Participants

Paola Durante; Investor Relations; Ermenegildo Zegna NV

Ermenegildo Zegna Di Monte Rubello; Executive Chairman of the Board, Chief Executive Officer; Ermenegildo Zegna NV

Gianluca Tagliabue; Chief Financial Officer, Chief Operating Officer; Ermenegildo Zegna NV

Lelio Gavazza; Chief Executive Officer of Tom Ford Fashion; Ermenegildo Zegna NV

Rodrigo Bazan; Chief Executive Officer of Thom Browne; Ermenegildo Zegna NV

Chris Huang; Analyst; UBS Limited

Anthony Charchafji; Analyst; Exane BNP Paribas

Oliver Chen; Analyst; TD Cowen

Louise Singlehurst; Analyst; Goldman Sachs International

Presentation

Operator

Good morning or good afternoon, and welcome to the Ermenegildo Zegna Group FY 2023 financial results call. My name is Adam, and I'll be your operator today. (Operator Instructions) I will now hand the call to Paola Durante to begin. So Paola, please go ahead when you're ready.

Paola Durante

Thank you. Thank you, and good morning, good afternoon to everyone. And thank you again for joining the Ermenegildo Zegna Group's conference call on 2023 full-year results. All the material that we are discussing, the presentation, and the press release that was sent to previously, you can find it on our group website, ermenegildozegnagroup.com.
I'm very happy to say that today with us, we have the leadership team of the group, including our CEO, Mr. Ermenegildo -- Gildo -- Zegna; our COO and CFO, Gianluca Tagliabue. And we have also Lelio Gavazza here with us in Milano, CEO of Thom Browne -- TOM FORD, sorry -- and Mr. Rodrigo Bazan that has connected, I believe, from Los Angeles, but he's also here with us.
Before beginning, I need to point out a little a few things that are a little bit boring, but we need to do it. We make certain -- during the call, we will make certain forward-looking statements. Our actual results may be materially different from those expressed or implied by these forward-looking statements. And also, I remind you that statements are subject to a number of risk and uncertainties, including those described in our SEC filing. Please refer to the forward-looking statements cautionary included at page 2 of our presentation.
Okay. After this, very happy to hand over to our CEO, Mr. Gildo Zegna.

Ermenegildo Zegna Di Monte Rubello

Good morning and good afternoon. Thank you, Paola, and thanks to join us on today's conference call on Zegna Group fiscal-year 2023 Results. Today, as usual, I would like to give you a brief update on our results from last year, discuss the main accomplishment and project we undertook. And finally, briefly comment on what we are looking forward to this year.
I do believe that '23 was a milestone year for the Ermenegildo Zegna Group. We completed the acquisition of TOM FORD FASHION, which has reached our group with a third brand that is perfectly complementary to our portfolio. On top of this great addition, the group also achieved outstanding results.
Group revenue in '23, as we shared back in January, reached EUR1.9 billion, up 28% and up 19% on an organic basis. Our adjusted EBIT reached EUR220 million with an adjusted EBIT margin of 11.6%, after basis points from 2022. And most importantly, our net profit more than doubled compared to 2022. I think it has been a great achievement.
I'm also very proud of the progress we made on our sustainability commitments. Caring for nature and the communities around us is a founding value of the Group, and I'm pleased to say that we delivered on the sustainability commitment we set for 2023. Last year, we formalized the adoption of the group diversity, equity and inclusion policy and trained 87% of our employees on topics touching on DE&I.
We are on track to reach by '26, 50% of key raw material certified as traced and lower impact. We continued our investment in renewable energy. 97% of energy use in our European operation now come summer's renewables. In 2023, we have installed photovoltaic panels on the rooftop of two additional production facility.
But it is only the beginning. As I always say, this is the beginning of the journey, and we have still lots of work to do. Nevertheless, I'm proud of how far we have come and for what it has taken to get there.
Now I want to take a moment to talk about the heart of our business: the three brands and our key area. First, Zegna brand. 2023, we continue to build on our success of ZEGNA One Brand strategy globally. As you know, the Americas and EMEA are ahead on this journey, but we are also starting to reap some rewards in other markets, in particular, China. And one of the market where the journey started later is exactly greater China.
We do recognize the '24 will still be challenging there due to geopolitical and macro environment. And as we further evolve and develop our customer base, but we see important positive signs, especially the fact that demand for our highest end product is strong and improving. We're extremely focused on and committed to this region to further reinforce a brand awareness that ZEGNA is the leader in luxury menswear.
Talking now about product for Zegna brand. In February, we launched the second skin collection globally. A selected number of SKUs, including leather outerwear and the SECONDSKIN Triple Stitch, our icons that made the famous leather out of SECONDASKIN. The drop has performed very well in all regions, including China. Looking at distribution, we are even more committed in reinforcing our DTC channel. We will continue to streamline our wholesale distribution, also converting some mono-brand store in concession.
Finally, one very exciting events coming up for the ZEGNA brand will be the Milan takeover in April -- where, sorry -- we will take over Milan in April with event. During the Salone del Mobile, we will launch a new Oasi Zegna at Piazza Duomo and present the Born in Oasi book, which guard a unique vision of our founder. We are doing best at the moment when all eyes will be on our great home city, Milan, to this day for a lot of reasons.
Next is Thom Browne. In the year 2023 in which the brand celebrated 20th anniversary Thom Browne revenue reached EUR380 million, topping us on 26% compounded average growth rate since the brand became part of the group, a very nice run, I would say. But the journey has just started, and we still have a marathon to do. The brand has huge potential across markets and product to go beyond the EUR500 million that was my initial target.
Finally, TOM FORD FASHION, the new jewel in our group crown. We do believe that there is a huge potential for TOM FORD FASHION. This is confirmed through every conversation I had with Lelio about the brand covering the world, whether it is landlords, with clients, with luxury expert around the globe. They all agreed that the brand has room to develop, in particular, in womenswear and the leather goods segment.
The brand's creative and artistic direction is strong. You've seen that in the reception of Peter Hawkings collection to date. CEO, Lelio Gavazza are here today with us. He is forming a skilled team, starting with head -- or with new heads for Asia and for the Americas. We are also making sure that the brand can leverage our global infrastructure, including our supply chain know-how for both men's and women's tailoring, for CRM, and customer engagement system, and develop this TOM FORD FASHION store footprint. We have secured some 8 to 10 stores as of this year, and we'll start with renovating a few of them.
Before I hand over to Gianluca, let me mention an important project. I am particularly proud of evolving our Filiera. What is our Filiera? It is a new terminology in Italian that's hard to translate in English. However, it's our fully owned and fully integrated supply chain made of the finest, high-end Italian textile platform integrated with unique luxury manufacturing capacity. Really unique -- a unique project in luxury.
To reinforce this Filiera, we have recently approved an important new project in Parma. I would call it a breakthrough project, a cutting-edge center for excellence, which will primarily produce men's shoes and leather goods designed by famous architect, Milanese Antonio Citterio, who designed our current headquarter in Milan.
The facility will sit on a 10 hectare plot of land and function also as an important research and development training center, including our academy. When full and running the center will employ more than 300 people. and we produce a significant portion of group shoes, primarily for ZEGNA, but it will also serve the other brands.
Let me now conclude by saying that although '24 will be a volatile year, we remain extremely confident that our path is well traced. Uncertainties can create amazing opportunities if you have a clear vision and are able to react immediately and firmly, being ready to take (technical difficulty) by executing perfectly around the world.
I would like to take the opportunity to share with you some of the actions that we have been working on with our management team. Number one, we are enforcing our team talents with some key additions in both the markets. We will continue to invest on our brand, focusing on key priorities both in term of marketing and store opening and remodeling. DTC and CRM, two very important part of our evolution and our mantra that will be even more in the forthcoming months for ZEGNA, Thom Browne and for TOM FORD.
We have to know better and be closer to our customer, loyal customer, the more loyal in challenging times. And in the meantime, we have to stay tuned to our people in stores. They are our first Ambassador who will continue to streamline our wholesale doors -- if anything, even more aggressively than initially planned. Last but not least, we are working on continuing to improve store productivity el centro, where we have gained a very important step.
Let me conclude by reaffirming that our group is a custodian of authenticities. Probably is to protect them since we've been around 114 years. We have group ambitions, alongside those committed to you at the recent Capital Market Day, which confirm today. And this is also thanks to the best ingredients. We have three outstanding brands, a unique Italian Filiera, a focused, accountable, and responsive management, a united family with 114 years of heritage, and last but not least, a clear vision that guides our actions.
With that in mind, let me turn it over to Gianluca that go into the financial in detail. After that, Rodrigo, Lelio, and Gianluca and myself, we will take your questions. Thank you very much.

