Hello everyone, and a warm welcome to today's Ermenegildo Zegna Group First Half Results webcast. My name is Melissa, and I'll be your operator today. If you would like to ask a question following the presentation, you can press star followed by 1 on your telephone keypads. I now have the pleasure of handing over to your host, Francesca Di Pasquantonio, Director of Investor Relations. Francesca, over to you.
Thank you very much, Melissa, and welcome to everyone joining us today to discuss Zegna Group's financial results for the six months ending June 30, 2022. We will be using the presentation materials posted on our website earlier today. You can find the materials along with the related press release under the Investor page of the Zegna Group website. Today, I'm joined by Zegna Group Chairman and CEO, Gildo Zegna, and our COO and CFO, Gianluca Tagliabue, and CEO of Thom Browne, Rodrigo Bazan. First, Gildo will walk through our results at high level, provide the business update, and discuss strategy guidance and midterm ambitions. Gianluca will spend time going through the numbers, and at the end, Rodrigo will cover Thom Browne. At the end of the call, we will have time for Q&A.
Before we begin, I need to point out that we may make certain forward-looking statements during our call. Our actual results may be materially different from those expressed or implied by these forward-looking statements. All such statements are subject to a number of risks and uncertainties, including those discussed in our SEC filings. I refer you to the safe harbor statement, which is included on page 2 of today's presentation, and this call will be governed by that language. Again, thanks for joining us, and with that, I'll turn the call to Gildo.
Yeah. Maybe we can start and, you know, to everybody from our Zegna in Italy, where we held our recent board. I must say that, after the dynamic and rewarding 2021, a year which was a milestone for our company, and a year where we performed quite well, we continue to show the strength of our strategy confirmed by the results of the first half of this year. This despite the complex macroeconomic and geopolitical context. I think that we are satisfied with this result, both in terms of revenue and in terms of margin.
I must say that one of the key milestone of the first half has been the launch of the Zegna brand, what we call the rebranding project, which launched in July in our store with the product highly recognizable by icons. I must say that another milestone is the recent accord with Real Madrid, which was announced Wednesday, and which we believe it will be an incredible step forward to amplify our One Brand strategy and target new customer around the world and enhancing the value of two over-centennial brands, Zegna and Real Madrid. If you go please to slide number 4, there are some numbers I want to share with you. As you can see from this slide that our performance has been quite remarkable.
We have grown the top line by 21% year-over-year, reaching revenues of approximately EUR 730 million in the first half. Excluding Greater China, which was disrupted by COVID-19 related lockdown and store closure compulsory from mid-March to the end of May, our growth rate was a remarkable 53% with U.S. and Europe doubling. Our Adjusted EBIT margin ticked up by 20 basis points to 11.3% despite the planned step-up in cost and the unfavorable country mix from the weaker Greater China region. We've obtained the cash flow plus of EUR 105 million despite investment in the One Brand launch and some cash outflows which will be described later by our CFO, Gianluca.
If you can go to slide 5, I mean, just, you know, that takes you through our core projects that you know very well. Before we go to slide 6, which gives you the key highlights of our strategy. Let me focus first on the Zegna brand, and then later Rodrigo Bazan, the CEO of Thom Browne, will take you through the highlights of the Thom Browne brand. I think that as far as Zegna is concerned, we keep making progress on our One Brand strategy and on our road to iconicity, which we believe firmly are the foundation of our future growth.
As you know, the One Brand strategy for Zegna was kicked off in November 2021, and we surely have accelerated the rebranding program of our stores, and now we have 130 stores with the new logo. We are looking at the second half of the year to do 80 more rebranding, only talking about those alone. I think that the first collection of the One Brand that was launched in store in July was a good sign to highlight the recognizable iconic product within the brand.
Through that, we are capitalizing on the growth of the luxury leisurewear segment, which is becoming more and more important, and the shoe segment, in particular, our iconic Triple Stitch that both meet the new changing needs of our worldwide customer. Thanks to that, we are adding new customers, which I think it's very good news. I think that the change that favors some interesting dynamics. Number one, a richer product content. Number two, positive pricing dynamics. Number three, higher sell-through in the store, increased double-digit with the exception of Greater China. The good news of tightening the markdown policy. As you know, our goal is to eliminate totally the end of season sales by 2023.
