Ermenegildo Zegna N.V. Ordinary Shares

Good afternoon, good morning everyone. Thank you for joining the Emena Gildo Zania Group FY 2025 Financial Results Call. Please note that today's material and presentation are available under the zaniagroup.com website. Joining us today, the Zania Group leadership team, including Gildo Zania, the Group Executive Chairman, and Gianluca Tagliabue, Group CEO. Before we begin, we need to point out that the team will make certain forward-looking statements during the call. The group actual results may be materially different from those expressed or implied by these forward-looking statements. Also, these statements are subject to a number of risks and uncertainties, including those described in our SEC filings. Please refer to the forward-looking statements cautionary statement included at page two of today's presentation. I'll now hand over to Gildo Zenia.

Good morning and good afternoon, everyone. Thank you for joining today's call. on our group fiscal year 2025 results. Before we run through our performance, I wanted to take a moment to express our deep appreciation to our colleagues in the Middle East for their dedication, professionalism, and commitment during this complex period. On behalf of the group and of the GEAM family, I want to affirm our support for them and for all our friends and partners across the region. The Middle East remains an important region for our group, and although in the short term we are adjusting our activities to reflect the situation, we expect the region to continue to play an important role in our business over the longer term, in particular thanks to the resilience of our customer. Let me now turn to the business update, starting with the recent Tom Ford fashion show, which, as you know, has taken place earlier this month. Eider Ackermann's third runway show, presented in Paris on March 4th, has been widely acclaimed. Eider has further demonstrated his ability to interpret the brand's codes and DNA in a way that is unique, contemporary, and deeply personal. The selective elegance of Tom Ford, his craftsmanship and tailoring heritage, and his iconic leather pieces are imagined with modernity were all powerfully affirmed in his collection. which also added innovative mid-wear garments. I found the whole collection very confident and consistent in one word, very strong. And I want to extend my applause to Ida and to the entire team who worked alongside him to bring these shows to life. We all know that fashion shows are important, but they only translate into results when they are supported by strong production, commercial, and marketing execution. We're confident that Eladio Garza and the Tom Ford fashion management team Supported by and the whole group are working to build on this success. I was also very pleased to see the promising start of recently launched Tom Brown sneaker in collaboration with ASICS. First presented during the fall winter 26 fashion shows, the brand hosted in San Francisco ahead of the Super Bowl. These limited sneakers were officially launched worldwide on March 2nd. The launch was supported by several high visibility pop-up events. including at Selfridges in London, Eastern Tokyo, and Plaza 66 in Shanghai. The collaboration is achieving strong resonance ahead of our expectations, not only in terms of social media visibility, but more importantly, of revenues. This collaboration will be a way for the brand to attract and retain new customers. Sam Laban and his team are focusing on these critical KPIs. aiming not only to ensure the commercial success of the collaboration, but also to drive meaningful acquisition of new customers. There is a journey our clients, especially these new clients, should undertake. Jersey and even more so, Knitwear, are important, a second purchase for them. I'm also excited that in June, Tom Brown will show Milan during the Menswear Fashion Week for the first time. Moving to Zegna, as you know, at the beginning of this year, Zegna presented its For Winter 26th show in Milan titled A Family Closet. The idea behind this collection was simple but deeply rooted in our history. Clothes are never just garments. They carry memories. They move across generations, preserving experience and stories over time. This concept of memory as living legacy continues to inform many of the initiatives we are developing across the world. Finally, looking ahead, Zegna will present its... In March, we introduced Memory, a fragrance collection that translates moment from the founder life into scent. Rather than being conceived as a traditional perfume launch, Memory distills more than a center of Zegna history. Into six chapters is rooted in a place, gestures, or object from the Zegna daily world. The collection is currently available in a selected Zegna location with a progressive global rollout continuing through 26. Beyond this launch, we are also very proud that Zegna has been announced as the main sponsor of the Italian Pavilion at the 61st International Art Exhibition, La Biennale di Venezia 26, one of the most important platforms for contemporary art worldwide. The Italian Pavilion will present Conte Con Tutto, a project by artist Chiara Camoni, curated by Cecilia Canziani, with whom we have developed a meaningful dialogue over the past decade. This initiative, alongside our global partnership with Art Basel, reflects how Zegna and Chris operate not only as a luxury brand, but as a cultural platform connecting fashion, contemporary art and landscape, continuing a vision that has been part of the company since our founder first imagined Ozzy Genia. Finally, looking ahead, Genia will present its spring and summer 2017 fashion show in Los Angeles by creative director Alessandro Sartori, together with the launch of Villa Genia LA. Following the experience that we created in Dubai last June, Los Angeles will allow us to showcase our collection within one of the most dynamic markets of our group. The city resonates not only as a global fashion hub, but also as a cultural capital with influence extend far beyond its border. Together, this initiative reflects Zenia's long-term vision, building a brand that moves seamlessly between fashion, culture, and landscape, while remaining deeply rooted in the values of its founder. And now, let me hand over to Gianluca. Thank you.

