Ermenegildo Zegna N.V. (ZGN) Earnings Call Transcript & Summary

Thank you all for joining. I would like to welcome you all to the Ermenegildo Zegna Group Full Year 2022 Preliminary Review. My name is Brika, and I will be your event specialist, operating today's call. [Operator Instructions] I would now like to hand the call over to our host for today, Francesca Di Pasquantonio. So Francesca, please go ahead when you're ready.

Hello. Thank you, Brika, and welcome, everyone. Thank you all for joining us as we share our preliminary and unaudited revenues for the fourth quarter and full year 2022. I'm here today with Gildo Zegna, Group Chairman and CEO; as well as our COO and CFO, Gianluca Tagliabue; and Rodrigo Bazan, CEO of Thom Browne. After the presentation, we'll be leaving time for Q&A. Before we begin, I also need to point out that we may make certain forward-looking statements during today's 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 of course, this call will be governed by that language. Again, we thank you for joining us today. And with that, I will turn the call over to Gildo Zegna.

Good morning to everybody, and good afternoon. I am pleased on how we performed during '22. And although the year had challenges, our growth throughout '22 shows the soundness and continued success of our strategy and our global reach as well as our strong execution. I must say that for the last few quarters, global luxury has been a 2-speed variator. And surely, the COVID-related disruption in China had a negative impact on our performance, especially in the fourth quarter, during which, on top of the restriction, the country faced a new wave of contagion, creating a market backdrop that is even worse than the one faced in the second quarter in terms of restriction and traffic. But thanks to a very positive response to our brand and to a good execution, the performance in the rest of the world has overcompensated for these shortcomings. Indeed, the Middle East and the U.S. continue to be major areas of growth for us and performance in Europe remains very dynamic. And these trends have continued in the first weeks of the new year. In addition, after my recent trip to Greater China, Hong Kong and Macau, I can say that I'm optimistic about China reopening. We are witnessing some early sign of rebound. And while it would be premature to draw a conclusion, it is refreshing to see the return of the energy of the Chinese consumer. We are ready to capitalize on the return of the Chinese consumer domestically and, in due time, worldwide. As always, we continue to be centered around our values, our commitment to the environment, our employees and our communities in everything we do. And our performance against these values always goes hand in hand with our financial performance. '22 was another year of milestone for the group. From our very first Capital Market Day in May at Oasi Zegna, to our partnership as Real Madrid official luxury travel wear partner and the launch of Oasi Cashmere in September. And then we're particularly excited with our partnership with still other company to become the long-term licensee for Tom Ford fashion, acquired related operations and continue building the luxury positioning of the Tom Ford brand. Every major step we have taken this year and every strategic decision since we've become a public company in December '21 is work towards realizing our long-term vision for the group, while remaining true to the values instilled in us by the founder. But now let's give you some high-level figures about our financial performance, which Gianluca will take more in detail shortly. Group revenue for the year reached almost EUR 1.5 billion, up 15.5% year-over-year on an actual ForEx basis. This is in line with our mid-teens guidance for the year, in line with our mid-teens guidance for the year. Revenue for the fourth quarter reached EUR 406 million (sic) [ EUR 407 million ] and were down slightly year-over-year as a result of COVID-related restriction in Greater China region and the end of the Tom Ford international distribution license agreement, which was covering menswear in the wholesale channel. The latter has a negative impact of about 2 percentage points in the quarter. However, excluding the Greater China region, our revenue were up 24.7% for the quarter and 42% for the year, demonstrating the strength of our performance in Europe, the Middle East, the U.S. and the rest of our [ coverage ]. We are ending the year with an increase in our cash surplus, thanks to a strong cash generation in the second half of the year. And as for our adjusted EBITDA profit, which we will be sharing in April, we expect an improvement in '22 when compared to last year despite the challenges we faced in China, which were worse than what we anticipated back in October. Please turn to Slide #4 now. And what I wanted to add here, I think that, as always, our success is measured by far more than our financial metrics and this year has been no exception. And so a couple of highlights by grouping different chapters of our performance and let's focus first on Zegna and group updates. On this part, we made several strides on Our Road to Iconicity with the Zegna brand, including the launch of One Brand strategy in July, the rebranding of our own store, which is practically completed and the accelerated rollout of our clienteling Zegna to consumer app, part of our omnichannel world, which today represent a strong 30% of our total retail directly operated sale. Our relationship with our clients are the bedrock of our success, and we will continue to innovate in how to grow and maintain them. In August, we announced our partnership with Real Madrid to become the iconic club official luxury travel wear partner, and we have been excited for the men's football team to wear our outfit at the upcoming game with Liverpool next month. Building on our belief that our luxury sports is a great opportunity for the group, we announced earlier today the acquisition of a minority stake in Canadian technical trail running shoe company, Norda Run. Norda Run, which produces the world's best-performing all-weather footwear, aligns perfectly with Zegna's value of creating the best products from the best material. We also accelerated the rollout of our Cashmere Zegna collection in our fashion show earlier this month. So far, items from the collection have made up almost 20% of our total fall winter '22 retail purchases. This is an important milestone on our road to traceability, and we are committed to certifying its fibers as fully traceable by 2024. The fall winter show also included a few items from our new partnership with a California brand called the Elder Statesman, which shares our values and devotion to incredible craftmanship. The collection, which is already enjoying very strong commercial response by the trade, will be celebrated with a dedicated event in Paris Fashion Week soon. Textile platform. The third Textile platform, which is the third pillar of our business, is our main in Italy -- which is our main in Italy. Base continues to develop into a world top supplier of the finest fabric, both for our brand and other luxury and fashion labels, and we have seen good numbers from the platform and Gianluca will discuss later in detail. On sustainability, finally. That has been always a foundation of our value. I would say, has been completed with 26 specific commitments during our Capital Market Day this year. We are on track to meeting this commitment from the Oasi Cashmere launch to the submission of our targets to the Science Based Target initiative in August. One example of our progress so far is the fact that we are now at 25% of our journey to electric or hybrid plug-in corporate vehicle by '25. On Thom Browne update, I'll leave the baton to Rodrigo Bazan with some interesting information to share. Rodrigo, go ahead. Thank you.

