Q1 2022 Farfetch Ltd Earnings Call
Good afternoon, My name is Christine and I are now.
I'll be your conference operator today.
At this time I would like to welcome everyone to the park <unk> first quarter 2022 results conference call all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question answer session. Thank you I would now like to turn the call over to Alice Ryder VP of Investor Relations Ms. Ryder you may begin your conference.
Yeah.
Uh huh.
Hello, and welcome to Farfetch is first quarter 2022 conference call. Joining me today to discuss our results are just our founder chairman and Chief Executive Officer.
<unk>, 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 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 2022.
In addition, we will refer to certain financial measures not reported in accordance with ire for us on this call you can find reconciliations of these non <unk> financial measures to the <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 Joe say.
Hello, everyone. Thank you for joining us today.
Our underlying business remains incredibly robust in spite of our Q1 results being impacted by significant changes in the macro and geopolitical environment since our Q4 2021 call in February .
Specifically there are three key developments that impacted our Q1 results and outlook.
When the war in Ukraine, and our suspension of operations in Russia too.
The recent COVID-19 outbreak and related recessions in mainland China.
And three a double digit decline in markdown gmg as the transition of the macro place towards being predominantly full price accelerated.
Outside of these factors our underlying business remains very strong.
In Q1, our full price marketplace CMG, excluding the China, Russia regions blocked and excellent year on year increase of circa 20%.
This is particularly impressive considering the marketplace grew more than twice that rate in Q1 2021.
And despite these headwinds we continue to believe our digital platform GNP growth on top of one of our highest ever growth quarters. In Q1, 2020, 142 year digital platform <unk> growth of 65%. Additionally, several key performance factors further highlight the strong.
<unk> underlying dynamics of our card business.
We saw 100% retention of our top 100 brands and boutique partners.
We achieved a take rate of 32% our highest as a public company, having renegotiated 74% of our E concession contracts.
And so these brands lean further into the marketplace.
<unk>, 69% more inventory year on year end.
Our full price business, which is the significant majority of our business remains a growth engine powered by among other factors private clients, where we ensure is over 90% customer retention and <unk> of $1200.
Taking a holistic view of our business, including our platform capabilities behind our luxury new retail adhesion to revolutionize the $300 million luxury industry through the seamless merger of both offline and online shopping.
Our journey to become the global platform for luxury continues to make steady progress.
Before I update you on the various businesses within five hedge let me address the three main factors we faced in Q1 in further detail.
Starting with Russia by the end of 2021, Russia has grown to become our third largest marketplace market.
Representing 6% of total GMP and an even higher share of the marketplace, where we posted more than 70% year on year growth.
Naturally we expect that the continuation of robust growth from this market.
And our start between Russia considerably in <unk> growth.
We also believe the company has a spillover effect in Europe , Ncis countries, where we have seen less volume demand than expected.
Based on the current status of this conflict, we have no expectations of bringing these shaping operations in Russia for the foreseeable future.
Moving to China, our second largest market the rise of COVID-19 cases against the backdrop of a zero COVID-19 policy increasingly impacted our growth trajectory.
The majority of our mainland China business consists of cross border sales from Europe to tier one cities, such as Shanghai, which serves as a major cross border hub.
And as such we experienced significant disruptions in our delivery operations for the China market.
These recent lockdowns have been very different from those we have seen previously because of the impact on logistics.
That said our long term thesis on China has not changed.
As the second largest luxury goods market in the world, which is expected to become the largest by 2025, we continue to see tremendous opportunity in China and remain committed to building on our differentiated positioning as the leading western luxury fashion platform in China.
Towards this despite the more challenging environment, we are continuing our efforts to activate and engage customers and we are happy to see that they are generally accepting delays others.
More recently, we have also seen green shoots of reopening.
With all of this is being delivered to customers across more than 80% of the region on the GMP weighted basis and charter delays in cross border customs clearance.
Over the medium term when COVID-19 restrictions are eased, we also see an opportunity for <unk> to capture pent up demand.
Which we expect will shift more towards online channels as customers will be more likely to avoid crowds star shopping malls and slides to add the shopping destinations.
But as we do not know how the COVID-19 infections and associated restrictions will evolve.
We remain cautious on growth from China in the coming quarters.
Finally in 2019, we articulated a strategy to support the families of the luxury industry by transitioning the business to become primarily a destination for full price sales.
Since then we have seen some super brands accelerate that transition and completely remove markdowns from our marketplace. This is absolutely a welcome trend and.
And we are pleased to report continued progress on this front, we had full price weeks of highest ever levels in Q1.
However, the significant degree of full price transition did not make up for a greater than expected deceleration of markdown listings and a 17% decline in markdown GMT.
This was partly offset by <unk>, which grew 13% and over 70% on a two year basis.