We have, as said, taken a great step on our road to be more recognizable with the kit of Real Madrid, which for us means dressing some of the world most recognized and admired talents in the world of athletes that reflect you know the modern man lifestyle. It will also allow us to reach millions of fans around the world and continue growing the new customer base. I think that this really will be an additional amplifier of our brand strategy. Our Oasi Cashmere project rollout, which it's a very important iconic project for us, is a big step in our road to traceability and in the world of sustainability.
You know, it lands in our store representing 20% of our retail fall/winter purchases for our store. I think that this is a road into meeting our ESG strategy that we presented at the Capital Markets Day at Oasi Zegna a few months ago. I think Thom Browne has some good news to tell you, but I let Rodrigo take you through some of the highlights of Thom Browne for the year that we are living. Rodrigo, please.
Thank you. Thank you, Gildo. Good morning or good afternoon, everyone. I will run you through some of the highlights of the Thom Browne performance. Thom Browne is continuing to make progress on our road to doubling sales in the midterm, like we announced in the month of May. Particularly, I think with a focus on stepping up visibility for the brand. Today's results are a testament of the strength of our brand and the focus on the connection with our clients, despite the very severe set of disruptions in the first half of the year. During the second part of Q1 and during most of Q2, at least a third of our stores saw closures or hugely disrupted traffic, including our warehouse closures that lasted for 10 weeks, serving e-business.
The focus on the strength on our e-business allowed us to bounce back very quickly from store closures and much disrupted traffic due to COVID in Greater China. Our global e-business in thombrowne.com, Tmall, and platforms such as Farfetch continue to see very strong growth and very healthy path of growth. We have a clear focus on stepping up visibility and our brand awareness. To name a few significant moments, Thom Browne staged our men's and women's fall/winter 2023 show in late April in New York City, just ahead of the Met Gala, with outstanding visibility. I think it's important to note that this is our first ever show outside of a fashion week, and we got very significant visibility and success of that.
Thom Browne, few weeks after, was back in Paris after more than two years with possibly one of his best men's shows in the last 10 years, which generated rave reviews from fashion critics, as well as outstanding exposure to consumers globally through fashion social media. During the show, Thom Browne not only presented spring 2023 men's collections, but he also took the opportunity to stage a performance through which he presented spring 2023 pre-collection, the cruise collection for women's, and that was effectively shown and shot on very elegant and very well-known figures such as Dree Hemingway, Marisa Berenson, and Farida Khelfa. This year, we were within the top five brands of visibility at the Met Gala. This is according to Women's Wear Daily.
With an impressive number of talents dressed exclusively at Thom Browne, such as Lizzo, Kourtney Kardashian, Travis Barker, Oscar Isaac, Adrien Brody, and 10 others of such great talents, all wearing Thom Browne at the Met Gala event. In terms of operations, we only added one directly operated store in the first half, with most of the openings planned for the second half of the year. We plan an acceleration in the second half, and we will close the year with more than 60 directly operated stores by the end of 2022. Globally, if we account for also franchises and shop in shops, we'll be exceeding 100 stores by the end of 2022. With this, I would like to pass the word to Gianluca Tagliabue, Group Chief Financial Officer and Chief Operating Officer.
Actually, back to Gildo.
Sorry. Yeah. We are not in the same room. I think that it's still my turn.
Yeah.
I think that I will take you through another important chapter of our story, which is the Made in Italy platform. I say that the Made in Italy platform was, as you know, affected by the COVID problem, in particular the year 2020, but we came out very, very strong. We've seen a tremendous growth in the first half of 2022 with textile up 55%, and third-party brands up 44%. A healthy level of order going forward. This means really working at full capacity in our supply chain plans, which is very, very good news. ESG, this is a really important chapter of our history and our future.
That means responsible growth, as we had for over 112 years. As you recall during Capital Markets Day in May, we shared our sustainability strategy as well as 26 detailed commitments. I just want to mention a few that we marked in the last two months. In July, we announced a number of sustainability-linked financing agreements. In August, we submitted our target to SBTi. On green mobility, that is our car fleet, we have approximately 25% of the journey to reach 100% full electric or plug-in hybrid corporate vehicle by 2025.