Gianluca Tagliabue

Thank you, Gildo. Good morning. Good afternoon, everybody. So let me move to page 13 of the presentation where you find the group revenue's evolution over the past three years. Preliminary revenues for full-year '23 were already disclosed at the end of January. So there is no news, and therefore, I will not spend much time on this page.
Just let me underline that full-year 23 revenues have been in a very good year for our group with almost 20% reported growth thanks to a double-digit contribution from ZEGNA and Thom Browne and from the newly added TOM FORD FASHION segment, which contributed to EUR235 million revenues. I remind you also that TOM FORD FASHION has been consolidated for around eight months last year.
Let's move to page 14. Before commencing the numbers, I would like to remind you that since 2023, we have changed the way of reporting our P&L, adopting the by-function presentation versus the previous by-nature. We believe that this way to represent numbers not only reflect better the way we look at our business, but also can help you understand more our company. For this reason in the next pages, I will comment the actual numbers underlying their drivers by each P&L line.
Let's start from gross profit. In 2023, consolidated gross profit rose by 32% to a EUR1.2 billion mark, with a margin of 64.3%. This 210-basis-points improvement from last year has been largely driven by a better channel mix. As you know, DTC gross margin is higher than the wholesale one, but also by better price, price mix and by the scale effect, in particular, in the supply chain side, which helped better absorbing the industrial fixed costs. Channel mix is estimated to justify about half of this gross profit margin step-up.
An important point to underline relates to TOM FORD FASHION consolidation. You remember that on April 28 of last year, we acquired for roughly an enterprise value of 150 million, cash-free, debt-free and on the basis of normalized working capital, the 85% of (technical difficulty) International, the holding company that manages the TOM FORD FASHION business under a 20-plus-ten license agreement with the Estée Lauder Company. The purchase price allocation, so called afterwards PPA, of this transaction has been allocated to the assets acquired, including inventories, customer orders, and the license agreement itself, generating some PPA-related charges, both at cost of sales and at the SG&A level.
Because of this PPA in 2023, gross profit, we accounted for EUR15.6 million higher cost of sales related to the step-up of inventory value and the amortization of the value allocated to orders backlog. The majority of this EUR15.6 million charge is actually related to the inventory. These amounts will be largely accounted in 2023 financial with a smaller tail in 2024. In fact, this year '24, we will account the remaining and last EUR3 million to EUR4 million of this kind of charges in the cost of sales. After that, this smaller effect in '24, we will not incur additional costs related to PPA on the cost of sales.
Moving to SG&A, they reached in [2024], EUR901 million with a 47% incidence on revenues, about EUR200 million higher compared to full-year 2022. Let's dig down on this increase of G&A, and I would like to underline a couple of important factors. The TOM FORD consolidation contributed to more than half -- some EUR124 million to this absolute increase. This amount includes also the royalty fees that TOM FORD pays to Estée Lauder.
In addition, it includes the second part of the PPA that I mentioned before exercise and this part is related to the amortization of the right-of-use of the license agreement, which gets amortized over 30 years. In 2023, for the eight-months consolidation, the license amortization will be equal to EUR2.2 million. And in '24, the amount will be in the tune of EUR3 million on a 12-month basis.
The second relevant item -- this is important to underline is the impact on SG&A deriving from the acquisition of the Thom Browne South Korean business. I remind you that since July '23, Thom Browne started to manage directly, the 17 stores in that market. And as you know, retail generates higher gross profit, but also on the other side, higher selling expenses compared to the wholesale business. On the other side, it's important to remark that the ZEGNA segment helped offsetting some of the above-mentioned negative effect by contributing itself with a positive leverage on SG&A.
Just a final comment for those that might have not known the group for long given that this is the first time we report 2021 SG&A expenses. In 2021, SG&A expenses included some EUR200 million arising from the business combination with the SPAC that led to the listing of Zegna Group at the end of 2021. So that is the reason of this curve which presented a high number in '21.
Let's move to marketing expenses. Marketing expenses, page 16, increased to a 6% incidence of revenues in line with the management plan to further invest on its brand equity value. We remember this 6% incidence is also affected by a B2B component within our business, which requires very little or no support at all by marketing, and this is the case of textile and third-party brands that together represent roughly 10% of group revenues. When we look at 6% incidence, we have to bear in mind that this 10% comes with very limited marketing dollars.
Page 17, here is the report of our consolidated statement of P&L. I believe we have already saw or commented, line-by-line, the ones above the operating profit. Let me make here a couple of comments at this point below operating profit on financial income and expenses and on taxes.
Starting from the financial items. In full-year '23, net financial expenses, including foreign exchange losses. In '23, there were negative for a combined amount of EUR36 million versus EUR49 million negative in '22. So this EUR13 million positive swing from '22 to '23 arises, mainly from three factors. First, lower liabilities from the Thom Browne put option related to better ForEx. This put option is expressed in dollars and related to higher interest rates, which reduced the net present value of the put itself. And these two components more than offset the higher intrinsic fair value of the put, deriving from higher expected result of TOM FORD looking forward in the years to come.
The second component to that generates the positive swing and positive reduction of financial components is the lower hedging costs that we incurred this year, and the third, higher returns from financial assets versus 2022. This effect more than offset the financial costs that emerged with the warrant redemption that occurred in this (technical difficulty) beginning of 2023, which I recall generated a 22 million charge in our P&L.
And as a information, the financial expenses, which might help also the analysts to model their projection. The financial expenses related to bank loans and lease liabilities under the IFRS 16 rule were, this year, in the region of total EUR30 million.
