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Edited Transcript of FTCH.N earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 Farfetch Ltd Earnings and Acquisition of New Guards Group Call

Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Farfetch Ltd earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Alice Ryder

Farfetch Limited - VP of IR

* Elliot Jordan

Farfetch Limited - CFO

* José Neves

Farfetch Limited - Founder, Co-Chairman & CEO


Conference Call Participants


* Anthony Joseph Liberto

Oppenheimer & Co. Inc., Research Division - Research Analyst

* Douglas Till Anmuth

JP Morgan Chase & Co, Research Division - MD

* Edward James Yruma

KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* Irwin Bernard Boruchow

Wells Fargo Securities, LLC, Research Division - MD and Senior Specialty Retail Analyst

* John Ryan Blackledge

Cowen and Company, LLC, Research Division - Head of Internet Research, MD and Senior Research Analyst

* Louise Susan Singlehurst

Goldman Sachs Group Inc., Research Division - MD

* Luca Giuseppe Solca

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Marvin Milton Fong

BTIG, LLC, Research Division - Director & E-commerce Analyst




Operator [1]


Good afternoon. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Second Quarter 2019 Results Conference Call. (Operator Instructions)

Thank you. I'd now like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.


Alice Ryder, Farfetch Limited - VP of IR [2]


Thank you, Julie. Hello and welcome to Farfetch's Second Quarter 2019 Conference Call. Joining me today to discuss our results are José Neves, our Founder, co-Chair and Chief Executive Officer; and Elliot Jordan, our Chief Financial Officer.

Before we begin, we would like to remind you that our discussion today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements. 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 risk factors that could cause actual results to differ, please see the Risk Factors section of our annual report on Form 20-F, which was filed with the SEC on March 1, 2019.

In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release and the slide presentation, both of which are available on our website at farfetchinvestors.com.

And now I will turn the call over to José.


José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [3]


Thank you, Alice.

Thank you all for joining us today for our earnings call and hear about the acquisition of New Guards Group that we have also announced.

We are excited to talk to you on 3 important topics. First, our acquisition of New Guards Group, or New Guards, a brand platform that is soon to ramp. Second, we'll walk you through our second quarter financial results. And thirdly, we'll cover some of the big trends we are seeing in the market, including the tectonic shift of luxury brands online and distribution strategy.

Let me start with the incredibly exciting acquisition of New Guards. As you know, this September marks 1 year since our IPO, and we said then that it was our strategy to be the platform for the global luxury industry, connecting curators, creators and consumers. We believe this sector is going to grow $100 million in incremental online sales in the next [few years]. The next 10 years, or what we call our chapter 2, are going to see a revolution in how consumers engage and shop for luxury fashion, online and offline. Our landmark acquisition of New Guards expands our platform vision from a platform leveraged on fashion to a platform enabling a global culture of fashion.

Let me talk you through how this acquisition underlines our strategy. New Guards either owns or licenses, designs, manufactures and distributes some of the most sought-after luxury brands, including Off-White, Heron Preston, Palm Angels, Marcelo Burlon, among others. With these brands, New Guards has demonstrated it is the ultimate brand platform of today, incubating and growing emerging talent into highly sought-after brands through a shared services model.

The group operates an asset-wide model and strategically procures manufacturing based on all the demand. In fact, inventory on hand in end-of-year fiscal 2018 was just 9% of revenues for the period, which provides for low working capital usage and a profitable business with positive cash flows.

Strategically, New Guards brings a very exciting expansion of Farfetch's platform vision to connect the creators, curators and consumable fashion, which I believe will transform the luxury industry.

On top of our 3 existing platforms, technology, data and logistics, we now add a fourth, the Brand Platform. As a result, we can offer the creative visionaries in this industry best-in-class design studios, industrial capabilities and global distribution channels. This is revolutionary for them. Farfetch has the technology, expertise and vision to take their businesses to the next level and unleash the talent of the future. We believe this combination of our businesses will create what we call Brands of the Future. But what do I mean by that?

In the past, luxury brands were built by a mix of investments in traditional media and significantly backed investments in directly operated stores. Global brands use the traditional wholesale model, which is capital efficient, but disconnects them completely from the customer and transaction data and could lead to pricing discipline and brand dilution. I believe the Brands of the Future

(technical difficulty)

around this model but rather be made of 3 ingredients.

