Q3 2019 Earnings Call
The new from online sales across all channels packaged dotcom and brands outcome will be defined as digital platform previously referred to as platform.
Digital platform GMT grew 37%, our 40% at constant FX in Q3.
Ahead of our guidance of 30% to 35% growth.
We are growing twice as fast as the market. According to banks estimates of global online luxury growth, which is 20%.
This strong market share capture if the results of our platform flywheel.
Incredible network effects, taking place in the passage platform.
On the supply side, we believe pfaff edge is the sole multi brand luxury platform, who can offer brand the advantages of a direct to consumer E concession model.
Including full control over merchandising and pricing as well as higher margins as compared to only alternative which Steve will sales distribution.
More than ever before a luxury brands are choosing class hedging to unique he confessed in model.
Over the past year when hands as brands have directly trying to platform.
Including top labels, such as will now local gianelli, Stella Mccartney Acne studios.
Most keno and Golden Goose among others.
As we said in August we continue to see brands, reducing their exposure to online will fill in both suites of their direct to consumer and he can fashion channel.
As a result of these tagless shift in addition to signing new brands.
We have also seen existing brands double down on Savage.
As the end of Q3, our top 10 brands, which includes leading brands such as Gucci Prada and Sandy has more than twice as less direct stock on our platform as the year ago.
The increase supply from direct brand partners combined with continued growth of supply from our boutique network has driven Q3 stock value to nearly $3 billion that more than 50% year over year.
On the demand side, the unique offering of over 3000 designers.
Approximately 300000, skews, which is roughly eight times our competitors.
And improvements in our best in class Technology and service.
Fueling our customer growth.
With active customers a 52% over the same period.
This increase scale on both supply and demand further drives the flywheel dynamics of our two sided marketplace.
And generate massive amounts of data, which ultimately spins the flywheel even faster.
With $1.8 billion of digital platform, GMP, and 1.9 million active customers in the past 12 month Fairfax is the largest digital in seasonal luxury player in the industry.
Being number one puts us in a very strong position.
Which allows us to now focus even more on our path to profitability.
Whilst continuing to target sustainable growth and market share capture.
At this point and roughly one year after our IPO I'd like to take stock of the incredible features of our marketplace, our business and how they not only remain intact.
But in fact have been reinforce.
First we have annual fees in the region of $600 and take rates of circa 30%.
This implies approximately 108 is all those of commission per average transaction.
Which together with strong retention and engagement produces attractive LTV to CAC ratios.
And payback on CAG in less than six months.
Second we at the only luxury marketplace at scale in a 300 billion dollar global industry.
With practically all our competitors being retailers.
Not only this sets us apart as the most strategic partners, who believe in luxury brands, but we are also capturing market share from these retailers at a remarkably fast phase.
Third we have built unique and proprietary technology logistics and data platforms.
We have incredible network effects.
And have signed just under 500 brands for a total of over 1000 to handle luxury partners, while our platform.
With 100% retention among our top 100 brand.
Fourth we at one of the very few Western E Commerce companies, which have demonstrated success in penetrating China.
The market, which according to vein is expected to growth represents 45% of luxury by 2025.
In the last year, our presence in China has been going from strength to strength.
And GMT growth has outpaced the overall marketplace Dementing China's position as the second largest market for passage.
Lastly, we are building a unique brand with strong cultural relevant.
We want to be the first and the last destination for people, who love fashion.
The Sotheby's duration for fashion levels, but also the place where you'll find that unique piece you were looking to buy and it's available only on passage.
The recent acquisition of AMG is a significant tapping that direction.
And the Halo effect of the original content its brand platform, we will produce.
We will create a unique DNA for the Fastmatch Brent.
All of these features are very difficult to find in global digital marketplace is our platform.
And position us uniquely to go after what is the 100 billion dollar incremental opportunity in online luxury sales in the next Ccs.
Before I passed Wailea I'd like to briefly update you on energy.
Last quarter.
We announced the acquisition of new gas group and upon closing this transaction on the lack of August .
We created a new brand platform division for the business.
We believe ngs existing and future brands will drive incredible cultural relevant for package.
We believe LNG will elevate the classics brand.
An increase organic traffic and customer engagement.
Which will make fastmatch and even more attractive channel not just for consumers, but also for our brands patents.