Thank you, Gildo. Good morning, good afternoon to all of you. Let's move to page seven of the presentation where you find full year 25 results he highlights. The revenues for full year 25 have already been disclosed early February, and we confirmed them at 1,917,000,000 minus 1.5% year-over-year on a reported basis and plus 1.1 in an organic base. In 25, the group reached a 67.5% gross margin and adjusted EBITDA of 163, which does include 10 million of provisions related to losses on trade receivables for Sachs Global Chapter 11 Procedure. Without this 10 million debt provision, the adjusted EBIT would have been 173 million euro. The group also reached 109 million of profit, up 20% from 91 million last year. More at the end of the year, the group had net cash surplus of 52 million euro. Let's move to the following pages to comment more on these results. Page eight. In full year 25, gross profit rose by 90 basis points to 67.5, driven mostly by channel mix. With DTC that reached 82% of branded revenues versus 78% last year. And as you know, DTC gross margin is higher than the wholesale one. Moving to SG&A. SG&A in full year 25 reached 1 billion 34 million euro. with 53.9% incidence on revenues compared to 51.8% last year. This increase in the SG&A incidence is linked to the following factors. The investments in talent, systems, and organization across different functions and brands, looking at the long-term vision for each of the brands. Store network expansions, in particular for Thom Browne and Tom Ford. it has been impacted by the negative operating leverage caused by the streamline of the wholesale at Thom Browne. This SG&A line of $1.34 billion includes also 10 million provisions related to the losses on trade receivables owed by Sachs Global. Moving to the marketing expenses, in 2025, they were $121 million equal to 6.3% of revenues in line with the prior year and our indications of a fair mid-term marketing on revenues incidence of around 6%. Let's move to page 9, where we report the adjusted EBIT of the group and by segment. As always, this is the main performance metric used by the management to analyze the performance of the business at group and at segment level, and you can find the reconciliations in the appendix. to the analysis by segment, Zegna segment, which includes the brand Zegna brand, the textile division and third party brands business generated an adjusted EBIT 197 million euro and the margin of 14.4% versus 13.9 last year. This result in EBIT reflects and includes 3 million of provisions in relation to SACS global because these provisions are not in the adjustments, are affecting the adjusted EBIT, without which the adjusted EBIT for the Xenia segment would have been 200 million with 14.7% margin. Thom Browne's segment has been the most hit by the reduction in revenues driven by the wholesale streamline and achieved 1 million of adjusted EBIT. This performance includes 2 million euro provisions in relation to SACS. Tom Ford fashion segment reported a loss at adjusted EBIT level for $16 million generated in H1, while in the second half of the last year, Tom Ford fashion recorded a positive adjusted EBIT performance. Full year 25 results for Tom Ford include $5 million of provisions in relation to Sachs Global. On the positive side, corporate costs decreased, mostly due to lower insurance costs. Moving to page 10, you can see here summarized our reported income statement. A brief comment on taxes. As you see, the effective tax rate decreased to 22% compared to 30 last year due to non-taxable income in 25 related to the remeasurement of put option liabilities mainly the one on the remaining 8% stake on Tom Brown. As a result of the above, we reported group profit in full year 25 at 109.5, up 20% versus 90.9 million euro in 2024. Based on this result and in line with our dividend policy, the board of directors proposed a dividend distribution of 12 cents of euro per ordinary shares Francesco D' Which equals to a total dividend distribution of approximately 32 million euro let's now move to page 11 where we comment on capex and trade working capital. Francesco D' cash out for capex in 2025 reached 103 million 5.4% on revenues of which about 60% are related to stone network. and the remaining 40 to investment in production, including the shoe factory we are building close to Parma and in Haiti. As we have already anticipated, 2026 is going to be an important year in terms of CAPEX, since the investments are related to the new shoe factory in Parma, which will be completed by this year. And for this reason, we expect CAPEX in 2026 to be closer to the 10 to the 7% mark. Trade working capital reached $408 million at the end of December 25, equal to 21.3% of revenues compared to 460 and 23.6% of revenues at the end of 2024. This was the effect of an improved inventory management, control of trade receivables, and forex input. Looking at free cash flow at page 12, let me highlight that the group generated 82 million of positive free cash flow compared to 10 in the prior year. This despite the already mentioned capex of 103 million paid and 150 million for lease liabilities and right of use assets. Finally, on page 13, you can see that thanks to the positive free cash flow and the inflow from the sale of treasury shares to Temasek for 170 million euro. The group reported at the end of December a positive cash surplus of 52 million euro versus a 94 million of net financial indebtedness at the end of 2024. Let me conclude again with a brief comment on the impacts of the current situation in the Middle East. As you know, Middle East is a relevant region for our group and for the Zegna brand in particular. Revenues for the region represent a mid-high single-digit share for the group's total. All our stores in the area are open and operating. At this stage, it is difficult to fairly assess the potential input of this conflict on 2026 results, as it will largely depend on the duration and possible implications for the global economic outlook. As our executive chairman also said, we continue to work toward delivering our 2027 targets, knowing that the overall outlook has become increasingly uncertain due to these factors. Now to Paola for your questions.

