenue growth cuts across channels, segments and product lines.

But this quarter, it also refers to all geographies with a return to growth also in Greater China due to a relaxed COVID restriction in July and August, not so much in September. .

If we move to page 9, we enter to the first breakdown of revenues by segment. As you know, we split by segment Zegna and Thom Browne, they both were between 25% and 30% growth. Zegna segment was at 27.2% and Thom Browne almost 30%.

So, especially remarkable is the acceleration of the Zegna segment after the second quarter, which was heavily affected also by the China DTC performance. .

If we move to page 10, we can appreciate the growth by geography. Throughout the quarter, we have seen revenue growth across the region, thanks to the rebound in Greater China and continued growth across all the other regions.

Middle East was particularly strong this quarter, with revenues almost doubling to EUR 16 million, bringing year-over-year growth in revenues for EMEA to 44% compared to last year. Growth in the Middle East is mostly referring to Zegna branded products. All the other countries in EMEA also showed consistent double-digit growth..

The U.S., which continues to be an area of focus for us, saw 38% growth for the quarter to reach EUR 50 million, driven by DTC for both Zegna and Thom Browne and [indiscernible] for Winter '22 deliveries to Tom Ford license. Both EMEA and U.S.

performed strongly even against a tougher comparison base from third quarter of last year, which was kind of normalized. The rebound in DTC that began with the easing of COVID restrictions in June in some parts of China continued in July and August, before a new wave of restrictions was imposed starting in September.

This brought our revenue growth in Greater China to 3% year-over-year compared to a -28% decrease in revenues in the second quarter. .

Moving to next page, which is page 11 by product line. Here, we can see double-digit growth of growth across the board, which is evident in the growth in the graph. Growth in Zegna branded products accelerated for the quarter.

This was the first quarter where we released the One Brand collection in the stores, and Zegna-branded products reached +18.6% year-over-year compared to 4.4% in the last quarter. This continues to be driven by luxury leisurewear, particularly knitwear, overshirts and shoes..

Tailoring and Made-to-Measure lines have also seen a strong rebound, particularly in North America. Thom Browne revenues grew 29.8% in the quarter, proving a solid sequential trend for the brand. Now womenswear accounts for almost 30% of Thom Browne revenues and is growing faster than Men's.

Growth for Thom Browne is supported by strong wholesale demand, good e-commerce growth, also driven by T-mall in China and 4 new store openings during the quarter. Textile was up 33% year-over-year, landing to over EUR 30 million with growth across all the textile brands.

Tessitura Ubertino, which was consolidated starting from June '21 in 9 months contributed to additional EUR 3.9 million revenues compared to the 9 months of last year.

Third-party brands grew 64% for the quarter, landing at EUR 32 million, thanks to strong deliveries for both Tom Ford and Gucci, this latter more than doubling in terms of deliveries compared to last year. .

Moving to page 12, we now see the view by channel. Revenues for the group's directly operated stores, including e-commerce, grew 20.7%, landing at EUR 217 million. Growth in DTC for Zegna was driven by strong performance in Europe, particularly in Middle East, as well as in the Americas.

For DTC Thom Browne, revenues grew 21.6% for the quarter, thanks to a top performance across all geographies, including China, which benefited from additional contributions from e-commerce in T-mall and new store openings.

Wholesale overall grew 32% for the quarter to reach EUR 139 million with Thom Browne showing particularly good growth of 41% for the quarter, also from textile and third-party brands marked growth of nearly 50% in the quarter..

With this, let me turn back to Gildo to talk about the guidance for the year. .

Thank you, Gianluca. I think we are surely keeping an eye on the geographical environment and paying special attention to China. Its pandemic-related developments and restrictions continue to impact our business. All of these create volatility for the remaining part of the year. This is the facts.

However, we are satisfied with our plan execution, and for the first 9 months of '22 have exceeded our expectation with a steady and strengthening performance, excluding China, indicating a successful execution of our One Brand strategy..

The dynamic retail environment, solid order collection, positive pricing and healthy demand for our current full winter line and the coming spring-summer collections, also reflecting on the start of Q4 -- with the exception of China, where we see presently a downturn trend from the new wave of lockdown and controlled traffic.

However, given our performance to date, we are maintaining our full year revenues guidance to mid-teens growth at actual Forex versus '21.

We are also maintaining our adjusted EBIT guidance and continue to expect a solid improvement for the year as top line tailwinds should mitigate the expected increase in industrial cost and logistics and the step-up in leasing-related overheads and rebranding costs..