The energy current portfolios sold more on five fetch in Q3 than any as a single brand.
Which demonstrates on one size the incredible compatibility of the two businesses from a consumer perspective.
But also the extra large generic capability that entergy has.
Of bringing the most sought after labels to market.
Labels that were practically nonexistent, so six years ago.
Offline for example ascended to number one most search luxury brand as per the Q3 least index ahead of more established heritage brands.
CNG acquisition was also enthusiastically welcomed by our brand passes.
They participate on facets in past because we are highly curated multi brand channel.
Brands recognize that by having the vast selection of label.
Essential track the larger audience.
And in fact this is evident in our proposition per Alexa among online luxury fashion destinations.
Almost 70% of our multi item transactions consist of multi brand basket.
And brand seeks to be in channel with adder attractive label.
This is why they participate in multi brand channels such as the patent stalled for example.
New as operates as a platform. It uses a single common infrastructure and model to incubate and grow emerging talent into highly sought after brands to a shared services model.
They operate an asset light model and procurement of fashion resources based on demand and plans at these are produced two other.
As a consequence, they are very inventory lights.
Since August we have been working to integrate the brands in the new has proved portfolio onto our marketplace.
We're pleased to once again have demonstrated our proficiency in integrating new acquisitions, we the entire neil's as proof portfolio now selling directly on passage.
This energy supply has been consigned to our fulfillment by far fetched warehouse in Italy and is now servicing customers globally.
We have also made progress in our plans to re platform of whites ecommerce site, which is expected to be completed in Q1 2020 .
And we'll then proceeds to re platform as a brand in the energy portfolio, giving them best in class global ecommerce capabilities.
This integration on the flash platform will unlock exciting results.
Floozy have collapsed and an unrivaled ranged from energy.
As well as future new concepts and brands, which will be available only on traffic, which for our 1.9 million global consumer base.
Driving direct to consumer revenues for the new guys brand is a tremendous opportunity to capture when Peel sales at the very profitable matching.
And we plan to grow the concessions and rollout web sites for the portfolio throughout 2020 .
Turning now to Elliott to discuss our Q3 financial results and outlook.
Thank you Jerry is a and good evening everyone.
I'm very pleased to be presenting the Q3 Threenineteen financial results, which represents another strong quarter for fast Mitch.
We have continued to expand our market leading position.
Improved out unit economics, and delivered better than expected adjusted EBITDA through continued operating leverage.
The acquisition of a new God's group has also contributed to a stronger financial position overall.
Group revenue has grown 90% year on year to $255 million and our adjusted EBITDA loss was $35.6 million substantially better than our expectations.
We now have two complementary platforms, our technology platform, which going forward will be described as our digital platform and since the acquisition of new jobs group, our new brand platform.
You will see that we breakout the revenues and gross margins for each platform as well as from our stores.
I will now explain the performance we have seen on each platform thin cover our group technology spend group cost and overall adjusted EBITDA physician.
First the digital platform, which outperformed expectations with GMB growth of 37% year on year.
Improved unit economics quarter on quarter and expanded the strong active customer base, which underpins future growth.
The 37% year on year growth was broad based and reflects our well placed investments into China, the middle East, Japan, Brazil end use markets amongst others.
Our third party take rate is stable quarter on quarter at 31.2% with increasing underlying commission rates across our brand and boutique seller base.
And the growing income from our media solutions business mixed with a stronger share of GMP year on year on the marketplace from al brand he conditions and growth of our platform solutions White label business.
For the contribution margin stepped up quarter on quarter from 28.1 to scenes in Q2 to 31.3 sustains in Q3, which is a result of lower promotional Spain and improved first party margin, partially offset by investment into digital marketing.
While the broader backdrop of the quarter was characterized by ongoing higher than average promotional activity. We made a conscious decision to support the values of the luxury industry by reducing our use of promotions.
And Steve we offered certain incentives and discounts and a targeted fashion to appeal to our more valuable and loyal customers.
The result is auto profitability in line with our expectation and we continue to develop the proposition to improve this position over the longer term.
As I have reported in the past we have historically staying payback on customer acquisition spend while within six months.
This continues to be the case with the acquisition cost of the Q1 2019 cohort now fully recovered six months later.
This strength gives us ample headroom and out superior marketplace data insight allowed us to reinvest into customer engagement strategies to drive retention and frequency of shop as well as increasing our online prison.