I call out the last point of attention, the EUR3 million negative related to results on investment accounts of that equity balance values. They refer mainly to TOM FORD results in the four months before our acquisition, and they are related to the deal-related costs incurred by the target company before closing. Therefore, this line is expected to return positive from 2024.
Finally, let's talk about taxes. This year -- last year, in 23, we had a favorable effective tax rate in the region of 20%, which has been influenced by a positive tax ruling and by the recognition of DTA connected to some tax losses previously generated. I can anticipate that looking forward for the group, we have in mind the normalized tax rate that is closer to 30% rather than 20%.
Moving to page 18, the adjusted EBIT metric, which is our key metric in terms of analyzing the performance. As Gildo already commented, in full-year '23, our adjusted EBIT reached EUR220 million with almost a plus 40% increase versus last year, and this was above of our own expectation. Adjusted EBIT margin rose to 11.6%, notwithstanding the dilution of exiting from the TOM FORD consolidation, which for full-year '23, you can roughly estimate slightly higher than 1.5 percentage point of which about half are coming from the previously mentioned PPA effect on cost of sales. The difference between the adjusted EBIT, EUR220 million and the operating profit, EUR208 million, that is EUR12 million, is referring to adjustments that in the reported P&L are almost entirely accounted for in the SG&A line.
Please, I remember again that all this EUR12 million adjustment do not include the charges related to the PPA because it's not allowed to have the PPA charges accounted for as an adjusting item. So they are part of our adjusted EBIT. So the adjusted EBIT discounts the PPA effect good or bad on our P&L.
Let's look at the results by segment. Moving to page 21, Zegna segments. As you know, this segment includes both the ZEGNA brand products and the textile division and third-party brand which generated EUR1.3 billion revenues before intergroup revenue [elimination] that amounts to EUR33 million. And those are sales of either finished product or textile to TOM FORD and Thom Browne. And it came out with an adjusted EBIT margin of 14.6%, thanks to a higher gross profit margin, a lower incidence positive leverage on SG&A.
Both these aspects were supported by the strong 25% organic growth in ZEGNA brand DTC, which has helped to boost our store productivity, as we said in New York, by over 50% up in two years 2023 versus '21 and was also supported by a positive absorption of fixed cost in supply chain and textile operations by the increased volume of business. This important increase in adjusted EBIT margin arises notwithstanding the decision to announce the marketing expenses for the ZEGNA brand, which we have disclosed in our prior conversations.
Page 23, Thom Browne segment. The segment reaches EUR380 million before eliminations with a 15.5% adjusted EBIT margin. This good result is linked to the positive performance in both channels with DTC channel at plus-20% organic on full-year '23 and wholesale on a plus-[16%] organic in full-year '23 after a strong year-end in wholesale, with Q4 wholesale deliveries that reported at plus-40% organic versus Q4 '22.
Towards, finally, on the TOM FORD FASHION. Page 25, results were in line with the expectations in passive at adjusted EBIT level by the already mentioned PPA and by the royalty fees. It is important to us, that line in particular for 2024, that our priority remains to invest in the business and to set the basis for a successful organization led by the CEO, Lelio Gavazza.
On the next pages, we summarize some key results of our consolidated statement of financial position, balance sheet. So let's look at page 27. Here, I just call out a couple of elements on the line related to non-current asset because this is the one that is seen most of growth.
So in that line, the growth comes from the following factors. There is a EUR96 million right-of-use asset coming from the TOM FORD license agreement. So in the PPA, we are located at a time of the closing EUR99 million of right-of-use asset, which gets amortized over the year. At the end of the year, it came down to EUR96 million.
Then there is a goodwill of EUR24 million related to the Thom Browne South Korea business taken over mid-year. And then there is the increase of right-of-use asset related to leases, the IFRS 16, whose growth is mostly driven by the addition of TOM FORD FASHION retail network and related leases within our consolidated (technical difficulty).
Let's go to page 28, where we comment trade working capital. Trade working capital increased in '23 to a level of EUR449 million, 23.6% of revenues, driven by the normal increase in business, but also by our decision, as you have already seen in the semi-annual number of '23 to invest in Zegna Fashion and Thom Browne Classics, which are continuity collections across the season. This investment impacted inventory, in particular, in the first months of '23. And in fact, if you compare year-end inventory and the June inventory '23, they're basically in line. So it means that we have plateaued and now we start normalizing. We have been already start to normalize and the spikes coming from this one one-time investment on a continuity collection.
In addition, you should consider that the incidence of revenues on vis-a-vis trade working capitals, if we analyze by a mathematical factor given that the ambition of working capital coming from TOM FORD, EUR52 million, is compared to only eight months of revenues of TOM FORD. For the future, our goal is to move gradually toward a 20% incidence of trade working capital and values.
Page 29, you see the new metrics -- new non-IFRS metric that we introduced also listening to your suggestion is the free cash flow metric. And let me comment, there's nice EUR72 million free cash flow generation, which we recorded last year, largely driven by our improved operating profit result. Last year, CapEx was equal to EUR78 million, around 4% of revenues.
But I would like to reiterate what we already commented in New York Capital Market Day and the fact that for '24 and '25, our CapEx should increase as a percentage of revenues slightly above the 5% threshold, given that we are investing in store openings and remodelings and also in the breakthrough project mentioned by Gildo of the new factory in Parma actually. This is actually more than a factor. It will be a center of excellence, know-how, and creativity, where we will somehow celebrate our skilled artisans that every day produce luxury shoes for Zegna or for the group in an amazing environment, which will in-house the workforce welfare.
Finally, page 30, and this is the bridge of that net financial indebtedness, which starting from a cash surplus at the end of last year lands basically as a neutral net debt to net cash position with a slight net financial investments of EUR11 million after adding current investments in subsidiaries and where the bulk of majority of this amount coming from TOM FORD FASHION.
With this in mind, let me leave the floor to Gildo for final remarks on outlook and current trading.