We are updating you on this step-by-step progress on the ESG. On slide 8, I would say that we highlight, you know, some of the key points in the first half. This happened despite, you know, some disruption of the global environment. I must say that our global revenue excluding Greater China showed an acceleration also in second quarter 2022 with a growth rate of 59% from 48% in first quarter 2022.
The good news is that we delivered a sound profitability with 11.3% EBIT margin, despite the planned increasing costs, as the deployment of the One Brand strategy and operational improvements have been driving revenue growth and profitability. On the back of our first half and a solid start of Q3, including a progressive acceleration in Greater China, that double-digit growth in August, we have so decided to improve our guidance for the full year 2022, which I will talk more in details on the call.
In order to continue the good execution of the One Brand strategy, we believe that we are on track to achieve the midterm target shared at Capital Markets Day in May, which is a core revenue of EUR 2 billion and Adjusted EBIT margin of 15%. I think that we will able to achieve or deliver those targets by continuing to stick on our strategic priority. I think that the strengthening the pricing power of our products reaching out to younger generation and being able to execute well our retail strategy is in order to improve the profitability in the store; it's a real priority.
Thom Browne, I think that we have a mix of organic growth in store footprint expansion to exploit a number of opportunities both on geography and category and on the Made in Italy luxury textile platform. We are working on a lean supply chain on improvement on the time to market, and we will leverage on our scale, which is becoming more interesting. I think that we will surely make sure to look where there are other opportunities to increase our specialization in new fibers or in new product development. Last but not least, a word on driving the full potential from our digital and omnichannel approach.
You know, we have developed this platform, the ZFC, which is a client value management proposition both for Zegna and Thom Browne. I must say that this new application is getting better and better, and we are getting better and better outreach results throughout our retail chain, both Zegna and Thom Browne. I think that at this point I can give the baton to Gianluca, and he will take you through some of the other slides and give you more details on our current performance. Thank you.
Thank you, Gildo. Good morning, good afternoon, everybody. Today, I will drive you through the journey of our revenues, profits, cash as well, together with Gildo on the guidance for 2022. First, page 10, let's look at the revenues, +21%, EUR 729 million. The group achieved good performance across channels, segments, product lines and regions. Of course, excluding the GCR, Greater China Region, which, as we know, was affected from mid-March to the end of May by store closures. What we look also to isolate this phenomenon, which given the importance of Greater China for the group is skewing the numbers. Let's look at global numbers excluding Greater China Region, and the revenues were up 53%, with the second quarter was accelerating compared to the first quarter, 59% compared to 48% in the first quarter.
We see that for the positive trends on domestic consumers, we see a return of tourists with a particular rebound in Western Europe. Second, EBIT. Adjusted EBIT was EUR 82.7 million, with a margin of 11.3% on revenues, 20 basis points over the same period of last year. If we look at Zegna segment was up 19%, but was up also in terms of margin, 80 basis points from 8.4%-9.2%, despite the planned step-up in costs, both at central level, somehow related to listing and a step-up in the amplification of the One Brand. On the Thom Browne part, the growth was 30% in sales, and EBIT margin was moving slightly down to 17% essentially, but still very good due to the growth investment phase in stores and people.
Profit came in at EUR 21 million for the first half of the year, down from EUR 32 million of last year. How come the profit is down given that EBIT is up by EUR 16 million? This is a result of a EUR 20 million increase in the value of the put option liability on the 10% Thom Browne stake that the group does not own due to the impact of the good performance of Thom Browne, and therefore the subsequent related reassessment of the value of the Thom Browne put option 10% liability, together with the negative currency impact of having the liability in U.S. dollars and having the U.S. dollar so much stronger than the euro.
This EUR 28 million this year, which is booked in the financial expenses, compares with a favorable EUR 21 million financial income reported in the first half of last year when we purchased the 5% of Thom Browne at a value which was lower than the liability that was in the book. Our cash surplus was EUR 103 million at the end of June versus EUR 145 million in 2021. The main drivers of this move are trade working capital, where we see a temporary impact on inventory. If you remember, Gildo was saying we launched the fall winter 2022 One Brand first collection in July. End of June, we were ready to go out of the gate with lots of stuff. The second was the two months of lockdowns in China.