Excluding Russia in the China region full priced CMV increased a very strong circa 20%.
<unk> reflects the strong underlying growth of these high quality demands.
Equally in light of a tough compare in 2021.
Our full price performance highlights our successful execution of the strategy to build the largest global online luxury fashion business, while operating it as predominantly full price.
While this transition has caused some variability in our results.
Silver lining here is that this is precisely the type of growth.
<unk> to be interesting.
Not only will describe sustainable growth of higher margin revenue over the long run, but it also aligns us closely with the thousands of the luxury industry.
Once the full price transition stabilizes and begins to fully comp. We believe we'll have the foundation for a return into the 30% CAGR as we have historically targeted.
I am delighted by the fact that our underlying customer and brand relationships.
Going from strength to strength.
Our leadership position continues and failed.
And the tremendous opportunity to build the global platform for luxury is intact.
In fact, there are many achievements to celebrate across the group.
Turning now to our platform marketplace and brand platform.
Starting with our platform we are thrilled to have Neiman Marcus group in Mg as our newest Fps client.
And then G represents the largest U S online business for a full price luxury fashion.
And we are excited to partner with them to digitally transform their businesses.
The broad scope of the partnership highlights our expansive platform capabilities.
Sps will re platform Bergdorf Goodman website, and mobile App Neiman Marcus will use select SBS modules, including foundational International services, and both Bergdorf Goodman and Neiman Marcus will shine the farfetch marketplace.
Given the vast majority of Neiman Marcus online business is in the U S for both of <unk>, 100%.
International Enablement of this powerful player in our industry is a significant opportunity for both businesses complementing the strong online growth in Mg has seen in U S sales.
Additionally, we will invest $200 million in Mg to help expand its innovation and digital capabilities and enable us to participate in the equity upside we believe our digital capabilities will help achieve.
I'm truly energized by the prospect of partnering with the most prestigious luxury department store in the U S, which is the largest luxury market in the world.
On the heels of this announcement and ongoing conversations with potential clients momentum behind Fps is robust and we are aiming to announce either enterprise clients in what I believe is going to be a great year for Sps.
Finally, we confirm that we remain in discussions with a small about a potential deal which includes the leveraging of Fps to power <unk> and <unk>.
The participation of each month's mezz loans in Farfetch marketplace.
And a minority investment in <unk> by Farfetch.
However, there can be no guarantee that we will be able to sign these steel or any of the options under consideration.
We will make further announcements if and when required.
Turning to the marketplace.
The marketplace continues to have tremendous growth potential and Stephanie will discuss the exciting launch of our new category beauty.
We continue to focus on offering our brands, our global exposure and aim to be number one in all major luxury markets in the world.
In Q1, <unk> for our Americas region grew 20%.
Driven by higher customer engagement.
Full price sales and increased local supply.
This reflects the investments we have made into markets like Brazil, Mexico, and Canada, but also continued strong growth in the U S, where we delivered 70% two year growth.
In our EMEA region, our bets in the Middle East continues to pay off.
<unk> growth in Q1 of 20%.
Lastly, offsetting a more muted growth in the rest of EMEA, which declined slightly driven by Russia.
We also continue to see tremendous engagement with our brands and this extends to media solutions, which grew revenue by a powerful 89% in Q1.
The third component of our platform strategy is with the new <unk> our brand platform in Q4 of 2020, when we embarked on a project to change our <unk> brand platform warehouse provider in Italy.
This transition did not go as we anticipated resulting in delayed deliveries of first party original stock to <unk> brand retail partners in Q1.
I am pleased to share that the transition is now complete.
And with shipments beginning to flow again, while were retail partners, we expect a partial catch up on delayed others to contribute towards more than 50% brand platform GNP growth in Q2.
Beyond these new guys continues to drive newness and excitement behind our brand portfolio.
With the fashion industry, returning to the catwalk in person after two years Paul.
Palm Angels ambush in off White, each held highly acclaimed shows to showcase their ultimately into 'twenty two collections.
And <unk> became the first Farfetch business unit to begin accepting cryptocurrency, which is now live in the Paris, London and Milan flagships.
The brand also announced the appointment of Ebrahim tomorrow in the new role of at an image director, where he will support image design and styling for the brand.
Ebrahim is also the editor in chief of Dazed and Heath years of experience working with virtual <unk> and the <unk> team to style that shows ideally positioned him to take the brand Hollywood.
In match, New guys also completed its re bulk agreements with AVG and kicked off the year loan collaborations with AEG and additives to transition the brand and the new guidance.
We believe these to be a profitable multi hundred million dollar deal for <unk> and also with Great addition to our digital platform <unk>, we will prioritize digital DTC strategy going forward.