Ermenegildo Zegna Di Monte Rubello

Than you, Gianluca for the clear presentation, and let me leave the first part of this call with some remarks on quarter one trends of this year. I anticipate the question that -- and I'm sure you will ask us. As you know, we are going to publish quarter one revenue on April 23. So detail infos and questions. Q numbers should be discussed in that occasion and not now, but let me give you here some highlights to help you better understand trends and actions, which we believe might not have been completely understood.
Quarter one '24 revenue result reflects three main trends. Number one refers to our decision taken a while ago but reinforced today to further streamline the wholesale distribution, in particular, at Thom Browne. We felt in the current environment, it was the right decision to anticipate some action that we have initially planned over a longer period of time.
Secondly, we are seeing some higher-than-expected volatility in Asia, mainly in Greater China and mainly for Thom Browne. For Zegna, the trend in the region largely reflects the One Brand strategy, and we see signs confirming that we are moving into the right direction, even if the strategy has yet to be fully completed. For Thom Browne, the trend in Greater China has been influenced by the challenging environment but also by the need to reinforce the retail organization.
On the other side, I have to say that I'm very pleased to see all the other markets for Zegna, in particular, the United States and some key markets like Japan for Thom Browne growing sound double-digit DTC growth, confirming the strength of our brands. As a result, Q1 revenues are expected to grow in the region of 10%, constant ForEx, while organic performance is expected mid-single-digit negative due to wholesale revenue of Thom Browne expected to be down high double digit of a very challenging comparison base.
However, looking at full year 2024 and considering revenue consensus numbers, I feel confident that they are achievable. And I'm sure we have taken the right action to deliver them. Regarding our midterm guidance, as already said, I confirm that this guidance is unchanged and confirmed. Thank you.

Paola Durante

Thank you, Gildo, and I leave now the operator to open up for the Q&A session. Thank you, operator.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Chris Huang, UBS.

Chris Huang

Hello, hi. Thank you for taking my questions. It's Chris Huang from (technical difficulty) and I have three questions, please. My first question is on the Chinese consumers. I know this is a H2 P&L call, but are you able to provide any color on how the China cluster has so far performed in 2024? The reason why I'm asking about this is that we have been seeing -- hearing from some of your peers trends in March have slowed down after a very solid Chinese New Year. So if you can, in any possibility, comment on month-by-month trends, that would be super, super helpful for us.
Secondly, on the guidance you provided for Q1 with organic sales growth to be down mid-single digit, just to understand a little bit more that you provided wholesale for Thom Browne to be down high double digits, what kind of level are we expecting here? Just so we can understand better what is the impact from a challenging environment in Greater China and how much is from wholesale. Because if I just did the math, if we're assuming mid-single digit up for Zegna to get to mid-single digit down for the group organically, it means Thom Browne is down around 30% to 35% organically. That's my second question.
Lastly, on EBIT margin, I remember back in December 2023, you provided some new mid-term targets by 2028, which if we kind of look at the CAGRs, implies EBIT margin to reach the level of high teens in the mid-term. So if we compare that level to the 12% you printed in 2023, can you just share some thoughts on what should we expect in terms of the cadence of margin expansion in the coming years? Are these targets likely to be front-end or back-end loaded. Thank you so very much.

Paola Durante

Okay. Thank you, Chris. Regarding your first and second question, we will ask management to add some color that actually such detailed questions has to be then postponed to April 23 when we release the quarter one numbers. But for sure, I will ask Gildo and to also our Thom Browne and TOM FORD CEOs to give a little bit of flavor on the Chinese market, which was your first question. Then going into the second one on sales, Rodrigo -- I'll ask Gianluca to do a couple of comments, but I think also on this one, Rodrigo can comment a little bit more. And I leave then Gianluca for the EBIT CAGR, the third one.