Your same downloads of our App and broadcasting the fast Fitch proposition to a wider audience on social media channels.
All of us where it puts us in a very strong position, which we believe underpins healthy customer acquisition and cohort values moving forwards.
Turning to our brand platform, which we are reporting for the two months of August and September 29 team.
Brand platform GMB and revenue for these two months totaled $63 million, reflecting shipments to retailers begins to fall winter 2019 order book.
This was primarily driven from strong demand for off White Pine Angels and here in Princeton.
Gross margins on these shipments were 44%.
We are expecting scale benefits to support gross margins moving forwards have a strong order book for spring Summer 2020 and production levels and finished goods on hand are well see top to meet the Q4 revenues, which I will cover later.
Now moving to our cost base.
Technology expense grew 17% year on year to $22 million, we've continued development of consumer facing product and increasing focus on our platform enterprise solutions being both in partnership with Chanel and Harris the.
The letter of which remains on track to go live in the first half with 2020 .
There are no material technology costs from within the New God's group.
Issue and I grew 61% year on year to $94 million and co pride in an increase in cost from within the underlying digital platform business.
The addition of brand platform is DNA costs.
In Q3, we have grown our offline marketing spend ahead of sales as we continue to drive awareness of the phosphates consumer proposition.
This has been offset by significant efficiency improvements across our customer service and production teams year on year driving leverage.
The combined cost position is 41% of adjusted revenue compared to 52% of adjusted revenue in Q3 2018.
Overall this means our underlying adjusted EBITDA position was better than expected as a loss of $35.6 million or negative 15.6% of adjusted revenue compared to 28.7% in Q3 2018 and ahead of the 18.
To 20% range previously guided.
With outperformance across both the digital platform and brand platform businesses.
The bridge from underlying adjusted EBITDA through operating loss includes a 22 million dollar credit to the PNM filed within other items, the quarterly share based payments charge of $32 million depreciation and amortization of $35 million and net financing costs of $6 million.
The credit and other items arises from the revaluation of stock based liabilities for acquisitions that will be satisfied and profit shares.
The share based payment charge of $32 million reflects an ongoing charge of $50 million per quarter for equity award, partially offset by an 18 million dollar reduction to the provision for cash seafood options and associated employee taxes.
The $21 million sequential increase and depreciation and amortization primarily relates to the amortization of intangible as David we have acquired throughout the year to date and the year on year movement also includes charges in relation to offer its extreme.
The resulting loss off the tax for the quarter was $85 million.28 per share.
Cash on hand at the end of the quarter were $318 million, our reduction of $361 million over the 13 week period.
Primary outflows relate to the 256 million dollar net cash component of the acquisition of new God's skirt and $21 million in relation to complete in the financing estimate of the top line acquisition.
We also have a 300 million euros secured loan commitment which remains undrawn.
Looking ahead.
Through our final quarter of the year, most exciting quarter of the luxury industry with gifting and went to call using a key feature of customer shopping mission.
We're pleased with the results quarter to date with strong customer engagement delivering results in line with expectations.
We therefore, one to reiterate our previous guidance of GMB growth of 30 to 35 sustained year on year across the digital platform.
Brand platform GMB is expected to be between $80 million to $90 million.
And adjusted EBITDA level, we are expecting a Q4 adjusted EBITDA loss of $21 million to $31 million, which is a and an improvement over previous guidance, reflecting the overall stronger position of the phosphates group.
Sorry.
Thanks Elliot.
I'm very pleased with the progress we made during Q3 delivering growth Andy beat that ahead of our expectation.
Stabilization of our unit economic.
Expanded relationships with brands will be positive.
And the initial synergies from new that integration with package.
I'm very proud that we've completed snap the when the first any is OFAF edge, having built the industry leader in online in season luxury.
The only luxury tax latham at scale in an industry of retailers.
In spite of our market leadership, we keep capturing market share is rapidly.
I believe we are uniquely positioned to capture the lions share of the incremental 100 billion dollar online luxury sales.
That vein estimate will materialize over the next six years.
He is number one position allows clap edge to now focus even more on our path to profitability, which as you can see today is well on track.
Thank you.
In order to ask a question you do need to press star one on your telephone.
Turning question first talent or hash key please standby wealthy compiled acuity roster.