With our warehouse transition now resolved, we are expecting our brand platform to deliver stronger results through full year 2022, and continue to be a strategic driver of buzz.
<unk> customer acquisition and unique offerings on our marketplace.
And now I'd like to pass the call to Stephanie for old things brand and customer.
Thank you, Jeff and Hello, everyone. It is my pleasure to share with you an update on the customer satisfied business in the first quarter during which the high fetch market case growth outpaced the rest as ticketsnow platform driven by existing customer growth and the acquisition of a 400000 new active consumers.
I would like to update you on our initiatives across key customer area to focus we highlighted on previous calls, including the launch of beauty and advertising sales by our media solutions business unit.
In April we launched beauty on time and on budget in the U S and Europe simultaneously for the Farfetch marketplace Browns and a flight. This launch broadens our reach to an estimated 70 billion target segment of the personal luxury goods market and enables brands to operate across multiple channels to an E concession model.
Our wholesale model to brown, and violent way, giving us access wholesale to smaller independent brands.
This combined model there is a significant differentiator as we are the only global destination tightening with beauty brands to an E concession model, leveraging our fulfillment by farfetch capabilities, and providing brands and online direct to consumer channel.
Overall industry continues to shift its strategy in that direction.
Another differentiator is our positioning where we leaned into our values as a company and our community first approach with multiple points of view from a global beauty connect is a group of industry experts with large social followings to customer community by our own customers can check feedback and tips I don't shop, as a fresh approach, which.
<unk> responded to very positively.
We continue to expect <unk> to be a significant type of customer engagement and acquisition, enabling us to attract a new base of luxury customers and expand their share of wallet.
We believe that this will also help us stronger relationships with brands and provide further opportunities to ramp up our advertising and media solutions business.
P. D plants have already started to buy into that proposition with significant launch campaigns on farfetch from brands, including Charlotte Tilbury, Dr Goodbye, Boston and Gucci fragrances.
Overall, our media solutions business continued to gain traction during the quarter, Glenn 89% year on year by offering brands, such as Ralph Lauren Valentino, and Dolce <unk> Gabbana and unique channel to amplify the reach and success of their connections to highly engaged luxury audience.
Not only need to pay to brand campaigns generate high margin mezzanine, but alongside our editorial investments. They are also part of our overall Farfetch brand building efforts and help drive that emotional connection to Farfetch and the brands we carry.
Our overall marketing initiatives drove year on year acceleration in traffic growth on the Farfetch marketplace.
We faced a small decrease in customer retention. This stocking was principally in our bronze tier which includes the majority of new customers acquired during Covid and is in line with historical repurchase behaviors, bringing customers.
It is worth noting that due to a whole king of operations in Russia and restrictions in China, we could see a decrease in customer retention through the rest of the year.
It is important to highlight however, but I most valuable customers I private time maintained over 90% retention and delivered higher <unk> and conversion rate compared to the previous year.
In addition, during the first quarter the mix of GNP from private clients increased year on year.
We continue to focus on growing the space by providing them unique services, such as fashion concierge, which once again broke its own record for largest ever sale with a $2 4 million dollar watch for new customers from the middle East.
The value of our customer tier, but generates more revenue than the entire businesses as many of our closest competitor.
At the top of the funnel a success positioning <unk> has led to increased year over year brand preference and consideration among our peers building on this traction and latest campaign sign Kimco child, and Josh heightened which was amplified across multiple channels, mainly in the U S went viral receiving approximately 600 million impressed.
<unk>, Thanks, Ted cultural relevance and now I'll hand, the call over to Elliot to discuss our financial results and outlook.
Thank you Stephanie and Hello to you all it's good to speak with you today I would like to share with you the key points underpinning our Q1 2022 financial performance.
As soon as I explained the change in the broader operating environment since our last call along with the operational issues, we experienced in our brand platform warehouse impacted our growth.
But I am delighted to report that we moved quickly to adapt to the macro headwinds have now resolved the warehouse challenges and continue to boot on our leadership position within the global luxury industry.
Overall, we achieved group GMB of $931 million, an increase of 2% year on year and up 52% on a two year basis compared to Q1 <unk>.
This position reflects two 5% growth in digital platform GMB driven by strong growth in the Americas, the middle East and Korea, offset by a decline in GMB and Russia parts of Europe and mainland China.
And 11% decline in brands platform GMB due to a transition of our logistics operations, which has caused shipment delays during the main spring summer 'twenty two selling window.
And in store GMB growth of 62% year on year as we saw an increase of customers engaging with all connected retail formats as well as contributions from new store openings.
Adjusted revenue was slightly stronger in terms of year on year growth up 7% to $436 million again. This revenue was driven by strong growth in stores, 16% first party revenue growth in line with the previous quarter 18, 9%.
Year on year growth in revenue from our media solutions advertising business and higher underlying commission rates from our E. Concision third parties on the digital platform.