Thank you, Gildo. Good morning, and good afternoon. I'm prepared to introduce some of the updates from Thom Browne. We are very pleased at Thom Browne to continue to contribute to the strong -- as a strong driver for the Zegna group. I also want to briefly note how pleased we are with the jury's decision in the federal court earlier this month with respect to the litigation with Adidas. Its verdict, the jury found that Thom Browne has never infringed on any of the trademark rights of Adidas. Thom will continue to bring his wholly unique and distinctive design aesthetics to this great brand. Earlier today, Thom Browne announced an agreement with its partner of 12 years in Korea, Samsung C&T Corporation, to directly operate our Korean business, which consists of 17 stores through a newly created and wholly owned company, Thom Browne Korea. Thom Browne Korea will assume direct responsibility for all activities within the Korean market. At the same time, Thom Browne and Samsung C&T will continue their successful partnership through an innovative retail management agreement effective July 2023, through which Samsung will operate the Thom Browne stores in Korea. Our goal remains to double Thom Browne's revenues, and we are solidly on track to do so by capitalizing on the brand's unique appeal, taking on further of its integration of our business and with the support of the group and utilization of some of Zegna's platforms and experience while, at the same time, pursuing opportunities uniquely to the brand and growing internationally for the brand's reach. To the Korean case, I would summarize it's a win for the branding company. It's a win for the talent that runs a business. The Samsung great team has built a really successful business in Korea with us, and it's a win most importantly for our clients, which is the most important element of the success of our brand. And now, with this, I'll pass back to Gildo to continue the update. Thank you.

Okay. I think that these are overall significant milestones across the Zegna and Thom Browne brand, our Textile platform, our sustainability efforts, of other strategic steps we are taking as a group. And despite the challenging environment last year, this milestone and our revenue show that our strategy is working and that we are on track to achieve our midterm goals. I'm particularly proud of the work done as our revenue were achieved despite several headwinds, with growth driven by both Zegna and Thom Browne segment. And even with this impact, the Zegna segment saw full year revenue grow almost 14% year-over-year, while Thom Browne revenue grew over 20% (sic) [ 25% ] year-over-year. At this point, I will turn to Gianluca for a deeper look at the revenue for the quarter and the year. Thank you. Gianluca, your floor.