And our first question is from Doug Anmuth with Jpmorgan. Your line is open.
Thanks for taking my question once asked to first just can you comment a little bit on China niches that you talked about higher physician there obviously on a longer term basis, but just curious if you're seeing anything from a macro perspective there.
Just given the weak numbers that have been out.
In the market and then second.
Alan if you could talk a little bit more about that path to profitability and some of the key areas, where you're thinking about improving efficiency over the next several quarters. Thank you.
Hi, Doug. Thanks, Thank you for your question and.
China is.
Having from wholesaling those really it's we're very very pleased.
With the performance and our own channels as a fats edge iOS app to the the Android App.
Our we've said presence and ER and delivering extremely extremely strong results slowing ahead growing more than them and then the average of the marketplace.
I think clearly and our unique proposition to the Chinese consumer which is.
Real time fashion.
And you know 3000 design is 300000, skews and localized fully localized stops with local payments local data center and it's it's paying off and and we don't we don't really see any impact of of macro factors and.
So we expect China to continue to deliver has shown growth.
And hi, Doug on the top profitability, absolutely I think.
You know obviously, we've delivered a really good.
Sort of numbers across the quarter and.
Have raised our expectations for profitability in the EBITDA position in Q4 on the back of what I think is a very strong position to be in.
We've always being focused on past.
Stability clearly a being number one was a big focus for us as well we are now number one in terms of online luxury.
And you remember back at the IPO, we laid out how profitable as this business could be over the longer term as we.
Take disposition of leadership within an expanding industry and sorry, the path to profitability is quite clear, it's about continuing to grow GMB on the back of our superior customer proposition and and expanding market.
It's about lowering customer engagement cost through use about data insights exclusive content on the platform and obviously now that we've got the exciting brands from new God's group on the platform and in the future exclusive exclusively available for phosphate set provides us with an even better customer experience.
Once with an opportunity to drive organic growth in a way, we've not being able to drive that before.
We obviously will continue to drive our high margin income stream some media solutions business in particular.
The white label business to deliver is very high margin income streams as well and the back on the marketplace, reducing the unit cost of shipping significant opportunities around our logistics our partnerships to reduce the cost of shipping the unit cost of production another order related cost as well to continue to drive.
Our contribution up to that 60% or to contribution target that I'm still a very confident in over the long term and then for the rest of the business. It's about continuing to drive the operational leverage that we've been delivering.
Again, some infrastructure that we have already built really to take the lion share of what we believe is about 100 billion dollar incoming to online luxury opportunity.
And so now that we are number one and and clearly extending our gains.
This allows us to continue to capture market share at a pace that I think others are unable to achieve.
And now focuses the business even more on that path to profitability moving forwards.
As Jos I see it on.
On the call just now we are close to 600 dollar value on our recently regular basis, we've got a 30% take rate, we've got 1.9 million active consumers and those mature cohort so delivering in excess of $100 per order a contribution. So we're at the start of what I think is an amazing growth opportunity and as we see it right.
Early profitable in.
And a distance that's not too far away now.
Your next question is from Jeffrey dependence with Bank of America Merrill Lynch. Your line is open.
Hi, good afternoon congrats on.
On the results I have two questions.
So you. The first one is on the gross margin that the new gone through I think when you announced the acquisition. The gross margin was at 55% and now it's at 45 I heard you say that.
I might be some season than you can you saw a potential improvement going forward and can you talk a little bit about this and if we can go back to.
65% gross margin.
Also on Ngs, Daniel you couldn't shall we this do you like for like gross.
On the comparable Basie subject to you on the had the accretion for two months out of three but that would be interesting to see how fast business group.
And the second question related to this is more on the promotion at TD key could you elaborate some there'll be some additional shared between Q2, which ones have you see here and promotional in that huge on margin and what you've seen in in Q3. Thank you.
Yeah absolutely.
So on LNG, Jay as you quite rightly pointed out it was a two month period, so I'm a little bit reluctant to provide too much information on such a short period.
But just on the gross margins that is in relation to what was exactly shipped over that eight week periods as opposed to what you'd normally see across a full season shipments sorry. The mid Fiftys is a gross margin number you're comfortable with moving forward.
As I see just before.
We've got scale benefits coming through in terms of our.
Supply base in terms of the production facilities that we tap into that's a very confident with that position benefit down just for that eight week period because of the various shipments that we had.
