Q2 2021 Farfetch Ltd Earnings Call

Joining me today to discuss our results are Jersey, Nevis, our founder Chairman and Chief Executive Officer, Elliott, Jordan, Our Chief Financial Officer, and Stephanie Phair, our chief customer officer.

Before we begin we would like to remind you that our discussions today will include forward looking statements actual.

Actual results could differ materially from those indicated in the forward looking statements and.

Forward looking statements made today speak only to our expectations as of today.

We undertake no obligation to publicly update or revise them.

For a discussion of some of the important risk factors that could cause actual results to differ please see the risk factors section of our form 20-F filed with the SEC on March 4th 2021.

In addition, we will refer to certain financial measures not reported in accordance with <unk> on this call.

You can find reconciliations of these non <unk> financial measures to <unk> financial measures in our earnings press release, and the slide presentation, both of which are available on our website at Farfetch investors Dot com.

And now I'd like to turn the call over to Joseph a.

Thank you Alex and thank you all for joining us today.

And you're likely to speak with you about our results into pool, which is the first quarter that fully labs, the effects of foreclosure and travel restrictions.

On the equal his 19 pandemic.

Reflecting on the past year I am very enthused by the extraordinary resilience of the luxury industry.

Overall luxury seeing very strong demand with many brands reporting sales in excess of their <unk> levels.

This suggests the industry is returning to a secular growth trend.

Which is even more remarkable given the restrictions that still remain in place globally.

During the past year. The industry has also taken the opportunity to rebalance our lower exposure to the wholesale channel.

Curtailing promotional and markdown activity.

<unk> pride in the fact that its passage actively partners with brands to enable their migration to direct to consumer or DTC channels for greater control over their online sales, including with respect to pricing.

Finally, I am tremendously excited by our significant market share capture.

The most relevant two year stack period, where our digital platform <unk> increased by nearly 90%.

In fact, this 90% increase is the key highlights of our performance this quarter, where we believe wells Fargo percent year on year growth.

Along with more efficient demand generation.

Higher adjusted EBITDA profitability, which in itself is a reason to celebrate.

This in combination with another key results this quarter demonstrate significant strength full.

Full price sales on our marketplace grew 90% year on year.

Which allows us to screen the markdown activity in our business by double digits.

And still achieve our growth targets, despite the reopening of physical stores.

And on the three innovative full price sales were 112%.

The reason why this is so important is that going forward. These stronger full price customer cohorts, which have grown on a three year stack at incredible pace will underlie our future growth.

On the back of strong performance by the marketplace as well as our other business units across the group Q2, <unk> grew 40% year on year.

Exceeding $1 billion for the second time in the past three quarters and more than doubling as compared from Q2 2019.

This month, we also marked the second anniversary of our new <unk> acquisition.

One of the core strategies behind the transaction was to create a pipeline of original content and exclusive collabs that will drive birth, and a significant halo effect to increase the engagement of our global customers around the <unk> brand.

And ultimately drive more organic traffic.

I am pleased to say we've had succeeded in spades.

New guys has propelled brands like off White Palm Angels to become a top 10 brands on the marketplace by Gmg in Q2.

And these brands collab drove customers to the <unk> platform with little to no marketing expense.

The strong momentum behind New Guards brands is also evident in the acceleration of high generating capsules they are producing.

Recently, the lab had included of wide laminate Nike Air Force ones.

Palm Angels collapse, we saw me <unk>, Wang and ablative Collabs.

Nike then.

Chantal amongst our eyewear and even our first as a redesign of our <unk>.

And though some painful.

<unk> is going from strength to strength driving continued growth on the back of brand elevating collections and expanding categories.

And given the Palm Angels is demonstrating a similar growth rate to authorize a seamless stage of development. We are thrilled to have recently increased our investments in palm Angels to now have full ownership of the Palm Angels operating company and the majority eases in its brand entity.

Looking forward, we see tremendous opportunities for continued growth from new guards.

We plan to ramp Collabs and have more than 50 in total planned for 2021.

We will also look to continue expanding our brands into new categories, such as beauty to enlarge our distributions with presences on Tmall and further enhance the shopping experience is by digitally connecting our directly operated stores via our luxury new retail our LNR capabilities.

We also have plans to launch and grow many more brands, including the first brand Shine. We created by assets are new pads cold there was one due to launch later this quarter.

Born from our marketplace. The insides. There was one is sustainable line of luxury Warfield classics.

Initially for women and offering a high quality to price ratio, which will be exclusively offered on the front edge digital platform.

Finally, I'd also like to update you on our 2021 strategic pillars.

I am pleased to share at all progressing extremely well.

Starting with brand partnerships.

Our execution on prioritizing full price.

And reducing promotions over the last two years has led to strong alignment with the industry players.

Our relationships have never been better.

Top 10 third party E concession brands expanded available for Q&A is more than 70% year over year and saw a more than doubling of sales over the same period.

Our commercial relationships have also matured to a level, where we are now seeing is an essential strategic partner, who provide valuable insights.

