Ermenegildo Zegna - H1 2023

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Zegna Group 2023 first half results conference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero, and finally, I would like to advise all participants this call is being recorded. Thank you. I'd now like to hand over to Francesca to start the conference. Francesca, over to you.

Francesca Di Pasquantonio (Investor Relations Director)

Hi. Good morning, everyone, and thank you for joining us as we discuss the Zegna Group's results for the first half of 2023. Today's presentation materials are available on our website. You can find the materials and the related press release under the Investors page of our group website. Joining us today are Chairman and CEO, Gildo Zegna, COO and CFO, Gianluca Tagliabue, and Rodrigo Bazan, CEO of Thom Browne. Before we begin, I need to point out that we may make certain forward-looking statements during the call. Our actual results may be materially different from those expressed or implied by the 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 this call will be governed by that language.

I am pleased to now hand the call over to Gildo Zegna.

Gildo Zegna (Chairman and CEO)

Thank you, Francesca, and welcome to everybody who's joining us today. As you saw from our revenue when we shared them back in July, the first half of this year showed that our brands continue to resonate strongly with customers worldwide. Today, we are excited to share further details from that period that shows that we are on the trajectory to meet our midterm financial targets, and that our strategy is working to get us there. The past year has been marked by a dynamic operating environment, which has made many of us around the world more cautious about our outlook on Mainland China. However, even amid those circumstances, our strategy and the trends we see across our business continue to be encouraging. We can be particularly proud of a number of milestones that we have achieved.

We are a stronger player today, and thanks to our strong management team, we have been sharpening our execution. Today, we also have a diversified portfolio of brands and activities and an increasingly more balanced geographical mix. The geographic diversity of our business across all our brands is one of the main reasons for the trends we are seeing. While the recovery in Mainland China may be milder than expected, our business in different markets remain very healthy. Europe, the Middle East, and the U.S. are particular areas of strength for us, both in the last six months, and we expect going forward. You're seeing the number of customers from different regions, including Middle Eastern, Latin Americans, and certain Southeast Asian nationalities doubling. American customers stayed very dynamic after more than doubling since 2021.

Operating in the ultra-luxury segment, our customers continue to demand the highest quality products, and Zegna, Thom Browne, and Tom Ford all offer the best quality across all categories and style we operate, and showing sign of resilience across the board. Zegna Made to Measure has now exceeded the 2019 levels, which were our previous peak, and after a few years consolidating its footprint and performing stores right sizing, the Zegna brand is now leveraging its new positioning by resuming a gradual expansion of its store network, with 7 new direct store in the first half of the year in the selected location, including Saks New York concession store in East Hampton, Kuwait, Copenhagen, Jinan, Fuzhou, and Hangzhou, China.

But the bulk of our growth comes from the substantial increase of our store productivity, and I'm very, very pleased to say that we are well, well ahead of the plans we share with you, which I will recall for you, were of a 50% increase by 2025 in store productivity. We keep animating the Zegna brand with new ideas and initiatives. Last week, we celebrated a partnership between Zegna and the L.A.-based The Elder Statesman, specialist in cashmere, as we created a one-of-a-kind, colorful, and playful cashmere collection with our yarn, largely inspired by our Zegna traceable cashmere, and a great example of how we are using Zegna cashmere beyond Zegna brand.

For Thom Browne, this year brings around the brand 20th anniversary, commemorated in a comprehensive monograph that celebrates the legacy of his incredible brand and the man behind it.

This year also saw Thom Browne's very first haute couture show in Paris, bringing Tom's vision and creativity to new heights. We are investing in the brand's awareness, but also in the expansion of the store footprint, taking advantage of the wide space available. Finally, our newest addition, Tom Ford Fashion. We have its debut collection of the new creative director, Peter Hawkings, shown at Milan Fashion Week, just over a week. A few days before that, Lelio Gavazza will join us, our CEO of Tom Ford Fashion, and we are very excited for the future of Tom Ford Fashion as part of the Zegna Group. In a moment, we will discuss the financial results for this half of the year.

