Ermenegildo Zegna - Q3 2023 TU
October 24, 2023
Transcript
Operator (participant)
Hello, and thank you for your patience. Today's Ermenegildo Zegna Group Q3 2023 Revenues Call will begin in just a few moments' time. Today's call will be hosted by Francesca Di Pasquantonio, Director of Investor Relations, and if you would like to ask a question, please do press star followed by one on your telephone keypad. Once again, today's call will begin in just a few moments' time, and thank you for your patience. Hello, and welcome to today's Ermenegildo Zegna Group Q3 2023 Revenues Call. My name is Bailey, and I'll be the moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad.
I'd now like to turn the call over to our host, Francesca Di Pasquantonio, Director of Investor Relations. Please go ahead.
Francesca Di Pasquantonio (Director of Investor Relations)
Hello, everyone, and thank you for joining us as we discuss Zegna Group results, revenues for the third quarter and first nine months of 2023. I am Francesca Di Pasquantonio, Director of Investor Relations at Zegna, and I will kick us off today. Please note that today's presentation materials are available on our website, together with the press release. Today, joining the call are the group Chairman and CEO, Gildo Zegna, the COO and CFO, Gianluca Tagliabue, and for the Q&A, we will also have 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 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 two of today's presentation, and of course, this call will be governed by that language. I am pleased to now hand the call over to Gildo Zegna.
Ermenegildo Zegna (Chairman and CEO)
Thank you, Francesca, and welcome to everyone who is joining us today. Before we start, let me say that we are deeply troubled by the tragic events in the Middle East, and our thoughts go to all the people whose lives have been affected during these difficult times, and we do hope that peace will be restored in the region as soon as possible. On the number that we have published, I'm very proud of the execution of our brand transformation so far, and I'm pleased to share that we recorded another strong quarter, continuing the successful performance we have been experiencing since the beginning of the year as we continue to execute the group strategy. In fact, our growth has been strong for several years now, with a two-year compound growth rate of close to 25%.
We are a stronger player today, and thanks to our strong management team, we have been further sharpening our execution. We have a diversified portfolio of brands and activities and an increasingly more balanced geographic mix. Our brands' resonance with customers around the world, supported by our sophisticated clienteling and CRM capabilities, is also driving market share gains, and we are particularly proud of the progress that Zegna has made since the rebranding. Our exposure to womenswear, initially through Thom Browne and now also with Tom Ford, is also contributing to these gains. The geographic diversity of our business is one of the main reasons for the positive results we are seeing. Our business across different markets remains very healthy, and it is clear results of where our focus has been. Europe, Middle East, and the U.S. continue to be particular areas of strength for us.
Importantly, our engagement with customers from these regions remains dynamic, and Americas, in particular, are seeing strong trends after more than doubling since 2021. We are now in full rollout mode also in China, which remains a key growth market for the luxury industry. After two years during which we could not visit and therefore could not follow and support the rebrand transformation and innovation efforts over the quarter, I've finally been able to travel with the team three times this year to China. Training, events, store relocation, and revamping are a key focus for all our brands and much like we have been doing in the U.S. and Europe over the past couple of years. This is why we remain confident that China remains such a big opportunity for us with the three brands, Zegna, Thom Browne, and Tom Ford.
The Zegna brand is also leveraging its new positioning by resuming a gradual expansion of its store network. With 12 new store openings in the first 9 months of the year in selected locations, including Saks Fifth Avenue in New York, stores in St. Moritz, Southampton, Kuwait City, Copenhagen, Porto, and a few Chinese second-tier cities. But the majority of our growth is coming from the ongoing and substantial improvement in our store productivity, as we are well ahead of the plan shared previously, in which we targeted a productivity increase of 50% by 2025 versus 2021. Beyond Zegna, we see good expansion opportunities with Thom Browne and the absorption of the Korea business into the group. Added 17 Thom Browne points of sale, also strengthening control of the brand, plus several openings also in China.
And of course, the integration of Tom Ford Fashion, the arrival of CEO Lelio Gavazza, and the success of the debut show by Peter Hawkings at the Milan Fashion Week in September, show exactly why this iconic brand is perfect fit for our group. We are aware of the challenges facing our operating environment around the world for next year, but we are stronger player today, as the new setup of the group makes us more resilient in terms of brands and geographies, and generates meaningful market opportunities. We do see valuable tailwinds. The full rollout of the Zegna rebranding in China, the expansion opportunities for Thom Browne, and the integration and evolution of Tom Ford Fashion, all supported by our Made in Italy manufacturing platform, which remains a key competitive advantage.