As a result, now that brands are beginning to reengage in advertising after taking a hiatus during the pandemic. They are also engaging in opportunities to tap into our last pure play luxury audience to achieve their marketing objectives.

This has translated into our highest ever quarter of media solutions revenue in Q2, which Stephanie will discuss in more detail.

Moving to LNR.

Yes.

We continue to have conversations with multiple large enterprise customers.

A broad spectrum of capabilities from global ecommerce to logistics as a service and LNR among others and continue to see existing patent stake or additional services.

We have also made strides in cementing our connected retail strategy.

We have already equipped Chanel, and our brands boutiques with our retail store technologies.

Just this week.

We also kicked off an exciting pilot of our newest solution.

Which expands the capabilities, we have implemented in our own Browns star to our community of third party retailers on the marketplace, our Elisa platform tenants.

Fast ACH connected retail will leverage the Farfetch App to act as an interface between our 3 million plus marketplace consumers.

Participating process retail partners around the world.

Using our sausage app consumers will be able to be notified if their wish list item is available for sale or purchase.

Purchase in the nearby store.

I Didnt find himself as a <unk> customer when shopping as fashion boutiques and pay for their purchases via our app among other functionalities.

On the other hand boutiques will be able to use the app to deliver a more personalized and interactive service two facets consumers both in store and remotely while benefiting from the incremental food traffic farfetched candidly very from our labs luxury consumer base, which is even more.

More crucial in the post pandemic environment.

And while we are initially rolling this out with retailers. We also have plans to extend these solutions to brands to drive passage consumers two flagship stores, they who's connected to our marketplace.

Moving to China.

In Q2, I would say the team continued to drive strong performance.

GNP growth accelerated.

And continues to grow faster than the overall marketplace.

The fashion authority, we have built among high end luxury consumers in China has strong brands to see fast ACH.

Media partner in China, as well as globally.

We have engaged our private clients and experiences with brands, such as luxury and created localized and culturally relevant content and campaigns or loro piana.

And our many beauty to name a few.

And we are thrilled to expand our relationship with Harrods, who recently signed.

<unk> partnership with curiosity, China focused on enhancing the American standards in China, and powering their communications with consumers across multiple channels online and offline.

I believe these are early signs that traffic, China will not only be a unique DTC channel for Manulife group brands.

It will also be a very powerful marketing vehicle in this crucial market.

Once again demonstrates the unique strengths and capabilities, we have in that market.

Q2 was also our first full quarter operating our storefront on PMO, plus we pavilion PLP.

And we are very pleased by the month over month growth we have achieved.

We continue to hone our learnings on the Tmall platform and improve our merchandising strategies.

This has contributed to strong customer engagement across our very differentiated range of available luxury brands on PLP, 90% of which are exclusive to fast ACH on tmall.

As well as to building affinity for the Sandwich brand as our PMO fan base grew to 250000 followers.

We continue to remain very excited about serving the luxury shopping demand of Chinese consumers.

Our unrivaled brand partnerships and global supply.

<unk> as well.

Really in light of recent guidance, which indicates travel restrictions may continue for another year that creation of luxury demand within China.

I'll now, let Stephanie update you on the remaining two strategic pillars Stephanie.

Thank you Sir Hello, everyone I'm pleased to update you on the progress we have made towards our brand and unrivaled customer experience initiatives both of which have supported the focus is on increasing full price sales effect with respect to brand.

Brand initiatives involve the holistic approach aimed at building an emotional connection to the Farfetch brand and ultimately driving more organic traffic and loyalty.

Over the past two years, our brand campaigns rebranding farfetch and focusing on our marketplace experience upgrading our content and editorial and integrating our brand ethos.

End to end customer journey has strongly contributed to delivering on our objectives.

Following our second full funnel brand marketing campaign, and four key luxury market and New York Metro areas, London, Dubai, and China in April ITG brand Tracker survey noted year over year improvement in brand awareness with particular uptick in the U S and UK.

And we believe this is translating into lower cost traffic as a mix of paid visits in Q2 declined and saves us low cost or free channels, such as direct app notifications email and referrals.

Importantly, we have further enhanced our already highly attractive luxury audiences similar.

Similar to Q2 2020 more than 500000, new customer shops on Farfetch in Q2 2021.

We saw a double digit increase in the average spend per customer from <unk> cohort compared to the prior year cohort.

This is an indication of the quality of the customers we are acquiring for buying into full priced items at a higher average sales price.

In addition customer engagement has strengthened.

<unk> Q and year on year average order frequency increased for the first time since the pandemic.

And another indication of the traction behind the fact that trend as I am putting wallet share gains.

Remember to the access loyalty program in the first half.

For 2021 have upgraded tier at a higher one month's rate and new customers added to access in the first half of 2020.

As our base has increased and our efforts on retention are showing results. We have seen the mix MGMT from existing customers increasing each of the past four quarters, which together with improvements in brand awareness extend the increasing mix from unpaid channels as we lean into our own low cost channels.

And specifically among private clients.

The results, we've seen from our most valuable customers and their fashion shifts to going out to tier evidence at the strong connections they have with fast ACH.