But first, I would like to underscore that our results not only reflects all the achievement that I have just summarized, but also illustrate that we are investing for long-term, sustainable growth across our brands, through our marketing, as well as growing our network of directly operated stores. And I'm particularly proud of the significant increase recorded by the Zegna segment profitability, as the segment Adjusted EBIT margin rose by 310 basis points to 15.4%, reflecting the strength that I have just described, which led the group's Adjusted EBIT margin to enjoy a 200 basis point jump to 13.3%, even though we are investing for growth. Now, please turn to slide number 5 for key financial highlights.

During the first half of 2023, we saw a 23.9 year-over-year increase in revenue, reaching EUR 993 million of revenue. 21.5% of that year-over-year growth was organic. We also recorded strong profit in the first half of the year, reaching EUR 52.1 million, an increase of 147.9% year-over-year from EUR 21 million last year. Our profit margin also increased, reaching 5.8% in the first half of 2023, compared to 2.9% last year. Our Adjusted EBIT rose by 45% year-over-year for a total of EUR 119.9 million in the first half, and an Adjusted EBIT margin of 13.3%.

Finally, we are pleased to reaffirm our guidance and midterm targets as outlined during our first Capital Market Day on 17 May 2022 in Oasi Zegna. However, I'm very, very excited to invite you all at our next, CMD day, Capital Market Day, to be held on December 5 in none other than the New York Stock Exchange in Manhattan. This will be the opportunity for us to update you on our strategy and financial targets, and introduce you to our vision and expectation for Tom Ford Fashion. Now, let me turn to Zegna Group CFO and COO, Gianluca Tagliabue, to talk through the numbers from the last six months. Thank you.

Gianluca Tagliabue (CFO and COO)

Thank you, Gildo. I take it from page 7. We have seen 6 exciting months, and now we have so much more to look forward to. As Gildo mentioned earlier, the group saw a robust revenue growth over the past 6 months in both constant currency and organic growth, respectively at 24.7% and 21.5%. And remember what organic growth means, it means not just constant currency, but also means neutralizing the delta parameter from acquisitions, dispositions, or changes in the license agreement, which translated means neutralizing the effect of in and out of Tom Ford, which last year was in a license of distribution, and this year was fully consolidated from April the 28th.

So the Zegna segment saw 23.8% organic growth year-over-year, mainly due to market share gains we witnessed as a result of the execution of our Zegna One Brand strategy, while our Thom Browne segment grew 13.6, thanks to a combination of store expansion, positive comps. Both segments recorded a significant outperformance in the DTC channel, highlighting the strong customers' response to our products and collection. We also saw a positive impact on our revenues after the first consolidation of Tom Ford Fashion segment, which occurred on at the end of April, with EUR 64 million in two months and a few days. I remember that the deal was closed on April the 28th.

Flipping to page 8, I remember, as we anticipated, that since first half 2023, the format of the P&L has been changed from by nature to by function, which allows us to present and discuss, for example, the gross profit and also the, the marketing expenses. We are quite pleased to report the progress we have made in the profitability over the course of this year so far. We recorded a profit of EUR 52.1 million, with a great increase of 147.9% over last year. Our gross profit increased by 29.2% to EUR 579.8 million, and our gross margin came in at 64.2% for the first six months, compared to 61.6% over the same period of last year.

The improvement in our gross margin is a direct result of the group's strategy, including the strength of the DTC channel, which carries a higher margin compared to wholesale channel. Price repositioning, reduction of end-of-season sales as part of the Zegna One Brand elevated strategy, which started with the roll-out of fall/winter 22 collection prior year. The higher incidence of essential products, which carry a longer lifetime on the shelves, and so therefore, a lower burden of obsolescence, higher absorption of industrial fixed cost. All these elements drove the increase in gross profit as a percentage of revenues.

On the other end, we had a dilutive factor, as gross profit in the first half of 2023 reflects the first partial effect of the PPA, of the purchase price allocation of Tom Ford, which is quantified in the, our 6-K SEC filing in-...

EUR 3.6 million as a result of the step-up of the fair value of the acquired TFI inventory that was sold to us as subsequently to the acquisition. So this EUR 3.6 million, which more or less represents 40 basis points, is a dilutive effect on the gross profit. Flipping to page nine, the continued execution and success of our strategy is evident across all the profitability metrics. Our adjusted EBIT for the first half came in, as Gildo was saying, close to EUR 120 million, up 45% from last year. The adjusted EBIT margin grew from 11.3% last year to 13.3% in the first half of 2023, reflecting the success of the brand strategy.