Thank you. Thank you, Mr. Gildo. Thank you, Angelica. And then I'll open up for the Q&A session.

Thank you. If you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press start followed by two to remove yourself from the queue. Our first question today comes from Chris Huang with UBS. Chris, please go ahead.

Hello, hi, it's Chris from UBS and thank you for taking my questions. I have three. Firstly, starting with the top line momentum, and I think at the previous conference call in Q4, you were saying that excluding the Chinese New Year timing impact, things are not seeing any meaningful change on a sequential basis versus Q4. So I'm just wondering if you can give an update on the latest trends you're seeing by different regions, nationalities, whatever you can provide. Secondly, on the margin, it seems like Xenia's segment, excluding the SACS impact for the year, ended around 14.7% EBIT. If I look at the latest consensus, I think people are modeling around 14.1%. So, are there any reasons why you believe that, given the pickups in theory for the life-to-life growth in 2006, you shouldn't be able to do a margin that is higher than what you did in 2025. That's my second question for the Zing App segment. Last but not least, I think FX moved a bit over the last few weeks. And I think part of your caution on 2026 margins was coming from the fact that FX is not supported. So I'm just curious to know if the recent moves of FX makes you feel a bit more comfortable in meeting the 2027 Uh, targets in terms of profitability. Thank you.

Thank you, Chris, and thank you for the 3 questions. I think the 1st, 1 is for Mr. and is related to the current trend and then outlook or a comment across all the regions. Of course, I, let's say, I anticipate that. The sales information will be more given at the end when we release the Q1 numbers, but very happy to provide a comment on the current trend.

Thank you, Paola. Overall, the year has started well with a trend slightly better than Q4-25 in DTC. This notwithstanding the uncertainties we are facing in the past few weeks with the war in the Middle East. We saw a good performance in Tom Ford fashion, thanks to the new spring-summer product, and the continuation of a good trend also in Tom Brown, in particular in recent weeks after the launch of the Tom Brown ASX sneaker. Maybe a comment on China, where we are seeing some sequential improvement in the region. However, we remain cautious. and we continue to assume a flattish performance for the year. But we are satisfied with the performance of Chinese New Year, slightly ahead of expectation, so that we know what we have to do, and we'll adopt a focused tour strategy to enhance the quality and efficiency of our DOS network in the region. On the other two major regions, in particular the Americas, United States and Latin America remain very resilient. And we see a continuation of a good growth as we did last year. And I would say that also Europe looks pretty resilient beside the conflict in the Middle East. So overall, you know, not a bad situation of the first eight to 10 weeks of the year.

Okay, the second is for Gianluca, and it is related on the Zegna segment EBIT performance.

Hi, Chris. So I think you pointed out an important angle that is, of course, that the profitability of the Zegna segment EBIT margin in the second half, if you exclude the SACS Chapter 11 provisions, would have been close to 15%. So we are pleased of that step. We know that Zegna segment deserves stronger profitability still. We are working on it. But on the other side, we also know that we have projects critical to support the long-term trajectory of the brand, and we don't want to chase short-term quick results. We observe with pleasure the fact that we get there. And linking to also your last sentence, it's true that in the recent weeks, when we talked early February, the dollar was $1.18 and now it's $1.15, $1.16, and the renminbi was up $8.10 and now is below $8. So we have seen some inflection point on currency, which should favor us. But still, if we compare 26 to 25, we are still in the mindset of having a couple of points, almost around two points of headwind from currencies. So this is still a factor that will impact the group, will impact also the Xenia side. So having two points of headwind from expected from currency definitely will be a dragging factor in the profitability. And that's why also I link to one of the statements that I did last time that we want to see. We are expecting to move sideline on the profitability for the group in 2026, taking aside the one-time provisions of SACS. So I think I put together the second and third question.

Perfect. Thank you so much. Maybe just to clarify, so the commentary on Q1 DTC momentum, you're referring to an acceleration versus the Q4, which was 10% at group level. Is that correct? It's correct. It's correct. Perfect. Thank you.

Thank you, Chris. Second.

Thank you. The next question comes from Adrian Duverger with Goldman Sachs. Adrian, please go ahead.