In Q2 can be from private clients grew significantly faster than the market pace and private clients significant a higher sell price mix as compared to other accident year.

As an additional element to a full price strategy I'm very pleased to announce another customer initiatives with the launch of <unk>. Later, this month, which will not only continue to generate immune and for a customer to any access but also enhance our strategic wells with brand partners by extending therefore price selling lingo.

And in only on Farfetch Wayne I preorder offering will be open to all and already counts. Many brands, we have signed up to this new proposition.

On our unrivaled global customer experience data.

And key component and outcome as a brand building effort has been to increase engagement and brand partners driving more compelling partnerships exclusive product launches for our customers and ultimately higher media solutions revenue in the marketplace.

We recorded our highest ever and get commissions revenue exposure.

Many of our brand partnerships during the quarter focused on innovation, which highlights. The fact that brands appreciate prospect not only for our highly relevant audience, but also for the innovative technologies that we are able to leverage.

We have a differentiated experiences and drive engagement can.

Campaign change compared with preliminary phase <unk> and AI experience featuring the launch is there an empty bag to good teeth imagine featured campaign with a unique fitting room experience and <unk> virtual try on lunch campaign for their happy watch.

In June the market paint OCC to the content campaign, highlighting our positively farfetch ESG initiatives, putting a focus on our content brands and including <unk>, which was a thrill kick anti U S customers in partnership with trend up.

The innovative content generated by our brand partnership helps scaled audience, which is even more critical in light of recently implemented privacy measures such as <unk>.

We believe our highly attractive luxury audiences.

Thats, an even more strategic marketing partner for brands as they seek to market on channels that have targeted audiences and access to first tagging data.

As the market on digital platform sales, we are not immune from the impact that these policy changes which are currently headwinds.

That said, we have been peak, what we believe are higher than average asking rates by our customers as compared to other digital businesses to date.

Not any interests encouraging from a marketing standpoint longer term, but it also suggests that our increased efforts around personalization, including person icon, which drove twice the mix of sales in Q2 as compared to a year ago had been successful enhancing our high level of trust and relevance with our customers such that they are willing to.

Share that data.

And now I'll hand, the call over to Elliot to discuss our financial results and outlook.

Thank you, Stephanie and Hello to everyone on the module to be reporting a strong financial performance across our second quarter of 2021 with 40% growth in GMP, 43% growth in revenue and adjusted EBITDA of minus <unk> 5 million versus minus $25.2 million.

Last year.

These results are in line with our spaces expectations demonstrate our platform is thriving physical stores have reopened and importantly, with an increase of 350 basis points and adjusted EBITDA margin year on year positions us well to deliver our goal of achieving our first.

Full year of adjusted EBITDA profitability from 'twenty to 'twenty one.

<unk> for Q2 was a touch above $1 billion.

More than twice the $488 million of GMB achieved two years ago in Q3 2019.

As I have mentioned on previous earnings calls, we have been doubling the size of the business.

Two years.

Our revenue growth outpace GMB growth and with the exception of the impact from industry wide increases in logistics and global shipping costs, our margins are improving.

In particular, we have delivered strong growth in revenue from our high margin media solutions business, which is also supported the higher third party take rate of 33%.

Demand generation is more efficient year over year within the digital platform we.

We have achieved a significantly higher price mix, which was driven by higher gross margins across all three is currently in first party original businesses.

And the brand platform, our gross margins have increased on the back of our focus on strategic retail partners.

This means that we have achieved an improved adjusted EBITA margin position of minus two 7% compared to minus <unk>, 3%.

Q2.

I want to dive into the performance of the digital platform, which is driving strong group position the GMB growth of 40% year on year and <unk>, 9% on a two year basis.

I'm, particularly pleased with this performance as the Farfetch marketplace, which makes up the vast majority of GMP on the digital platform was growing at essentially the same level as it did during Q1.

<unk> is growing faster in the quarter benefit across all of 2020.

Even as physical stores have begun to reopen.

The differential in digital platform growth rates between Q1, and Q2 was driven by a full annualized version of its clients.

Trade or food prices, particularly strong up 90% year over year.

Markdown and promotional lift GMP took another step back in terms of contribution to GMB growth driving a full price mix year over year.

This was particularly pronounced in the final six weeks of the quarter as actual levels of promotion and boost of markdown were significantly lower than anticipated.

Our sellers focused on maximizing full price sales and margin from the spring from a 'twenty, one collection and booting their ultimate into 21 new season campaigns.

In terms of demand generation, despite having to navigate increasing cost pressure across paid digital marketing channels as the space has become more competitive.

The previous investments, we have made and through our marketing.

Basic capabilities.

And the impact of our highly relevant either through to improved customer engagement helped drive efficiency in demand generation spend of 100 basis points year on year as a percentage of platform services revenue.

We continue to see payback of new customer totals within six months of acquisition with the Q4 2020 cohort achieving a lifetime value over Tac ratio higher than the equivalent 2019 cohort.