As a result third party take rate on the digital platform was a near record high of 32% up 230 basis points year over year.
We estimate the warehouse transition hampered revenue performance across Q1 by circa $40 million with brand platform revenue, 11% lower year on year to $100 million.
Gross profit grew 4% year on year.
Gross profit margin of 44, 8%.
The 75 basis points year on year decline in gross margin is driven by a lower first party digital platform margin due to increased markdown activity following the sharp slowdown in demand from Russia and China.
Brian platform gross margin also declined year on year due to inventory provisioning in light of the warehouses delays.
However, these factors were partially offset by third party gross margin of 71% up from 66% last Q1, as we continued our efforts to better recover the increasing cost of operating the third party business through higher commission levels higher pass through.
Shipping cost to customers.
Strong demand for our high margin media solutions products, especially following the launch of beauty.
Digital platform demand generation experience as a percentage of digital platform services revenue were stable year on year at 21, 5%. Despite paid search cost inflation and the continued shift in Spain to longer payback upper funnel media spend.
This has resulted in higher customer acquisition cost versus previous quarters.
In addition, we have shifted paid media spend from Russia to other global audiences, albeit at a higher cost of sales percentage given the efficiency, we had gains from having a strong share of the Russian market.
As a result digital platform order contribution margin was 32, 7%.
A second consecutive quarter of sequential improvement.
On a year on year basis, we were contribution margin declined slightly due to the decline in first party gross margin.
Our operating costs grew 11% year over year to $198 million.
This increase was driven by an investment in our people to ensure accelerates are keeping pace with increasing global rights as well as an increase in our brand marketing spend towards broadening our audience for the marketplace and fifth thing behind the launch of beauty and driving additional brands.
Joining us for our first party original brands in particular off White Palm Angels.
Adjusted EBITDA declined from minus $19 million in Q1, 'twenty, one to minus $36 million.
Primarily due to the year on year decline and brand platform revenue.
Profit after tax was $729 million, including a noncash benefit of the revaluation of items held at fair value of $908 million.
In terms of liquidity, we ended the quarter with cash and cash equivalents of $938 million.
As is the case every Q1, we saw a working capital outflow over the quarter as we unwound, the Q4 marketplace creditor position.
In addition.
Stock on hand balance is higher this quarter due to the breadth platform shipment delays low.
Sure than expected GMP on the marketplace against our first party stock buy and the addition of Salt for our first party beauty offering for a brown <unk> great.
Despite the factors impacting our Q1 performance via our incredible strength worth highlighting across the digital platform, which delivered GMB of $810 million.
On a two year basis. This GMB is up 64%.
Inventory from suppliers is up 82% and active customers have grown 78% to $3 8 million.
Average order value on the marketplace was $632 up from $618 last year and $571 the year before.
These reflect the stronger full price mix across the marketplace.
Because of this we are delivering the highest level of take rate since the IPO and third party gross margins were above 70%.
The strength of the core marketplace model.
I would now like to discuss our full year 2022 outlook.
Given how our top line growth has been impacted by the change in demand from our second and third largest marketplace geographies.
We are completing a review of business priorities.
This means focusing on market categories and initiatives that show strength and rationalizing spend across parts of the business to match the new macro environment.
We have already restricted planned head count growth reduced spend on projects with longer term payback and begun pruning back areas of the business that are not key to delivering our immediate goals.
Or are not delivering the intended results in the near term.
This activity will mean, we can continue to play to our strengths leverage the investments we have made to date.
And ensure we can deliver the right balance between supporting future growth and focusing on stronger profitability and cash flow.
As a result, we are revising our expectations for the full year.
Reflecting global demand expectations for the rest of the year with weakness in China, No sales from Russia, and a balanced view on demand from other markets.
We expect to grow digital platform <unk> by 5% to 10% year on year with stronger growth expected in the second half of the year versus the first half.
Digital platform order contribution margin is expected to be circa 30% of digital platform services revenue assuming markdown activity continues on the first party business in response to the slower top line growth.
For the brand platform, we now expect 10% to 15% GMB growth.
Taking into account. The Q1 result aimed continued demand for our luxury brands.
We will limit operating cost growth to be below the level of growth in adjusted revenue delivering leverage.
And we will maintain our focus on being profitable at the adjusted EBITDA level, keeping margins at zero to 1% of adjusted revenue.
Finally, we expect to see an improvement in working capital for the rest of the year as we reduce inventory holdings and normalize our receivables position.
We aim to end the year with strong liquidity above $650 million as at December 2022.
And with that I'll turn it back over to Joe Zee for some closing remarks. Thank you Elliot.
Rest of 2022 will be a period of focusing on further rationalizing our business.
With a view to output stronger profitability growth in years to come.