We note that country mix remains unfavorable due to China volatility, and this may have an impact on the percentage margin, which depending on China performance in the fourth quarter may not land in the range of last year. Finally, we continue to expect an increase in the cash surplus in the second half.

Of course, this is all assuming no further escalation or geographic extension of the war in Ukraine, no significant macroeconomic deterioration, a continuing uncertainty linked to the COVID-19 pandemic in China and no other unforeseen events. Back to you, Francesca. .

Thank you, Gildo. Thank you, Gianluca. We are ready for the question-and-answer session. .

[Operator Instructions] Our first question comes from Karina Nugent from Goldman Sachs. .

I've got 2, and they both relate to the guidance. So firstly, do you mind just giving some color on the 4Q performance that's implied by that full year guidance? I think if you take a 15% revenue growth figure for the full year, that does imply a modest decline on an absolute basis in Q4.

Could that be conservative, especially given your comments about good trading so far in Q4, albeit with some volatility in China? And then secondly, look, the messaging is loud and clear in terms of the fact that there is a lot of volatility in China. And because of that, you may not land in terms of the EBIT margin range that you had in 2021.

But if I remember correctly, back in August when we spoke, you were already embedding quite a conservative Q4 for China in your forecast. So do you mind just talking us through kind of what's changed in terms of assumptions for Q4. .

So yes, if you look at the mid-teens guidance for the year, call it 15% or 16%, implicitly, it's like saying Q4 flattish.

Why are we assuming this, because we were coming from July and August, which were extremely positive in China, then September, we saw a different trend and this trend with some moment of good days at the beginning of October is still continuing a soft moment in China.

So from August now, we are assuming not any more China Q4 flat, we are assuming China Q4 negative. That is the difference. That is the difference why in August, we were assuming Q4 Greater China, flattish..

Now we are assuming Q4 Greater China negative -- in the single digit, but still negative -- which is driving to a 15% to 16%, which is the mid-teens overall guidance for the year, where China is offset by still a solid good performance across the board everywhere else.

And in terms of the prudence for the margin is simply the effect of the geographical mix. It's moving from China flattish Q4 to a China negative Q4. Again, we have no crystal ball, nobody has today, and we are assuming maybe a conservative stance to have this cautious view in China.

But since every week is different, that is what is plugged in, in our numbers. .

Our next question is from Susy Tibaldi at UBS. .

My first question is regarding any comment on consumer behavior by region and by nationality. So if you have noticed, especially in the most recent months, September and October, any change in the consumers' willingness to spend? And also if there is any category, which is doing better than others? Secondly, I wanted to also ask about the U.S.

growth, specifically, which continues to be incredibly strong. Already last year was -- you had a very strong growth and you keep growing very strongly on top of that.

And so did you also see significant outflows of American spending into Europe? Or is your consumer a lot more local than other players in the industry maybe, and so you continue to see strong trends also domestically?.

And then lastly, one more question on the consumers in general. I mean, it would be very helpful if you can give us a little bit of color and some statistics on year-to-date. You've done such an amazing growth.

Can you share with us what percentage of consumers were new to the brand? What kind of loyalty rate do you see, meaning what percentage of consumer maybe comes to shop with you more than once in 12 months? And I think this will be really helpful for us to really understand a bit better your customer base. .

Yes, very articulated question, but very interesting. Thank you, Susy. Now on the consumer behavior nationality in the category is very simple. I think that we are having -- we had over the summer, in particular, throughout Q3 a good trend, in particular, in Europe, in the Middle East and in America.

I would say that in Europe, we have been blessed by American tourists. And I would say, by Middle Eastern as well. And we have seen no contraction, I would say, moving into the fourth season. .

Categories, I must say, the new category in terms of iconic luxury sneaker, our Triple Stitch; the Oasi Cashmere project, that is not only knitwear, I mean, it's a sort of common denominator by using partially traceable cashmere done by our [indiscernible], from sports jackets, to overshirts, to I would say, cashmere outerwear, I would say is meeting good results across the board.

And then I would say, Made-to-Order. I think that we are really specializing personalized Made-to-Measure project. And I will say the new push that we gave in Made-to-Measure in luxury leisurewear is proving to be correct because I would say the suit business is back, not as strong yet as 2019, but I think it's solid.

But I think that what is really up is the personalization of luxury leisurewear. .

In terms of U.S. growth, as a matter of fact, I'm leaving tomorrow for the States. But the situation seems to be going still well, both on the wholesale side and the retail side. And I don't think that we should be affected by this concern that you read or they are up in the air because our customer is an affluent customer.

We'll still be traveling and we'll still be spending on service and on the excellent new product that we cater. .