Hey, good afternoon, Gildo, Gianluca and Paola. Thank you very much for taking my questions. I guess the first one would be, sorry again, on the current environment. Have you seen any changes in consumer behavior in the last few weeks? I mean, I guess the real question is, have you seen any second order impacts in other regions? And within the Middle East, are you taking any specific initiatives to maintain your relationships with the clients there. Then my second question would be on the resilience from the higher spending cohort. Have you continued to see an increase in our proportion this year compared to Q4? And if so, have you seen any differences by different geographies? Thank you very much. Okay, cool.

Hi, Andrew.

So in terms of current environment, if we have seen any negative after the war, I will... No, as I said previously, not, with the exception of the Middle East, in which the stores have been, you know, initially closed and then opened, but there is less traffic and there is, you know, less energy, surely, and so customers are surely down quite a bit. I would say that we are scoring better than what we've heard, and so that shows the brand is very well placed in that part of the world. The event that we did last year, I mean, surely has created an incredible resonance of our brand, and I think that many of those customers probably will be buying, hopefully, outside the area and are the top resilient castles that we are talking about. So overall, with the exception of that particular area, I think that the rest is continuing the expected growth.

And the question on the third one was also related to which cohort and in particular if the high spend are continuing to drive the growth.

We have a program around the world of personalization. So I think that we are becoming more and more known to do that extremely well. And appointments and store events that goes beyond So I think that that could be a good flow of business of product that also you don't find in the store. So that helps keep the resilience of those customers high.

In terms of relationship or what we are doing with the Middle East customer, I was also asking if there is something particular that we are doing so far. in terms of relationship in the Middle East?

No, I don't think... We have a good partner there, actually two good partners. One is Altair for Zegna and the other one is Shalu for Tom Ford. And so I think that we are following the happening very closely and we know that they are trying to keep the malls as... you know, open and as active as ever. And so the partnership with local is important and to support them, you know, with the merchandise and with, you know, some local promotion.

And also the relationship that our client advisor has with all our customers, they continue with something that clearly helps in this situation. And I think we answer to your questions. Thank you very much.

Can I follow up with a quick question on pricing, maybe, in terms of what you're seeing for the pricing environment this year, and if there is more opportunity to continue to drive higher pricing, both from like for like and mix?

No, as we said last time, we continue doing low, mid, single digit price increase on a like for like. We continue having an evolution of the mix upwards. That is our boat, as Jado was saying, through exclusive collection, but also in the store and ready to wear. We keep elevating the offer. This is, of course, in Zegna. but also on the other brands. So I think the rule of thumb stays with the low-mid single-digit price increase in order to offset the cost factors.

Sorry, one addition in particular to Zegna is the drop strategy of coming up every several weeks. with new deliveries and with product that looks different from the previous delivery, it brings an incredible excitement to the store. I think that color is a driving force. I think a conning product and not only the type of stitch, but also other categories are meeting more and more the desires of customer. So I think that the outreach is very, very important. and to keep the interest of the store high. It's extremely a priority in times where overall you see a little bit less traffic. And I think that the possibility to apply the same rules to Brown and Ford is very, very important. I think that the excitement that Haider will bring with the new collection is important too. Not only to retain their customer, but to attract new customer. The possibility to have Tom Brown showing me land. We know that Tom Brown has to strengthen his presence in Europe, in particular in the retail. And I think that having a show in Milan will enhance his brand awareness and his exposure to the local. So I think fine to expect the flow for the customer, but I think the key is work well with the local. and have, you know, stuff in the store that created this relationship that made Xenia so strong in the States and in other parts of the world.

Thank you very much. Thank you, Adrian. Ciao, thank you. The next one.

Thank you. The next question comes from Chiara Bassistini with JP Morgan. Please go ahead. Thank you very much. Good afternoon, everyone. I have a follow-up question on the situation in the Middle East. Notably, I was wondering, in terms of the shipments of the merchandise to the Middle East, have you reduced or suspended shipments to the region, or is the business as usual from that point of view? And also, a clarification on rents in the Middle East, are they variable or fixed? That's my first question on the Middle East. The second question on Tom Ford, profitability improvements in H2, I calculate actually excluding the tax provision, the profit released went back to positive territory. So I was wondering if you could expand on the margin drivers for Tom Ford in H2 and whether that comes mainly from gross margin or OPEX. And finally, can you remind us, I think you're highly exposed to the local span rather than tourism, but can you remind us how much of your sales come from tourism? Thank you.

I didn't get the question.

Okay, so Chiara, maybe you can help us going through the four because I don't know if we fully understand all of them. But in any case, the first of Middle East in terms of shippers and rents. And I'll leave it to Gianluca to comment.