As our 30% CAGR long term growth path resumes once we comp. These external factors, we have seen incredible strength in our core marketplace business outside of the affected regions.
With near record take rate.
Record full price mix.
Higher <unk> and tremendous two year growth figures.
We have strong momentum across the Americas and middle East.
Sps is going from strength to strength.
Acquiring new enterprise grade clients.
And the brand platform is back to strong growth and preparing for a blockbuster 2023.
<unk> continues to be the largest tech platform tailored for our $300 million luxury industry.
And then the sales leadership position.
We have all our multiple strategic opportunities poised to deliver strong growth and profitability for years to come.
Building the global platform for luxury is our long term opportunity, which not only remains intact, but that we are more committed than ever to deliver on.
And now we'd like to open up the call to take your questions.
If you would like to ask a question at this time. Please raise your hand by clicking the Raytheon Bae and reactions at the bottom in window once called upon seen Amit your audio to ask your question, if you're down MBS Boon <unk>, you raise and lower your <unk> and <unk>.
As a reminder, please only ask one question we will now take the first question is from Doug Anmuth with Jpmorgan. Please on mute your idea to ask your question.
Thanks for taking the questions.
First I was just trying to understand on the.
Topline guidance, just thinking about the underperformance for <unk>, but more so I guess for the full year with the guide coming down just how much is related to the three big factors you mentioned versus potentially.
Softer consumer in Europe , and the U S.
And how youre thinking about that for the rest of the year and then just secondly.
Zero to 1% adjusted EBITDA margin can you just walk us through some of the areas, where you expect to rationalize some of the expenses and perhaps some examples.
Do that as we go through the year. Thanks.
Hey, Doug.
Speak to you today.
Yes, I mean broadly.
First quarter was entirely down to the three factors that we've outlined earlier.
Russia and sort of adjacent.
Countries are gifts that have been impacted by whats going on there.
And eastern Europe .
China locked down and then.
This quite sudden acceleration on full price from our <unk> partners, which obviously we celebrate.
This is fantastic for us exactly how we've positioned the business to drive full price for OE consistent partners over the last couple of years, you'll remember when we made that strategic shift.
And we are seeing.
Not only the growth in the full price above 20% and.
In the quarter, but more you can see some partners joining the platform.
We've now got over 1400.
Partners on the platform and over 600 Boes, a direct E concession partners in their stock.
It was up substantially year on year, because you're seeing the strength coming through from the direct to consumer offering. So we're really delighted to see that in.
I'm pleased that our partnerships are growing and they're obviously spending significant amounts with us in terms of media income as well to have that up 89% year on year to really strengthen the tight credit 32%. So those were the factors in Q1, if we look ahead for the rest of the year.
The bulk of the.
And a revision to guidance is down to again those three factors.
We have effectively taken $750 million out of digital platform <unk> for the full year and over 80% of that is Russia, China the risk broadly.
And this shift to full price and we have affected a little bit of caution from other macro factors as well obviously.
We need to make sure that we have.
I guess taking into consideration.
What's going on in terms of consumer sentiment and leave a bit of space for us to trade into that so that's what's going on there in terms of the guidance.
In terms of no 12% adjusted EBITDA margin, absolutely I mean, I think the key thing here for investors is that despite.
Delivering growth of 5% to 10% in the digital platform are lower than we would've expected.
Taking.
A good look at where we're investing our money and we were deploying our resources, we are cutting our costs. According to the macro environment.
And leveraging effectively the investments we've made to date the platform is delivering fantastic leverage outside of.
I'll spend on brand and the salary increases that I noted earlier on in terms of Q1, and so we're making sure that we absolutely deliver on that leverage as we move forward in terms of adjusting the spin versus original plans. We completed an entire review of business priorities from top to bottom we've already restricted.
Head count growth as Ive seeds, and we were trying to put some money into projects that probably would've delivered more payback next year will be year. After we've decided to hold back on that spend and whites and too.
Things look better in terms of top line growth and we see an acceleration into next year, obviously with the Reebok.
Yield and then Neiman Marcus.
Next year as well, we're going to see much stronger growth in 2023, and Thats the time to invest in some of these longer term initiatives that we definitely want to do but this.
This is the year to do it so anything with longer term payback, we sort of phasing back and then also looking at other areas of the business.
Maybe you haven't delivered intended results to date and.
Perhaps.
Phase back spin.
We've got some amazing talent across the organization.
And just redeploying that talent into our short term priorities, we will see.
Our ability to grow our cost base and the revenue growth, obviously still growing we're still going to have more fixtures at the end of this year than we did at the end of last year, but just focusing their amazing talent on the priorities for us for <unk> 2022 early 'twenty three.
Thank you Alan.