We will remain flexible and vigilant, with an eye on cost control and cash protection, but at the same time, we will continue to invest in the desirability of our brand power by our marketing, as well as strengthening our network of operate the stores for our sustainable long-term growth. Now, please do turn to page 4, in which we have some highlights of the past quarter and going forward to next year. I must say that, for the past quarter, it has been a very busy time for all three brands. An important event was taking control of the South Korea retail distribution by Thom Browne this year. But also in Korea, just today, we announced the agreement to take over the distribution of Zegna. That shows how much we believe in this part of the world: South Korea, Japan, China, and Southeast Asia.
This project that will add 15 Zegna stores in Korea to our direct-to-consumer portfolio, since we operate in Korea in 1997, and we believe that this market will boost the strategy of the Zegna One Brand, as it has happened in the rest of the world. We also launched a few commercial partnerships worth mentioning. The first is a collaboration with the Los Angeles-based The Elder Statesman, which showed the cashmere collection enhancement, resulted by the collaboration of our creative director, Alessandro Sartori, with Greg Chait, that is the founder and creator of The Elder Statesman. And I think it's another example of the creativity behind Zegna, in our uncompromising attention to quality and the focus in sustainability, since also, Zegna Cashmere, that has been used also in this project, is full traceable.
We also renewed our partnership as official luxury travel wear partner for Real Madrid, bringing these two iconic brands together. And we are very happy to continue dressing the world's best athletes who compete on Real Madrid soccer and basketball teams. And the amplification that Zegna gets from this partnership is quite remarkable, as we can leverage Real Madrid huge fan base of over 150 million followers on Instagram alone. The past quarter also brought a significant milestone for Thom Browne, which celebrates his 20th anniversary. To commemorate this great accomplishment, the brand also published a monograph celebrating Thom's legacy and his contribution to the fashion world.
As a matter of fact, Thom and Rodrigo and the whole team have been traveling extensively for the past few weeks across the globe, London, Tokyo, Seoul, Shanghai, in order to sign copies of the book and meet customers and promote this fantastic brand. Finally, this quarter witnesses the next step in the evolution of Tom Ford Fashion, and the brand beginning as part of the Zegna Group. Peter Hawkings debut at Milan Fashion Week was widely celebrated by the industry, and we are very excited to work with Peter and the new CEO, Lelio Gavazza, to build on the legacy of this great fashion house. Now, please do turn to page 5 for some figures. We show that the strength of our brand is evident on the runway, in the stores, and in numbers.
Our revenue for the third quarter of 2023 came in at EUR 131 million, 20.8% increase from the third quarter of 2022, or a 25% increase in constant currency. 11.3% of that growth was organic. This brought our total revenue for the first nine months of the year to EUR 1.3 billion, an almost 23% increase for the same period last year, almost 20% in constant currency, and 19.2% on organic growth. Our revenue for this quarter confirmed that we are in line with the medium-term financial trajectory we laid out, and we are reaffirming our guidance that by the end of fiscal 2025, we expect annual revenue to exceed EUR 2 billion and our adjusted EBIT margin to reach at least 15%, excluding the Tom Ford Fashion business.
Which is why on December 5th, we will be holding a Capital Markets Day at the New York Stock Exchange to share our group strategy and our updated medium- and long-term financial goals, which will factor in the integration of Tom Ford Fashion into the group. Now let me turn to Gianluca Tagliabue, our CFO, who will talk in detail about our revenue.
Gianluca Tagliabue (CFO and COO)
Thank you, Gildo. Good afternoon. I take it from slide 6. Today, I will be discussing our revenues both for the third quarter and for the 9 months year-to-date. As you remember, in July, with the first half revenues, we introduced organic growth as a key new metric. We would like to focus in the narrative, mostly on organic growth metric, as it helps us looking at the true underlying business trends, since it neutralizes not only the input from effects in a constant currency logic, but also neutralizes the change in scope, which for us means 2 things. First, the change related to Tom Ford, which last year was a third-party client within the Zegna segment, while this year gets consolidated line by line since the end of April.
Second aspect, the change related to the internalization of the South Korean business for Thom Browne as of July the first. So far, in the first nine months of the year, our revenue, as Gildo was mentioning, have reached EUR 1.334 billion, up 19.2% year-to-date organic growth, driven by a solid high double-digit growth both for Zegna and Thom Browne segments. Our revenues for the quarter reached EUR 431 million, with continued growth for both Zegna and Thom Browne. Growth in the third quarter was led primarily by the strength of the Zegna branded products, especially in the DTC channel. The third quarter witnessed a material negative effect on revenue from currency, which is in the range of 4 percentage points after a partial positive mitigation offered by our currency hedging policy.
