Ermenegildo Zegna NV

NYSE:ZGN

Earnings Call Analysis

Zegna Group Posts Strong H1 2023 Growth

In the first half of 2023, Zegna Group demonstrated robust financial performance, reflecting strong brand resonance worldwide and strategic execution despite a cautious outlook in Mainland China. Revenues surged by 23.9% to EUR 903 million, underpinned by an organic growth of 21.5%. The profit dramatically increased by 147.9% to EUR 52.1 million year-over-year, with profit margins bolstering from 2.9% to 5.8%. The adjusted EBIT ascended by 45% to EUR 119.9 million with a margin rate of 13.3%. The group remains on track to achieve its mid-term financial goals set during the 2022 Capital Market Day.

Strategic Moves Boost Profitability

The company's decision to strengthen its direct-to-consumer (DTC) channel, alongside a repositioning of prices and a reduction in end-of-season sales, has paid off with a notable improvement in gross margins. This strategic shift, coupled with a longer shelf life for essential products and better absorption of fixed costs, demonstrates a proactive approach to adapting its business model for sustainable financial health.

Robust Earnings and Margin Growth

For the first half of the fiscal year, the company has reported an impressive 45% year-over-year increase in adjusted earnings before interest and taxes (EBIT), with the margin growing from 11.3% to 13.3%. These gains reflect not just successful branding strategies, but tangible outcomes from efforts such as improved store productivity and strategic cost leverage.

Consistent Investment and Rising SG&A Expenses

Despite higher selling, general, and administrative (SG&A) expenses due to the recent consolidation of Tom Ford, and increased marketing and personnel costs, the company has maintained profitability. Marketing expenditure, crucial to its strategy, has surged by 37.4%, but aligns with commitments made the previous year. It's anticipated that investments in advertising and marketing will be sustained or even increased through the second half of the year.

Segment Performances Indicate Strategic Health

The Zegna segment manifested a 17.9% revenue increase, with a significant 47.8% rise in adjusted EBIT, while the Thom Browne segment also witnessed revenue growth though with a slight dip in adjusted EBIT due to store network expansion costs. These results show the company's nuanced approach in managing each brand segment and investing in growth while maintaining overall profitability.

Capital Expenditures and Financial Position

The company has allocated EUR34.5 million in capital expenditures (CapEx), largely funneled into expanding store networks, which indicates a 4% revenue reinvestment and foresight in planned growth. While the net financial indebtedness has increased to EUR17 million, primarily due to the Tom Ford Fashion acquisition and upcoming Thom Browne Korea buyback, these moves align with the company's long-term growth plans.

Forward-Looking Financial Projections

Looking ahead, the company remains on track to reach its medium-term financial targets, with a goal of at least EUR2 billion in revenue and a 15% adjusted EBIT margin by 2025. These projections exclude the Tom Ford Fashion acquisition, and more detailed future targets are expected to be divulged in the upcoming Capital Markets Day in December.

Earnings Call Transcript 2023-Q2

[Operator]

Thank you for standing by, and welcome to the Ermenegildo Zegna Group 2023 First Half Results Conference. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] And finally, I would like to advise all participants that 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, Director, IR]

Hi. Good morning, everyone, and thank you for joining us, as we discuss 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.

[Ermenegildo Zegna, Chairman & CEO]

Thank you, Francesca, and welcome to everybody who is 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 customer worldwide. Today, we are excited to share further details from that period that shows that we are on the trajectory to meet our mid-term 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 geographical diversity of our business across all our brands is one of the main reason for the trend 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've seen the number of customers in different regions, including Middle East and Latin Americas and certain South Eastern Asian nationalities doubling. American customers stayed very dynamic after more than doubling since 2021. Operating in the [indiscernible] segment, our customer continue to demand the highest quality in products and Zegna, Thom Browne and TOM FORD; all offered 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 rightsizing, the Zegna brand is now leveraging its new positioning by resuming a gradual expansion of its store network with seven 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, [indiscernible] in China. But the bulk of our growth comes from the substantial increase of our store productivity and we're very, very pleased to say that we are well ahead of the plans we shared with you, which I will recall for you were of 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 LA-based Elder Statesman, specialist in cashmere, as we created a one-of-a-kind colorful and playful cashmere collection with our yarn largely inspired by Oasi Zegna traceable cashmere and a great example of how we are using Oasi cashmere beyond Zegna brand.