The other major business within the digital platform is profit platform solution, which leverages our platform to deliver bespoke and much of the b to B SaaS solutions for enterprise clients.

Despite now annualized the new client additions from earlier in 2000, <unk> Sps is positively contributing to the growth of the digital platform with like for like GMB growth ahead of the overall, 40% digital platform GMB growth in Q2.

Before concluding on the Sigma unwanted through into margins.

Digital platform gross profit margin was down 200 basis points to 53% and digital platform order contribution margin was 90 basis points lower at 34, 1%.

Both measures were impacted by an increase in shipping and <unk> costs, which grew over 50% year over year in part due to higher cost per parcel from a logistics partners.

<unk> due to the Uk's exit from European Union, and a slight year over year increase in the returns right.

We decided not to pass all of this incremental costs onto our customers.

This is reflected in the P&L with the <unk> revenue up only 48% year over year versus a 51% year over year increase in cost of revenue.

While we expect these headwinds to continue into Q3, we have taken action to mitigate these and other costs in the medium term.

In particular, we are in the process of shifting our principal stockholding facility for our third party business from the UK to the Netherlands.

In addition, we have initiated plans to begin sharing some of the digital service tax within cost of revenues with our sellers.

Moving on to the brand platform, which represents new das wholesale revenue from our strategic retail Congress.

This segment delivered GMB of $73 million.

10% year on year increase at a 47% gross profit margin versus 41, 8% last year.

New jobs business overall grew substantially ahead of this with over 100% growth year on year in the digital platform as we have shifted distribution in favor of direct to consumer channels.

Revenue for our food segment, and stool was $18 million for in Hong Kong in Q2, 2020, due to COVID-19 store closures in 2020, and the opening of new stores for new Guards' brands throughout the last year.

Excluding these openings into revenue increased 147% year on year.

Turning to our cost base, where we have delivered operating leverage year on year.

The operating cost of our technology platform and G&A totaled 42% of adjusted revenue compared to 44, 6% in 2020.

This continued leverage is being driven by the scale of the platform and investments to date to drive growth with minimal incremental costs, particularly in the operations customer services technology and corporate functions.

We posted a gain on item town at fair value of $246 million.

Which means we have delivered a profit after tax of $88 million and an earnings per share of <unk> 14.

Sure.

Yeah. This is minus <unk> <unk> last year.

We closed the quarter with strong liquidity of over $1 billion.

Liquidity was boosted earlier this month as we completed the formation of our China joint venture, which was announced as part of our luxury retail strategic initiative in November 20 <unk>.

As part of this transaction Alibaba in recent months, each and Vista $250 million in exchange for 12, and a 5% each in the newly formed joint venture.

Including the proceeds of this ambition and our liquidity would have been $1.6 billion.

At quarter end.

Looking ahead to Q3, we expect.

30% to 35% year on year.

With circa 100% growth in store and circa 45% growth in the brand platform.

Within the digital platform, we expect <unk> to grow circa 30% year over year, which represents a sequential acceleration to move into 100% growth on a two year basis.

Our digital platform order contribution margin is expected to be 30% of digital platform services revenue as we continue to work through the near term headwinds we've seen year to date.

And finally, we expect to deliver positive adjusted EBITDA of $215 million.

These results are a step towards achieving our previously stated full year targets, both strong GMB growth between 35% to 40% year on year, and 1% to 2% margin at the adjusted EBITDA level.

We are delivering on our long term strategy of sustainable growth and strong market share capture.

Xena.

Thank you Elliot.

The past year and half was unprecedented.

I am really impressed with the resilience of luxury.

Already back to growth with even stronger fundamentals.

I am very proud of this process was a close partner for both retailers and brands in these historical periods.

<unk> strong growth while the sellers.

And as a result, doubling our GMT in the last 24 months.

Moreover, we have many reasons to be very positive going forward now.

Now that the industry is transitioning to normality.

I believe the sausage flywheel dynamics, we are we've talked about.

Display in full force.

Our unique luxury brands.

The growing extremely fast with the top 10 brands definitely net sales year on year.

Our own brand is stronger and attracting more Max in patent sheets and this means a boost in elevated supply.

All of which is driving growth of 90% and full price sales year on year.

And 140% over two years, creating layers of strong cohort for many quarters to come.

These markedly flywheel effect is in turn accelerating our progress to become the global platform for luxury.

Including continued advances in China Sps.

<unk> connected retail and luxury retail.

Thank you I'll now ask the operator to open the call for Q&A.

Your first question comes from the line of Doug Anmuth with J P. Morgan.

Great. Thanks for taking my questions.

Kelly just wanted to ask first about China.

I think perhaps there is a comment on the China <unk> accelerated just curious is that driven by improvements at the TLLP store any more details.

Around the monthly progress that Youre, making there.

So just curious if youre seeing any impact or just how to think about impact around increased regulation in.

In China. So that's one question and then perhaps for Joey.

Hoping you might have some thoughts to share just around off white following the <unk> majority acquisition in and how does that play into your thinking with.

With Palm Angels, and going to a 100% ownership there and the operating company.