Some of the inventory of China we will carry over full price in the coming month in order not to create any disturbance on the margin. Second, real estate settlement, we had already accrued, and the expenses were already taken care of. We had reserves, funds covering for this real estate settlement. We have been settling three major locations, and this reflects the discipline and the focus on store footprint optimization. It was a cash move, not a P&L impact. Dividends paid to minority. Again, in order to isolate the one-off thing of the settlement and the trade working capital increase that we deem as temporary, we see a positive cash surplus increase, again, excluding those facts that we deem we can consider temporary. Let's go to page 11.
Here we see a snapshot of the first half revenues, and we flag a few key points. Both Zegna and Thom Browne enjoyed continued growth, U.S., Europe, rest of the world, more affected by the COVID measures in Greater China. For Zegna, it was organic together with the pricing power that comes with the repositioning of the offer, the price discipline. We are reducing more and more the markdowns, and this has been particularly healthy on the business. We have seen a positive wholesale dynamics. Wholesale customer have been very responsive to the new offering and new brand strategy for Zegna, and the same with Thom Browne, which maintains a broad-based appeal on the wholesale environment. If we look forward, the fall/winter orders, which again, we deliver starting from July, were solid and spring/summer 2023 selling campaigns was very successful.
If we move to page 12, here you see the revenue by segment. I call out the attention to the second quarter performance, which was solid both for Thom Browne and Zegna, despite the lockdowns from mid-March to May. On the Zegna side, if we go back to the first half, it's a +19%. This was the result of the collection of Zegna, the repositioning of the Zegna branded product, shoes and luxury leisurewear continuing to perform strongly. With also, we have seen tailoring and made-to-measure rebounding, particularly in Europe and U.S. This was a positive addition to our strategy that is focused on leisurewear and shoes, but we enjoyed also this, comeback on the request of sleeve units and made-to-measure.
The first half of 2022, we saw a strong rebound of B2B activities, textile and third party brands, which I remember fall under the Zegna sector. Thom Browne segment continues to contribute strongly to the growth, +30% in the first half, now close to EUR 185 million with a growth at 360 degrees in all the lines with women running fast. The rollout of e-commerce through Tmall, which was launched last year in the second half, so the first half of this year is anniversarying against the first half of last year where we didn't have Tmall. We didn't have Tmall on Thom Browne. Page 13, the split by geography, revenues increased significantly, as I said, with all geographies except for the reason that explained Greater China region.
What is important is to call out the month of June on a standalone basis. The month of June DTC revenues in Greater China are higher than the month of June 2021. Our exit speed from Q2, June only, after the easing down of the restrictions, we have seen the business fall on a positive territory on the retail in Greater China region, both for e-commerce that was increasing in an important way, and the rebound also in our brick-and-mortar stores after the relaxation of the restriction. This positive trend, we have seen it continuing in quarter to date with good July and August. In particular, Thom Browne DTC, we can call out that rebounded double digits compared to the June 2021 month. I think that is it by geography. We can go to the product line view.
Here you see by product line, all the product lines were on a positive territory compared to the first half of last year. Zegna brand product up 13%, driven by the factors we explained. The overall performance in Q2, you need to understand it was influenced by DTC retail in Greater China, excluding which Zegna branded products were up by a healthy double digit. When I talk about double digit, it's not in the region of the teens, but high double-digit percentage. Thom Browne, 30% growth in first half and 41% in second quarter, driven by strong demand for both seasonally classical products and you also here you have retailing impacted by GCR. Again, excluding this also from Thom Browne retail was extremely solid double-digit figure in the second quarter.
Textile plus 65, and finally, third party brands 44% thanks to strong deliveries to Tom Ford and Gucci in particular, when we produce on behalf of this client. Page 15. By channel, you see here also when you see the DTC evolution, you see the impact of the GCR lockdowns. Group sales on DTC was up 13%, representing DTC 59% of total revenues with a growth rate in the second quarter by 4%. The performance was driven by the success of the Zegna brand product with local consumers and the resumption of tourists in Western Europe. In particular, DTC from Zegna brand products were up 6% in the second quarter compared to 23% in the first quarter. This underlines the strong organic growth and a limited contribution of 39 store openings compared to June last year.