For Thom Browne, this year brings around the brand 20th anniversary commemorated in a comprehensive monography that celebrates the legacy of this incredible brand and the brand behind it. This year also saw Thom Browne's very first Haute Couture show in Paris bringing Thom's vision and creativity to new highs and we are investing in the brand's awareness, but also in the expansion of the store footprint taking advantage of the white space available.

Finally, our newest addition, TOM FORD FASHION will have its debut collection of the new creative director, Peter Hawkins, shown in Milan Fashion Week just over a week. And a few days before that, Lelio Gavazza will join as 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 result not only reflects all the achievements 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 point 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 EUR903 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 EUR52.1 million, an increase of 147.9% year-over-year from EUR21 million last year. Our profit margin also increased reaching 5.8% in the first half of '23 compared to 2.9% last year. Our adjusted EBIT rose by 45% year-over-year for a total of EUR119.9 million in the first half and an adjusted EBIT margin of 13.3%.

Finally, we are pleased to reaffirm our guidance and mid-term targets as outlined during our first Capital Market Day on May 17, 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 5th of December 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 & COO]

Thank you, Gildo. I take it from Page 7. We have seen six exciting months and now we have so much more to look forward to. As Gildo mentioned earlier, the group saw robust revenue growth over the past six months in both constant currency and organic growth, respectively at 24.7% and 21.5%.

I 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 license of distribution and this year was fully consolidated from April 28.

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 Thom Browne segment grew 13.6% thanks to a combination of store expansion and positive comps. Both segments recorded 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 at the end of April with EUR64 million in two months and a few days. I remember that the deal was closed on April 28.

Flipping to Page 8. I remember as we anticipated that since first half '23, 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 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 EUR52.1 million with a great increase of 147.9% over last year.

Our gross profit increased by 29.2% to EUR579.8 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 the wholesale channel.

Price repositioning; reduction of end of season sales as part of the Zegna One Brand elevated strategy, which started with its rollout 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 hand, we had a dilutive factor as gross profit in the first half of 2023 reflects the first partial effect of the PPA or the purchase price allocation of Tom Ford, which is quantified in our 6-K SEC filing in EUR3.6 million as a result of the step-up of the fair value of the acquired TFI inventory that was sold to us subsequently to the acquisition. So this EUR3.6 million, which more or less represents 40 basis points is a dilutive effect on the gross profit.

Flipping to Page 9. 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 EUR120 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 charged into the P&L for an amount of EUR500,000.

Our SG&A expenses were up 24.9% over last year driven by the consolidation of Tom Ford, driven by higher variable experience in our stores around the world as well as higher personnel cost as we continue to invest in expanding and strengthening the business. Marketing expenses, which include both for 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 EUR15.6 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 maybe 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 EUR651 million. Adjusted EBIT for the period was up 47.8% landing to EUR100.5 million while the adjusted EBIT margin increased from 12.3% to 15.4%. So as Gildo was mentioning before, step-up of 3 percentage points.

The overall profitability improvement reflects our pricing strategy, 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 cost 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 EUR208 million, an increase of 11.9% compared to last year. The minor decrease in adjusted EBIT down 0.1% from last year to EUR31.5 million compared to EUR31.6 million was due to cost 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 '23, which resulted in increased personnel. Similar to Zegna, we're also investing in marketing and advertising for Thom Browne 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 basis starting from the deal as of April 28. In this two months and few days, we recorded EUR64 million for the segment and an adjusted EBIT of EUR3.7 million. The adjusted EBIT reflects EUR4.4 million related to the preliminary purchase price allocation process resulting from the TFI acquisition. Also important to recall the profitability for 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 EUR17 million as of June largely due to the cash 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 1. We also recorded EUR34.5 million in CapEx mostly due to the store network expansion across both Zegna and Thom Browne brands, which represent 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 in New York, Concession, Copenhagen, Saks and Morris (ph) in Europe and a few smaller stores in China. Thom Browne saw three net store openings in the same six months such as [indiscernible]. 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, BN in Austria and Florence.

Trade working capital increased by EUR148 million, of which EUR86 million reflects the consolidation effect of TOM FORD trade working capital as of June 2023. Net of the effect of TOM FORD FASHION addition, we point out the inventory increase and we call it as a healthy inventory increase because most part of the increase was a planned increase on the Essential Zegna One 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 21, 22. I close with a brief overview of the outlook. I remember that we set the guidance in May '22 when we didn't have on the horizon TOM FORD. So this guidance needs to be read as net of TOM FORD FASHION and we indicated the EUR2 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.

[Ermenegildo Zegna, Chairman & CEO]

Yeah. Thank you, Gianluca, for a very thorough explanation. And as you can see, I think it has been an impressive six months and 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 5 in New York 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 FASHION.