Yes.

Hi, Derik.

I think I'll take I'll take both questions actually.

I think we.

China.

We're really really pleased with the performance in China.

The growth has accelerated and.

The market continues to grow faster.

Then the marketplace.

Or even both by the car.

I don't know what the causes.

The business that we've built and channel the CPU is our app business, which is.

Still the vast majority of our business in China.

Growing very very fast.

And of course, we now have a delay on top of that of chemo.

So we're growing very fast on both our app and on that channel.

And I think it's a tremendous opportunity continues to be a trend of opportunity where the government has issued guidance.

That international travel is probably going to be.

The current limit is very with Cvs for another year at least so that's that's going to drive that continues repatriation of luxury spent within China.

I think we are uniquely positioned we're probably the only western company.

We the infrastructure or the team with multiple partnerships and channels to really.

<unk> enable the industry to penetrate the China luxury market in a digital way.

And in fact, I think thats role of being the gateway to China for many many brands will.

Continue to be of operating partner, So I think the news.

Sure.

The pharmacy is very strong and great news on the model.

And all those channels so.

Very very bullish on China in fact and.

In terms of.

Off white following the LVL niche acquisitions, they effective fashion I think first of all the huge congrats to Gilles.

And the impact of the <unk> right. I mean this is a brand that was created by reversal of that.

Andrea for the <unk> from Trumpf scratch right. So the fact that this brand.

<unk> goes from strength to strength.

And definitely this.

Massive federal approval is a fantastic passage to the creative community out there that we really have a brand platform that can build from scratch incredible brands and you touched on balance Palm Angels.

A great example for our brands again growth from zero.

Great talent Francesco like Abbvie.

Yes.

And on the same track as also I think when you look at the trajectory we've seen the same.

Number the same patents.

We are very very supportive of the expansion of that brand is fab like off white with menswear.

Then expanded category women's glad Keith.

We're.

In the case of our quietly excited to homecare and beauty that is now available as a platform for other brands.

So this is fantastic we're seeing across other brands in the portfolio of MTGE building very fast as well and we are creating new brands, we just announced a new.

Only on Classics brand hope there was landfill that will be a digital native brand co created by package on the NCG.

So that's that's really positive in terms of the message to the creative community and.

And.

And actually a chance of.

A deepening of our relationships with Oems, we have so many right.

With <unk>, we have many of our brands.

Compassion.

Such as Hany, I am thinking doing extremely well.

SBS clients.

Kiwi, obviously, China collaborations with matching launches and events.

Within China as well.

Now these opportunities they have to see how.

Proficient we are in an operating <unk>.

Digital.

Brands that have a very strong digital component license or the audio for this brand. This is more of in the millennial and generation side are there. So we think it's.

Entergy.

Anniversary, so it's a big.

Recent celebrated.

This acquisition and the contribution is going into the program.

Your next question is from the line of Oliver Chen with Cowen.

Hi, Joe.

<unk> luxury pavilion in Tmall, you mentioned learnings and merchandise strategies of what's ahead. There in terms of things that you will do in the catalysts that you're focused on.

Would also love your thoughts on Farfetch platform solutions.

As you.

Think about the total addressable market with Fps and also.

What's on your mind for the pipeline there.

And then Elliot.

<unk> growth that was attractive but it came in at the lower end of the guidance range. If you could help brief us on how the regions looked in terms of how it came out relative to your prior guidance. Thank you.

Yeah.

Yeah in terms of our PMO, it's very very exciting wasn't team.

Very strong engagement, we now have.

250000.

And on and on.

<unk> on our star, we're having we're coming to chemo with a very differentiated offering over 90% of the.

Over 3002 <unk>.

Our brands will have on Tmall, 90% of those has exclusive guidance via farfetch on their platform.

That is a very compelling offering.

The Chinese customer on their platform in fact, we are seeing.

Many brands.

That are not on the top 20 leased on Paas edge very high on in terms of our sales.

Okay perfect.

Also in a very complementary.

<unk> tier three CD customers and.

Our customers on our own apps, they tend to be more of the.

The second year, when fashion needed to customers and on Tmall, we seeing.

Fashion enthusiastic customer slightly lower not welcome.

Welcome, it's lower actual April actually where it is a real luxury customers, but obviously with a slightly lower youll need and then the <unk> app.

That's driving our merchandise strategy is really fill and we keep learning obviously, we all looked at this as a learning curve.

And also in terms of algorithms and beating.

On advertising on the <unk>.

From a platform.

Platinum platform driven by.

By advertising as well so all of those.

I'll leave it there.

So learning curve.

We're very pleased Alibaba is very pleased with the performance as well and we will continue to build on this and as we said we're very confident it will be.

T real channels fourth asset China in 2022 and beyond.

Already contributing to our strong growth in the in the territory.

Second question around Sps I think it is a tremendous opportunity.

In fact <unk>.

It's not only about.

E Commerce and end to end ecommerce solutions.

NPS is the suite of services, we can.