Similar for Thom Browne, the second quarter, DTC sales were down 2% compared to the 22+% in the first quarter. Again, let's remember that Thom Browne retail network in China is particularly important and is even more concentrated in mega cities affected by lockdowns than the network of Zegna. As I said before, I think looking forward, we need to look at the month of June, where we have seen a positive rebound of both for the Zegna retail and Thom Browne. Overall sales trends, we have seen a good acceleration in the second quarter, 46%. There has been no change in the timing of deliveries, so this is business driven.
When you see this is for Thom Browne, the wholesale sales for Zegna, -3%, reflect the cancellation of Russian orders and the start of fall-winter shipments only from July. If we back out Russia, we would have been in a positive territory, double digits, reflecting the good reception of the new direction of the collection by our wholesale customers. Moving to page 16. Now we move to the Adjusted EBIT, EUR 83 million, up EUR 16 million versus last year, +23.7% with a margin expansion of 20 basis points. The drivers of this improvement are, of course, scale, positive pricing dynamic, richer product content, higher sell-through at full price, fixed cost leverage also on the industrial part because we are running the factories at full capacity, productivity improvement in the stores in terms of EUR per square meter.
Though these all more than offset two things. One, the unfavorable country mix, because of course, China is a positive addition to our margin, and going down was a detriment. And the anticipated, not a surprise, step up in central costs related to listing and the marketing dollars that we are happy to spend in order to amplify the new direction of Zegna brand and increase the awareness of the Thom Browne brand on the other side. Page 18, these are the key numbers of the Zegna segment. EUR 51 million Adjusted EBIT, a margin of 9.2%, up from the 8.4% of last year. Of course, the top line organic growth is generating scale effects, positive cost leverage.
There is a positive pricing phenomenon that we're all compensating for the higher operating costs that I mentioned before in terms of advertising and compliance. Page 20, I leave it to, I go?
Yeah.
Okay. Quickly, the Thom Browne segment is up in terms of absolute value of the EBIT, not as much in terms of percentage on revenues. This is related to growing costs on personnel, on headquarters function strengthening, and on the store expansion from 45 stores- 53 stores at the end of June of this year. Page 22, you have a recap of all the numbers that I have explained. I would call out that we don't have significant adjustments. While last year we had to spend a lot of time explaining the adjustment related to business combination, now I call out that the profit reported and the adjusted profit or the operating profit and the Adjusted EBIT look very similar.
We are back to a normal situation in terms of effort in making a reconciliation of reported to adjusted. I think all the comments of this page have been delivered. If we go to page, I think also page 23. I move to page 25. We continue to invest in our growth strategy, CapEx at EUR 28 million in the first half of this year, 4%. Revenues we expect to land this year more in the region of 5% than 4%. Rodrigo mentioned, there is a big lineup of stores in the second half of the year, and there are also some actions on the Zegna side in the second half of the year. For the year, we should have in mind more 5% than 4%.
On the trade working capital, the phenomenon is especially the inventory going up at the end of June related to the launch of the brand and on stock in Greater China, which I repeat, we are considering as fresh merchandising we are carrying over. It's not creating impactful hurt in terms of obsolescence. I move to page 26, leaving the [inaudible]
Okay, thank you, Gianluca. Back to me with a couple of good news that you know, overall, as you have seen, the first half of 2022 has been better than our expectations. The situation in Greater China has been improving since June. Overall, we had a good start of 2023 as well as a solid order collection, positive pricing for both the fall/winter 2022 and spring/summer 2022 season. As a consequence, we are raising our full year 2022 revenue guidance from low-teens to mid-teens growth at actual exchange rate versus 2021. We also expect a solid improvement in Adjusted EBIT. With Adjusted EBIT margin in the range of last year's, as the top line tailwinds should mitigate the expected increase in industrial cost and logistics and the step-up in listing related overheads and rebranding.
Together with this, we expect an increase in the cash surplus in the second half. Now, you know, all this, assuming that no further deterioration or geographic extension of the war in Ukraine and a continued normalization of the COVID-19 pandemic in Greater China and no significant macroeconomic deterioration in any other unprecedented way. Again, we have decided to raise the 2022 guidance for the reason I mentioned. I think at this point, I turn to Gianluca for a couple of more highlights and details.