Thank you, Gildo. Good afternoon, good morning, everybody. Gildo has already given our headline numbers, so I will go right into the split, first, starting from the breakdown by segment at Page 7. As you have seen and as we anticipated starting from this quarter, we began to provide our growth numbers of sales in constant currency also, in line with common practice and we will continue doing so. And during the presentation, we'll also comment some time on the constant currency. First, Zegna segment. Looking at the fourth quarter, Zegna segment revenues were down 2.2% year-over-year to EUR 334 million due to the impact of COVID-related restriction in China in October, November, and the temporary store closures we had in December, resulting from staff illness after the restrictions were lifted. Excluding GCR, which is the most meaningful way of looking at the trajectory of the -- of real trajectory of the business, growth in the fourth quarter would have been a healthy double digit, and I'll show it afterwards in the view of the breakdown by geography. For full year '22, Zegna segment revenues were up 13.7%, reaching EUR 1,170 million (sic) [ EUR 1,177 million ]. This is thanks to the success of the Zegna One brand strategy, which was delivered in the stores with the fall winter '22 collection and the upward repositioning of Zegna-branded products. As we have seen throughout the year, shoes, luxury leisurewear categories continue to perform very strongly and the tailoring and Made-to-Measure has seen a significant rebound throughout U.S. and Europe. The Textile and third-party products, which both fall under the Zegna segment, have also seen a strong rebound in their B2B activity in '22, and we'll break down these numbers in a few minutes when we see the breakdown by product lines. Moving to Thom Browne, as Rodrigo was saying, the Thom Browne segment grew 11% in the quarter and 25% year-over-year for whole of '22. We are seeing across of all Thom Browne product lines, the growth with womenswear growing slightly faster than men's and children more than doubling. On Thom Browne, we are also seeing the positive impact of the rollout of e-commerce through Tmall in the Greater China region, solid wholesale orders for fall '22 and successful selling campaign of spring '23. Now moving to Page 9, which it's important because it gives you a [ plastic ] visibility of the 2-speed world that we have been managing this year. Our performance around the world, excluding Greater China region, continues to be very strong. Taking China aside, our revenues were up 24% in the quarter and 42% in the year. If we translate these numbers in constant, they don't -- they are not so different. 24% in the fourth quarter becomes 21% in constant; and 42% for the year becomes 39% in constant currency for the whole 2022 compared to prior year. U.S., which continues to be an area of focus for us, saw revenue growing 26% in the fourth quarter and 53% in the year, reaching almost EUR 77 million and EUR 270 million for the quarter and year, respectively. It's important to remark that in U.S., this growth happened despite the end of our old Tom Ford distribution agreement, which had an impact on Q4 revenues for U.S. of a negative 8 percentage points, and this was more than offset, of course, by the strength of the Zegna and Thom Browne collections in the market. Europe, Middle East and Africa continued double-digit growth in the fourth quarter, with revenues growing almost 23% to EUR 140 million for the quarter, bringing full year revenues [ to EUR 520 million ], plus 37% year-over-year. Of that, the Middle East region constitutes EUR 24 million for the quarter, plus 35% increase over Q4 of '21. This brings total revenues from the Middle East and Africa to almost EUR 70 million for the year, plus 56% increase from 2021. Italy and the rest of Europe also had a positive contribution to the region, with 41% growth in revenues in Italy in '22; plus 43% from the U.K.; and consistent performance in all the other countries, driven by both strong domestic demand and dynamic tourist traffic in the region. Excluding Greater China region, Asia Pac revenues were at EUR 42 million for the quarter, plus 27% versus the fourth quarter of last year. For the full year, Asia Pac revenues, excluding China, were slightly above EUR 150 million, plus 40% year-over-year. With China reopening, this part of the world will be probably one of the first to benefit from resumed traveling, and we are ready to reap this advantage. Looking at the Greater China region on its own, revenues for the quarter came in at EUR 130 million, minus 30% from the same period of 2021 due to all the factors that were mentioned before by Gildo and myself. For the full year, Greater China region revenues were at