We can enable the luxury brands, we have we feel that this vision of luxury new retail. So it goes from end to end ecommerce to global logistics.

<unk> as a therapy.

Fulfillment as a service so there's a number of components here, we're discussing we're accelerating conversations.

With multiple enterprise clients.

These conversations are idle and will accelerate as you can imagine these are annualized finance lending Chanel spending with all of you.

However, as a multibillion dollar business discuss some of the type of customers, we're refining have long sales cycles.

And COVID-19 was not the ideal timing for our companies to be exposed to or the investment payback and re platform of all of that I think now that the industry is transitioning to normality aimco.

I'm confident that we're going to see an acceleration of the multiple conversations we have.

But let me stress that the existing customers on SBS.

Our expanding the services they use with us.

And are also growing their business with us.

Faster than the micro place. So we have growth from Sps from existing customers both from expansion of services and the growth will be enabling program globally that.

That is about the micro vertical were positive contributors to the overall blend.

Plus a very very powerful pipeline of conversations.

And Oliver.

Just on the GMB growth to the quarter, obviously, we're absolutely delighted with the position that we achieved particularly if you look at our growth on a two year basis. Our thing it's important to look back to where we are versus 29 train. So that you start to normalize some of the impacts of the pandemic and obviously the digital plan.

<unk> was up 18, 9% on a two year basis very similar to the two year growth rates, we delivered in Q1 and overall the business more than doubled in terms of <unk> versus 2019.

In terms of what we saw with them effectively the market price, which was delivering a very very strong growth throughout.

In the last six weeks of the quarter, we didn't see as much sale.

Markdown.

We were previously expecting so in the sort of the guard and sort of gave we were factoring in an element of a clause on the marketplace going into sale.

Usual levels of.

It's a markdown.

And breadth of activity and Seo and actually we just didn't see that bricks and mix as we had previously seen as a result.

Yeah.

The full price mix dramatically.

The increase year on year it was.

Rather than being a sort of a standard food price markdown quarter as you would expect because of spring summer clearance activity that was actually a full price.

So very similar.

Full <unk> sales and out through cross sales as a result were up 90% year on year non Derek is saying.

<unk> hundred 40% year on year on a two year stack.

So we sort of started to see the GMB.

Towards the lower end of the range was the most last six weeks as we didn't see the markdown of GMB come through but it was across the board actually in terms of geographical locations.

Maybe if I just run through some highlights of.

The year it actually accelerated between Q1, and Q2 and growing ahead of the overall leverage that mainland China accelerated between Q1 and Q2.

Markets like Russia accelerated.

Again ahead of the overall leverage.

We also saw.

In markets like Korea.

And then some core sort of tradition.

And Italy also delay.

Delivering ahead of the overall.

So really strong broad based growth and the only sort of <unk>.

Aviation really there was on the full price versus markdown in the present markdown was a bit softer than we were expecting but I actually think that's a really good thing our sellers on the marketplace tell me that's a really good thing because they were able to maximize the margins.

From a spring summer campaign.

We're able to hold back on markdown levels and carry over more into building the autumn winter campaign.

Honestly helped drive the <unk> was up 20% year on year.

Which is obviously a key metric for us and most importantly, the sellers saw.

Our growing customer base, now 3 million plus consumers 500000, new customers as we finish it in the quarter as highly desirable to volume to them.

Full priced campaigns.

<unk> immediate solutions revenue up significantly year on year, which drove the tight credit back up over 30%, 33% take rate will coming from strong Commission and media solutions revenue from the brands, so really well.

Just what the industry wants to cross Merck.

Your next question is from Louise.

Hi, Good evening, everyone. Thank you for taking my questions.

Can I just go back to the regional information that you've given obviously you've given.

It is kind of a mindset.

A lot of concern in the market currently with regards to integrate outlets in luxury as we can see a bit more volatility in share prices.

End of June seems quite a long time ago now I'd tell you. The question slightly differently. If you think about the outlook for Q3 that you provided ways.

Is there any change to how you're thinking about the regions versus three months ago and is there anything that you're seeing I think.

China and we should be.

And then secondly, China just on the JV.

Can you tell us a little bit about the inventory availability engine policy, you talked about the number of brands and the availability.

Inventory and the inventory that comparable to what you have on the original China platform are there any brands that are on the platform, but not sending through tmall.

And then just related to China can you say about.

The competitive environment, obviously, you have net neutral on that on the very place by is there a different customer support do you think you'd think attracted by the farfetch.

That would be fine.

And final point on the China, JV, sorry are there any logistics benefits coming through now that the JV will operate.

<unk> logistics.

From Alibaba partners. Thank you.

Hi, Louise.

Just to follow up on the regional mix question.

As usual I won't be providing sort of infer.

Information about.

But.

Let's just sort of talk about maybe the exit rates from from Q2 in terms of region.

Yes.

We're seeing.

China.

Really the key enablers of growth.

So as I sort of touched on.

Well the overall proposition.

First on the profit.

Sort of direct relationship we have with.

The customers, we have but also on CRP is rebooting and associated accelerated out of the quarter. We also see a.