The store productivity is the main factor, the leverage on cost, more offsetting the efforts and the investment to grow the business, namely an increase in the cost to expand the Thom Browne DTC network and the effects of integrating the Tom Ford fashion business. For which, by the way, we pay royalties, and we have the amortization of the license agreement, which in the first two months is charging to the P&L for an amount of EUR 500,000. Our SG&A expenses were up 24.9% over last year, driven by the consolidation of Tom Ford, driven by higher variable rents in our stores around the world, as well as higher personnel costs, as we continue to invest in expanding and strengthening the business.

Marketing expenses, which include both activities and personnel, were also up, growing 37.4%, in line with our strategy, which we shared at Capital Markets Day last year. We will continue to invest in marketing, and we expect a similar or higher spending incidence for Zegna and Tom Ford Fashion segments during the second half of 2023. After the step-up experienced last year, the corporate costs were stabilizing at EUR 15.6 million, which is 1.7% of revenues, compared to 2.3% last year. Despite these rising expenses, our profitability increased, cementing our faith in our trajectory and our strategy for the future. For second half, we need to be mindful of the timing profile of some of the costs, which we may be unevenly allocated to the different semesters.

For instance, as I pointed out, some marketing expenses might be presenting a similar or higher incidence on the second half. Now, let me share some details by segment. Flipping to page 12, starting with the Zegna segment. In the first half, Zegna segment recorded a 17.9% increase in revenues, coming at EUR 651 million. Adjusted EBIT for the period was up 47.8%, landing to EUR 100.5 million, while the adjusted EBIT margin increased from 12.3% to 15.4%. So as Giulio was mentioning before, a step up of 3 percentage points.

The overall profitability improvements reflects our pricing strategy, it reflects the, well ahead of the curve improvement on the DTC store productivity, which is a particular area of focus for us, and the fact that there is a positive scale on industrial fixed cost by the effect of the growth. These positive factors were partially offset by increased personnel costs and by our investment in advertising and marketing. This will remain an important area of investment for us for the rest of the year and in the future. Page 14. On Thom Browne, we recorded revenues of EUR 208 million, an increase of 11.9% compared to last year.

The minor decrease in adjusted EBIT, down EUR 0.1 million from last year to EUR 31.5 million, compared to EUR 31.6 million, was due to costs associated with the store network expansion, which we expected to see, and some strengthening of central costs in a phase of consolidation of the growth of Thom Browne. We have added 13 store openings in the 12 months ended June 2023, which resulted in increased personnel. Similar to Zegna, we're also investing in marketing and advertising for Thom Browne to raise-- with a focus to raise brand awareness, including the impressive debut of the haute couture collection in Paris earlier this year. Moving to page 16, Tom Ford Fashion, which was fully consolidated on a pro-rata temp basis, starting from the deal as of April the twenty-eighth.

In this two months and few days, we recorded EUR 64 million for the segment and an adjusted EBIT of EUR 3.7 million. The adjusted EBIT reflects EUR 4.4 million related to the preliminary purchase price allocation process resulting from the TFI acquisition. Also important to recall the profitability for TFF, TF Fashion discounts royalties, which we can indicate in the range of fair market value. Page 18, let's touch quickly on the balance sheet items. Our net financial indebtedness stood at EUR 17 million as of June, largely due to the cash flow outflow stemming from the Tom Ford Fashion acquisition. The outflows related to the buyback of Thom Browne Korea will affect the second half of the year. The acquisition was effective starting from July the 1st.

We also recorded 34.5 million in CapEx, mostly due to the store network expansion across both Zegna and Thom Browne brands, which represents 4% of revenues, and we expect slightly higher CapEx in the second half of this year. Zegna saw seven net store openings in the first half, including the ones that Gildo mentioned, New York, Saks Concession, Copenhagen, St. Moritz in Europe, and a few smaller stores in China. Thom Browne saw three net store openings in the same six months, such as Guangzhou and Nagoya. Some of the CapEx were also due to the Zegna store renewals and relocations, so not really openings, but we have renewed or relocated some stores like Beverly Hills, Rodeo Drive, Vienna in Austria, and Florence.