With the various commercial partners that we supplied over that period.
Again reluctant to share a year on year growth rates, because it was such a short period.
But I will say, it's in the high food season tombs of year on year growth against a comparative periods last year.
In terms of the promotional environment. So yes, you will remember last time I spoke about.
The percentage of spins on promotions against GMB effectively doubling year on year from Q2, I think Q2 19.
What we saw in Q3 year on year.
I was I 60 basis point, Steve pop in terms of our spend on promotions, so substantially less than the yulia position that we had a much closer to the position that we were at last year still some promotion more last year, but substantially reduced.
This is what we had seen with the big impact that hit us in Q2, so really good place.
Quite pleased actually that even though we did pull back substantially on the promotions, we still outperformed on the GMB growth rates.
And obviously that helped drive the order contribution up back into the 30% area, which is a must be the price for us as we move forward.
Your next question is from Louise Singlehurst with Goldman Sachs. Your line is open.
Hi, Good evening Elliot JJ. Thanks for taking my questions and just again just following up on that promotional environment and Anthony you mentioned to me about and much more targeted approach team.
I think the cohort that Youre that you are often times at the promotional spend can you just talk about even adhesive.
Well. Thanks access now is that now much more useful in terms of data understanding that you're obviously not yet annualizing that and then I wonder if you can give US an example of that dialogue that you're watching having with Brian because presumably and as we say black Friday period information environment is it unrelenting across the plot.
Paul.
And I just wonder if there's any examples that you can give us on that and then just finally on.
Thoughts just paced can you go all its now you've had it.
Thanks for short period of time, but anything that you can tell us about the working capital demand still as you expected intends to be acquisition time, and 95% to the product being.
In may to order to the working capital savings until there's nothing in there that you've seen that would change your commentary on.
Wonderful thank you.
Sure Hi, the ways I'll, let Charles I cover off conversations that he's having.
With the brands.
Let's look at promotions, so sorry, yeah, what we did as we used our spend more wisely and targeted at the more loyal customers that either our within now access loyalty program or sit within the top tier our 1% of customers that are out VIP customers are driving 20 cents.
25% about GMB and reward those customers with.
Free shipping, obviously, which is part of access but also with some targeted basket.
Promotions and savings that and make sure as I said last time, we Rick recaps and retained the more valuable customers, but we didnt give away promotions to new customers or customers that only shop with us.
When we are on promotion as those customers that really don't drive the LTV is up I don't drive the one contribution over the longer term.
Those with the customers that effectively was the difference between 37% year on year growth in Q3, and 44% year on year growth in Q4, So we stopped doing that.
With customers that don't show up really with us and use the money more wisely on the on the excess customer base.
Axis is going Super strong so.
We are now up to over 60% of how active consumers on a.
Regularly accessing the awards in the rewards that they get a figuring out how they moved from one tier to the next the aiotv on customers that sit within the access program.
Is some one to $200 on average higher than customers that don't sit within the access program and the that's obviously driving a much better part of the GTV and the frequency of shot from those customers as high then customers that are outside the program as well. So we're very pleased with how that investment.
And then effectively free shipping and basketball promotions is driving our retention.
Before I talk to let Jerry as I talk about the brand so on LNG Jay.
I will say when you get to the details of the balance sheet that we've got our stock on hand at the end of the quarter.
Let's talk is already made and is ready for dispatched to drive the Q4 numbers I've saved now it's about $80 million to $90 million of revenue and GMB from.
That product.
We've got $25 million of stock ready to ship. So we were really good place too.
To get that product dispatched and get the cation over the next quarter to drive the positive or negative working capital the favorable working capital. However, you want to say it now that comes from that proposition. So.
Yeah, we were very pleased financially as well as operationally and strategically how the acquisition has already started to impact on the business.
Okay.
Hi, Louise Thanks.
Thanks for your question.
So I think you know we.
We made the right decision in my opinion we.
The taxes of how resolves other luxury industry.
And side is with the brains on their request tool.
And control the level of promotions on health plan.
Move and increasingly from reliance on online will sail tool.
Direct to consumer Andy concessions.
Results were even better than expected.
And I think we found a formula we saw the formula that balances.
Gross steal market share capturing growth.
Multiple times.
The closest competitor.