So I hope to see you in good numbers there. Thank you.

[Francesca Di Pasquantonio, Director, IR]

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

[Operator]

[Operator Instructions] And your first question comes from the line of Chris Huang from UBS. Your line is open.

[Chris Huang, UBS]

Hello. Hi. Good afternoon and thank you for taking my questions. This is Chris Huang from UBS. I have two questions, please. Firstly, can you comment on the growth by consumer nationality excluding TOM FORD and how the third quarter 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 will 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.

[Rodrigo Bazan, CEO, Thom Browne]

So I take it.

[Francesca Di Pasquantonio, Director, IR]

You can start and maybe Gildo will follow.

[Rodrigo Bazan, CEO, Thom Browne]

The growth by nationality. So 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 doubling level, but had a significant step-up.

On the Chinese cluster, we are seeing Chinese cluster so wherever they spend compared to 2021, we are seeing a flattish year-to-date situation with a softer appetite on the third quarter than the average of the year-to-date. It's uneven actually because we are seeing 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 2 and 3 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 than me recently so he can add.

[Ermenegildo Zegna, Chairman & CEO]

Yeah. I was in China two weeks ago and actually it was quite apparent a difference in mood between Hong Kong and the rest of China. So I can confirm that we are looking for a 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. We will continue our penetration. There are lots of new projects very, very exciting not only for Zegna, but 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 opening 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. Probably our new strategy and the fact that it was at the right time has proven to be correct and we are becoming very, very popular with lots of new customer, repeat buying.

We just had an incredible event in Los Angeles with 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 will stay and we remain positive on that. Without saying the Middle Eastern also, we are becoming more and more popular there. That's why we are growing strong also from way also to Saudi. We do store opening again with more than just one brand.

And so overall, positive. Last 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 the fact that we anticipated our goal, I cannot be more specific, but I can tell you that it's really moving in quickly in that direction. Truly the health 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 said okay, our distribution in Europe is broad enough, we think that we can open more stores 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 maybe in 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 Market 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 on the 21st of September in Milan. Thank you.

[Francesca Di Pasquantonio, Director, IR]

And Gianluca, for the margin expenses question.

[Gianluca Tagliabue, CFO & COO]

Margin, as I said before, we have more weight of marketing activation on the second half starting from the Elder 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 of the marketing spending could be 0.5 point percentage or slightly more and that reflects on the fact that all things being equal, you need to expect the second half to be that overburden of 0.5 point 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 six months instead of two months.

[Chris Huang, UBS]

Okay. Thank you. That’s super helpful. And just a follow-up, if I may. Can you maybe also 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 have 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.

[Rodrigo Bazan, CEO, Thom Browne]

We are not seeing a change. We are seeing steady performance. We have been seeing July and August good demand from Americans, no different than the first half. We continue seeing the same interest for the brand from Europeans. We are seeing the same interest from Middle Eastern. So we are not seeing a change, an inflection point on that side.

[Ermenegildo Zegna, Chairman & CEO]

On the contrary, I think that if in August and July they were vacationing abroad, they spent a lot abroad. Now they are back and start spending in the States. And I must say that one area that is on fire is Made-to-Measure. Made-to-Measure we are back to the peak of '19 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 hold the house with Zegna, the Elder Statement, the [indiscernible] collection, the Uber luxury; no price resistance is incredible and it means that there is an appreciation for what we do and there is a lot of money to spend and we have the right location. And I must say that the staff, we have renewed the staff of our shop immensely and their outreach is the highest that we reached in America and they're doing a fantastic job to reach out to customer in their office and whenever they are around the world or at home and they come back.

So I think that it's just if you are able to stimulate with energy retaining the customer, they come back. And plus the deepest issues and main success, we added some fantastic brands. There was the [indiscernible] was fantastic. Wait and see next one coming out. And I think that it's a word of mouth and its new customer and loyal that come back and buy. So we have to make sure to continue this trend, but we remain very positive on that.

[Chris Huang, UBS]

Okay. Thank you and looking forward to the CMD in December.

[Francesca Di Pasquantonio, Director, IR]

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

[Operator]

Yes, of course. [Operator Instructions] And your next question comes from the line of Matthew Garland from Deutsche Bank.

[Matthew Garland, Deutsche Bank]

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 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 in 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?

And 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 opportunities that you see from the partnership in terms of accelerating sales and when they might come through? Thanks very much.