Trade working capital increased by EUR 148 million, of which EUR 86 million reflects the consolidation effect of Tom Ford trade working capital as of June 30, 2023. Net of the effect of Tom Ford Fashion addition, we point out to the inventory increase, and we call it as a healthy inventory increase because part, most part of the increase was a planned increase on the essential Zegna on-brand collection products, which are the ones that we aim to be never out of stock and where we see a good sales strong performance. So now flipping to page 20. Lastly, let's close 2021, 2022. I close with a brief overview of the outlook.

I remember that we set the guidance in May 2022, when we didn't have on the horizon Tom Ford, so that this guidance needs to be read as net of Tom Ford Fashion, and we indicated the EUR 2 billion and adjusted EBIT margin of 15% at least. By 2025, we anticipate that we continue on the trajectory to meet our medium-term target, and we will be more explicit on revised targets in December, in the coming Capital Markets Day. Now, back to Gildo to close.

Gildo Zegna (Chairman and CEO)

Yeah, thank you, Gianluca, for a very thorough explanation. And as you can see, I think it has been an impressive six months. Really, we are looking forward to the rest of the year on a continuous positive ground. Before we turn to Q&A, again, I want to flag that we'll be hosting our second-ever Capital Market Day on December fifth in New York of this year. And we really look forward to being back at the New York Stock Exchange for the first time since listing day, and to sharing more details about our medium and long-term target, which will be updated to include Tom Ford Fashion. So I hope to see you in good numbers then. Thank you.

Francesca Di Pasquantonio (Investor Relations Director)

Thank you very much, Gianluca and Gildo. We will now open up the call for any questions. I will, I would like to hand over to the operator to provide instructions and manage the Q&A session. Thank you very much.

Operator (participant)

Of course, Francesca, not a problem at all, and thank you all for the presentation. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad, and we'll pause it for just a moment just to make sure that we get everybody into the queue. Your first question comes from the line of Chris Huang from UBS. Your line is open.

Chris Huang (Equity Analyst)

Hello. Hi, good afternoon, and thank you for taking my questions. This is Chris Huang from UBS, and I have three questions, please. Firstly, can you comment on the growth by consumer nationality, excluding Tom Ford, and how the Q3 has so far evolved compared to Q1 and Q2? So mainly focusing on the Americans, the Europeans, and especially the Chinese, maybe on a two-year stack, which you kind of mentioned in the press release that the recovery seems to be a little bit more mild. So any quantification on that would be super, super helpful. My second question is on margins. It seems like there will be some phasing effect of margins in H2 versus H1.

You mentioned earlier that you expect a higher marketing spend for H2, but can you kind of quantify that a little bit, maybe more on how much percentage of sales for H2 should we expect versus the 5.3% in H1? And lastly, on Tom Ford, can you just comment on if the H1 profitability is a good representation for the full year? And maybe before your CMD in December, can you just share some first high-level thoughts on the brand's potential, if possible? Thank you very much.

Gianluca Tagliabue (CFO and COO)

I take it? Yeah.

Francesca Di Pasquantonio (Investor Relations Director)

You can start, and maybe Gildo will follow.

Gianluca Tagliabue (CFO and COO)

The growth by nationality... So we have seen, we have seen some nationalities extremely exploding for us. So if we look on a two-year stack, some nationalities like, Americans, like Middle Eastern, like Latin Americans, like Southeast Asia, we see ballpark doubling. So the tremendous success of the brand strategy across the board, and also Europeans, probably they didn't reach the, the, the, the doubling level, but had a significant step up. On the Chinese cluster, we are seeing a Chinese cluster, so wherever they spend, compared to 2021, we are seeing a flattish year-to-date situation, with a softer, softer, appetite on the, on the Q3 than the average of the year to date. And it's uneven, actually, because we are seeing, good, good traction in Hong Kong and Macau. We are seeing some rebound in Asia.