Now we are at the tail of the spring summer shipment. So we have basically most of the collection already delivered before the end of February to the market. So we will have some tail of summer still to be delivered and we monitored the situation but this is the situation so far so the product has been shipped and until late summer delivers to the market in terms of costs i think some relevant stores have a variable with some fixed but we are well we are well above the fixed so i think I would say it's more skewed to the variable than a fixed, like a typical Western European free side store. So we have more variable than fixed, the rent. The Tom Ford, the second part, I think that we have, we said that we have built the infrastructure of Tom Ford at this point. So we have come to a certain point of We have built the OPEX, and I think we have been starting enjoying some good results in the second half and some scale. On gross margin, there has been also some step up on gross margin linked to the effort that we are doing in terms of full price sell-through with the team, with the merchandising team, with Lane. So I think it's a combination of the two things. quality of growth margin and inflection, starting to see some slowdown in the growth that we have done in the last couple of years to build the structure both at that quarter and market level for Tom Ford. So I think this is, in a nutshell, the situation of the second half of Tom Ford EBIT.

The last question was on the level of tourists. Chiara didn't get it. Is it in general or you ask a certain area?

No, no. In general, I think you have a very high exposure to local consumption, but I just wanted to make sure what your tourism exposure group level is. Thank you.

It's minimal because, well, if you take greater China, it's mostly locals. If it's America, it's low double-digit, the non-locals. Of course, in Europe, you have Europe, not Middle East, Europe. You have 30%, 40%. So I think that is our client base is, of course, for the intrinsic nature, especially of Xenia, but also, of course, which are skewed to men's. that is a big component of locals. So there is a big component of locals. There is a big component of the top of the pyramid. That's why, as Gilda was saying, of course, we see the uncertainty in front of us, but we enjoy also the resilience of our customer base.

Perfect. Thank you. Thank you. Grazie, Chiara. Thank you. Next one.

Thank you. The next question comes from Antoine Belge with BNP Paribas. Please go ahead.

Yes. Hello, everyone. It's Antoine Desjet, BNP Paris. Three questions. The first one is that in 2026, not asking for a forecast, but within your portfolio, would you expect a lot of difference between the top line growth of the three brands, especially now that maybe there should be less impact from wholesale adjustments? Yeah, so maybe an update on wholesale and which ones have the most exciting prospects, at least for 2026. My second question is about the gross margin and what are going to be the moving parts, the channel mix. I'm not sure I understood the impact of FX when you said a couple of points. you said, was it about like a minus two impact on the top line or was it impact of basis points on the margins? And finally, on the Middle East, just to understand, so the exposure to the Middle East is mid to high single digit. Within that, how much are people who are not originating from the Middle East? And then also, uh the sort of opposite question which is uh you know what's the percentage of middle eastern consumer spending elsewhere notably in europe to to get an idea of the if i deduct and then i add then i get to the cluster thank you okay thank you anthony antoine sorry um so in 2026

The comment I asked Gianluca to comment on the difference expected growth by brands and I think there was also a question on those days.

Well, I start from Monceo. Well, first I reiterate the fact that the on the DTC, the three brands, all the three brands are growing very well and all combined we are growing more than the trend that we have shown in Q4. So that performance is well balanced on the three brands. So that is to take out the DTC. On wholesale, we have said and we reiterated that wholesale is not going to be a driving force. We'll continue to contract in a different intensity by brand. Then I would expect it to decline by meetings, considering both our intentional icon protection and some still wholesale conversions. Tom Ford should be possibly negative single digit, and this is mostly related to sell-in to the wholesale partners in the Middle East region. Tom Brown will still be solid double digit negative, although less than last year. And of course, much less than last year in absolute terms. So at this point, the business of Tom Brown wholesale is smaller and the reduction and therefore the impact in absolute terms to the business is becoming smaller and smaller. And the decline in absolute terms will be much less than last year. So this is in total. And linking to your second question of the two points, effects, impact, it was related to revenues. Of course, then how this translates into the bottom line, you have, of course, also the OPEX deflating. So it's part of that. It creates an impact much lower, of course, than two points, the effects. Two points were related to top line. What was the last question?

There was a few questions on gross margin, if it was driven mainly by channel mix, and then the impact on forex.

This I just asked.

Yes, this is your answer.

The impact of the channel mix is definitely an important driver of the step forward on the gross margin. The second driver that we are working heavily with the team of Tom Brown and Tom Ford is stepping up the incidence of full price sell-through. That is the second big driver of improvement for Tom Brown and Tom Ford. Okay. The last question was on Middle East.

Yes, on the nationality, how many are not local?

It can be empirical. It's an important part that we have people either traveling or resident there temporarily, but we don't have a specific number. So that's why also we expect to see some of them elsewhere. That is also an outcome of this because we see, of course, there are some residents locally there, but they moved to London, to Istanbul. So we are seeing people, same customers there and elsewhere. that is also part of our safety net together with resilience because our clients are moving so especially the ones that we have been serving in the middle east thank you very much very clear sorry thank you to you and uh if there is there are other questions so yeah thank you the next question comes from oliver chen with td cohen oliver please go ahead

Thanks. Hi, Gilda and John Luca. Thank you. Regarding Tom Brown and Tom Ford, a lot of great initiatives. How is profitability at both moving relative to your targets and what's realistic for us in terms of modeling those profitability profiles this year and then longer term at both of those? And then on the second question, consumer confidence and sentiment, we continue to see a really robust trend. environment in the Americas. We just love your thoughts on that as it applies to China and the Americas. Kind of different. What's what's happening? Thank you.