[Ermenegildo Zegna, Chairman & CEO]

Yeah. Let me start with the last one. I think that 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 weight how much sales is incremental. We had a special capsule in the Made-to-Measure so I think we did what we had to do. But is the number of potential new customer reached and the strength of the 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 the Real Madrid effect is there. To give you quantitative numbers, we are working to have a number that is very mature. But 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 Real Madrid is also part of our delighting. I think that Real Madrid is the Easter (ph) 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 an incredible tool. As much as we have done with Elder Statement and as much as we are using Oasi Zegna, Oasi Zegna is becoming not a [indiscernible] project.

He'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 and lots of interest. So it's part of the storytelling and it's part of our delighting and creating experience around customers. I think we see a good traction on that. On the price mix, you want to share.

[Rodrigo Bazan, CEO, Thom Browne]

I think that the mix is an important component compared to last year. You remember last year we still had Zizenia, 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; [indiscernible], the cashmere and pure traceable linen in summer. So the product has gone up and has been one of the driver of 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 before Winter '23 with a mid- to high single-digit price increase and we have made the sales campaign of Spring '24 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, the last element of the price mix that helped last year for Winter '22, we still had the last Spring '22, 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 and retail attention, to elevating the unit per transaction to take full advantage of our complete assortment.

[Francesca Di Pasquantonio, Director, IR]

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

[Gianluca Tagliabue, CFO & COO]

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

[Matthew Garland, Deutsche Bank]

Thank you very much for answering the questions.

[Francesca Di Pasquantonio, Director, IR]

Thank you, Matt.

[Operator]

And the last question comes from Daria Nasledysheva from Bank of America. Your line is open.

[Daria Nasledysheva, Bank of America]

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 incidence of marketing costs? Where will you be making the biggest push from this perspective? Thank you.

[Ermenegildo Zegna, Chairman & CEO]

Yeah. Let me start with the second one. Now I say let's leave a second TOM FORD aside because we will talk 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 the 20th anniversary year and you can speak on that. I speak 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 Grano Salis focused on our customer, knowing the data.

And I think that these few examples that I did; the Elder Statement, Oasi Zegna; I think is a good example of store event focused on the high end with color, with fun where you can reach out many new customers that maybe they will not buy that much at the beginning, but they will come back and we'll see a new traction by the Zegna brand. So I would say that the answer is positive. Rodrigo, you want to pick on Thom Browne marketing expense because I think that it was a big driver.

[Rodrigo Bazan, CEO, Thom Browne]

Yes, Gildo, would like to. For us, we are noticing a significant increase in brand awareness. North America is clearly one market. 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 our 20th anniversary with a global set of events in 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 focused point of view.

We have had a really successful Couture show and also Couture appointment in the showroom in Paris in July and we noticed how engaged the client is when you make this incredible and very personal exclusive events for clients in the corporate of the brand. So 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 and we are committed on that and we've been investing significant marketing dollars with the support of the Board for the last three years.

[Ermenegildo Zegna, Chairman & CEO]

Yeah. Let me pick again on the softness in China. As an Gianluca said and I repeated, 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 any 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.

[Rodrigo Bazan, CEO, Thom Browne]

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 closing stores. We had in the range of double-digit pace of closing. So looking ahead, we are seeing easier comparison. And as Gildo was mentioning, its Mainland China the area 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 result beyond Hong Kong and Macau, but also in the rest of Asia. If we need to point the number out of Asia, we are still seeing Chinese 50% than the volumes we used to see in 2019 before COVID. That is more an indication. We are not yet at the levels of 2019 while we are very close to the level of 2019 in Asia.

[Daria Nasledysheva, Bank of America]

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

[Rodrigo Bazan, CEO, Thom Browne]

Chinese purchasing in Europe in '19 compared to Chinese purchasing in Europe this year, we are not yet to the level of '19. Just Chinese purchasing in Europe. Just to be sure that it's not misunderstood, I'm not saying Chinese overall. Chinese overall are flat and means that. So only we are not seeing yet the demand of Chinese in Europe as it used to be before COVID. 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 partial.

[Daria Nasledysheva, Bank of America]

And which is in line with the global data by the way.

[Rodrigo Bazan, CEO, Thom Browne]

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

[Daria Nasledysheva, Bank of America]

Thank you. And is it volumes or value?

[Rodrigo Bazan, CEO, Thom Browne]

Both. We are seeing value. I'm counting revenues.

[Daria Nasledysheva, Bank of America]

Thank you.

[Ermenegildo Zegna, Chairman & CEO]

Your welcome.

[Operator]

And 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, Director, IR]

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

[Operator]

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