EUR 494 million, a 16% drop from '21. It is worth highlighting that while we had expected a difficult fourth quarter in China, as we discussed when we reported our third quarter figures in October, the actual magnitude of business disruption, the minus 30% in Q4 and the duration of the store closure was more severe than expected. Customer traffic saw significant declines, and we had around 10% of our stores closed in average in Q4. On the positive side, we removed markdowns in our DTC in China starting from this quarter, thus aligning the region to the rest of the world, and this change had a low single-digit percentage point on GCR of Q4. Moving to Page 11. This is the breakdown by product line. As we mentioned, Zegna-branded products were negatively impacted by Greater China region restrictions, which led to a minus 2.7% in the quarter to a number of EUR 274 million. Looking at the full year, Zegna-branded products were up 9% to EUR 934 million (sic) [ EUR 924 million ] on an actual currency basis. Sneakers, the categories of luxury leisurewear such as knitwear, 5-pocket pants, fabric outdoor overshirts as well as Made-to-Measure and tailoring with Browne, all this drove the growth, especially in U.S., Europe and Middle East. As for Thom Browne, revenues for the quarter were up 11.4% and up 25% for the year, as we previously mentioned. The brand was seeing solid growth across all product offerings and strong wholesale demand. Textile revenues were up 7% in the quarter and 33% over the year in '22, reaching EUR 37 million (sic) [ EUR 38 million ] and EUR 137 million, respectively, in quarter and in the year. All of our Textile brands were up by double digits for the year. It's important to remind that we had a delta perimeter regarding to Ubertino, which was consolidated mid-'21, and this contributed to an additional EUR 4 million to EUR 5 million in the year. Third-party brand revenue grew 30% year-over-year on a full year basis, thanks to the strong deliveries of spring and fall '22 for Tom Ford, which were the last deliveries under the former distribution agreement and also strong deliveries for the other brands we serve, such as Gucci. On the other hand, the termination of the old Tom Ford distribution license caused third-party brands revenue to be down 18% for the fourth quarter as the agreement shifted from distribution to manufacturing only and manufacturing only of formal wear. Of course, this will change when we will have the full consolidation of Tom Ford International after the deal closing. We move to Page 13 and finally, let's talk about channel split by between wholesale and retail. Let's start from wholesale, which grew double digit for both the quarter and the full year at 16%, respectively, and 30.7% in the year. Thom Browne own sales continued to grow at an exceptionally strong rate, 62% in the fourth quarter and 47.7% for the year, thanks to strong deliveries of both seasonal products and classic collections. Looking at the Zegna, wholesale in Q4 was plus 21% and plus 12.6% in the year. And this is important to remark that as and despite the termination of our shipments to Russia since February '22, which is a good sign of the strength of the brand out also of our stores. Moving to the DTC. Revenues for the group, including e-commerce, was down 6.8% for the fourth quarter, but up 7.8% for the year. And it's important to look at the Zegna DTC excluding Greater China region because it's a clear indication of how the brand is performing. And Zegna DTC, excluding Greater China region, was up [ 20.7% ] in constant currency for the fourth quarter and 45% in constant currency for the year, which is the indication of our strong results everywhere basically where we didn't suffer the disruptions. Thom Browne DTC revenues were down 10% in the fourth quarter due to the same restrictions in China, which for Thom Browne is a primarily DTC market. Excluding GCR, retail sales for Thom Browne were up double digits. Looking at the whole year, Thom Browne DTC revenues were up 5% to EUR 146 million and up by very solid double digits, excluding China, pushed by strong performance in U.S., Europe, Japan and the solid e-commerce performance. Important to remember that Thom Browne added 11 stores directly operated to its network to the year reaching, at this point, a total of 63 thus at the end of December and now is well positioned to capitalize fully on the China reopening. On the contrary, Zegna slightly reduced the DTC store by 6. This is to be read also in line with the Zegna discontinuation, which occurred with the One Brand strategy. With that, let me turn back to Gildo to talk about the final remarks, adjusted EBIT and profit guidance for the year and which, I remember once again, we will be sharing in April. Thank you.