Ermenegildo Zegna Di Monte Rubello

So on the color -- is Gildo on Zegna, but I think that we can add color with Thom Browne and TOM FORD. First of all, we have been traveling quite a bit with Lelio and Rodrigo in the past few months. So I think we have a good grasp of the Chinese market overall. And I must say that it's challenging, but I think that is a positive mid-term. Surely, we see less traffic than we used to see. So I think that you have to work more -- less transactional, more relationship-driven with the customer.
I think that our outreach platform is very important to reach out to the customer wherever he is or she is. And I think that we are having similar outreach percentages that we have in other country like the United States, which has been really upfront. I must say that our rebranding strategy is coming up more and more every month. We have been successful with the drop strategy of Zegna by which -- in the second season by which we have four to five drops of merchandise.
Our [Penelope] merch is supported -- the market is supported by visual supported by the advantage in the store. And we see that every time we do that, we have a reaction of our clients in the store. We have created a personalized event for high-end merchandise in some of the top cities by sending headquarter people, and we had very, very good results. So I would say that from the day of the Zegna where we had an aspirational customer that is partly lost, we have been gaining new customer that are high-end and we're gaining traction more and more with high-end product.
And last but not least, made me to measure. I think that the one incredible weapon that we have used around the world and also in China is made to measure by which we often -- a unique assortment of product that is very helpful in reaching out special customer that wants to feel exclusive in what they wear, and they're very picky on all their choices. So we do remain positive on China, but as I said, it's lower. It's lower compared to countries like America in picking up a trend. We will get there pretty soon. Lelio, you want to add some color on TOM FORD?

Lelio Gavazza

Yes, of course. I have been traveling in the last month in China. As you know, China for TOM FORD is still a negligible market because we are mainly for focalized in America. And I would say that, for us, China being a net neutral market is a great opportunity for us that has responded. The great opportunity has been underlined in the last few months, in particular, mainly the confirmation of the possibility new as far as a the market.
And this confirmation is tangible with the opening of our new flagship store that is going to happen at the end of June in one of the most important shopping mall in the Beijing. And on Hollywood, this location might as well is several harder opportunity that you have in China Mainland to opening that direct-to-consumer boutique of TOM FORD.
And I would add that with confirmation of some locations that were a little bit under question mark in the previous year, that has been confirmed by the landlord. On top of that, we have an addition of a new president, coming for one of the top group of luxury to join TOM FORD in Shanghai in charge of Asia-Pacific. And we have a massive marketing activity that we start to deploy in the next few months, where we really connect the brand with a Chinese consumer, aim to drive this nationality as one of the most important nationality together with the American that's already there.

Paola Durante

Can I ask Rodrigo to comment on China for Thom Browne?

Rodrigo Bazan

Sure. Good morning. Returning from Los Angeles. I returned from Hong Kong, Shanghai, Tokyo, Seoul. Clearly, it's a different environment in China. You still walk the streets and it's busy -- very busy, incredible market. It is divided by aspirational clients and very committed clients. We're seeing a fantastic trend when it gets to very committed clients such as yourself and the MTM, an events that we did last year, which we're going to be repeating later on this year.
I come from meeting landlords and visiting our teams. The aspirational client is much more challenging, in general, for everybody, and we brought in place a new GM at the beginning of the year. We are focusing 100% on the client connection right now and product confidence within all our teams. That's down to superior results, and we have certain stores that are doing really well and some others that are more challenging.
Still a highly exciting market, and we need to connect even further with the client and having more product confidence. From an external point of view, landlords are still really committed to continue to grow with us and waiting for us to have even more activities in the country.

Paola Durante

Thank you. Maybe on wholesale, I'll ask Gianluca to comment a little bit and then if Rodrigo wants to some more color, feel free to jump in.

Gianluca Tagliabue

So as Paola was mentioning, we cannot be specific on the numbers and figures. I think, Chris, you are pretty good in triangulating numbers, so I'll let you to make the math. Anyway, I confirm that Thom Browne wholesale revenues are declining -- I see high double digit. And this is a result of two things main planned factors. The first one relates to a different timing in deliveries. As we anticipated during the full-year revenues conference call in January, we said that Thom Browne wholesale deliveries were strong in Q4 compared to a year before. If you remind there was a plus-40% organic growth in Q4 vis-a-vis Q4 '22.
In addition, Q1 '23 base of comparison -- I go by euros -- it was close to EUR70 million over at full year wholesale of EUR195 million, who was also, particularly challenging. So we have a Q1 that is facing a strong comparison in Q1 last year and is taking the effect of a strong Q4 last year. So this is the first timing effect.
Then there is a second that is not timing, but it is a structural channel strategy decision about wholesale and/or selection. Rodrigo mentioned the decision of streamlining the wholesale distribution, especially even more now with some situation of clients facing some credit risks. So I think I asked Rodrigo to comment further about this decision that was taken. We probably have decided to go quicker and accelerate on a journey that was already in the books. So that was -- that is no different than what we had in mind. But we just push pedal to the metal on this given the context, and I invite Rodrigo to give some flavor around it.

Rodrigo Bazan

(multiple speakers) Thank you, Gianluca. Yeah, to give more background, I think we need to include the e-business element, which we all have seen the big shifts in ownerships and even changes. We have closed out down certain e-businesses, the relationship we have had for the past years. We have also -- and we see a significant reduction also in stock being offered on e-businesses. Further to that, we made a strategic choice to reduce even further any stock available for those channels.
And as Gianluca mentioned, is as we've been growing our DTC channel for the past eight years from 4 directly operated stores to 90 operated stores, we felt it was way more important to be confident on reducing any stock that could compete with our own DTC. So this is a choice. Obviously, a challenging wholesale market around the globe, but at the same time, wholesale remains a great channel and seeing Saks has hosted us with a the fantastic event for VIC, for celebrities with an exclusive collection in Los Angeles of accessories and clothing.
And wholesale, we continue to believe it's an important channel, but we need to make a choice on the volumes that we put in wholesale. So as Gianluca, mentioned, we made a strategic choice to further accelerate any reduction that we felt was necessary to further strengthen our business, which is a short-term pain but a long-term gain.

Paola Durante

Thank you. And maybe there was a third question on the EBIT CAGR trajectory from Chris.