Thank you. Our next question is Stephen Ju with Credit Suisse Stevens. Please on mute your audio to ask your question Alright, great. Thank you. So much so I think Elliot.
Two quarters ago, you talked about anticipating.
Incremental supply to come into the marketplace. So when you see any mid markets as part of that supply as well as beauty, but you know clearly there's other stuff in there that was part of those pads. So do you still anticipate some of the supply to come in or has that expectation changed along with items and Joseph.
Given everything you just talked about.
Regards to moving far fetched to more of a full price destination.
What kind of impact do you think this will have on seasonality, which to some degree is driven by the lease cycles, but also the problem of cycles.
Speaking of things that the traditional that can break.
Break the traditional sort of seasonality cycle. If you can give us an update on farfetch beats, because I guess that that effort was probably delayed due to the pandemic, but it seemed like such an.
Interesting way to engage the consumer in every week instead of every season.
Yes.
Hey, Stephen I'll take the first question.
Obviously, you were delighted to be able to.
The stock from.
Neiman Marcus on the.
Platform next year. This is a 2023 deliverable.
Deliverable.
Our partnership is super exciting because of its positioning within the U S market is still the number one luxury market and for US. It's our number one market was growing 20% plus in the last quarter, there's still lots of opportunity for Farfetch too.
Growth in North America, and so we see that as an amazing.
Gateway for us to unlock even more a supply and demand in that space, but before that we are actually seeing very very strong levels of stock on the platform.
And earlier on in the last couple of years, we've seen something about 80%.
Growth on the platform this quarter versus last quarter, we've seen.
A significant step up in the number of.
<unk> use of the range is growing.
Over 20%.
Q1 versus last Q1, and we've also seen significant increase year on year as well again north of 25%.
Extra dates on the on the platform from the growth of the concession business sorry.
As we look to trade this year, we've got plenty of stock.
Just obviously revising our demand expectations because of our decision to close down the number three market in Russia of course, and the sort of continued pressure on demand.
In China as a result of the logistics challenges getting product into in the market. We see this Joe as I was mentioning.
Customers in China really to shop, when I guess, they can file fichus selection is ready and waiting for them to buy and so.
We just need to make sure that we are available for that pick up as soon as soon as available.
Thank you Steve next question.
I'm sorry, our next question is from Oliver Chen with Cowen.
Oh I'm sorry.
Okay.
Hi, everybody.
Sorry.
Thanks for the question from Steven.
So I'll go on to ask that question Hi, It's Steven.
So I think it's a really good question in terms of seasonality.
The industry has changed a lot in the past few years.
In 2019.
We clearly stated that we were.
Im going to actually lead on.
This shift towards.
Maher drops.
More frequent.
Refreshing of collections.
<unk> don't think in these regions.
Two seasons, then it became fall seasons, then and now.
Brands really think about constant activations in constant jobs of product.
<unk> is an incredible platform for those jobs.
Reaching a global global audience, the largest global audience far for luxury.
As an example for example balenciaga.
<unk> GAAP collaboration.
We dropped with them exclusively.
We're constantly having.
Capsules exclusives special flower private clients, but also for the channel.
<unk> customer.
So this is something that we work very very closely with the brands.
Adjusting for a very very different calendar.
And and.
I'm really delighted with that.
It's played offense and Youll see full.
Full price growing 20% outside.
Outside of Russia, and China.
You'll see in spite of a decline of minus 17%.
A decline in markdown, we still posted.
Overall growth in D. C is on top of a 60% growth like an absolute bracket farther we had last year.
So.
This this is something that obviously.
He is a fantastic deal for our brand partners.
<unk> is also bringing advertising dollars, we had a jump of 89% in our advertising revenue in Q1.
So that's constant.
That's constant activity of bringing new products new concepts.
As we outlined in 2019 and that we continue to do.
Including beats that I'm glad that you.
You'll still have that Danielle leaf.
Watch the space.
This year, we will have news on that but.
But we continue to be the platform of choice for the hospice relieves needs.
The the most coveted capsules.
And full price, which is already predominantly our our business continues to go from strength to strength and we believe that is more than needed to offset the decrease in markdown.
And of course at the.
Find we will comp over rights is defined we will lapse over this transition.
Unlocks tremendous growth potential.
On top of the already strong market share capturing growth that we've evidenced in the past few years.
Thank you I'm sorry about that our next question is from Oliver Chen with Cowen Oliver Please.
Ask your question thank.
Thanks, very much Hello regarding your comments on customer retention decreasing.
That seems like it could be quite a risk factor. If you could elaborate on that just given the sensitivity of the LTV and churn and you called out cost inflation in digital marketing it sounds like Youre navigating it but would love your thoughts on risk factors Elliott as we model GMB for the stronger second half based on your guidance just what it is.