One, a creative risk-taker that is also able to build a community digitally around her artistic vision; two, best-in-class global e-commerce direct-to-consumer capabilities, both multi-brand via e-Concessions and mobile brand via brand.com, including critical capabilities to serve Mainland China; and three, amplified physical store presence via a new type of wholesale: connected wholesale, where supply and demand are matched in near real-time, providing discounting and [gray market retail].

We believe Farfetch and New Guards combined are uniquely positioned to empower the most exciting talents to develop their existing brands or bring totally new concepts to life.

I would like to take a moment to talk you through how working with Farfetch, Off-White, one of New Guards' brands, has built its business and how it will continue to benefit significantly as part of this acquisition.

Off-White is the brainchild of Virgil Abloh, an American fashion designer, entrepreneur, artist and DJ who has been the Artistic Director of Louis Vuitton's menswear collection since March 2018. Off-White signed exclusively with New Guards' founders and launched its first season in spring 2014.

[That same] season has had its debut on farfetch.com via our community of boutiques. Last quarter, it managed just a tiny $1,000 in GMV, and it ranked #1,360 among our best-selling brands. With Farfetch's proprietary data and connections to rollout boutiques around the world, we were immediately able to identify some customer intent in real time and alert boutiques to invest behind Off-White.

In parallel, our machine learning leading algorithm boosted our demand-generation budget to efficiently drive Farfetch-powered Off-White sales. The result, in just 3 years, Off-White made its top ten brand list, which has continued to be the case over the last 8 consecutive quarters.

The next step is to take Off-White from a majority wholesale brand where direct-to-consumer online sales are less than 5% of the total mix to becoming a director-to-consumer brand online.

What does the new Brands of the Future transition provide for Off-White after our acquisition? First, relaunching offwhite.com on Farfetch Platform Solutions in Q4 2019 globally, including China; second, launching an e-Concession on Farfetch Marketplace in H2, boosting the inventory available on the platform and its revenue and margins as a result; and three, evolve the wholesale model into connected wholesale, leveraging the network of more than 650 Farfetch-connected retailers and the Farfetch data to match supply and demand in near real-time. By 2020, New Guards expects to have changed the model to a much weaker inventory cycle where accounts get to supply our data-sourcing needs, acquiring pricing discipline (inaudible). We believe this strategy will see Off-White's revenue grow considerably as well as significant improvements in margin whilst all along protecting the brand's positioning.

This Off-White sales study is just one example of many brands we hope to foster with the other 6 brands of the New Guards showing incredible growth pattern in their short history, and New Guards already has an exciting plan for new brands to be launched next year.

The acquisition of New Guards will help to deliver our Brands of the Future strategy and will have significant benefits to other members of our community as well. Let me explain.

For our valued boutique partners, access to the Brands of the Future original content offers them differentiation from large-scale retailers and a data-driven supply model for a much faster inventory turn, which affords them lower capital requirement and attractive economics as there will be much fewer markdowns needed. For farfetch.com consumers, Brands of the Future further enrich our broad luxury offerings with more exclusive capital and collaborations with existing brands. Plus we plan to launch with New Guards some new concepts in the future that will be completely exclusive to Farfetch.

We believe this creates a significant halo effect that will increase the engagement of our global customers around the Farfetch brand. And this means that for our cherished brand partners, Farfetch will become an even more strategic direct-to-consumer channel as we would expect to see even higher organic traffic, full-price sales mix and further elevation of brand adjacencies that are so key for luxury brands.

However, it won't change the highly capital-efficient nature of our model as we will remain, for the most part, an inventory-light model with added profitability from the vertical integration of the new Brand Platform.

In summary, I believe the acquisition of New Guards is a game-changer for Farfetch, but I believe it is not a game-changer for the luxury industry. As part of this evolution of our strategy, there is a key change in how we organize our team.

Focusing on developing our brands around an unrivaled customer experience, we are excited with our decision to create the new role of Chief Customer Officer. This new role aggregates all consumer-facing functions in our business, namely marketing, brands, consumer products, cyber clients as well as for the future.

I am delighted to share that Stephanie Phair, our current Chief Strategy Officer, has accepted my invitation and will take this newly created role effective immediately. Stephanie will also be a named executive officer of Farfetch.