Thank you, Gildo. Page 27, for the ones that were present in person or remotely at the Capital Markets Day, this was the chart where we explained the assumptions behind the guidance for 2022. We refreshed it so you can compare it to the one in May and why we believe that from low teens we can be in the mid-teens range. I help you making the comparison. Greater China, we had in mind at that time, the assumption was the easing out at the end of the summer of the restrictions disruption, which is luckily happening. U.S. EMEA, we had in mind a number for the year around 30%. At this point, we believe it will be higher than that.
For the Zegna brand, we had at that time in mind around 10%, and now we are looking at double-digit number. Thanks to what Gildo said, we now have the orders also in the spring 2023. We have the full collection to be delivered of fall 2022, and we are ready to go. Thom Browne, we had in mind around 20%. Now we see more than that, more than 20. All these improvements let us look at the year in a mid-teen growth. Bottom line, we declare an improvement on the Adjusted EBIT in absolute terms. Now we see a solid improvement, and we qualify that the Adjusted EBIT margin, we see it in the range of last year. We need to consider the step-up in marketing central costs actually, and in mind.
We stick to an Adjusted EBIT margin in the range of last year's for this reason, for the one-time step up of these costs. This, I think, Francesca, concludes the presentation, and thank you everybody for joining us. With that, I'll hand it back to Francesca for the Q&A.
Thank you, Gianluca and to Gildo. We have some time for Q&A. Operator, please, open the Q&A session. Thank you.
Of course. If you would like to ask a question on the call today, you can press star followed by 1 on your telephone keypads. If you change your mind or feel that your question has already been answered, you can press star followed by 2 to withdraw your question. Again, that is star followed by 1 to register a question. Our first question today comes from Susy Tibaldi of UBS. Susy, over to you.
Hi. Thank you so much for taking my questions, and congratulations on a very strong set of results. I have a few questions. The first one would be, you already commented on the performance of July and August, which is very helpful. But I was wondering more from a qualitative point of view, if you are seeing at all, if you're feeling any change in the way that the consumer is behaving, because of course now it's been several months of a lot of negative news flow on the macro, inflation and everything. So far it seems that the luxury sector is continuing to be very strong.
I just wanted to hear also from you, if you are seeing any change at all in the consumer behavior that would suggest that something may be starting to become a little bit more fragile. Secondly, on the outlook for this year, I wanted to again ask a little bit about your assumptions, because if you know, your H1 was growing very strongly at over 20%. Your top line, I think it seems to imply H2 at 10%. You mentioned an acceleration for comps in H2. You have very strong visibility now on order books. It does seem like it is a little bit conservative. You also have the pricing that helps a bit. On volume it seems a bit conservative.
I just wanted to check your assumptions there again, because it sounds like the trends, the start of H2 have been very strong. Then lastly on marketing, can you specify again what kind of marketing you expect for this year? And if this is a level. You said this a level that will continue to be higher. If you can just specify what kind of range in the marketing spend we should expect. And specifically to the margin. Now China is back, so it's not as badly hit as in Q2. Your country mix should be positive and helping the margin. I guess also this question is a little bit on the lines of, how much cautiousness are you implying into your H2 guidance? Thank you so much.
Many questions.
Thank you, Susy.
Yeah. All right. Thank you.
Okay, Susy. I think to start with the question on whether the current global macro financial situation is impacting our consumer in luxury.
Listen, on China, it's premature to say because, you know, these two and a half months of lockdown could not give us exactly the pulse, you know, of the new rebranding. I think it's premature to draw conclusions even though we see a positive trend, let's put it this way. However, I can talk more deeply on both North America, United States, North America and Europe, and in particular the Emirates. Listen, we have seen an incredible attraction by the current Zegna customer and also by a good number of new customers. They just want to shop for newness or they just want to change their wardrobe. I think that what we have, it seems, to please them.
I think this more general wardrobe, which is the last foundation of our last review, is proving to be right. I think that they are attracted by the authenticity, not simply by the product and by the innovative appeal and by the colors. I think we are going through a new shopping experience, which goes throughout the world. On top of that, if you add the interest and the Americans are traveling again, in particular in Europe, I think it surely has benefited from the strength of the U.S. dollar and the fact that Americans are back in Europe. I'm talking about the luxury.