Revenue for Zegna segment reached EUR 298 million for the quarter, 3% increase over the same period of last year on a reported basis, and 12.7% organic growth. On the organic metric, the effect of Tom Ford, which was a third-party license last year, gets neutralized. Thom Browne segment revenues reached EUR 74 million, 6.3% increase year-over-year, and 8.5% organic. Tom Ford Fashion revenues landed at EUR 75 million for the quarter. Moving to page 8, I give you a glimpse of each segment, before entering into the different breakdowns of revenues. The Zegna segment includes, remember, Zegna brand, the third-party brand products, and the textile business.
The 12.7% year-over-year organic growth for the quarter and 20% organic growth for the first nine months for the Zegna segment reflect a very strong performance for the Zegna brand product, especially through the retail channel. The segment saw also a positive contribution for textiles, and it was, as described before, negatively reflected by the end of the Tom Ford Menswear distribution license, which ended with the Fall/Winter 2022 and affected the segment in terms of reported revenues, not in terms of organic growth. The organic growth of Thom Browne was 85% year-over-year for the quarter and 15.7% for the nine months, reflected a good performance for the brand across both DTC and wholesale.
I remind that at the reported and also at constant currency level, the revenues of Thom Browne include the internalization of the Thom Browne business in Korea starting from July 1, with revenue shifting from wholesale to the DTC. Finally, the new Tom Ford Fashion segment saw revenues at EUR 75 million in the quarter and under EUR 39 million year-to-date, starting from April 28. Moving to page 10, we can see our geography breakdown. As you heard from Gildo at the top of the call, our geographic mix, we believe, is one of our strengths, as we are happy to see that the strategic focus on Americas and Europe is producing good strides. US now represents almost 20% of our revenues, North America, 21%, up four percentage points versus pre-COVID, and EMEA is at 36%, compared to 32%-33% in 2019.
In the third quarter, revenues from EMEA came in at EUR 162 million, growing 27% from last year, 18% at organic level. The Emirates, United Arab Emirates, continues to outperform, growing 33%, on a reported basis, and 21% organically. North America came in at EUR 111 million, 44% increase over last year, 12.3% organic in the quarter, with the US being the vast majority of the region, growing 50% on a reported basis and almost 40% growth. Overall, looking at the first 9 months of this year, all geographies were up by solid double digits, showing that the business continues to perform well around the world, proving exceptional resilience to regional economic softness. Page 11. Next, you see page 12, sorry. Next, you see the breakdown of revenues by product line.
In the first 9 months of 2023, Zegna-branded products contributed 59% of group revenues, for a total of EUR 784 million, showing 20.6% increase over the same 9 months of last year. Organic growth for Zegna-branded products was 22.9% in the first 9 months. For the quarter, revenues for the Zegna brand came in at EUR 240 million, 42.8% increase over the third quarter of last year, 12.2% in constant currency. Shoes continued to overperform and now make up around 15% of the brand's revenues. Luxury leisurewear and made-to-measure also continued to perform very well. Thom Browne made up 21% of group revenues in the first 9 months of the year, contributing EUR 280 million, 10% increase over the same period of last year.
For the third quarter, Thom Browne revenues came in at EUR 73 million, with an 8% organic growth. Women continued to show impressive growth at Thom Browne, making up close to 30% of the brand's revenues. As we said, Tom Ford contributed EUR 139 million, which is 10% of the group revenues over the first nine months of the year, knowing that it started to be consolidated only at the end of April. The textile products, which means 8% of the group revenues, are EUR 109 million, with a 9.4% increase over the same period over the same nine months of last year, and in the third quarter, there was a very solid 17% compared to last year.
The textile business continued to show strength, with Lanificio Zegna, Maglificio Zegna, and Tessitura Ubertino outperforming, and all business units contributing positively. Finally, third-party products were down 86% in the third quarter on a reported basis, due to the change in scope, driven by the end of Tom Ford Menswear distribution after Fall/Winter 2022. Now moving to page 14, breakdown by channel. Here, there is a snapshot on direct-to-consumer channel, which contributes, at this point, 65% of the group revenues, compared to 59% in the first nine months of last year. And this is a witness of our increased control of distribution, as well as on our strong improvement in retail productivity.
DTC revenues in the third quarter came in at EUR 282 million, 29.9% increase over last year, with a 12.9% in organic growth over last year, third quarter. For the nine months, revenue from DTC came in at EUR 865 million, with a very solid 34% increase and a very solid, again, 24.6% year-to-date organic growth. Zegna DTC revenues in the third quarter came in at EUR 195 million, thanks to the brand performance, outstanding in U.S., Europe, and Middle East. And in the first nine months of the year, the Zegna DTC revenue came in at EUR 661 million, up almost 22% over last year, with a brilliant 25% year-to-date organic growth, driven by store productivity, healthy retail KPIs, higher traffic, higher average price per unit compared to last year.