OK, the first one I'll leave it to John Luca on the Tom Brownton for profitability in 26 and longer term and then you are sending it to the after.

Uh, so if, uh, on the EBIT of Tom Brown and Tom Ford. So first, to give a qualitative perspective, both are enjoying growth in, as I said before, on VTC. And it's not just only for space, but it's comp, our current trend on those two brands. Part is the success of the new collections on Tom Ford. There has been, and that is a very strategic, important initiative All the initiatives put together by Sam and the team, it's around making the most of the use of the merchandising drops. And so, for instance, in the first month that has been put together, drops in the Xenia-like way around denim, around ASICs. And these are, especially the ASICs one, is very instrumental to capture names of new clients that don't know the brand. These are leading indicators for something improving in both the brands. In terms of profitability, on Tom Brown, of course, we have seen a second half that has been tough with the streamlining of the wholesale business and negative EBIT in the second half of 2025. We do not expect a loss of Tom Brown on the opposite to make it sure. We expect to go back to reasonable profitability on Tom Brown and still injecting talents in the organization, but we want to go back to decent profitability. And Tom Ford, we expect an EBIT performance to be better in 26 than 25 with a substantial improvement. Longer term, Tom Brown needs to go to a double digit. Of course, EBIT margin, there is no way that it doesn't go back there. And top four, the same with the delta of royalties to be paid to the IP owner of the brand. So both brands enjoying a journey towards a scale that is much higher than the 300 that we see today, 300 million round of dollars. enjoying scale both at this point they are ready to enjoy that scale and go to a profitability that is needs to be a double digit.

But I mean on consumer confidence in the US and the US market overall, I leave it to Gildo to comment.

No, I would say the confidence remains pretty good across the states. We don't see any any negative, We planned another good year as it was last year in all three brands, in particular Zegna and Tom Ford. However, also with Tom Brown, we are building a stronger retail network that should help. We have a couple of openings for both Tom Ford and Zegna across the year that will materialize and give us an even more homogeneous and stronger network distribution across the country. Maybe a word on Sax Group, since it's a strong wholesaler of ours. I think that it seems they are moving according to plan. We have shipped spring-summer, and we decided to produce for winter. And so, you know, we keep our fingers crossed, but we do believe that the Sax Group we remain an important part of ours in the future to move ahead together. So we were reassured by the validity of the plan and surely we supported them after having been hit last year. I think that we decided to support them from the beginning and I think it will happen. Another important thing, Latin America, we are one of the leaders in luxury because the brand has been known, I'm talking about Zegna now, for many years and the fact that we have relaunched our stores in the past few years and we have a good network in particular of stores in Mexico and Brazil. a similar level of problem that we have across the world. I mean, it makes that customer more local, which before it was buying all over the world. And so I think that it's quite incredible, the growth, the percentage growth that we had in Latin America in the past two years, and it will continue. So surely our attention will be not only in North America, but also in South America, in particular in those two countries.

Gildo, in China, are you seeing encouraging traffic and traffic and conversion? How would you characterize that environment?

I'm traveling with Paolo tomorrow, so can be more specific after our trip. I tell you, as I said before, we have seen some signs of improvement here and there. I would say in particular in Hong Kong, I think Hong Kong and Macau have seen a more encouraging improvement compared to PRC. But as I said, Chinese New Year, we did our plan and I do believe that we touched the bottom and it will be a gradual recovery. However, we remain prudent for 26. And if things will improve, we surely share it with you. But for the time being, we remain cautious on 26. We plan 26 courses, but we see some small signs of improvement.

Thank you. John Luca, follow-up on SG&A. Can that line item grow lower than sales, or what should we know in terms of any non-recurrings or the forecast on the SG&A side? And then lots of excitement on Tom Brown. I'm on the ASICs wait list as well. Nice job. Thanks.

Well, definitely the step up in profitability needs to come from SG&A leverage. This year, of course, if you go back, we reduced 50 million more or less than the sale of Thom Browne, and that has not come together with a relevant drop of SG&A because it's a SG&A-like business. So since we said that the drop going forward of wholesale in absolute terms of Thom Browne is smaller, that dragging factor should not be replicated. definitely our journey towards improved profitability goes definitely through improved SG&A and the other factor has been we invested in the last 18-24 months in the structures of Tom Ford especially and therefore, as I said before, we are coming to a sort of inflection point in the growth. So those are two factors that should help us phase out from the leverage on the SG&A.