We are seeing within Mainland China some areas which are less affected, for instance, Shanghai, and we are seeing some others, namely tier two and three cities, which are more affected. So it's hard to draw a line, but to give you the helicopter view is year-to-date flattish to 2021. And in this last weeks some softer performance, Gildo probably has been in China more-

Gildo Zegna (Chairman and CEO)

Yeah

Gianluca Tagliabue (CFO and COO)

... than me recently, so he can add.

Gildo Zegna (Chairman and CEO)

I was in China two weeks ago, and actually, it was a quite apparent difference in mood between Hong Kong and the rest of China. So I can confirm that we are looking for sign of softness in mainland short-term, but with strong, strong comeback both in Hong Kong and Macau. And I can tell you by meeting several landlords we remain positive mid- to long-term on China, and we will continue our penetration. There are lots of new project, very, very exciting, not only for ZEGNA, for the three brands.

As a matter of fact, I did a trip with Lelio Gavazza our new Tom Ford CEO in preparing the ground for a stronger inroad of Tom Ford, as Rodrigo will tell you more of the several openings of Thom Browne in China. I think that it's important to stress this incredible resilience, superior than our expectation, in particular by the American customer, that probably our new strategy and the fact that we hit Wall Street at the right time, is proven to be correct. And we are becoming really very, very popular. We've had lots of new customer repeat buying.

We just had an incredible event in Los Angeles with The Elder Statesman cashmere, and very, very exciting in terms of innovation, in terms of welcoming new customers. So I think that I believe that this resilience of the American customer regardless of how the economy I think we stay and we remain positive on that. Without saying the Middle Eastern also, we are becoming more and more popular on there. That's why we are going strong also from way also to Saudi with new store opening again with more than just one brand. And so overall positive. Last, Europe.

Europe, I think that has been a very hot summer, not only for the climate, but also for the retail, and we are seeing good productivity gain. And I would say this, the fact that we anticipated our goal, I cannot be more specific, but I can tell you that it's, it's, it's really moving in quickly in that direction. Surely, the help of Europe was material. And plus, the fact that, Europe we are seeing new grounds for store opening. There are opportunities. So, if three years ago we would have said, "Okay, we are, our distribution in Europe is broad enough, we think that we can open more store over there." And, so overall, a positive thing. Last question on Tom Ford.

Unfortunately, we cannot be more specific than we have been so far. Just be patient and Leo is starting a couple of days before the show, and we will be talking surely a lot about Tom Ford brand and what we want to do and how far we want to go at Capital Markets Day. But you have to be patient, but I think we are on the right trajectory. We have prepared a strong team led by him, and you will see yourself the reaction of the glittering fashion show, the twenty-first of September in Milan. Thank you.

Gianluca Tagliabue (CFO and COO)

Gianluca, for the margin expenses question. Margin, as I said before, we have more weight of marketing activation on the second half, starting from the other statement last week, and now we have events also in Singapore and Chengdu. So to give you a sense, I believe that probably the increase in our marketing spending could be 0.5%, slightly more, and that reflects on the fact that all things being equal, you need to expect the second half to be at that overburden of 0.5% that is not being spent in the first half moving into the second half. For the rest, there is no major difference apart from the addition of Tom Ford for 6 months instead of 2 months.

Chris Huang (Equity Analyst)

Okay, thank you. That's super helpful. And just to follow up, if I may, can you maybe also a little bit quantify how the Europeans and American consumers have... If they accelerated or decelerated in Q3 so far? I appreciate that you commented that Americans versus 2021 has broadly doubled, so that is a very positive sign. But if we just kind of focus on the sequential trends, can you share more color on that? Thank you.

Gianluca Tagliabue (CFO and COO)

We are not seeing a change. We are seeing the steady performance. We have been seeing July and August, good, good demand from Americans, no different than the first half. We continue seeing the same interest for the brand from Europeans.

Gildo Zegna (Chairman and CEO)

Yeah.

Gianluca Tagliabue (CFO and COO)

So, we are seeing the same interest from Middle Eastern. So, we are not seeing a change, an inflection point on that sense.

Gildo Zegna (Chairman and CEO)

On the contrary, I think that if in August and July they were vacationing abroad, they spend a lot abroad. Now, they are back and start spending in the States. And I must say that one area that this applies is Made to Measure. Made to Measure, we are back to the peak of 2019, and in America, we are far more than that. And there are positive things, no price resistance whatsoever. If you offer them a top range, exclusive product as we do now we have all the odds with Zegna, the Elder Statesman, the Triple Stitch Collection, the Uber Luxury, no price resistance.