Andy Slide Mula I believe will work no matter how long it last seen themselves if the notional environments. So the conversations with the brands.
And extremely healthy.
We in DC area, and just recently, we launched a fragile in IRSA as the their exclusive global.
Multi brand patents will that Neil Lane.
We are we have you know this year launch that closes with billing saga.
Because burberry and we have an ongoing.
Or an ongoing for them, we will achieve gold Lucci open house and the brands.
Yeah, very excited very excited to see and tremendous growth and concessions.
And.
The global base.
We are capturing for example in China and a Chinese consumer that is 29 years old.
And on average and spending even more third basket then our average of $600. They will be so this is a tool.
Actually customer in China in the demographics that is absolutely the sweet spots are the brands.
[noise] then.
The result of all of these is conversations.
Around and absolutely doubling down on class actually see that's from the the data and the numbers.
Jim with inventory.
More than doubling for the top 10 brands and we expect these trends to continue I think.
And I think the end again and it's highly highly.
Favorable to class hedged this is a luxury industry and brands will have to protect.
Pricing Tagless tee, they will have tool that contain a promotional activity.
The online will sales channel and doesn't allow them to do that and they they completely lose control obviously after they passed the title to the.
At the online retailer and and now we I would they have an alternative and at scale and I think that and we don't know obviously the transition.
Now let me it will take we now have the solid to navigate the competitive landscape and adds and when that transition materializes we.
We think we stand to be and at the winner from from all these dynamics.
Your next question is from Eric Sheridan with few vs. Your line is open.
Thanks, so much in thanks for the.
On a level of detail on the GMP in the gross profit.
Break out there.
Following up so looking at digital platform GMP as well as sort of gross profit in culture and order contribution margin any sense of how to think about.
Where we could go over the medium term on those metrics versus what do you laid out originally through the IPO process as investors for to continue to understand how that business evolves and develops especially on the gross profit margin line on the order contribution margin line not only just in Q4, maybe looking out over the next couple of years. Thanks, so much for any color.
Sure Hi, Eric.
You know as let's say on the last call. We are forecasting that the promotional environment with the industry Wu lost what is now two to three more quarters.
Clearly the way that we did over the last 13 weeks to pull back on promotions is the right thing to do and it is helping with the older contribution physician.
But I would say that.
We have to.
Be weary off of what the next two or three quarters might look like so now we back into the food casino to contribution that's a good price to be over the.
Next couple of courses.
And then as we execute on on the broader offering around exclusive content to bring down our cost of digital marketing.
To drive organic traffic as we are able to pull back even further on promotions as the industry starts to receive itself about those promotions two to three quarters out I will be our to improve the gross margin position of the marketplace, which is obviously we're out promotional spend hits us.
And of course, what we haven't done as urea is really drive leverage on.
How.
Logistics network, that's still a big part of our downtime in the other revenue to the gross margin physician and we've got a number of work streams that will.
Uh-huh help us push that.
Including improving.
The logistics flow with the fulfillment by Fitch model as we.
Now testing and rolling that out by having more localized facilities using third party logistics providers to get the cost of shipping down.
We will also be able to.
You know revisit how we do our shipping which carries we use a how we use yeah fright versus other.
Means of shipping.
How we might use local carries in a bit of wide is quite a lot of opportunity to drive savings within that position and then of course lastly, it's around the the first party business.
Margins and mix clearly we are growing the first party business faster than the overall business at the moment, it's now 12% about GMB at a lower gross margin.
Then in the marketplace as that starts to moderate over the coming months with Harrods coming on board next year and each one that's obviously a three IP model the mix will drop which will improve the overall blended gross margins and the one p. gross margins can grow through a beta price points eccentrics.
Sorry, a number of differently because I think it's worth pointing out as I said last time now more mature customer cohorts, so already at 55% plus as an order contribution.
That shows us how we can get there in terms of the the path towards 60%, obviously, it's around organic traffic hi, basket sizes lower returns rights and of course, when we start to sell more of the product that new God's group has produced out for the group.
The first party original product that comes of even higher margins.
As does the media solutions business I will stop there because on probably rambling, but as you can tell does a lot of a leaves first opposed to get back to that 60% position.
Your next question comes from John Blackledge with Cowen Your line is open.
Okay, great. Thank you for a couple of questions just any color on expectations for the holiday.