In particular the Western Americans that really are showing real wealth. In terms of the clean material side, I must say that we are off to a good start. It seems that as business people are going back to the office, they have to renew their wardrobe. It seems things are not
In particular, in the last couple of weeks, a good traction on tailoring on shirts and ties, which is quite interesting. I must say that overall we are in a good start, and we are watching carefully, you know, whether these dynamics lead into for the fall/winter in China. Last word on the EMEA, I mean, Dubai is on fire. It's unbelievable to see even though we are in the low part of the season, I mean, how tourists or even business people travel or shopping. We are in a way, I think that is, again, we are doing better than our expectations. Overall, a positive trend. We think that what we offering for fall, the trend will continue. Gianluca?
The first question, I think your underlying message was, are you sure that you are not conservative with the guidance? If I understand it correctly, the key point. Of course, there is volatility, and we need to take that into account in the guidance. We don't disclose guidance by specific market channel, but we have been cautious by putting the mid-term mid-teens guidance on Q4 in China without giving detailed numbers. The underlying assumption that it's not far off last year. When you consider Greater China retail Q4 close to last year, you understand why we project mid-teens. If it will be higher than that, we might enjoy an upside that is different. Having that assumption, we believe that mid-teens is a fair representation of our outlook. In marketing, the question was on marketing.
We declared in the Capital Markets Day, in the IPO journey, that we were ready to step up by 1 point marketing. This is happening. The journey of step up will happen 2023 against 2021. This year, consider that the first half of the year, all the marketing activation that were planned for China, we have put on hold, of course, because we didn't amplify anything since restrictions were up and running. We will start amplifying heavily now from September with the Oasi Cashmere campaign, which started now with Real Madrid. The journey of spending the extra 1 point is not changed and will be finalized next year with a step up of 1 point in marketing spending.
The margin guidance.
The margin guidance. We have been +20 basis points in the first half compared to last year. Also, as I said, considering a conservative Q4 on Greater China, we assume for the full year a similar margin. Again, as I said on the revenues, the two things are very combined. If the Q4 in China is different than our assumption, we might have different revenues and different margin on the bottom line. But this is. I wanted to be explicit in what's behind. On the other side, there is no assumption, it's a fact, we will have the step up in marketing absolute money and also some basis points. We have the step up on central costs, which of course, are related to being a corporate company and all the compliance that is related to New York.
Susy, does that answer?
Yes, that was very clear. Thank you so much to all of you.
Thank you. Thank you, Susy. Operator, we are ready for the next question.
Thank you. So our next question today comes from John Guy of Jefferies. John, over to you.
Thanks very much.
Thank you.
Ciao, Gildo, Gianluca, Rodrigo, and Francesca. Thanks for taking my questions. The first one is on markdown reduction. Could you talk a little bit more about that, the percentage of markdown reduced in the first half of 2022 versus 2021? Just confirmation that you said you were going to eliminate end of season sales, I think by the end of 2023. That's my first question. Are you able to quantify the step up of investments that you've made for both Zegna and Thom Browne brands across marketing and stores? For Thom Browne, what do you think is a sustainable sales contribution on the expansion of space over the next three years? I just had a question around Made in Italy.
Do you think it's fair to say that, you know, when you look at your assets, that you have on the manufacturing side, you know, relative to peers, do you think that's pretty unique? You know, what other assets would you like to add to the portfolio, going forward? If I could start with those, but that would be great. Thanks.
Thank you, John.
Let me start, Gildo, I know, and the last one, and then I will leave to Rodrigo, to Thom Browne, and to Gianluca for the outlook in the same part. Now, the Made in Italy, I think that is split in two. One is the Made in Italy platform, which is a, I would say the textile part, which you've seen, we're doing jolly good. I mean, the results are quite exceptional. I mean, we did not expect, and we are really running the shifts in order to make up for the production. To be honest with you, we thank God that we have raw material, you know, on the side because there are textiles that have not got raw material. They are in trouble.
That's why the long lead of the supply chain or the late delivery. We are very thankful to have the full control of the supply chain, in particular from the textiles. The fact that we have a diversified textile base helps us to be very creative in the fabric we want to use. You know, it's no more seasonal. I mean, they are freezing in winter, they are scorching in summer. The point I'm making is that we want to strengthen the chain. I think actually we are looking small item to be added to the textile supply chain in order to reach scale on the platform, we are going to do so.