Gentlemen, best regards.

Thank you, Oliver. Thank you. Can we ask the operator if there are follow-up or other questions?

Our next question comes from Natasha Bonnet with Morgan Stanley. Natasha, please go ahead.

Hi, thank you very much for taking my questions. The first is just coming back to the Middle East. I know you said it was about mid single digit, high single digit percentage of your sales. Could you split it by country? Is the UAE, is it fair to assume that it's the majority, so over 50%? And then if you could split spending just between locals, expats, and tourists. Also in the Middle East, I believe, Adela Zegna, last year you said that you had plans to open more stores in the country. In the region, sorry. Can you let us know what those plans are for this year and next? My second question is, previously on the EBIT margin for 26, you had guided to it moving sort of sideways in 2026. I see consensus has $188 million with a 9.5% margin. Do you see that as feasible at this stage? And then my last question would just be to the clarification on current trends. You said since the start of the conflict in March, you haven't seen any changes in trends in the rest of the world, right? Excluding the Middle East, everywhere else is still on trends. Thank you very much.

Thank you, Natasha. Okay, so I think the question on Middle East and the incidents if away is the most important factor. I anticipate yes, but I can leave Gianluca to comment a little bit more. There was a question on local expats and tourists, which we said we don't provide this kind of detail.

Of course, the biggest impact is in UAE because it's the biggest by far market for the group there. And so when we talk about decline in the region, it's basically the decline in Dubai and Abu Dhabi, because those are the two big markets where we see revenues coming from. The second was if we have openings. We have one opening. We have, at the end of the year, around the end of the year, we have planned an opening in Abu Dhabi. We have already disclosed the grove. and also talk forward and talk forward that we are not changing the plan so we we are going forward with the opening because it was already planned and we we continue the execution of that store those two stores

2026 EBIT consensus.

What we have said is, we said that the EBIT margin is sidelined. So we have, if you take out the accrual of Sachs, we had more or less 9% this year. So we are moving sideline. The percentage is that one. Of course, the absolute becomes a variable depending from the readiness. And so far, uh so we have we have we are we are seeing revenues in the range of the 2 billion but of course it's subject to the length and the impact of the disruption in middle east in next month or weeks so hopefully and in terms of current trend the the last question from natasha was if we have seen any

difference after the war, apart from the Middle East?

I already commented, no. We are quite impressed by the resilience of the rest of the country. We are all doing the right things, but the good thing is not only with Zegna. Zegna was expected, but the other two. We are doing well with the three brands, I repeat, even after the conflict erupted a few weeks ago. Let's be positive to continue the trend because we think we know what we're doing. There is an extremely clear strategy for each brand. I think we finally have three good organizations. Nobody asked about the new governance. I'm going to volunteer to say that. I think it's working jolly good. I'm enjoying not the rest. I'm working harder probably now than before. But besides that, I think that the new team is is proceeding very well, you know, in creating value and in doing the right things. And in making sure that the two brands that we have to, that we expect as growth, which are Conbrown and Tom Ford, are well supported by headquarter and by the leadership of Gianluca supporting the other CEO. So I think that it's good. And I'm glad that we did courageously what we did last year, because we are a better place with this organization than we were before.

Any follow-up, Natasha? Are you okay? No, I'm good. Thank you very much. Actually, one good thing on the Middle East. What's the split between retail and wholesale, if you can share? Thanks very much.

Retail and wholesale in the Middle East.

Zegna is basically entirely retail. We have already also taken over Qatar. So there is a small portion in Lebanon that is the most relevant wholesale business we have on Zegna. Tom Ford actually instead is 100% wholesale. Yes. And Tom Brown is not really relevant, so I wouldn't.

See, when we say low ceiling, it means franchising, and we still have the Tom Ford and Tom Brown logo. It's not that we sell the specialty store. It's just that somebody else runs the stores for us. Tom Ford, we have franchising monobrand stores.

All right. Thank you. Thank you to you. Thank you. And next one.

Thank you. The next question comes from Chris Gao with CLSA. Please go ahead.

Thank you. Hello, Judo. Hello, Gianluca, Paola. Thanks for taking my questions. Chris Gao from CLSA. I have a couple of quick follow-up. So firstly, it's about Chinese demand. We are very happy to see an above expectation current trading 1Q and also ending tax guidance for the full year, flat-ish year-over-year. So just wondering that if the current improvement that you see from Chinese is more from the new consumer recruitment or existing consumers? And also, maybe could you please share more that which price points of second year core brand are seeing more of the acceleration that's from 4Q25? This is the first question. My second question is regarding the sales density in China compared with our global average of Zegna core brand. Basically, where are we now? How does the sales density in China look like compared with global average? Because we know that there will be a couple of store optimizations in the mid-term for Zegna core brand. Also, we'll also continue with product innovations, strong engagements with our core community, So do you have any, you know, preliminary color that how the midterm sustainability recovery in China will look like? So this is my second question. And the third question is a quick follow up on Japan, South Korea. Maybe that is not the biggest cluster or regions, but still actually people also cares about the demand trends. So basically, how do you see the demand moving in one Q26 of Japan and South Korea and also the outlook? Thank you.