Gianluca Tagliabue

I recall something that we mentioned, but I make it more explicit. For TOM FORD, this year is a foundational year. So we are building a structure, people, opening stores, and as it's normal, the first year of a store is not the second year in terms of performance. So we are not seeing a linear, faster growth of EBIT. We expect it to have an acceleration. We have said that we have a couple of years of overinvestment in CapEx, which translates into depreciation. We have the fact that the TOM FORD will be consolidated 12 months and not 8 months. Of course, then we don't have the PPA this year, but still we see that the growth at our EBIT more intense in years after that than in 2024.

Paola Durante

Okay. So we can move to the next question, operator. If you are fine, Chris; if you have any follow-up, we are here.

Operator

Anthony Charchafji, BNP Paribas.

Anthony Charchafji

Yes, Thank you. Good morning. It's our Anthony Charchafji from BNP. Hi. Okay. I have two question, and thanks for the good description before. Just one on current trading and the remaining will be on the margin. So just if you can give us a bit your thoughts on the US market in '24 --

Paola Durante

I don't know if it's our problem, but we don't hear you so well.

Ermenegildo Zegna Di Monte Rubello

Try again. (multiple speakers)

Anthony Charchafji

Can you hear me better?

Paola Durante

Much better.

Anthony Charchafji

Much better? Okay. Sorry. So first question would be on the US trend. I guess that 2024, I mean, at a time where the slowdown was already present in 2023 for most of the luxury sector, I mean for you, it seems that you are you're quite resilient in the region and that you seemed more optimistic than your comment on China. So maybe if you can you share your thoughts on the US market currently.
My second question would be on the marketing. I understand that Thom Browne that there have been no step-up in marketing in 2023, though I would say that you're starting from a low base. Should we expect that at some point, a marketing step-up also at Thom Browne to drive EBITDA a bit, the new addition womenswear and all that?
The last question would be on the gross margin. I mean a very nice improvement in 2023. I understand it was driven by -- specifically by Tom Brown. Can you tell us if there is more upside? And maybe for Zegna, knowing that there is this B2B business that is maybe 30% or 35% margin -- so a bit dilutive. I mean, do you see further growth in 2024 and beyond, or should we expect something higher or flat? Thank you.

Paola Durante

Okay, perfect. Thank you. So I think we have a first question on US trend, and I'll ask Gildo to comment, and particularly for Zegna. We see we need some more clarity marketing. I'll leave it to Thom Browne and then the gross margin in Gianluca talking. Gildo?

Ermenegildo Zegna Di Monte Rubello

United States. We remain positive for this year as we were last. And we also remain positive that America will visit Europe as of the last summer. And I think that Zegna has been able to penetrate in the perception of the upper scale American in a great way. Just hitting on the iconic pieces of (technical difficulty) our icon I mean, has really been the shoes of the luxury crowd.
Personalization is another very important attraction, but I think that it has been a cultural change of our company and of our people, many addition of a top retailer, merchandiser and marketing people in our organization that has led the transformation from its wholesale culture into a retail culture. And this rebranding going from a perceived of a clothing or a tailoring company into a luxury leisurewear and accessory company as really worked out extremely well around the States.
I think that there is no price resistance or anything. We are offering an incredible service in every store. Increasing the probability is quite sensational. And so I think that we have been appreciated thanks to our strong brands, but thanks to the changes we broke, and we are gaining not only more confidence from the loyal Zegna customers that were very business-oriented also to new customers and younger ones. So I think that the major changes has been brought into the perception of the brand by offering new products and superior service.
Another important factor that led to the change of a retail -- from a wholesale to retail culture is that we turned many point of sales from wholesale to retail. And the productivity has spiked up -- unbelievable. I can make the example of Nostrum that we change our scheme, and we change our numbers immensely just to mention. And so I think we are proceeding our journey with this determination. And I think that it will go on. So I remain, as I said, positive on the outcome of this big luxury market.

Paola Durante

Do you want to comment on TOM FORD, and I'll leave to --

Lelio Gavazza

TOM FORD is mainly in American market. And we see that with the collection of retail for the summer '24 that we deliver basically in February with the positive reaction from the market on the collection. And with the recent sweep in the space or I would say, in just last week. We saw that there are a lot of activity to do in term of the newer -- or some of our new flagships store in America. Open a few more store where we are not present. But as well, we had a good, good feedback on our posting and collection where you can see possibility of good results with production.

Paola Durante

Okay. I leave now to Rodrigo for Thom Browne marketing, but if you want to start, Rodrigo, just with -- you are Los Angeles right now and you've done this big event with Saks. So just a couple of comments on the US market.

Rodrigo Bazan

Sure. The most important point to highlight that we continue to invest in marketing and communications for the brand. That's a very important point. Something that we are always known for is our fashion show, which is the beginning of everything. When people ask me, what do we -- do we sell something from the show? Most of what we sell in our stores has passed by shows over the past 20 years and continues to be the case.
We have made a conscious effort since last year, since the couture show to make any brand moment on any brand events like the 20th anniversary a client moment and a client event. We think million and million-plus -- million-dollar-plus or multimillion dollar performance with clients on the back of this event. We are extremely focused right now on presenting the show collections. Not only New York to our clients -- so one-to-one appointments to VICs and significant clients, but also in Paris, we have had fantastic, fantastic feedback and actual bookings from that.
We will continue to do the same thing in the second half of the year, particularly in Asia. Last year, we patched Tokyo, Shanghai, and Seoul, and will repeat a couple of the capitals in Asia in second part of the year. With Thom, we're seeing a great reaction. When it gets to America, where we've seeing a huge brand awareness growth in the last couple of years, particularly because of the women's business -- right now, as you pointed out, I'm here and Saks is hosting us with a great event and a fantastic new location in Beverly Hills. It is an incredible store -- an incredible client-focused store.
Yesterday, we had a great event hosted by Saks with Thom and clients and VICs and celebrities. And this turns into today, a very significant amount of appointments that we have with VICs in order to buy the collection. Of course, with level of Saks a year, which is largely tweed, and the made-to-order bags, which we're launching globally here. Our annual messaging launch, made-to-order here and the opportunity to write made-to-order or make-to-order women's or made-to-measure men's. That's where we are seeing a fantastic performance as well.
So this is -- you would say, is a business, but it starts from a marketing point of view: how to communicate, if not fake marketing, it's real marketing on the collections, on what the brand stands for, and this is happening on a global scale. In all three big continents of the world, we are seeing this great reaction to presenting our collections into business that follows that.
And linking this with the world of aspirational class or the world of very committed clients, this shows a huge positive performance of our business, I think. So we are penetrating key communities, and it's been happening in the United States for the last couple of years. While we are presented with the collections in front of significant clients, their performance is outstanding, really committed, and special closing entry gets done right now to accessories and footwear.