I'm telling you that we are working on some small things, but we want to strengthen the chain. On the other side, you know, we are increasing our part of product Made in Italy. I think Made in Italy is becoming a brand. The fact that we have raised our luxury, if you want, content of our products, you know, Made in Italy is becoming more and more. If you are referring to a potential acquisition in Made in Italy, you know, we keep our eyes and ears open, but I don't have any comment to make on that. Overall, to strengthen the Made in Italy, yes, and we are watching to see what could be interesting to our platform.
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The first was on markdowns. I confirm you that our progress to reduction of markdown is advanced. In the first half of the year, it was very, very low, the incidence of markdown. We're talking low single digit. From fall 2022, we are not planning more markdowns in the boutiques and e-commerce, and we start on the essentials, that is the continuity product on wholesale. From 2023, we extend the policy of no markdown to across the board in the channels. This is confirmed in the context of moving to a luxury position. In terms of marketing, I think you asked something, no? Did you?
No, he asked about, Thom Browne and -
Thom Browne, yes.
- the contribution of Thom Browne and Rodrigo can answer.
Yes. If you want me to address the space contribution to Thom Browne, it's actually limited because as we introduced in May during the strategic plan presentation, we're envisioning around 50 additional stores. This is total amount of stores. Stores, whether it's further franchises or shop-in-shops, and we're gonna be in roughly 100 by the end of this year. It's a limited contribution of square meters or additional stores. We're not changing our store format or store model, retail model. What we are looking is for a much more significant growth of clients, and we're much more focused on the growth of clients.
That's why client value management is a very important project for us, where we have the right tools and the right focus to double the amount of clients that we have, the end clients of the brand, including the amount of clients within the DTC network.
John, does this answer your question?
Yes. That's very clear on the stores. I guess the only part to the question which hasn't been addressed yet is to do with the quantification of investments made, in terms of, you know, millions, for both Zegna and Thom Browne in the first half of the year. Across things like investments made, additional investments in marketing, additional investments made in stores, people, et cetera. You know, what are the numbers, the incremental investments made, for both of those brands? Thanks.
You can see from the P&L, the investments, there was a growth both on personnel in terms of overall cost that was lower than the growth of the top line. Of course, that's why we are not disclosing by nature the cost of increasing marketing. I tell you, we are in marketing for the year, we are increasing
The expectation is to increase more than the mid-teens. In the region of, for this year, next year, in the region of +20%, +25% this year and next year. Every year, 2022 and 2023 +20%, 25%. This year is more 20%, next year will be more 25% margin to give you an idea. I need also to stick to the compliance of what we disclose in the SEC and what we don't. I give you some hints of our model then. The marketing definitely did a step up, and there has been some step up. Again, that it was not part of the SEC compliance, so I cannot be more specific in terms of number of central cost increase. But that was the driver.
The first half of last year, we were a non-listed company, so we didn't have some costs like the insurance of the directors and the officers that is linked to the New York Stock Exchange. We didn't have the SOX compliance. In terms of CapEx, which we disclose, you can see it's 4%. In the end of the year, you need to consider that probably it will be more, it will be 5%. CapEx is for Thom Browne openings. They are concentrated in the remainder of the year. For Zegna, there is lots of relocation and renewals more than store opening. This is also a trend for the next coming years. Thom Browne is adding now 52 stores. Definitely, there will be addition of stores in the coming years.
Overall, this year it's close to 90 stores that Thom Browne is opening, and we need to expect that this growth rate of store footprint for Thom Browne might replicate for the coming years. That number you could have in mind in terms of store opening. Zegna is more renewal and rebranding. You need to consider that we so far have rebranded with a new logo, 130 stores. We will have, by the end of the year, almost entirely the network done. That is another effort for this year to complete the rebranding. Together with the rebranding, we take also the opportunity often to renew the entire store to be more in tune with the new collection, and also where possible, to reduce the square meter in order to optimize the space, since now we don't carry three lines, we carry one line.
[Grazie mille], Gianluca. That's very clear. Thank you, Gildo.
Thanks. Thanks, John.
Thank you, John. Melissa, I think we would like to close today's call. We thank you, everyone for attending, and our next results announcement will be the Q3 revenues on the 27th of October. Have a good day and a good weekend, everyone.
Thank you. Bye-bye.
Thank you, everyone. This concludes the call today. You may now disconnect your lines.