The U S continued to deliver strong levels of growth as we exited the quarter and into the start of Q3 and.

<unk> actually see a reasonably good sort of took out from another top spot market in the UK as we as we trade through I think what's interesting is all of those markets that I just talked about our markets. We still would have effectively re opening physical stores reopen and yet the marketplace continues to deliver a fantastically.

<unk> of growth in the guidance that we've given the food extreme growth for this year actually on a two year basis. It was over 100% on a two year stacks are an acceleration from the first half position on that 2019 basis sorry.

Good Brewer growth I think this really highlights the fact that the investments we've made to date to build out a global proposition.

The $3 million plus sector consumers are well distributed around the world and we're able to navigate through any challenges that might come our way, but those top markets really driving the growth as we get into Q3.

Okay.

Hi, Louise.

<unk>.

Great to speak to you.

In terms of the China supply.

<unk> proposition.

I think.

Extremely strong.

I think it's important to highlight that all the brands.

On the <unk> App, if you and I can see here in the west.

Our available and in full assortment in our China App right. So we don't have any brand that we don't cover globally.

So I think that.

Very important in terms of the T Mo.

Channel.

We've seen very strong adoption from brands on that channel.

When a brand is available on PMO. It is available with a full assortment so up to 100% available.

Okay.

That will have on the on the package App. There is a number of brands that as I updated you last quarter that the number of brands that have asked for some time to compare notes.

Brands that have launched very recently some of them.

Two months three months ago before our launch.

On Tmall I.

I think we started we had a great case studies of rains that have both attractive direct hydrocarbon chemo and the present some people buy a pass edge and have benefited from that.

Right.

We have seven five times.

Number of Skus that those brands have on average on Tmall. So we are really boosting that visibility on that.

Asset has 800 million customers at kind of the shopper graph and with LIFO. So we had strong case studies and we think we can and Shaun Scott sharing those with.

The brands to make them comfortable with the current supply I think what we're seeing.

Incredible because.

It's very complementary and actually calculate the second type of your passion, we're attracting.

In China, we were taking a very young customer.

Excellent we're checking very young customers globally.

But in Chinese even even younger so around 30 years of age that for 35 years of age.

On average we will take globally.

So that is a strong differentiation of our offer which 90% of the brands, we offer Aragon and exclusively for Capex on Tmall.

Yes.

Company you mentioned.

On hemo they operate on the retail model on our wholesale model as you know so.

Very limited inventory.

I haven't I haven't accounting front of me, but I would leave it probably would have 30 times the number of brands.

And.

Then much more depth within each of these brands. So we operate obviously on a macro based model with 3200 and.

<unk> give or take on represented on PMO because there is a completely I don't think you can compare apples to apples is a very different proposition and again in terms of the editorial the merchandising, we really attracting that that millennial and generation Z customers.

We know that that's.

The majority of the growth is coming from those customer cohorts in China and in fact globally. So we think we have a very very strong competitive position in that market and again in terms of western companies in that market we.

We have 600 people on the ground we have.

Our unique app, thus far.

IOS and Android.

With incredible functionality deals by Chinese engineers and product people.

On the right side of.

And an incredible logistics proposition, both domestic and cross border. So I think we're really in a very very strong position.

And I think the China opportunity is immense.

It'll be another year of repatriation of our luxury demand in China and.

Luxury is very underpenetrated, so even if there are such.

Today that work.

Concerns in Maricopa and volatility in some luxury staff related to China, I think defined investors.

Should observe is that.

In China online luxury penetration, while single digits pre Covid, we don't no one really has a number of ports.

But certainly lower than in the west and with plenty of room for growth.

And we are already very relevant.

Channel for many of these brands and industry environment, we will become even more so and I think the tail winds are very strong and will continue to be very strong by virtue of this dynamic.

Yeah.

Your next question is from Stephen Ju with CN.

Okay. Thank you so much so Joe say.

I wanted to ask about your I guess efforts at the beauty category.

What do you think is going to be the right wholesale versus marketplace mix in this category.

Is this something you think would require greater participation for you as a first party seller.

And Elliot I got a follow up on the markdown versus full price sales comments earlier.

Just that your competitors are taking heavier markdowns earlier it seems so which would we would have to think as not fitting in very well with your brand partners. So is there anything you can share in terms of the feedback with the brands and what we hope will be increased willingness to work to a greater extent with farfetch.

The others. Thanks.

Okay.

Hi.

I will take the <unk> question.

So as I think mentioned in the last earnings call.

The <unk> category.

Our global category.

We are very well positioned to meet.

Thank you.

Okay great.

Great opportunity is 25% global platform.

Last week.

Just one question I think.

When was the last few months.

Thanks for asking our conversations with bad debt.

And the appetite to whatsapp and pushing the edge because of our model.

And you can model it maybe help from enable.

Venmo to direct to consumer.

Brand in beauty.

So this is very very positive.

Wholesale and they are trying to move to direct to consumer and we can enable that.

Quite well.

Well, let's see.

For the marketplace.

Session. Obviously, we will have some flex time.