Separately, Andrew Robb, our Chief Operating Officer, has decided to step down in early 2020. Andrew has worked extensively alongside me over the past 9 years, and I am grateful for all he's done to help establish our market-defining position and for leaving us with an incredibly talented team he has built over the years. And we look forward to working with him to ensure a seamless transition.

Turning now to our Q2 results. I am pleased to report that we again delivered strong performance in Q2 with Platform GMV growth of 44%, exceeding the high end of our Platform GMV growth target. Adjusted for FX, Platform GMV increased approximately 49%, almost 2.5x the projected 20% CAGR of the online personal luxury goods markets through 2025, demonstrating the power of our Marketplace model as we continue to take market share. In fact, our strong top line growth brings our GMV over the last 12-month period to approximately $1.7 billion, which we believe makes Farfetch the largest single destination for in-season luxury fashion in the world, both in terms of transactions and in terms of traffic.

In Q2, we observed an increasingly competitive environment as we took advantage of our very healthy unit economics and attractive LTV to CAC dynamics, and we decided to continue investing in our consumers to drive growth. We were able to do so while also maintaining adjusted EBITDA margin within our guided range as a result of the strong operational leverage we continued to gain in Q2.

Looking across our 3 geographic regions, Americas, APAC and EMEA, we saw sequential acceleration in both APAC and EMEA primarily driven by China and the Middle East. U.S. grew in line with the overall marketplace, which is a strong performance given it is already our largest market. While our second-largest market, China, grew even faster.

Specifically on China, we were pleased to have launched our start on the JD platform towards the end of the quarter. What we observed at this early stage in our integration is that there is significant opportunity for further optimization. We are working closely with JD to boost both traffic and conversion. And as we have said on our last call, we remain focused on 2020 in terms of this new growth channel.

Overall, we are extremely pleased with the performance of our China region. In addition to accelerating GMV growth, we continue to deliver -- to drive improvement to create a more localized experience on our native apps and websites.

With China continuing to be on top of everyone's minds of these days, I want to remind everyone that less than 5% of shipments into Mainland China come from U.S. We currently have no exports from Mainland China, but we will have a growing luxury fashion supply within China to serve global customers from suppliers. As such, the Farfetch model is extremely resilient to potential impact of U.S.-China trade tariffs.

During Q2, we also made great strides on our supply initiatives. We ended the quarter with more than 1,100 brand and retail partners, which includes an additional 45 boutique partners across 24 countries, 3 of which are new geographies for our supply network, further increasing our ability to bring supply globally to our consumers.

With brands, we were excited to launch globally with Stella McCartney and signed Brunello Cucinelli, who made available an amazing collection for our global customer base, almost doubling our total SKU count of their collections. We now have about 6x the number of Brunello Cucinelli's SKUs as compared to our largest online competitor.

We're also thrilled that Stadium Goods continues to reinforce their position as the luxury player in sneaker retail. Like with the recent auction together with Sotheby’s, where 100 pairs of rare sneakers were sold to a single customer for a record $1.3 million. The same auction set another record, the 1972 Waffle "Moon Shoe" designed by NIKE Co-Founder, Bill Bowerman, was sold for $437,500, which we believe makes it the single most expensive pair of sneakers ever sold.

We are excited by the incredible potential of Stadium Goods as we will continue our integration plan, including our ambitious international rollout of this brand.

In summary, Q2 was an incredible quarter, and I would like to congratulate the Farfetch team for their amazing performance.

Turning to the third key topic I wanted to cover today: tectonic shift in luxury brand's attitude to online wholesale. During H1, we saw increasing discounting and promotions from the local channel, especially from large online retailers. For example, last season, the largest luxury retailer launched a 50% off new season promotion as early as March. Promotions from most other retailers followed, culminating in unprecedented promotional activities in June and July. We believe this is happening because these players have not found a way to compete on range or match consumers' evolving expectations in terms of technology and customer experience, especially from China and other key growth markets.

Faced with this challenge, wholesalers are forced to compete via price, and this takes the shape of: a, generalized [knowledgable view on full] pricing; b, aggressive promotions; and c, early and higher markdowns. This phenomenon is leading to what we believe is a significant tectonic shift for online luxury that will reshape the industry over the next few seasons.