In the third quarter, Thom Browne DTC revenues came in at EUR 43 million, up 18.6% over last year, including the conversion of the 17 stores in Korea. In the first nine months, Thom Browne DTC revenues came in at EUR 126 million, up 23% over last year. The addition of Tom Ford Fashion DTC contributed to EUR 78 million for the period between end of April to end of September. Turning to page 15, to the wholesale channel, we can appreciate high single-digit organic growth in the third quarter and also in the first nine months of the year. The revenues in the nine months were EUR 466 million, with 9.9% organic growth, and in the third quarter, wholesale revenues came in at EUR 148 million, with an 8.1% organic growth.
I would skip all the details by brand in order to save time. Page 16 is snapshots on the store network. We see at this point, a Zegna network of 251 directly operated stores. As Gildo was mentioning, this is 12 stores up compared to the end of 2022. This is a change in pattern compared to the flat level, around 240 in the recent periods. We are seeing the first increase of the network of the Zegna DTC. The brand has now, Zegna, 154 mono-brand wholesale locations, down two doors since the end of 2022.
Thom Browne instead saw the incorporation of 17 stores from wholesale to direct, direct consumer from South Korea, bringing the total DTC DOS to 84, and the acquisition of Tom Ford Fashion added 121 mono-brand stores, of which 51 DOS and 70 wholesale mono-brand locations. Going to my last page, page 18, for the outlook, as Gildo was mentioning, we are confirming the outlook that we shared last year on the Capital Markets Day, knowing that there will be a refresh in one month time, beginning of December. I would like to take also the opportunity to remind you, in terms of outlook short term, of a technical accounting factor affecting our 2023 profitability, affecting also the adjusted EBIT metric, which relates to the impact of the purchase price allocation, or PPA, on our adjusted EBIT.
As we have already shared in earlier calls, but I pointed this out because it can be tricky, and then Francesca and myself can be also available for deep dives. We have two effects from the PPA arising from the Tom Ford deal. One is the annual ongoing amortization coming from the amortization of the right of use of the license agreement for 30 years, which, as we disclosed during the first half financial, means EUR 3 million a year of amortization. Of course, this year, this will be prorated over 8 months and not 12 months. The other impact is a one-off, non-recurring charge, which affects Adjusted EBIT, stemming from the allocation of part of the price on inventory and on the order portfolio for Winter 2023, which will negatively affect costs in 2023, and to a lower extent, also the first half of 2024.
The combined negative effect on the Adjusted EBIT in the first half of 2023, which means actually two months, end of April, end of June, was disclosed in our first half financials into an amount of EUR 4.4 million, of which EUR 0.5 million related to the prorated ongoing amortization of the license and around EUR 4 million as a one-off impact on costs deriving from the PPA on inventory and order portfolio. I invite you to use this EUR 4.5 million, EUR 4.4 million amount as a semi-linear guide to calculate the impact of PPA on 2023 P&L, which means that on a full year basis, you can expect an impact from PPA in the mid-high teens million Euro range, most of which is one-off, and as I repeat, will not be treated as... cannot be treated as an adjustment.
Available, Francesca and myself, as I declared, for clarifying this topic offline if needed. I, at this point, turn back to Gildo.
Ermenegildo Zegna (Chairman and CEO)
Yeah, thank you, please turn to slide 19. And, I think that so far, we can say that we had a very good year. I do believe the addition of Tom Ford Fashion was a big step for the group, and this meant that we need to look at our financial goals with a new lens as a group consisting of three iconic brands, not two. And in addition to our great Made in Italy luxury textile platform, that remains a very important support for all three brands. It is why on December fifth, we will be welcoming our investors, and many of you, I hope, and analysts to the New York Stock Exchange for our second-ever Capital Markets Day.
At that time, we will share our updated financial goals, including the Tom Ford Fashion business, and Lelio Gavazza, new CEO, will be with us, and you will get to hear from our leadership team about the group strategy and plans for the future. Thank you.
Francesca Di Pasquantonio (Director of Investor Relations)
Thank you, Luca. Thank you, Gildo. We now open the call up for questions, please.
Operator (participant)
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. Our first question today comes from the line of Susy Tibaldi from UBS. Please go ahead, Susy, your line is now open.