This is incredible, and it means that there is appreciation of what we do, and there is a lot of money to spend, and we have the right location. I must say that the staff, we have renewed the staff of our shop immensely, and the outreach their outreach is the highest that we reached in America, and they're doing a fantastic job to reach out the customer in the office and wherever they are around the world, at home, and they come back, and they come back. So I think that it's just... If you are able to stimulate with the energy, retailing the customer, they come back. And plus, the deepest issues in men's success we had some fantastic brands.

There was the Zegna article, was fantastic. Wait and see next one coming out. And I think that it's a word of mouth, and , it's new customer and loyal, the body come back and buy it. So it's... We have to make sure to continue this trend, but we remain very positive on that.

Chris Huang (Equity Analyst)

Okay, thank you, and looking forward to the CMD in December.

Francesca Di Pasquantonio (Investor Relations Director)

Thank you, Chris. Can we have the second question, please?

Operator (participant)

Yes, of course. Again, if you would like to join the queue, please press star one on your telephone keypad. Your next question comes from the line of Matthew Garland from Deutsche Bank. Your line is now open.

Matthew Garland (Equity Research Analyst)

Hi, thanks for taking my questions. I just had a couple. First, just in terms of, I guess, that medium-term guidance of at least 15% Adjusted EBIT, can you give any further details on, I guess, how much further upside than that sort of 15% that you're thinking, at this stage, just given where the profitability of the segments are for sort of 1H this year? In terms of my second question, and when you're thinking about the second half of the year, maybe if you can give some details on the first half of this year, how much has sort of absolute price increases or price mix sort of helped in terms of the growth contribution for the individual brands?

Then, my last question would just be around, I guess, the Real Madrid's partnership. I wonder if you can give any more details around maybe the opportunities that you see from, from the partnership in terms of accelerating sales, and when they, when they might come through. Thank you very much.

Gildo Zegna (Chairman and CEO)

Yeah. Let me start with the last one. I think the Real Madrid is one of the good example of how to expand the brand awareness and the interest on Zegna. Now, it's hard to how much sales incremented. We had a special capsule in the Made to Measure, so, fine I think we did what we had to do. But is the number of potential new customer reached, and the strength of that brand that we can capitalize together? So I can tell you that if I had to decide today, I would do it again, and we see part of this productivity gain in several stores around the world.

We do believe that this, the Real Madrid effect, is there. To give you quantitative numbers, we are working to have a number, but it's premature. But I can say—I can tell you that if we had to do it again, we would do it, and we are going to expand the way we can work together. And I think it's part... The Real Madrid is also part of our delighting, . I think that the Real Madrid is the history of soccer, and so I think that even if you're not a soccer fan, you're interested to watch one of their matches. So, being able to offer to our loyal customer this experience is quite unique, so it's working incredible tool.

As much as we have done with Elder Statesman and as much as we are using Zegna, Zegna is becoming not only an environmental project, it's becoming an incredible dream to discover by our aficionado. And we have started working on inviting our top customer to visit and to explore the beauty of that project, and we are seeing lots of interest. So it's part of the storytelling, and it's part of our delighting and creating experience around customer. And I think we see a good traction on that. On the price mix, you want to on the-

Gianluca Tagliabue (CFO and COO)

I think that the mix is an important component compared to last year. You remember last year, we still had Zegna; this year we don't. This year, we have allocated a big portion of our open-to-buy and assortment shown in the stores to the best elevated products, the 12 mil mil, the cashmere in pure traceable linen in summer. So the product has gone up, and that's been one of the driver of an average ticket, which has moved solid double-digit up. Definitely, there is also a component of like-for-like price increases, which covers for the cost increase. Looking forward, we still see price increases, as we have just defined and launched the fall/winter 2023, with a mid- to high single-digit price increase, and we have made the sales campaign of spring 2024 with a further step up.