What underpins your conviction on a stronger second half thank you.
Yes, Hi, Oliver I'll take your first question about <unk> about retention and so yes. This is the first question <unk> seen a softening in retention, but I think it's important to understand it's not a.
The boy that really is.
Okay John .
Large banks, if I broaden its customized and do you think the question is that by and large a acquired at very very high levels.
In doing that we've got a very very high influx of new customers and actually the retention rates.
In line with what you would expect new customer retention rates that because it's such a large space.
That impact on our overall retention rate and.
And quickly to Nellix that actually we've seen increasing retention and other key areas.
Base.
And our access to my knowledge, yes talent by Donald <unk> and.
Private client <unk>.
Continued very strong retention rate of over 90%, So it's sort of a story.
Multiple at site.
And I think and.
It was to be expected, we always knew we would have quite a lot of customizing. The always knew that post pandemic around the transition out of the pandemic we would not.
And not on retention and we've got a very strong roadmap to increase retention.
Example, increasing.
Three months repurchase rates, which has been a good indication of what will.
It will be longer Ken.
We purchased right.
So that's on me on the retention rate and something that we attach.
For me in terms of cost contention.
Absolutely. This is something that we see we've pointed out to some of the factors in the part to why we've seen cost inflation absent a change in the marketing.
One state where the cost of the final marketing channels and increasing my parents.
Coming online and because of all the idea.
Privacy regulations for example.
We have across channels and no longer exists.
So we are seeing that that said we are managing.
Our overall marketing spend and I.
That's quite clear, it's absolutely stable as a percentage of adjusted revenues.
We are managing it.
I'm fortunate to be a very global company, we have an extremely nimble demand generation machine that allows us to point, our marketing spend to market.
And can manage the way, we invest between lower funnel mid funnel and some of the success we've seen in our top of funnel brand campaigns.
And all of them.
Part of the strength and confidence around age two in some respects.
Head too.
Does it pretty quickly.
And generation spend away from Russia and away from China.
And.
I would say, we have more opportunities around injecting that money into the markets.
Performing well to get more out of that spend.
<unk>.
It was a pretty sort of sudden change that was needed over march for us to move that money and the teams.
Looking through how to sort of maximize and drive more GMB as we exit this quarter and into the second half so.
Some benefits come through from we were redeploying.
Redeploying our resources, but also when you sort of look back the annualized <unk> of last year.
Obviously annualized just curious I, just see 60% growth in the quarter, just gone that dropped to 40% for Q2 and then the second half last year was growing around 22, 23% across the two quarters, so having those lower levels of growth, particularly in the marketplace versus what we've just exited in Q1 Q2 was very.
Similar in terms of marketplace growth last year, we would see Steve Hoppe.
Our ability to drive growth across Q3, Q4, this sort of a number now provides us with roughly 20% CAGR now over the full year. We've just delivered 28% two year kick out of Q1, so if we.
Obviously focus on the team at the same property into the guidance that would be 20% CAGR over two years and very.
Much we expect to be given that we've lost a couple of markets for this year for the rest of the markets are showing signs of strength.
Thank you for the details best regards.
Thank you just wanted to as a reminder were if you could only ask one question.
Our next question is from Warren Cheng with Morgan Stanley .
Do you have to ask your question.
Great. Thanks, one on Fps, if I could I think the market's been a little bit concerned that youll have to continue to make these these large investments in order to get partners to join us. So maybe talk a little bit about the Mg investments, specifically and then more broadly.
The strategy going forward, if you expect to make these large investments.
With each new partner thank you.
Thank you Lauren I'll take that question.
The answer is no. This is a very unique deal but.
Let me correct. Your question you said.
Combined these labs large investments in order to get the partners Vaginas.
That's absolutely not the case, we we wanted to make these investments because we believe that this innovation partnership is going to unlock.
Mendes.
Value far all I'll give a microscope shareholders. We wanted to be one of them. So this is absolutely.
Four of the right location.
All of our capital in terms of materially unique partnerships. This is very unique partnership we always said that the luxury new retail is our adhesion. It consists in our belief that.
Offline and online and mobile shopping App converging.
So the lines are blurring between.
The physical experience and the digital experience.
We articulated that division in 2016 move.
Moved to implement that vision that channel.
As you know and and then we have with other companies.
And this is a tremendous opportunity because neiman Marcus is the preeminent luxury physical retailer and digital retailer in the U S. So around one third of their sales.
<unk>.
Digital so that's $1 $3 billion give or take.
Online luxury sales they are one of the largest players globally as a larger player in the U S.
In terms of the physical store coverage.
Together with the <unk> covering.
Every single last luxury CP in the in the US is a tremendous opportunity the opportunity to really revolutionize the luxury shopping experience in the U S.
Which despite the sheep uniquely and allows for both us and Neiman Marcus group.