Paola Durante

Fantastic. Thank you so much. And I leave now on the gross profit to Gianluca.

Gianluca Tagliabue

Gross profit -- so first, I qualify for 2023, our growth increase of margin comes above all from Zegna. So Zegna is the biggest driver of increase of gross margin. And second question was, how do we look forward the gross margin? I think we still have opportunity to grow the gross margin, and that is our plan for this year.
The drivers are several. One is exactly the one technical thing that is the disappearance of the PPA on cost of sales. This is something that we had this year for EUR15 million, and recall that in 2024, we still have but a very minor EUR3 million to EUR4 million tail of the PPA purchase price allocation on cost of sales.
Second, apart from this fact, we still add upside on the gross margin, driven by the fact that we are still in a meaningful way managing the price lever. As Gildo was mentioning, we are going the last mile on retail more and more. North America is the biggest area. We have on Zegna a 12 months of Korea. The mix -- channel mix will be a driver, but the price will also be a driver. So we expect gross margin to be still a area of expansion in terms of margins for 2024.

Paola Durante

Thank you. I hope we answered Anthony. We can go to the next question. And if I ask the next person to keep maybe to one because we would like to leave the floor to all the questions we have for us tonight. So next one.

Operator

Oliver Chan, TD Cowen.

Oliver Chen

Hi, Gildo and Gianluca. Hello. Good morning here from New York City. Regarding your comments on aspirational. We're definitely seeing pockets of pressure and continued-over inventory trends with aspirational across some brands. You have very service-orientated brands with distinctive characteristics on quiet luxury as well. But what's happening with aspirational? That's my question. And what do you see happening for it and what's in your control and what's out of your control as we think about that customer coming back later? Thanks a lot.

Paola Durante

Thank you, Oliver. I'll ask you Gildo to comment on Zegna on aspirational customer, but then I'll leave to Rodrigo maybe to add a couple of more comments.

Ermenegildo Zegna Di Monte Rubello

Since we decided to go up with our brand, the aspirational I mean has become less important to us. It is as simple as that. And I think what Zegna was -- at least what Zegna branding was concerned was the driver. Now it's already lower, and we replaced that with a lot of courage and a little of pride, the top-end customer that is driving our business and will be keep tying our business because the product line are really unique, not expensive for the sake of being expensive -- so very high quality.
Thanks to our platform, we create the best in-house product with the best material, very exclusive. I mean, all this idea of traceability, from linen to wool to super-fine wool to cashmere, I mean, is unique, and they really embrace with this sustainability and high level of service. And so we are able to drive new customer at the same time, increase the level of our offer. And so yes, we have become more selective in our customer. I think Zegna belongs with a very other few brands to sell luxury.
We do believe that this trend is not come to an end, and we are right in the middle of the journey. And we have to expedite the journey in particular in China. As I said several times, we are ahead of the pack in United States by any means. We are ahead of the pack in Europe and in Middle East. We are doing a good job in Japan. We have some work to do in some other part of Asia -- China, Southeast Asia and Korea. But we are working and we're going to get there. But this is the path. This is the world that we want to get, and we're going to get there.

Paola Durante

Thank you. Gianluca?

Gianluca Tagliabue

I think that there is some evidence of this journey, especially in China. We have signs that this evolution from leaving behind the aspirational clients in China is giving signs and we see legitimacy from the top-end client. We are seeing, for instance, the SECONDSKIN Triple Stitch, which is priced higher than EUR1,200 in Europe -- EUR1,200, EUR1,000 -- and it's performing very well in China.
We are seeing uber luxury products sold very well. We just finished Asia, and it's successful, a tank show of uber luxury products where client came in and recognize the collection, the high-quality collection that Gilgo mentioned. We have, in China, the highest number of so-called linear friends that are the ones above the 50,000 spending per year. So of course, it's the area, and that is where we have always disclosed. We are reshuffling our client base in China and started later, but we are confident that the formula, the ingredients, the recipe is working also there. We have signs that the product is recognized. High-end clients are seeing Zegna as a go-to brand also on the top five. So I think it was working to add it in the mix.

Paola Durante

And Rodrigo, a couple of comments from your side. And then, we'll lead to the following question.

Rodrigo Bazan

Sure. To put into perspective, from a Thom Browne point of view, I think the fantastic opportunity is that we don't target a specific client. We target a male and female client. So we have a wide variety. We target -- we have a young and older clients, so we love them all. And we have an aspiration, and we have a very committed client. So that's the whole range.
There's no question mark that when you go to markets and the real estate is it is impacted by a quarter to 30% and that's not great news from any other financial markets. The aspirational client will be buying less. What we've seen is that we have a very developed client value management. And when I walk the streets of the capitals that I mentioned, you see the brand war by clients in combination then with the key luxury brands, most of them are French.
And can we get that client to regularly buy with us? Absolutely yes. Absolutely yes. That's why marketing is very important. That's why I explained it very clearly what we do as a brand and the range of products is very important. That's what we mentioned that had the confidence on the wider selection of product having a connection, a really good understanding of clients.
So can you beat the market when it gets to aspiration and knowing the client really well? Yes. And that's what the hard work that we're doing today is sent to bill a couple of years ago. So we remain always very positive on the expansion of clients. I think was happening in the markets, particularly in key markets, it has less growth in general of aspirational clients or clients that are first coming to a brand.