We believe the luxury brands have begun to take notice of the fact that large-scale online wholesale leads to price volatility and adds little value in terms of building and preserving luxury brand image. All our conversations with major brands indicate they are starting to implement strategies to move to more directly control their overall distribution away from online wholesale and towards e-Concession.

Major luxury houses such as Kering and Prada, while focused on the long-term health of their brands, have already publicly articulated plans to deemphasize online retailers. At the same time, we have seen them doubling down on Farfetch.

Chalhoub Group's ambitious rollout on our Marketplace has become Farfetch's most developed e-Concession in terms of geographical distribution of its inventory points. They now have more than 70 growth inventory locations available on the Farfetch Marketplace across Europe, U.S., Japan and Hong Kong. And while Prada has been reducing wholesale supply to global e-tailers, we have seen the inventory of Prada's e-Concession grow 275% in Q2 on the Farfetch platform.

Similarly, we've expanded our e-Concessions with other major luxury groups and total direct supply from Prada carrying an LVMH brand on the Farfetch Marketplace in Spring/Summer '19 [growing] 140% versus Spring/Summer '18.

We are also very happy to have signed our third LVMH enterprise [SPF store we did for Kirkwood] after successful launches with [Gucci] (inaudible).

Our brand partner count also continues to grow, now totaling more than 450, and we've had 100% retention of our top 100 brand partners over the past 3 years.

These actions demonstrate that the industry is seeing Farfetch as a key part of the strategy to promote brand image and quality, providing a solution to divest from large-scale e-tail into direct-to-consumer.

I would like to highlight the fact that whilst these significant industry developments benefit Farfetch in the medium to long term, it does mean that until the brands reduce the supply made available to online wholesalers, we expect this compacting to continue to help the progression of their pricing tactics, putting pressure on our Marketplace and its trading.

Here, Farfetch has 2 options. Given our LTV's dynamics remain very favorable and we still enjoy payback in less than 6, Farfetch could profitably react to those promotions symmetrically, which is what we have done in H1 to some extent. Or we could demonstrate our leadership in this industry and support the brands in their efforts to move away from promotions and realize the true value of their creations. This means doubling down on e-Concessions, reducing our promotional activities as we boost our full-price mix via exciting collaborations with our brand partners who have original content from New Guards.

This also means [upsetting] that we will often be more expensive compared to discounted prices from our competitors. We have decided to take the second option for the remainder of this year and implement it as a long-term strategy. As a leader in online luxury, we believe this is the right thing to do for the entire acquisitions.

We are taking the long view, and whilst this may mean a deceleration of our aggressive market share capture in the short term, we believe it will cement our position as leaders in this industry and pay off in the medium to long term, translating into continuous, sustainable growth.

Our acquisition of New Guards also fits squarely within this strategy as it enables us to further elevate our brands, boost full-price mix, reduce promotional activity and offer original and exclusive content. In the long run, it is my strong belief that in a world where brands move away from large-scale online wholesale and consumer brands move away from wholesale altogether, Farfetch wins faster. We are the only player offering a global e-Concession model with a true omnichannel platform and global operations, including Mainland China. These capabilities have been built over 10 years through more than $1 billion investments, and this is extremely hard to disrupt.

As luxury embraces the e-Concession vision, Farfetch stands as an enabler for an entire industry to return a full-priced sales and protect the value for luxury.

Turning now to Elliot to cover our Q2 performance and outlook.


Elliot Jordan, Farfetch Limited - CFO [4]


Thank you, José, and good evening, everyone.

I will run through the results of Q2 and how we have continued to execute in line with our growth strategy. I will explain the impact of New Guards Group on the financials moving forwards and then provide an update on guidance for H2.

I'm pleased to report that Q2 grew ahead of our previous guidance and that Farfetch continues to lead the growth of the online luxury industry. Q2 was our biggest quarter ever with Platform GMV of $484 million, up 44% year-on-year and 49% year-on-year on a constant currency basis. The key drivers to growth were the increasing number of active customers, higher orders per customer and a stable $600 average order value on the Farfetch Marketplace.

Since our last call, we have added 34 direct brand e-Concessions and 45 boutique partners to our Marketplace, and we now service 18 clients from within our Farfetch Platform Solutions business.