Okay. Thank you, Gianluca. And despite the significant headwinds from the Greater China region, especially from March to May and then again, in the fourth quarter, we met our full year revenue guidance, and we continue to expect a moderate improvement in our adjusted EBIT and a substantial improvement in our profit for 2022. We are happy about these results, which were achieved in spite of a significant deterioration in trading conditions in China for all the reasons we . discussed. On the other hand, the response we continue to see elsewhere around the world, which is evident in last year's performance and this year so far, underpins our confidence in our strategy and target. We are happy to see early sign of inflection in China, too, and strong growth in the rest of the region. We maintain our medium-term target unchanged, targeting EUR 2 billion in revenue and 15% adjusted EBIT margin in the medium term. This is all excluding the new Tom Ford fashion agreement, which expect to be finalized later this year and which we will present and explain in full details as soon as possible after the summer. Of course, this is all assuming no further deterioration of the war in Ukraine, the continuing normalization of the COVID pandemic in China, the significant macroeconomic deterioration and other unforeseen events. We are now ready to answer questions. Thank you.

Thank you, Gildo. Brika, you can go ahead with the question-and-answer session, please. Keep in mind, I have received a couple of questions off-line. So why don't you start with opening the phone line for questions? Thank you.

[Operator Instructions] We have our first question on the phone line from Susy Tibaldi of UBS.

So I have two questions. The first one, Gildo, it would be great if you can elaborate a little bit more on your recent trip in China, because we are all quite eager to understand how the situation is evolving there. It sounds like you are really optimistic and you're starting to see early signs of a rebound there. And to give us an idea, do you think that Q1 is already going to be, let's say, a normal quarter in China? Or do you think there is still a bit of a tail impact of these restrictions and -- well, not restriction, but people -- maybe mobility restrictions in terms of people being sick or stores being impacted at all. The second question, when we think about the rest of the world, you had very, very strong growth in 2022, that also continued in the fourth quarter. And so when we look ahead into 2023, do you think it can be another year of double-digit growth for the rest of the world, excluding China? Or are we getting to a point where your comp base is now you've done so well for a few years, so do you think we're getting to a stage where maybe the growth will start to somewhat moderate or maybe just specific regions where you're starting to see maybe any sign of growth slowing at all? And then thirdly, on your profitability, we saw the slight change in the phrasing in terms of the expectations for this year, which are completely understandable because it's the China impact. If I remember correctly, in the past, you mentioned that China is a little bit more profitable for the brands, for the group. So I was wondering if in 2023, we see the return of tourism in China, so people start to move back to Europe and spend a bit less in Mainland China and a bit more in Europe, do you expect this to be a headwind for your group margin?

Also a lot of interesting questions. Thank you. I'll start with the order. Now I must say that probably I've been the first luxury entrepreneur to enter China. I'm talking about the luxury side on the 7th of January, and I was there 4 days Hong Kong and Macau. So because of this restriction, I could not enter Mainland China, which I will do as quickly as possible. The reason why I wanted to check the temperature, I wanted to see my people again that I hadn't seen for about 3 years. And I must say that I came back more positive than I expected, not only because of my positive mind, because I felt the energy of landlord, of consumer, of investor and of final clients and wanted to come back and to show that Hong Kong is still in good shape. And I was in Macau, I saw the major operator, and they had a full booking for this challenging week, ready to go. And all the store looked perfect, full of great merchandise and so ready to go. So that was the energy. And I think that when there is a positive energy, it means that we will start running again. I must say that in the Mainland China, I think we are off to a good start, in particular, during these first 3 weeks, and traffic is not yet what it used to be, but it's up. And I think that China is back and will be back stronger in the course of the year. So I keep a positive mind in particular after this trip. Rest of the world. The rest of the world, I must say that I never fully understood, I mean, all the negative press about Europe and about America in the past 6 to 8 months. And I think that the real economy, at least for the luxury, is kind of [indiscernible] and I must say that we enjoyed probably growth higher than we expected in '22. And to be honest with you, my wish is that we continue the course. Let's put it this way. If the locals start buying regardless of the fear of a recession, regardless of the fear of inflation, regardless of the energy cost, regardless of the higher interest cost, I mean if you are a brand that keeps creating excellent product, excellent service and believes in innovation and is capable to surprise the final customer, I don't see why it should be different than it was '22. I cannot give you any numbers. We do have numbers, but we can't share. So I am on that regard also on a positive side. Plus, one piece of good news is that -- about the Chinese is that it seems that the first destination will be Hong Kong in order to travel outside the country. Second destination seems to be Japan. And third destination seems to be Thailand. Okay, I don't expect yet to see them much in Europe, to be honest with you or in the United States, surely not in the first half of the year. Hopefully, we start seeing somebody in the second half. But I think that we remain prudent of the Chinese traveling to Europe and to the States during the course of '23, but we remain positive instead for them consuming more at home and traveling more across Asia. I leave the profitability side to Gianluca.

Yes. Susy, I think the answer is no, do we fear that China, business back in China or elsewhere might -- especially elsewhere, might dilute the margin. We have lost -- if you let me add this word, EUR 100 million of revenues in Greater China because there was a decline of 16% this year. So if those EUR 100 million revenue pop up in Europe, which probably, as Gildo was saying, is unlikely in the short term, or comes out in Thailand or Korea or -- the delta price is not that much. Of course, it's more interesting to have the margin in China. But we took also advantage, a thing that was not mentioned during the call, but we took advantage also to realign some prices. And so China prices also with the renminbi weaker now at CNY 7.30. Even the price index is not as it used to be before COVID. So we realigned them by raising prices in Europe, especially in Europe, more than in China. And so we are ready to take advantage of Chinese consumers being back either in Mainland or also elsewhere and without any fear of any dilution in the margin.