Hi.

Pat you down.

Complementing that we see.

At the close of the lymphoma of vessels.

And we've also made some key aspects around our customers.

<unk> been engaged titled luxury hotel.

And what we're hearing from the field and they not only with PSS sales camera market.

Our facilities Tiger.

Welcome to our advertising will get produced.

So really the opportunity.

With local banks.

Now some tactical and that and if we see that very much on track.

Thank you.

And then just on the sort of markdown food proposition I don't really want to comment too much on what the sort of competitors. We are doing around the markdown strategy clearly the HIFU cross mix for us drove higher gross margins and the balance of the business you saw that in the numbers 30%.

Gross margins last year versus 33% margins this year.

Strong full price mix, helping our margins.

The branch interestingly have have acted.

Hope they would which is driving more stock onto the <unk> platform as we head into the autumn Winter campaign, we're seeing really good growth in terms of spring season original autumn winter product, which sets us up well for obviously going into Q3 and importantly, the very important Q4 quarter.

We're also seeing good levels of engagement from the brands around editorial and content on the platform. So we're helping them navigate through that that means.

We are definitely well positioned to deliver the numbers, we talked about today across the second half of the two that acceleration of guard to maturity basis I think the other thing that's super interesting numbers. If you look at the 500000 customers. We added to the platform across Q2, given that we added during our higher full price mix than before.

So next quarter than the 500000 customers in Q2 last year, which was on a more of a markdown mix. My expectation is that these customers that we've added most recently are going to deliver a higher lifetime value moving forward in a much more valuable customer cohort and actually that's already played out we saw.

The <unk> from this 500000 customers this year higher double digit growth versus the 500000 customers that shop, where some of his time last Q2. So that's super exciting in terms of what we have achieved from delivering that higher food cosmetics and to go back to your question.

Kaka 90 assumed the brands are delighted because it's certainly not hurting more stock on the platform as we move forward. So I think it's going to be a really interesting autumn winter campaign to see how we can drive through the food trust with them over the next six months.

Okay.

And we have time for one more question. The final question will come from the line Shannon.

With Morgan Stanley.

Hi, This is Nathan further on from Loren just a quick for me.

<unk> able to size, how impactful the shipping into these headwinds in the quarter and how much of the digital platform gross margin decline is due to the east and then in your margin guidance for the third quarter and full year are you assuming any relief in these headwinds that may continue for the rest of the year. Thank you.

Hi, nitrogen really really good question I think is it to.

We do understand what's exactly happening.

And then the digital platform gross margins in particular would be order contribution because it is a key metric for us and there's a lot going on both need to amend and longer term. If you look at Q2 specifically.

Overall, we hedge everything going in the right direction in terms of order contribution margin.

And types of shipping in GTS, we had obviously higher margin services are coming through the <unk> take rate.

Our underlying sort of marketplace gross margin was higher if you exclude our shipping judy's, which we'll come back to that as I mentioned before first party margin and demand generation down as a percentage of revenue and lower also when you compare it to <unk> in terms of.

Shipping and <unk> the increase year on year, it was north of 50%.

Very much north of <unk>.

50% in terms of cost and that compares to the 40% GMB and obviously part of that JV country from AAV gross.

Order growth was promoted a 40% number so shipping and the <unk> produces more order growth shows you how dramatic that increase was year on year. The fulfillment revenue line the amount of that return.

To our customers R&D grew 48% year on year. So you can see that we obviously encourage these industry wide charges, we decided not to pass on the incremental cost to our customers.

Obviously had a big impact to the gross profit margin.

No reduction.

In terms of direct impact on gross margin apart from mix that you'll see from the three P versus lumpy business.

As we look forward into Q3, we're going to have to continue to deal with that external cost pressure.

Shipping and <unk> will continue to increase we're going to see through the <unk>.

Search engine marketing cost inflation and I think also some additional cost coming through from other regulatory changes, including the Audi, if I and sales taxes et cetera et cetera.

Obviously, you need to manage through those in the order contribution target, but I've given you accounts for those through the headwinds in the near term, but due to our ability to drive margin expansion from other areas of the group on the best of previous investments and the strong business, we booked to date in particular, the <unk> platform.

Marketing and operations team, but also growth in revenue from those higher margin products means we're still on track to deliver full year profitability as planned and we continue to build on our customer engagement activity consistently delivering on the top line growth.

We can manage those short term cost and still achieve our medium.

Sure to our numbers as you look further ahead.

We're executing against the opportunities to drive up gross margin contribution, which includes shifting lumpy in <unk> stock closer to our customers.

This isn't the fulfillment by Farfetch.

<unk> that we've already invested and that will help drive down the cost of shipping medium term proving our first party gross margins through the growth from low cost marketing channels.

And that means we see expansion of order contribution.

We head into next year, so for now we'll manage the costs.

Continue to invest in the customer proposition and I think thats going to.

But where else to deliver good levels of growth at a sustainable level moving forwards.

Okay.

Well, thanks, everyone for joining us today.

During the rest of the summer.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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