Given the U.S. is a decent part of the overall business do you expect any impact from the shortened holiday season here in the U.S. and if so is that baked into guidance and then on China, just any update on the JD integration on top lifestyle, many any color on impact.
On the China business. Thank you.
Page on yeah. So holiday season, we very confident in the offer.
We had a good start to the quarter with regards to singles day offering.
Earlier on this week and.
That went really well so we're very pleased with how that's kicked off.
Clearly the link seven weeks are key to this quarter.
You know, there's a lot of activity coming our way, but we will some of the exclusive we've got the product lines that we are the exclusive third party distributors were very excited about that.
Obviously some of the collections that we have out of offline Palm Angels very excited about that and we now have just under 500 direct brand he concession relationships and we work very closely with arteries suppliers to put the beast holiday offering forward.
Over the season, and clearly party, we had gifting, it's a very exciting part of the luxury industry Tom for the lecture industry. So we're very confident about that.
And delivering that 30% to 35% GMB growth year on year across the digital platform.
Yeah.
Touching on China I think.
You know the Flores.
What what is extremely extremely exciting is the absolute validation of product markets heat and our own channels.
The five fetched apt, primarily because China is in that business.
As a result of.
Considerable investments in the local data center at 300, CST as staffs in Beijing, Shanghai and semi in Hong Kong as well, creating and on top of our Apiay and that that is incredible India that is as fast as sleek.
With local and payments Houston's completely localized and all of that is paying off and we've seen these excellent now retraction and from Chinese consumers as very high yields the higher than the average OFAF edge still higher than $600 and materially.
Yes, good customers and it's extremely extremely exciting and on top life.
We are you know very excited with the positions and integration and that our team has demonstrated it launched only a few months ago and as I said eight said 2020 focus and it's a channel we're optimizing and eight eight it will be the cherry on top of the.
Cake, but the cake is I'm pleased to say growing very fast so I'm very good very good news from China rounds.
Your next question is from and Jason Helfstein with Oppenheimer. Your line is open.
Thanks, two questions first Jos I can you talk about geographic price protection to the extent one p. ecommerce retailers have are not respecting. This how are you enforcing this on behalf of your brand partners and just clarified you only in force for your brand partners and then Elliott.
Maybe talk just a bit about kind of future potential cash needs.
Based on most street models, the company would need to raise capital and I think late 2020 early 2021, how are you thinking about this.
And then see kind of you limited the size of the won't be business can you get working capital to be a source of funds versus the user funds and anything you can do to reduce capex ratio. Thanks.
So on and what we call Geo pricing.
And we have developed and industry, leading tools, so far brands and retailers to manage the pricing we do not set prices.
We're a marketplace so.
For the most pad and 90% of our turnover roughly is and is threepi.
The prices assets by the seller.
Having said that it's extremely easy.
On the class H harder retail at 22 Geo pricing.
And they just need to take a box and and obviously.
We only work with the best and multi brand boutiques.
All of these boutiques and known to the brands and also rise by the brands sell on five fetch there is a mutual respect and that's that's and statues. Some in some cases decades long relationship between the brands on these boutiques and and we've been able to manage that very very.
And in harmony into in the platform at what's happening out there and at each.
You are right. There is there is India gleaned from and to roll sale the online will cells handle.
But to my bind early on with we'd Louise.
Displays in our favor as more and more.
The brands and trying to phase out.
All end wholesale.
And not only is less profitable as a channel they book half of the revenue they have much lower imagines that they lose complete control of pricing and NGL pricing.
And control of merchandising and now they have an alternative.
Multibillion alternatives at scale globally.
Weve, a very exciting customer base now 1.9 million active customers and this is extremely exciting for the industry. So I think we will be the beneficiary of of and protecting the balance of the industry.
And as costs DC has means that we moderated growth and and but but we saw the formula So.
Really really satisfied with that and satisfied with the way we're managing.
The geo pricing as well.
And Jason just on on cash.
Oh, yes, I'm very comfortable with where we are on cash so.
Obviously, we closed the quarter at $318 million of cash.
I'm expecting to close the year so end of December .
At around $300 million of cash as well.
That's obviously you actually.
Benefiting from some of the working capital.
Benefits that come through from the marketplace over the fourth quarter and.
We also have the the 300 million euros.
Secured loan facility, which at the moment is undrawn, but available to us.