In terms of colors of the customer, I think in the new categories, we have seen a good percentage of new customers joining. So not only the fathers, but also the sons or the younger in the 30s -- and I think that the color we added, some of the new usual and the pop-up shop that we created really helped in this going.

The other good thing is that in Europe, in particular, where we were doing lots of business with foreigners, the locals are back. So I think that we have been more attractive with this new or rebranding strategy also with the locals.

So I would say is Europe is a combination- foreigners in particular are Americans and Middle Eastern, new customers, and some of the loyal who want to change their wardrobe and they are really interested in. One piece of color on the Middle East. I was there 2 weeks ago, and I did 5 countries in 7 days.

I think that this area can be the new China, and we are really well placed to be there and to open new stores with a very aggressive strategy. I think it will be a 5 year go, it's not a 5 months go, but we see that the customers there are willing to buy luxury and they're interested in what we do.

So that has been an extremely interesting journey and I think that more will come from the there. So overall, I remain positive on consumer pattern as we have been in the past few quarters. .

We have a question from Chiara Rotelli from Mediobanca. .

I have 2 questions. First of all, if you can share with us the number of stores closed in China as of today. Then another question on your retail network. So if you are seeing some improvement in the store productivity in Zegna. And on the other hand, your rollout plan for Thom Browne.

Maybe for full year 2022, we can assume maybe 5 to 6 stores open, if you can share with us how many stores for Thom Browne has already secured for 2023. .

Thank you, Chiara. We have Rodrigo on the line, who should take your question on Thom Browne, and then we will cover your other questions from Milan. Thank you.

Rodrigo?.

But maybe have Gianluca start to answer the question. I can go into details within the background, because I think we're going to the group overall. .

No, no. The question was on the Thom Browne rollout plan. .

Okay. The rollout plan for 2022 is confirmed. It's a total of 62 stores directly operated by the end of the year. 103, if you consider shop-in-shops, stores and franchises. On 2023, we continue in the past that we defined in May in the capital market.

So we're committed to that, and we're also committed to the conversion of some of our wholesale business potentially into Direct-to-Consumer business. So we remain confident.

We remain investing even though the situation is volatile as markets, but we have a business which is anchored on limited traffic, a very deep penetration of clienteling, and we are successfully working on the client value management program that starts to provide excellent results. .

In terms of how many stores are closed today in China, in China 6 stores are closed today. It's a picture that changes every day, but today it's related to Xi'an, Wuhan, and a couple of cities in the West. And well, Beijing is not closed technically, but you have a lot of controls and so some severe impact in terms of traffic.

This is not just today but in the last couple of... .

And the situation is very volatile, Chiara. And every week, you have to be ready to get different news. So we are there acting the best we can, but right now, this is the reality. It can change very fast, also [indiscernible] so, I think that we have to live in the week, if not the day. On retail productivity, good news.

We launched the plan in our capital day market by increasing our midterm productivity of 50%. And I think we are moving swiftly along the plan. And I think that our store people and our retail people around the world are taking it very seriously..

And with the remerchandising, with category management [indiscernible] and I would say also outreach, I think the outreach is gaining more and more traction around the world. You remember this is something we launched in America during COVID now we are solid 30% across the country and our aim there is to grow to 50% also pretty fast.

So I think it's one of the areas in which we are getting more satisfaction with the conversion rate and as the traffic remains solid. And so I think that this focus is probably one of the major productivity gains that we can look forward also in 2023. .

Let me add one thing in productivity, if you look at our Zegna DTC, store base has been pretty flat in the last quarters, around [indiscernible]. So all the growth is basically coming from productivity. Of course, behind productivity, there is a price increase, there is merchandising, sell-through.

There is some action that we have done by resizing some stores, all the levers that we have displayed in the Capital Markets, they are coming to life and the growth that we are enjoying in the [indiscernible] is basically corresponding to the growth of stock... .

And another, I mean, nobody asked about the pricing. I mean I think that in pricing, we've been right to be really in the high single-digit price increase, both in summer and both in fall of this year, and we had no price resistance.

And I think that we surely are going to go in the same direction regarding of the Forex next year, because we have to cover our costs and protect our margins. So I think it's important just to be courageous on that. And I think that the brand has enough to do on that. .

We have no further questions on the call, so I will hand back to the Zegna Group team to conclude. .

Thank you, Seb. Thank you, everyone, for participating to our third quarter revenue conference call. The next appointment is going to be on the 25th of January 2023 for our full year revenue. Thank you very much, and have a good rest of the day. Goodbye. .

This concludes today's conference call. Thank you all very much for joining, and you may now disconnect your lines..