Third-party take rate was 31.4%, demonstrating the value of the platform proposition to our broad client base. Our first-party business grew at 108% year-on-year to 10% of the GMV mix, contributing to the platform services revenue of $177 million, up 53% year-on-year. This strong growth was achieved whilst leveraging the fixed-cost base, which has allowed us to react to the changing promotional landscape within the industry, invest into our technology and data platforms, and deliver Q2 underlying EBITDA margin of negative 20.8%, which is in line with the guidance I provided on our previous call.

Adjusted EPS loss of $0.15 per share is in line with consensus.

What stands out from the results of the quarter is the platform gross margin of 48% and order contribution margin of 28%, a decline year-on-year as a result of 3 things: First, a decision to promote across the latter half of the quarter to remain price competitive and to retain our valuable customer base. This accounts for approximately half of the year-on-year decline in order contribution margin; Secondly, investing in longer-term customer engagement strategies such as Access, our loyalty program, and Farfetch Communities, plus additional paid digital media spend to drive long-term retention. This accounts for approximately 1/4 of the year-on-year change in order contribution margin; And finally, a charge we have taken to write-down and clear excess end-of-season inventory within the first-party business.

We execute our strategy by constantly assessing the lifetime value and customer acquisition costs on a cohort-by-cohort basis. These metrics are in a very strong position. The 2016 customer cohort lifetime value, now accumulated over 24 months, is 3x the cohort's original customer acquisition spend, which is an increase over the lifetime value of the 2015 cohort, which was just under 3x CAC at the 24-month point. The Q4 of 2018 cohort is now in positive lifetime value with payback achieved within the initial 6-month period. And the Q1 2019 cohort remains on track for payback within the first 6 months as well.

Our more established customer cohorts continue to deliver stronger profitability. Orders from customers that first shopped on Farfetch 5 years ago in Q2 2014 achieved a 55% order contribution across the last quarter, which is approaching the 60% long-term order contribution target we have established despite the promotional environment. This strong position means we have room to invest in our customers, driving loyalty and substantial lifetime values and means we are well positioned to deliver profitable growth over the longer term.

In light of the external environment, we have actively managed the growth of the fixed cost base with technology spend and G&A at 11% and 38% of group adjusted revenue, respectively. This compares favorably to last year and demonstrates our ability to drive significant operational leverage from the fixed cost base.

The investments of previous years are paying back, delivering higher revenue per employee, improved operational metrics in our production and customer service teams, and substantial increases in our capabilities across our technology infrastructure. As a result, our second quarter underlying adjusted EBITDA was minus $38 million, and our operating cash outflow was minus $28 million, reflecting the negative working capital profile of the marketplace.

Depreciation and amortization was $14 million across Q2, in line with Q1 2019, although $9 million higher year-on-year, reflecting an additional $4 million of amortization of right-of-use assets, $2 million in relation to acquired intangibles and $3 million extra amortization of capitalized development costs.

The Q2 2019 share-based payments charge is $46 million, reflecting an ongoing quarterly charge of $40 million, which has increased from Q1 because of additional grants and a one-off charge within Q2.

Loss after tax was $90 million, resulting in a loss per share of $0.29 or loss of $0.15 per share at the adjusted level when reversing out the impact of share-based payments and the amortization of acquired intangibles that are fair valued.

Our cash and cash equivalents reduced by $116 million in the quarter, which reflects the operating cash outflow of $28 million and payments in relation to the acquisitions of Toplife and CuriosityChina, which both completed in the quarter; the purchase of land for our new Porto campus and various smaller investments in innovation projects under our Dream Assembly accelerator.

Turning to the acquisition of New Guards Group for an enterprise value of $675 million. In addition to the strategic value to the group, New Guards will be immediately accretive to Farfetch revenue, profitability and operating cash flow. As José was outlining, the New Guards business model has attractive financial characteristics similar to the Farfetch model, including minimal inventory holdings, low CapEx requirements and strong operating cash flows.

Revenues over the 6 months to April 30, 2019 were $189 million, up 59% year-on-year. Earnings before tax over the equivalent period was $57 million, and operational cash inflow was $48 million.

Looking over the last 12 months to April 30, 2019. New Guards revenue was $345 million, and earnings before tax was $95 million.