Okay. Understood. Sorry, just two very quick follow-ups. On the first one, you mentioned in Mainland China. I think Gildo mentioned that traffic is not yet back what it used to be, but it's up. So sorry, I was just confused to what -- if you meant the traffic is already up year-on-year or it's not. Sorry, I'm just confused on that. And then secondly, so this...

Go ahead. Go ahead.

And then just on the profitability. So you kind of readjusted the price gaps. Can you remind us more or less what is China compared to Europe? And so because of these price gaps now being more aligned, it means that it doesn't matter where they shop? Just wanted to understand -- to see that I understood correctly.

No, traffic is up, I would say, double digit compared to last year, but it's not yet where it was. And so we hope that it gradually will increase. Maybe there are some differences around the country, but the trend is positive. Gianluca, do you want to respond to the question?

In terms of pricing, at this point, we are, let's say, between EUR 130 million, EUR 140 million in the apparel and EUR 120 million in the leather goods, which is shoes and bags, something like that. And it was not the case; it was higher before. And this reduction came through price increase higher in Europe than in China.

Thank you, Susy. Brika, we can move to the next question, please.

Our next question comes from the line of Matthew Garland of Deutsche Bank.

Just a couple of quick follow-ups, just what we've just discussed. In terms of, I guess, the increase in pricing last year and then what you're thinking about this year, can you kind of quantify exactly how much that's been, so sort of mid-single digit, high single digit, just some context around that would be useful? And then in terms of, I guess, the percentage of sales from Chinese consumers coming into Europe, do you have a sort of idea of what the magnitude of kind of Chinese consumer spending in Europe was on a pre-COVID basis? And then just two quick final questions. One was just in terms of Thom Browne in Korea, can you give an indication of sort of the magnitude of that switch in terms of how it should help sales growth into next year? And then just as a last question, I know that you've obviously focused around iconic building blocks as being a big part of your medium-term strategy for sort of the growth in the Triple Stitch shoe. How has that kind of trended across this year? Have you sort of seen an acceleration? How should we sort of think about that?

Yes. Let me start with the last one, and then I'll let Gianluca do the first one and Rodrigo will do the second one. Now I would say that iconic is not only the Triple Stitch, which we have seen a continuous growth throughout the years and across the country. And I must say that we are expanding the family. As a matter of fact, for winter, we have introduced an evolution of the Triple Stitch on a winter version, which is going to be very attractive. We have expanded the color range. We have expanded a leather offer with, for instance, the inside of the shoes, warmer with iconic fabrics or that keeps your foot warm. And so we see that this trend will continue and that makes us very pleased because it's a shoe that gives you several possibility to wear and the possibility to wear with different lifestyle as the family expands. So besides that, we have other iconic projects and product. And I must say that cashmere, the traceable cashmere of Oasi Cashmere is going to become an iconic product, not only to the knitwear through the puffer, through other luxury artwork pieces that go in the skin direction. So I think that is a mix between technicality and luxury. And so I think that these are some of the icons and we will continue the journey across next season. So I cannot anticipate you anything, but we have another extraordinary project to continue the iconicity route, which I think is very important, not only in helping the store look focused and exciting, but also to improve our penetration throughout the digital world and social media. I think that is -- when you have a strong icon, it's easier to tell a story behind and I think that it helps in the journey to create a more appealing and modern brand. I don't know if that answered the question.

Yes. So do you also see growth in [indiscernible] next year above sort of the group rate?

Yes. I think we will continue growth this year along similar lines as we have seen in '22. As a matter of fact, we still have some market to conquer. So there are some markets that are fully penetrated markets, there are market that are penetrated not fully. So it's just a question to do a -- and the other good thing is to do a balance between retail and wholesale. Initially, we really pushed the product to retail. Finally, wholesale is coming and is appreciating when they come back with refill. And I must say this Essential program, I mean, about 50% of the shoes in Triple Stitch family is thanks to replenishment program that was incredibly helpful in this product and in other products. We have both the sweater and the high-pocket bands that are both iconic pieces and are really enjoying the same advantage of their replenishment program. So I think it's a mix of merchandising, of supply chain and of store returning through social media that creates the buzz beside the product we sell, which I think is a winner. Gianluca, you pick the one on...