Susy Tibaldi (Director of European Luxury and Sporting Goods Equity Research)
Thank you, and good morning. Good afternoon. Thanks for taking my question. The first one on China, and the Chinese cluster overall, I remember at H1, you said on a two-year stack, the Chinese were more or less flattish. Can you comment what was the trend in Q3? And given that, the growth has been a bit, weaker with the Chinese compared to some of the peers, could you elaborate a bit, what you think is the issue, if it's really more macro driven, or you feel like maybe the rebranding is not resonating as well as in the West? Perhaps given your long view in China, if the brand is not yet perceived as high-end as it is in Europe or in London or in the U.S.
Then my other question, still linked to this, the fact that Asia is underperforming the rest of the group, does it have a negative implication for margins? Because I think in the past, you mentioned that China as a region is more profitable. So I don't know if now this has changed, given that your sales densities in other markets must have gone up so much over the past years. Thank you.
Ermenegildo Zegna (Chairman and CEO)
Thank you for the interesting question, which I think that the first part I partially answered in my script, but I will go over again. I think that there is some slowdown in China this quarter, but I think that I do believe that overall business continues to perform well, because I think that with the 20% organic growth over the past nine months, I do believe that we can be positive for the rest of the year and for the coming year, 2024. That said, I've been three times to China this year, and unfortunately, you know, I could not go before.
So I would say that the rebranding is a little bit behind as compared to other important geographies, in particular Europe and the United States. And also, I must say that there has been an impact by the Z Zegna conversion that, as you recall, was represented in, you know, quite interesting part of the total sales by 2021. So I think that we are well ahead of our journey that has not completed, and so there is some work in progress to do, but we remain extremely confident with our team that the transformation will come through pretty soon.
And, as I said, we are implementing all sort of means to make it happen, like training to the staff, like organizing events, like relocation and revamping, and exactly what we have been doing in United States and in Europe. So I think that we see with a positive angle overall, regardless of what will happen for next year, but overall, we remain strongly positive on China, which is a very important market and which we will continue to invest, not only with Zegna, but also with Thom Browne and Tom Ford. On the margin side, I think Gianluca will answer you.
Gianluca Tagliabue (CFO and COO)
Hi, Susy. So, no, we are not concerned about dilution by growing on the rest of the business. What happened, actually, we have been raising prices more on the western side of the world in order to move towards a global pricing logic that we are happy with. So if we take, for instance, our iconic Triple Stitch sneaker, now we are at the index price around EUR 120, and typically, we were enjoying a different, much higher price range in China. So we have been rebalancing prices, raising prices in Europe and U.S., and therefore the effect of diluting of moving a lot business westwards, we are not concerned because we have taken a move towards a more global pricing logic. I think that we are ready for a balanced, at this point, geographic mix.
Susy Tibaldi (Director of European Luxury and Sporting Goods Equity Research)
Okay, thank you. Are you able to say what the Chinese cluster was doing in Q3?
Gianluca Tagliabue (CFO and COO)
I reiterate what I said, I reiterate what I said in July. So we are flattish to 2021, and I reinforce what Gildo mentioning, that 2021, there was a very strong Z Zegna business. So being flat, it's, of course, it's the outcome of a reshuffle of moving out from the brand Z Zegna business and bringing in higher price point, more affluent business. So the Z Zegna incidence was much higher in Greater China than anywhere else, not only because we had a few, five, six... mono brand Zegna, but because the incidence of some product lines of Zegna, like Techmerino, was much bigger.
So when you look at Q4 2021, it's a transformation, which, as Gildo mentioned before, we see it as a, as an untapped opportunity because we started moving out the Zegna business accessible price point to a real luxury. And as Gildo was mentioning before, now we have lots of levers still to exploit in China, which we were a bit ahead in the Western world, also because of, of capacity of traveling. So we are, at this point, in terms of merchandising, in terms of marketing events, CRM activities, reshuffle of stores. So we are, at this point, ready to make the 360-degree transformation in China, which occurred a few quarters ahead in U.S. and EMEA. That's why we see China as a big opportunity looking forward, because we are in the middle of the transformation there.
Ermenegildo Zegna (Chairman and CEO)
Let me add one thing, Susie. We have seen an increase of Chinese buying in Asia recently. I would just add, I'm just back from Japan and Korea, and particularly in Japan. Part of the increase in Japan is thanks to Chinese shopping, high-end Zegna brand, in particular in our Ginza and Osaka shop. Not to mention the super high double-digit increase in Hong Kong. You know, we cannot give you the specific on the number, but we surely are very happy on Hong Kong bouncing back and also Macau. So I think that these are some good trajectory, and we do believe that by taking over the distribution on Korea, both Thom Brown and of Zegna, I think this trajectory will also be manifested in Korea for 2024.
Overall, we do believe that the Chinese will keep shopping in mainland China and probably not so much the rest of the world.