Paola Durante

Okay, Oliver. I think we answer your question. If anything, you can come back to me. And we have the last one before closing this call.

Operator

Louise Singlehurst, Goldman Sachs.

Louise Singlehurst

Hi, good afternoon, everyone. Thanks for taking my question. I will keep to one, but just to clarify a couple of things on the wholesale channel and as we think about that rationalization, which absolutely makes sense for the long term. But for Thom Browne, is that expected to go into obviously, the multiyear as we look beyond 2024? And similarly with TOM FORD, should we be expecting some rationalization of wholesale over time in there.
And then a sneaky, but it's a related question, presumably we should start to see an improvement on the gross margin. Really helpful getting the gross margin color today in the annuals for 2023. But presumably, we should start to see the channel mix effect benefiting that as we move through into the next couple of years too. Thank you.

Paola Durante

Thank you, Louise, and I'll let Gianluca to comment a little bit. And then maybe also Lelio on TOM FORD FASHION?

Gianluca Tagliabue

We -- I go back to what we said in New York. We have disclosed the growth for the mid-term CAGR of 10%. And there was a question saying, how can we do a 10% growth when we chase an increase of store productivity? We disclosed an increase of store footprint through conversion and through brand new openings. And the answer was we see our wholesale business flattish going forward.
So our mindset is that the growth does not come from wholesale. So this is to set it in perspective. We want to keep wholesale basically where it is now. We are going through, especially for Tom Brown, in a cleanup and especially a selection of accounts. Definitely, this will translate into a channel mix, positive effect in gross margin. It carries also SG&A together because when we convert, you bring some cost attached. Possibly some conversions are paying back.
Always our rule of thumb is to have at least in a couple of years the store up and running. So you might have the first 12 months, use it, and then spike afterwards. That was also the reason of my answer to Chris at the beginning. If we see our EBIT growth, linear or not -- no, we are not seeing this because we are going through some conversion, some opening, but definitely the logic, if go direct to the consumers then is also already 85%. There, we want to bring the other two brands to a 70-30, which is not the case today. This comes to selection and conversion.
And I leave Lelio and Rodrigo to express the logic of the -- we had exactly yesterday a meeting them also. So you have a fresh material in your mind.
As far as TOM FORD is concerned, as we mentioned in the Capital Market Day in December, our key driver of growth will be retailer because it's the only way we connect with our customer (technical difficulty) Of course, 2024 will be a transition year. So it's not going to be a year where we're going to make a lot of things happening in new sales. But to confirm the strategy, I can certainly reiterate in 2024, we have points of sale. There is hardly that we will move in concessions.

Lelio Gavazza

We have additional three new opening that we typically use the wholesale model in the past. They are going to be open in concession directly. And of course, we are, in a way obliged to better control or manage some of the points of sales that typically retail or retailers that are not having a good financial situation right now, and we need to better control to avoid a negative path. Of course, I reiterate the fact that retail will be the driver of growth. And in the next year, we're going to have a much more a updation and expansion to do with retail network and of course, transformation from wholesale to retail.

Paola Durante

Perfect. And Rodrigo, don't know if you want to talk (multiple speakers)

Rodrigo Bazan

So from a Thom Browne point of view, if we -- wholesale. So if we take that we have a beautiful brand and a beautiful product and we want to connect also the clients, sort of three elements. Wholesale is an important component; important component because it have a global connection with very important clients. And it doesn't have to be walking through the doors of the department stores, the stores we can be or should be mostly the very well-known VAC kind. Like we're living today right now, we saw yesterday with having a event at the store with Saks, the product in front of the best clients they have, having a very well developed Saks sweet market and program.
I just saw the same thing in Hong Kong with choice in Crawford; it's fantastic. And just to make a choice, the biggest impact I see this year on last year is from an e-business point of view. We saw the change of ownerships very quickly of a couple of big players. Our matches -- just to clarify Gianluca's comment, we had shut down distribution with matches before this happened. So that's one of the few choices.
But from a wholesale point of view, where we remain positive is that we want to be connected with the best potential client in the world. There is a client expansion opportunity at Thom Browne clearly that one. Wholesale can play a specific role. Are we going to see a significant change in volume? Not necessarily, as Gianluca mentioned. But do we have an opportunity to continue to expand on footwear and accessories where we tend to have very good results, particularly from Japan? Japan is leading for us, the opportunity on accessories as well as footwears in a total commitment and exposure on shoppers we have at first to -- there were spaces on the ground floor with a certain -- you are said the perform really, really well.
So what can wholesale contribute? They can connect us with incredible clients. They can put us in front of -- right next to the most important brands when it gets to accessories and footwear. So we can continue to work intelligently on wholesale and cherry pick where to grow, which categories to grow and how to expand with it and how to do certain business directly and complement it with other business that brings us clients that we wouldn't have in the short term. There's no market makeup for the room that we saw yesterday that we had with Saks here.
So that's our view on wholesale. The volumes as Gianluca mentioned, we're going to be somewhere on that level. So we expect in 2024, somewhere there as a choice and the breakdown in terms of women's and men's -- women's is a new business; it didn't exist almost nine years ago. It is a very important part of our business. And when it gets to growth and opportunity, clearly key wholesale accounts can bring us very interesting clients.
As well as MTM and MTO, we have had fantastic success where we target a very elevated, very committed client from wholesale accounts for made-to-measure, made-to-order. We're talking about $9,000, certain fabrics within the collection, full suits, and we're talking about even custom orders that comes from very significant clients of some of the best department stores in the world that buy over $100,000 of looks of Thom Browne when it relates to customers of shows.

Paola Durante

Thank you, Rodrigo. And with this question and answer, I would like to close the call. I thank you everybody who have joined. As we said on the 23rd that we will have our Q1 revenue results call. So we'll see each other in a couple of weeks. See you -- call each other in a couple of weeks. In the meantime, if you have any question on what has been discussed during the call on fiscal year 2023 results, I'm always available. Thank you. Thank you so much, everybody.

Operator

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.