Yes. I can take the other on price increase. Price increase, I refer to spring '23 and to the upcoming fall '23, which we are selling now. In average -- but it's an average that sees 2 phases. In average, we might be in the mid-single digits. But it's more on the high side for the Western world, and it's in the low side in China, as I mentioned before. So it's asymmetrical. As regards to Chinese in Europe pre-COVID, this is a tough question. To test my memory, I think it's around 15%, but I take the freedom to come back to you through Francesca if the number is substantially different. I think it was something like 15%, Chinese in Europe.

And Rodrigo, on Thom Browne?

Sure. I think the question is focused on Korea. We are extremely pleased with the evolution of our business, which we've done in a very collaborative way with Samsung. This is going to be a meaningful evolution of our sales and profit in the Korea business. It's a very important business for Thom Browne, extremely well positioned, and I have to recognize the great job that Samsung has done. So as I said earlier, it's a win for brand and company because we continue to expand our DTC with the benefits on data, benefits on further stock availability and stock efficiencies in the country and stock opportunities. From a data point of view, from clients, it's a win because we secure the best potential talent to run our business with us. And it's a win for the client because ultimately, the most important is the client experience and the client opportunity. We are a very strong clienteling, and this is -- there couldn't have been a better news for our future in the Korea business.

I think we can move to the next question.

We now have Oliver Chen of Cowen.

Regarding what you're seeing in China, what are your thoughts on inventories and how you're thinking about inventories in the context of reopening? On your comments on traffic, Gildo, would love your sense and if you think they'll continue to be volatile and how traffic may proceed? Second question, the U.S. continues to be quite remarkable and Zegna, the One Brand strategy looks really solid. What are key priorities for the U.S. market? Elder Statesman is a great L.A. brand. Would love your thoughts strategically on why this made sense. And third question, sustainability is a core competency at Zegna. Would love your thoughts on how this appeals to the younger customer and the consumer side of traceability and what you're seeing with demand there?

Yes. Okay. Let me pick on America. So we change region for a second. I see America still strong, both in retail and wholesale. I don't know how other do, but we are doing particularly well because our rebranding and our remerchandising is very appealing. And I think that is very unique besides some of the -- what other competitors like Cucinelli or Loro Piana do because I think we have a good follower from the more mature clientele, but we have -- we are gaining a lot of interest by younger clients. I'm not saying the children of the loyal, but patience. So we are talking to my generation, the 50 and 60, which are the backbone of the Zegna tailoring -- was the backbone and is the backbone of Zegna tailoring, but we are catering more and more to the 30-year-old guys that are appreciating what we do. So that is a general thought. Second, we are opening more stores. I think that our network in America is okay, but I think that more region, resort area or maybe what we consider mid cities can be appealing to us. So we are gradually expanding the number of those. Third, there is this transformation, gradual transformation from wholesale into concession in certain buildings. For instance, we'll be finally opening our Fifth Avenue store in Fifth Avenue New York, which I think it will be a big game changer, for instance. We are opening another door with Bloomingdale after the success we had in 57th, a New York store. And so I think that all that is really helping our inroad journey to the United States. Traffic in China, if the situation remains open, the consumer is there and is willing to spend money. I think that he has been spending very little money. It's a little bit like the American consumer. One of the reasons why America region exploded last year is because the consumer, I mean, have been sitting at home or whatever or in the country and was anxious to go back and spend their money. I think that it is a similar story with the Chinese. So as soon as you open up and people are not afraid to be seen in or around, they will. With the offer of luxury brands they find, I mean they will be inclined to spend. So I think that it will be a gradual improvement and I do believe that the country will stay open and the situation will improve, both inland and outside by favoring first Asian destination before European or American ones. But it's very hard to make -- I'm sure if you ask 3 different brands a prediction, each one will see different. So I -- that's my feeling. And I must say that I am not to be wrong because it will be the third time that China bounces back strong. So when China comes back, comes back strong, more than the other, okay, in this time, we can say America came out also very strong. So -- and we are talking about a luxury consumer that is more resilient to many of the phenomenon that we read on the paper more and more, the energy prices, the inflation, the recession. And so provided you can offer him or her something special and something exclusive, I think that they will keep spending. So that's my point of view.