He's going to be historical.
So I think I think this is what is exciting is with teaming up in a long term partnership.
To re platform Bergdorf Goodman.
To provide foundational Fps modules to Neiman Marcus group.
To bring these multibillion dollar luxury retailer.
Our marketplace globally.
That's another angle of this partnership is deanne internationalization of their sales.
Yes.
These online sales are happening primarily in the U S and the case I'll close off the <unk>, 100% in U S is on selling internationally.
<unk> is a large market that is well.
<unk>, 530%, so that 70% of opportunity out there.
For them to expand.
<unk> is the perfect partner ads, we're present in all the all of these labs.
Three markets in the World. So you can you can start to get an idea of the magnitude of the incredible power of this partnership once you start putting these numbers together right. So.
So this isn't a.
He is.
The best Fps deal, we could do in the U S.
This is the best path to revolutionize luxury retail in the license luxury markets in the world. This will unlock tremendous shareholder value for an Mg with.
We definitely want skin in the game on that one.
Great. Thank you.
Alright, we have time for one more question. Our final question will come from <unk>.
Yes.
Goldman with Goldman Goldman Sachs Luis Please on mute your audio and ask your question.
Hi, Good evening, Jason Thanks for taking my question and getting the announcement in I'm going to come back to the guidance.
10%.
Simply put we're all trying to understand is the magnitude of the difference and where it's coming from if we think about Russia. We know that that was 6% Dnb, China lithium is around high teens, Europe and the U S for luxury consumption have been super strong.
Date. So can you just help us understand if this is the message.
China any outlet almost <unk> more broadly from the guidance given at the end of February I think the key is everyone on the call is to try and understand what is full set specific best seats.
<unk> been market underlying the next difficult you gave us that particular color, but there must be some type of information that you can help us understand the context. Thank you.
Hi, Louise and yeah definitely want to make sure everyone.
Understanding where we're at I mean necessarily wrong, we've taken about $750 million out of the full year guide and if you had 30% any numbers that would have been two to $4 eight.
<unk> now has 4 billion of GMB.
So just over 750 million is coming out.
Vast majority of that is China and Russia.
Russia as you see 6% of overall actually slightly higher as a percentage of the share on the marketplace and growing much faster than the marketplace overall and the estimate for Russia for US internally was that it would have growing ahead of that 30% overall growth rate so the expectation.
In terms of that $4 $8 billion.
A full year number for this year was that Russia would have taken even more share in 2022, then the scene overall than it did in 2021. The same is true for China, China. As you know has been a big market for investment for us growing much higher gains in the overall platform growth over recent years.
We're obviously expecting to see some fantastic results coming out of the second year on T mall of the luxury pavilion with Alibaba because of all the learnings we had last year, we were poised to.
Put those learnings to work and see some fantastic growth out of China. So we were expecting that market to take even more share in the budget than we had in 2021. So you take Russia entirely for the rest of the year you take a more muted view on where China will be in at the moment obviously it's.
Slightly to be negative year on year in terms of GMB, that's a pretty big impact to profits as overall GM V. So its a CDL, Iran north of 80% of the move.
Guidance is down to those markets than the rest of it broadly as the shift from markdown to full price.
As you know.
We need to.
Really pick up.
The full price growth.
The reduction in markdown thats coming through and so that's.
That has an impact on this year's growth because we'll be sort of overall going backwards until we annualize through all of that shift from markdown, but we as we move into 2023 with a bit of food price mix will be annualized in again and seeing very very strong growth on top of that we obviously need to be a bit cautious about everything.
Thats gone on in the World. So we've taken a tiny bit out for other factors, but by and large it's in <unk>.
In terms of what we've seen from Q1 and extension across the rest of the year No Russia.
Reduced plans for China, this year and the shift towards full price.
The big change in the numbers.
And do you think.
Line, losing share in the luxury market shares with the 5% to 10% what do you think it holds steady.
I think.
I mean, it's difficult to say when you just compare it to that number if you compare it to what we're doing in the markets. We are able to grow because there isn't the geopolitical concerns and the met her concerns so let's look at the <unk>.
Wish we were growing 20% plus.
The middle East and other.
The key markets that indicates that we are still seeing this long term shift towards online consumption and.
This is a market that is moving towards more penetration of online we were growing the market was growing before the pandemic much faster than the overall growth in luxury during the pandemic obviously.
<unk> continued at pace and then since the pandemic, we've still seen in those markets. We can trade freely very very strong growth.
To be delivering 20% in those markets on top of 60% last year indicates that the customer online customers here to stay.
Okay.
Terrific. Thank you all for joining US today, we look forward to giving you further updates on our next quarter call.
Thank you and have a great evening.
Quarter call.
Thank you and have a great evening.