Gianluca Tagliabue (CFO and COO)
So just to make a final point, to be explicit on your question, do we believe that the brand transformation is not happening in China? The answer is no. The answer, we are confident that transformation is happening and is going to deploy the results that we have seen elsewhere. In China, with Chinese, as everywhere. So the answer is a strong no to your question, if we are not happy with our trajectory in China and with Chinese.
Susy Tibaldi (Director of European Luxury and Sporting Goods Equity Research)
Okay, that's very clear. Just one last follow-up on this topic--
Francesca Di Pasquantonio (Director of Investor Relations)
We need to leave the space to others, but, you know, if you have a quick one, go ahead then. Go ahead. Hello, Susie? Okay, operator, I think I cannot... Operator?
Operator (participant)
I'll move on to the next question. The next question today comes from the line of Matthew Garland from Deutsche Bank. Please go ahead, Matthew. Your line is now open.
Matthew Garland (Equity Research Analyst on Luxury Goods and European Consumer Companies)
I thank you for taking my questions. I just had a quick question around, again, the China cluster. I think from memory in September, you were saying the cluster in total had turned negative. When I look at, obviously, 3Q growth for China, for the Greater China region, it looks more like, I guess, high single digit. I just wanted to clarify, was my understanding that the cluster had gone into negative growth in 3Q incorrect, or was there a benefit to regions outside of China?
Gianluca Tagliabue (CFO and COO)
Matt, hi, Gianluca. No, we didn't say that the cluster went negative. We said that the cluster in the first half was flat to 2021, and we confirmed the same trajectory also for Q3. That is what we said. First half, we never said that the cluster was negative. We said it was flat 2021, and it's flat also in Q3.
Matthew Garland (Equity Research Analyst on Luxury Goods and European Consumer Companies)
Okay, fine. And then in--
Gianluca Tagliabue (CFO and COO)
Make a further step, which I think I anticipate the question by you or by others. On the current trading, we are not seeing any major swings in nationality, and we are seeing still a solid double-digit growth for both Zegna DTC and solid, solid double-digit growth for Thom Browne DTC. So the same solid trajectory we're, we're start-- we are seeing also in this three weeks, beginning Q4. No changes in terms of European, North American dynamic, and the same pattern for Chinese. We are seeing more and more Chinese outside of Greater China. But for us, as we remember, we are not seeing the same incidents of Chinese out of Greater China as other brands. Most of our Chinese spending occurs, structurally occurs within the domestic market.
Matthew Garland (Equity Research Analyst on Luxury Goods and European Consumer Companies)
Okay, thank you. And then in terms of, I guess, the outlook for sort of 2024, are you able to give any details at this stage around your view on sort of the growth, given some of the macro headwinds that we've seen in 2024? I know you've already spoken about China, but any of your thoughts on other, obviously, the other regions, Europe and the U.S.? Thank you.
Ermenegildo Zegna (Chairman and CEO)
We cannot give you any numbers, and, I'm sure you won't mind that. But, you know, we remain on a positive mind. I can tell you one thing, we were really in pain during COVID, and we came out very, very strong. Whatever will happen in 2024, we are ready to act in a positive way. And, I can tell you that we've been discussing with Gianluca and the team budget for the past few weeks between one trip and the other, and we have been very attentive on cost control and cash protection. But, you know, we are ready to go either way, but we remain positive still on 2024. Let's put it this way.
Gianluca Tagliabue (CFO and COO)
As a hint on what we are discussing during the budget sessions, we keep on investing in fueling the long-term, midterm health for the brand by increasing marketing, by increasing CapEx, both for relocation and the new openings. The new openings that you have seen for Zegna, especially in Europe and North America, will continue. The relocation in China are part of our budget and three-year plan. The openings for Thom Browne and Tom Ford are a big driver for next year. So we are not pulling the brake on marketing and CapEx dollars as a mindset for next year, of course, with the consciousness and flexibility that Gildo was mentioning. But the attitude is attacking, not defending for next year.
Matthew Garland (Equity Research Analyst on Luxury Goods and European Consumer Companies)
Thank you.
Francesca Di Pasquantonio (Director of Investor Relations)
Matt, does that answer? If so, I would move to the next question, please then.
Operator (participant)
Thank you. The next question today comes from the line of Adrien Duverger from Goldman Sachs. Please go ahead, Adrien. Your line is now open.
Adrien Duverger (Equity Research Analyst on Consumer Retail and European Luxury Goods)
Hey, good morning. Thank you very much for taking my questions. I have two, if possible. So the first one is, could you please comment on the resilience from the higher spending cohort? Have you seen any increase in the proportion this year versus last year? And if so, have you seen any difference between geographies, so Europe versus the U.S. and China? And the second question would be, if you could give us an idea of the breakdown between pricing and volume in Q3, and how you think about pricing going forward. Thank you very much.