So we see both the opportunity for some price adjustments on one side, as well as elevating more and more the quality and the level of our assortment. On the other side, a last element of the price mix that helped last year for winter 2022, we still had the last spring 2022, we had the last bargain season campaign. This year, we don't. So all the levers are helping us to elevate the average ticket.

Since we believe looking forward, we still have opportunities, the one opportunity where all the team is focusing is, at this point, the unit per transaction, which for us is still an area where, through training, through styling, through the ZEGNA X Configurator, we are pointing a lot of our attention, managerial, retail attention, to elevating the units per transaction, to take full advantage of our complete assortment.

Francesca Di Pasquantonio (Investor Relations Director)

The first question was on the margin and whether we see upside to our own 15%.

Gianluca Tagliabue (CFO and COO)

I think we are 45 days in advance to the answer because we will have the answer on, on the Capital Markets Day. I think we are, we are happy with the trajectory we are seeing now. So that is, that is the only answer I can give you now, and, and I think during the Capital Markets Day, early December, we'll be more specific. Otherwise, we anticipate some answers. Sorry, Matt.

Matthew Garland (Equity Research Analyst)

Okay, great. That's all right. Thank you very much for answering my questions.

Francesca Di Pasquantonio (Investor Relations Director)

Thank you, Matt.

Operator (participant)

Our next question comes from Daria Nasledysheva from Bank of America. Your line is now open.

Daria Nasledysheva (Equity Research VP)

Hi, everyone. Thank you for taking my questions. This is Daria from Bank of America. I wanted to follow up on your comments around some softening that you're seeing in China. Do you think part of it can be attributed to more Chinese spending elsewhere, rather than in greater China? Or is the commentary also true for the whole Chinese cluster, that it continues to slow on a two-year stack? Would just be interesting to hear some color on this. And also just wanted to confirm, in terms of marketing expenses, how does it vary between brands within your portfolio? And for the coming months, where you're expecting to see increased incidents of marketing costs, where will you be making the biggest push from this perspective? Thank you.

Gildo Zegna (Chairman and CEO)

Yeah. Let me start with the second one. Let's leave a second Tom Ford aside, because we will talk that later on in the year. But on the other two, surely, this year has been a year in which we decided to go to spend more marketing money, because we had lots of things to say. Rodrigo can pick on the Thom Browne, because it's a 20th anniversary year, and he can speak on that. I'll pick on Zegna, and I do believe that part of the result we see, in particular in Europe and in America, is because we have increased our marketing budget, spend it with granular insights, focused on our customer, knowing the data. And I think that...

These few examples that I did with The Elder Statesman and also Zegna, I mean, I think it's a good example of a store event focused on the high end with color with fun where you can reach out to many new customers that maybe they will not buy that much at the beginning, but they will come back, and they will see a new traction by the Zegna brand. So, I would say that the answer is positive. Rodrigo, you want to pick up on Thom Browne marketing expenses? Because I think that it was a big driver.

Rodrigo Bazan (CEO)

Yes, Gildo, with pleasure. For us, we are noticing a significant increase in brand awareness. North America is clearly one of the markets, and we continue to invest marketing dollars in our key markets, which are North America, Europe, China, Japan, and Korea. We are about to embark on a twentieth anniversary. It's a global set of events, London, Tokyo, Seoul, Shanghai, and New York. And those events are not only from a branding point of view and PR, but also from a client focus point of view. We have had a really successful couture show and also couture appointments in the showroom in Paris in July, and we noticed how engaged the client is when you make these incredible and very personal exclusive events for clients, and you show them the whole rest of the brand.

It's both very focused when it gets to very elevated clients, but at the same time, marketing to expand the brand to a larger audience around the globe. We are committed on that, and we've been investing significant marketing dollars with the support of the board for the last three years.

Gildo Zegna (Chairman and CEO)

Yeah. Let me pick again on the softness in China. As Gianluca has said, and I repeat it, yes, there is some sign of softness in Mainland China. I would say surely in this quarter, because the first six months have been quite strong. However, we see a strong comeback in Hong Kong and Macau. So, I think the two phenomenon have to be highlighted. And on top of that, yes, we have seen a good flux of Chinese buying outside China, in particular in Asia. We have not seen many Chinese back, I would say, in Europe and surely not in the United States. , how long will this continue?