Okay, so three long questions. Of course, there are some details that we might better discuss after we provide the Q1 results in end of April, but in any case, on The Chinese demand, the question was the current improvement is also from new demand, from new consumer, or if we can... It's pretty balanced.

It's pretty balanced. We are seeing both new clients coming in also through the triple-stitch that we remember. It was one of the areas of untapped opportunity in China. And so we see new customers coming in as well as the execution of the brand elevation that is bringing in. Then your friends or doors. So I think we are working on both sides of the, of the customer, uh, uh, spectrum. Uh, so this is on China. So there is not one angle only it's both.

The second was, I will increase also the personalization because we opened the the capital of Salotto in China and in the rest of Asia, and we want to make those productive. So those are enhancing the possibility to have, you know, a potential new customer that want privacy in what they buy and they want to find a product slightly different than they find in the store. So I think that this is something that we expect improvement this year, in particular in China.

The second part was on sales density in China, but I would leave this specific comment on the call-up end of April. And then on Japan and Korea, if you see some improvements.

I confirm that they are growing well, both. The rest of APAC in general is growing well, and specifically for Xenia and Tom Brown. Tom Ford is smaller, much smaller in that area. Bertuzegna and Thom Browne, but both brands are in the current trading, they are performing well.

But I think that the recent opening of the Ginza shop of Thom Browne shows a very good result. And I think that also the Ginza shop of Zegna, we see good traction also with the local. In the past few years, there were lots of Chinese, now less Chinese and more local. And it seems also Korea is coming back after a couple of years of slowdown. And Southeast Asia also, I would say we see some improvements in that part of the world. And actually, we have strengthened our organization. We put attention to make it happen, because there is room for growth for all the three brands.

Thank you, Cristo.

Thank you. Very helpful.

Thank you. See you. And the next one, if there is.

Thank you. Our final question from the phone lines today comes from Maria Mehta with Bernstein. Maria, please go ahead.

Maria. Good afternoon, and thank you for taking my questions. I have two. First one is actually a follow-up on current trading. Because we have been speaking to your peers this week, and a couple of them mentioned weaker than expected tourist trends in Europe. I was just wondering if you're seeing the same thing for this quarter. And then the second one is on marketing. Obviously, you've managed to maintain marketing spend flat, despite all the activations and the two prime turnarounds that are ongoing. And I was wondering how you were seeing marketing spend for 2026. Thank you.

Okay, the first one is current trend in Europe, and the second one is marketing spending, because we hear you a little bit far. If I'm not right, please correct me. The first question is what we are seeing in terms of current trend in Europe.

The second one is?

Marketing spending, how we allocate marketing spending in 2025 and the budget for 2026.

In Europe, Bojan Luka and I were traveling quite a bit across the major European capital and we see a good trend. We don't see any different trend as compared to the last second half of 2025. We see a good resistance of the local. We still see good traffic by foreigners. So no major differences from what we saw in particular in Q4. You know, we have some new resort stores that in Windsor, they did fairly well. We did some events, in particular, we resumed to do time shows, in particular, taking advantage of our made-to-measure service. So, as planned, I would say. No particular worries on that side. Hopefully, you know, we will see for the summer enough for us. So that's the thing to watch. But so far, okay.

Marketing.

I think we said that we are heading into 2026 with an incidence of around 6% of marketing spending on revenues. That is our rule of thumb, but then could be slightly more, slightly less, but that is our normal landing spot?

We have market initiatives that we said are important. We move from sport in a way to more culture, art. And I think this initiative, in particular with the art world, I mean, from Biennale to Arbaso to... What's his name? The Aspen... Yeah, they are free. I think that will help us nurturing and entertaining customers that should be resilient. But I think it's a good way to share some values that are related also to the world of art in Kenya. And so I think that environment and arts are something that we are putting money into the marketing budget for this year. And I emphasize, every time we do a show, we create an event. And so I think that this would be additional business that we can create that is very resilient.

Thank you. If you don't have any follow-up question, Maria, I think we can close with a laugh. Thank you, Maria, to you. Operator?

We have no further questions on the phone line, so Paola, I will hand back to you. Thank you.

So thank you to all of you for the many questions today. As usual, if you have a follow up, we are here, Alicia and myself, Alicia first of all, and we will join fairly soon because we have our poll on April 30 for the first quarter results and our silent period starts on April 1st. I wish you a little bit in advance, but happy Easter to you all. Thank you.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.