Ermenegildo Zegna (Chairman and CEO)
Yeah, I'll take the first one, and Gianluca will take the second one. In terms of resilience, I think that we have seen, you know, a good trend by the wealthy buying more luxury product. That's why we are adding ultra luxury product to our product offerings, because I think that for those folks, price is not an issue, and they just want to still going with exclusive project and product around the world. I must say that among the nationalities, American, I would say, remain number one. And I would say this trend we have seen it both in the United States but also in Europe, and we do hope that America will continue shopping in Europe.
So that's my takeaway from this year as compared to the past one. And that means that most of the wealthy shoppers are attracted by the new Zegna strategy and offer branding. And I must say that maybe, Rodrigo, you can comment also on Thom Browne, because surely the same is happening in Thom Browne, and I'm surely the same will happen in Tom Ford. Can you just maybe develop the resilience on your customer, Rodrigo?
Rodrigo Bazan (CEO)
Yes, absolutely. Indeed, at Thom Browne, we are extremely excited about what we are seeing in terms of menswear, in terms of super high-end clothing. Just to clarify, our business is largely clothing and it's a very committed and very high spending, a true luxury client, and we're seeing great resilience as Gildo mentioned, on a global basis from that point of view. In fact, I'm speaking from Shanghai right now.
Francesca Di Pasquantonio (Director of Investor Relations)
Thank you. Gianluca, do you want to take?
Gianluca Tagliabue (CFO and COO)
Yeah, I take the breakdown of volume mix price. So I look at the organic growth for the quarter, which was 11.3%, knowing that we have typically a mid-single digit growth in terms of pricing every season over season. So you can expect that slightly less than 50% of that growth comes from price, and the remainder is more volume than mix, because last year we had already the ZEGNA new brand strategy up in place. So the mix effect at this point, I would say 40-40-20. 40% price, 40% volumes, and then 20% mix, because at the end, the big step up in terms of brand and collection elevation started with the Fall/Winter 2022. So we are comparing against a already rebranded collection.
Adrien Duverger (Equity Research Analyst on Consumer Retail and European Luxury Goods)
Thank you very much. And if I may, just a quick follow-up on my first question. Would you be able to give us an estimate of the proportion of the higher spending cohort of yourselves?
Gianluca Tagliabue (CFO and COO)
On the denim side, it's 5% of the revenues. 5% of clients represent 40% of revenues, and I defer to Rodrigo. This is all DTC, yeah, of course, because on the wholesale side, we cannot, I don't know if, Rodrigo, you want to give some flavor on the Thom Browne side?
Rodrigo Bazan (CEO)
Yeah.
Gianluca Tagliabue (CFO and COO)
Probably, yeah.
Rodrigo Bazan (CEO)
From Thom Browne, but it's actually fairly similar. It's fairly similar to clients above EUR 35,000 a year who make at least 35% of our revenue in DTC.
Gianluca Tagliabue (CFO and COO)
Okay. 5% equals 4% of the business.
Operator (participant)
Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. Our next question today comes from the line of Anthony Charchafji from BNP Paribas. Please go ahead, Anthony. Your line is now open.
Anthony Charchafji (Equity Research Analyst on Luxury Goods)
Yes, thank you. Good morning, it's Anthony Charchafji from BNP Paribas. So I have a few questions, please. So the first one would be on FX. So it was 4% drag in Q3 after hedging, which is less of a drag versus the sector. So I'm wondering, what should we expect for-
Francesca Di Pasquantonio (Director of Investor Relations)
Sorry, Anthony. Anthony, sorry. Sorry, Anthony, can I interrupt you? Can you repeat, because the line is not very clear. Just to make sure we-
Gianluca Tagliabue (CFO and COO)
Maybe come closer to the microphone, please.
Francesca Di Pasquantonio (Director of Investor Relations)
Just to make sure we understand your question.
Anthony Charchafji (Equity Research Analyst on Luxury Goods)
Okay.
Francesca Di Pasquantonio (Director of Investor Relations)
Perfect. Much better.
Anthony Charchafji (Equity Research Analyst on Luxury Goods)
So first question on the FX. So 4% drag in Q3 after hedging, which is less of a drag versus the sector. I was wondering what we should expect for the full year 2023. On margin for full year 2024 and probably in H1 2024, we should expect some headwind. I was wondering how you're planning to offset this, if it's price increases like mid-single digit, or if it's rather cost control or cutting some marketing. My second question would be on Tom Ford. Also, if you can give us some feedback you received from the September spring 2024 collection, and if you already have any view on the order book. As I'm not sure about the seasonality of Tom Ford, should we expect Q4 similar to Q3, or is Q4 much higher, like the rest of the sector in general?