It's hard to tell, but as I said, we remain positive on the midterm comeback of the entire region. As a matter of fact, I'm leaving today for Southeast Asia, and that's another area that we are following up with a lot of great attention. I must say that even Southeast Asia had a good go this first part of the year, and we surely want to become stronger in that part of the world, since we have not penetrated yet the market as we could. So...

Gianluca Tagliabue (CFO and COO)

I just add to remind everybody, last year, Q3 was a fairly normal period. Q4, looking ahead, was a quarter last year for us, very much affected by closings of stores. We had in the range of double-digit days of closing. So looking ahead, we are seeing an easier comparison, and as Gildo was mentioning, it's mainland China, the areas of softness. By the way, not across the board. In some cities more, some cities less, and we are seeing, on the opposite, we are seeing good results beyond Hong Kong, Macau, but also in the rest of Asia. If we need to point a number out of the rest of Asia, we are still seeing Chinese 50% than the volumes we used to see in 2019 before COVID.

That is more market indication. We are not yet at the levels of 2019, while we are very close to the level of 2019 in Asia.

Daria Nasledysheva (Equity Research VP)

Thank you very much. Can I just confirm, you're saying Chinese 50% of volumes of 2019, that is just volumes to the overall-

Gianluca Tagliabue (CFO and COO)

Yeah

Daria Nasledysheva (Equity Research VP)

... Chinese cluster?

Gianluca Tagliabue (CFO and COO)

Chinese purchasing in Europe compared-

Daria Nasledysheva (Equity Research VP)

Oh, okay.

Gianluca Tagliabue (CFO and COO)

In 2019. Compared to Chinese purchasing Europe this year, we are not-

Daria Nasledysheva (Equity Research VP)

Okay

Gianluca Tagliabue (CFO and COO)

... yet to the level of 19.

Daria Nasledysheva (Equity Research VP)

Perfect.

Gianluca Tagliabue (CFO and COO)

Just Chinese-

Daria Nasledysheva (Equity Research VP)

Thank you very much.

Gianluca Tagliabue (CFO and COO)

... purchasing in Europe, not, just to be sure that it's not misunderstood, I'm not saying Chinese overall. Chinese overall are flat, and-

Daria Nasledysheva (Equity Research VP)

Mm-hmm

Gianluca Tagliabue (CFO and COO)

... means that, so only we are not seeing yet the demand of Chinese in Europe as it used to be before COVID.

Francesca Di Pasquantonio (Investor Relations Director)

Which is, in line with-

Gianluca Tagliabue (CFO and COO)

By the way, for our brand, it's not so... As you might see for other brands, it's not so huge, so it's...

Daria Nasledysheva (Equity Research VP)

Okay

Gianluca Tagliabue (CFO and COO)

... partial.

Francesca Di Pasquantonio (Investor Relations Director)

Which is in line with the Global Blue data, by the way.

Gianluca Tagliabue (CFO and COO)

It's very much in line with the trade, the data that you see from Global Blue or travel retail. So we are not seeing Chinese yet, the levels of 2019 in Europe.

Daria Nasledysheva (Equity Research VP)

Thank you. And is it volumes or value?

Gianluca Tagliabue (CFO and COO)

Uh, both.

Daria Nasledysheva (Equity Research VP)

50%. Both? Okay.

Gianluca Tagliabue (CFO and COO)

Both. Both. We are seeing value, so it's-

Gildo Zegna (Chairman and CEO)

Value.

Gianluca Tagliabue (CFO and COO)

Value. I'm counting revenues. Revenues.

Gildo Zegna (Chairman and CEO)

Revenue.

Daria Nasledysheva (Equity Research VP)

Thank you.

Gildo Zegna (Chairman and CEO)

You're welcome.

Rodrigo Bazan (CEO)

That brings us to the end of the Q&A session. I'd like to hand over to the team for any closing remarks they would like to make.

Francesca Di Pasquantonio (Investor Relations Director)

Thank you very much, everyone, for joining us today. We will be back on the 23 October with our Q3 revenues. See you then, and hopefully, see you in New York on the 5 December. Goodbye.

Rodrigo Bazan (CEO)

This concludes today's conference call. You may now disconnect your lines. Thank you for joining us today.