To provide more financial flexibility and liquidity. So both of those positions puts me in a very comfortable position.
We obviously.
We will benefit from.
The new gods working capital position of those expanding with the ways moving forward.
In terms of you accretion around Capex, you probably already seeing actually when you go through the detail that the capitalized development spend.
$16 million in Q3 that was against $20 million.
In Q2, so we've already.
That down.
There was.
Around.
$8 million worth of.
Pants and property capitalization, that's offices that we completed in.
Shanghai in New York, and the time period, that's not to be repeated side, we've got savings there in terms of.
Our capex as we move Fuas.
And so I think we're in a really good place around that position. So I'm not worried about we were at and that gives us good headroom through to becoming cash flow positive.
Your next question is from Edward Brimming with Keybanc capital markets. Your line is open.
Hey, good evening guys. Thanks for taking the questions I guess first.
You mentioned that the pulled on her promotion activity allowed you to kind of Disinvite, maybe those most price sensitive consumers I guess did you see any change in buying behavior or maybe your most loyal or habitual did consumers given some of the the pullback in promo and then I guess second.
As you had dig in on the new large business any sense as to whether investments are necessary.
Hi, there from a capital perspective or from an expense perspective to kind of continue that rate of growth. Thanks. So much.
Yes, let San Antonio regard sorry, they operate under a very asset light model.
They haven't got production facilities. So we as a product is made is.
In Europe near Europe supply as.
We obviously, we're using scale benefits to drive a bit or input prices.
I haven't got warehouses that.
They do for themselves. So there's no capex requirements there and.
They operate from.
You know very.
So what I'm looking for.
The not flashy as a as their office in Milan, It's a it's a very prudent in terms of cost management.
That I need to expand significantly the hit office facility. So.
Im very comfortable with the guidance that we have around.
So to include the new got operations.
In terms of promotions and how to customers behave.
I'm extremely pleased to say that our loyal customers given that we sort of allowed our teens internally also to focus on how to broadcast to full price offer a new and in season, our products a three to toriola throughout marketing to our customers and our private client teams now fashion crunchy.
His teams were able to adding target the customer base with what is an amazing full price offering a re strong in season offering.
So we actually saw our top 1% customers.
Bye.
More full price then we have in the past. So we were very pleased that the noise of promotions allowed us to focus on offering to the customer beta proposition and I bought into that proposition, which is why we've we've outperformed.
Your next question is from from Channel with Wells Fargo. Your line is open.
Hey, good afternoon, everyone.
Two questions for Elliot I believe just one on Harrods next year is there anymore.
Information you can give us as its coming closer I'm thinking specifically about GMB contribution take rate contribution margin does anything that can help us as we try to.
After that into our models for next year, and then I apologies Elliot I know you've had this question asked a couple of different ways, but I'll try and other way you know a lot of focus on the timeline deposit of EBITDA I guess, just the consensus number has a positive EBITDA implications for fiscal 21 I guess my question is does that seem reasonable or other puts and takes that we should consider.
Okay. Thanks, a lot.
Alright, alright, great great questions.
Well not providing guidance around harrods for next year.
Today.
We would normally talk about a 2020.
On the mixed cool, which is still the plan.
But what I will say is that.
When we've talked about the long term growth of this business spanning three.
30% to 35% GMB growth that obviously includes.
Bringing on new clients for the Black and White team includes Harrods, obviously so.
If you've got the sort of long term, 30% to 35% and your numbers.
Thats a good place to be and also in terms of take right.
The 29% to 32% take rate that I've talked about.
On a number of occasions also includes the growth of our black and white.
And this as well so those numbers are already including.
The expectations for full Harrods.
Profitability, Yes, again, a great question.
I think a as I said earlier on where we're overall, we're very pleased with how we've been able to deliver across the course of that gives us more confidence. So for Q4 I wouldn't normally provide guidance for 2020 and beyond I'm not going to provide going into 2020 and beyond.
But youre date of 2020 , one being breakeven I think fact cig has the consensus overall.
Position.
It seems about right to off at this point in time.
Your next question comes from a Lloyd Walmsley with Deutsche Bank. Your line is open.
Yeah. Thanks, a couple one new guards.
When you acquired at you said it was growing I think 55% in the first.
Lloyd Wamsley your line is on mute.