And my last question would be on Thom Browne. So the wholesale was up 8% organic in Q3, which is a year-to-date mid-single digit, which is quite weak. I was wondering, you've been mentioning womenswear outperforming for quite some time now. It represent 30% of sales. So, does the push of womenswear compared to menswear is something you're planning or because maybe womenswear have better margins? That would be my, my question. Thank you.
Ermenegildo Zegna (Chairman and CEO)
Rodrigo, can you go with Thom Browne, please? You start.
Rodrigo Bazan (CEO)
Sure, sure, sure. Thank you for the question. No, there's no difference, to be honest, on profitability per category. We don't do it for that. The reason we started to really push womenswear 7, 8, almost 8 years ago, was just to balance the business and have the brand potential to be both men's and women's overall. Today, we are extremely pleased that there's a very, very significant women's business to compare to what it was 6 years ago. On top of that, the quality of client is extremely high. It's a very committed clothing client, and what we're doing from the men's point of view is we want to make sure that we continue to have that very loyal client engaged with Thom Browne and buy more Thom Browne.
We manage the growth of Thom Browne men's to make sure that we don't lose that original client, and we mindfully add key clients to the brand. So women's business still is a great opportunity, and by traveling right now. When we did brand events, i.e., present Q&A that Thom did in several museums around the world, our 20th year, and also present visual book, we've also done client events. So we saw incredible profile of clients, both in London, in Tokyo, in Seoul, and right now, to just complete the one in Shanghai for a couple of days, three days actually, and the quality of clients, both in women's and men's, is outstandingly high. Really, really high. And in women's, this was a dream that we had eight years ago and has become reality.
Ermenegildo Zegna (Chairman and CEO)
Okay, I'll take the Tom Ford one, even though Lelio is the new CEO is on the call listening to us, and he will be with us, as I said, in New York for Capital Markets Day. First of all, I think we had a strong commercial response to the Spring/Summer 2024 fashion show in September in Milan. And we wanted to come out with a strong women's ready-to-wear collection, and we did. And so has been the response by our worldwide customer. And as a matter of fact, you will see some of the line already in the early delivery by the year-end, and we are enhancing the collection in the store that we have. So we are off to a good start with that part. In terms of control of the business, I think that Lelio is laying out the strategy.
And, you know, this includes product, merchandising, marketing, everything, and the strength in the organization, but more details we'll be giving you with numbers for Capital Markets Day. I think that the third point, which is very important, is sharing some of the synergy, synergetic effect with the general from the industry side, from the service side, and so that we really think that starting an integration among the business could be very helpful. So overall, I think that everything is going according to plan, and we are ready, you know, to invest more in marketing and in new store openings next year. Gianluca?
Gianluca Tagliabue (CFO and COO)
So I thought, I think the third question was the fourth quarter, if it's similar, different than third quarter. Of course, if I give you, the answer is substantially higher, fourth quarter than third quarter. If I give you the percentage, it's like declaring a full year guidance of revenues, but I can give you an indication that definitely our full year, so fourth quarter is substantially different because July and August present some soft months of retail sales. So we are expecting a solid Q4, much, much higher than the third quarter. In terms of FX, how we work, we definitely have a hedging policy that covers the risk of margin, and so we sell currencies well ahead of the, when the revenues come up. So that justified, for instance, for the quarter, the fact that...
Operator (participant)
Thank you for your question. There are no additional questions waiting at this time, so I'd like to pass the call back over to Francesca for any closing remarks. Please go ahead. Unfortunately, it appears we may have lost the line. Thank you all for your participation. We'll be back with you momentarily. Thank you all for your patience. We are now back. Francesca, please go ahead.
Francesca Di Pasquantonio (Director of Investor Relations)
Yes, I just would like to understand what we should repeat when we're cut off, or if the audience has been able to hear all the answers that we have provided.
Gianluca Tagliabue (CFO and COO)
Maybe we ask them to-
Operator (participant)
We heard to the end of the question.
Francesca Di Pasquantonio (Director of Investor Relations)
Yeah, but we were disconnected while answering it to the last couple of questions. So can you confirm that the audience has heard our replies?
Operator (participant)
The person who asked the question has disconnected, but the answer was received.
Francesca Di Pasquantonio (Director of Investor Relations)
Okay. So I think if that's it, we are at the end of our call, and we will re-adjourn in New York on December 5th for our Capital Markets Day. Sorry for the inconvenience, but I hope you got all the answers, and the technical problem didn't affect the full conference call. Thank you very much. Bye.
Operator (participant)
This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.