With this new acquisition, in addition to the granular reporting on performance within our stores and on the platform, Farfetch will now report GMV revenue, gross margins and order contribution delivered from the Brand Platform, the connected wholesale business.

Going forward, the Farfetch group will have 5 revenue streams. First, the primary revenue stream of the group today: third-party transactions on the platform; revenues based on our take rate, the long-term target being 30%, including underlying commissions and fees for value-added services such as media solutions. We achieved a 60% to 70% gross margin on this revenue today.

Secondly, first-party sales on the platform and in our stores. This revenue carries inventory risk, but we believe our wide-reaching data insight will enable us to deliver approximately 45% gross margins in the near term.

Third, our connected wholesale revenue from the new Brand Platform. We expect to achieve approximately 40% gross margins from the wholesale revenue going forward. Our Brand Platform and existing commercial teams will work together to tap into the rich data set of social media trends, search and demand indicators, inventory movements, and online and offline transactions to identify fashion trends, help forecast production levels and pinpoint replenishment requirements across the Farfetch community.

Revenue number four, selling New Guards brands directly on the platform, which is our first-party original, or 1 PO business. This revenue carries inventory risk, but as the creator, producer and retailer of this product, we can expect to deliver 70% gross margin from this revenue stream.

And finally, third-party original. This is the combination of Brand Platform revenue and take rate when original product is produced by New Guards sold to third-party retailers who, in turn, sell this product on our platform. We expect this revenue stream to be a key aspect of the overall partnership with our boutique partners.

As we look to H2, we will be consolidating less than 5 months of operations from New Guards, which we expect will add approximately $150 million to $160 million in group revenues and GMV, and approximately $30 million to $35 million in operating profits.

On the Marketplace, we believe the highly promotional stance taken across the industry is here to stay across the next 2 to 4 quarters.

In assessing the short-term outlook and setting growth targets for Q3 and Q4, we have decided to focus on: delivering solid but not overly aggressive market share gains, remaining competitive but stepping back from excessive use of promotions, stabilizing order contribution metrics, tailoring our customer engagement strategy, focusing on the LTV over CAC of cohorts and creating enough bandwidth internally to integrate our newer businesses and to focus on executing on our long-term, sustainable GMV growth targets.

This means we will be actively managing our Platform GMV growth to 30% to 35% year-on-year for the rest of 2019. As a result, Platform GMV for the year is now expected to be between $1.91 billion and $1.95 billion, which represents 37% to 40% growth year-on-year, well ahead of the market overall. Group GMV is expected to be approximately $2.1 billion with the addition of Brand Platform GMV from New Guards.

In terms of underlying EBITDA, after reflecting the updated GMV growth across the second half and consolidating our new acquisition, we are now expecting a full year loss of $135 million to $145 million, which is expected to be approximately negative 15% to 17% of adjusted revenue. For Q3, that means Platform GMV growth of 30% to 35% and EBITDA margin of negative 18% to 20% of adjusted revenue.

We would expect approximately $30 million of depreciation and amortization charges in Q3, including an increase in the amortization of acquired intangibles following the New Guards acquisition. And we expect the Q3 share-based payment charge will be approximately $45 million.

Looking further afield, we remain focused on our medium to long-term sustainable growth strategy with group GMV growth above 30% per annum, our path to profitability, which is boosted by the New Guards acquisition and our 30% long-term group EBITDA margin target. This financial strategy is underpinned by our strong positioning within the industry, the rapidly growing Direct Brand e-Concession business, the strong underlying customer cohort performance, the growing platform services business unit, launching Harrods in H1 2020, our superior distribution network and now our new Brand Platform.



José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [5]


Thank you, Elliott. This time one year ago, I remember writing my founder's letter, reflecting my love for this industry, how I saw it evolving and the role of Farfetch in this transformation. One year on, I am incredibly proud of what our team's achieved and the progress we've made in what I then call Chapter 2, the second decade of Farfetch ahead of us. Today, 1 year into Chapter 2, this beautiful industry faces incredible opportunities, but at the same time, some recent challenges. We've recently seen the difficulties of some brands, department store and e-tailers to adapt what is an industry influx. Yes, this is a huge global industry, growing resiliently and strongly with the 3 secular trends of China, millennial consumers and digitalization, gaining speed and shaping it right in front of us.

This industry is very special, very different. Luxury has to evolve around emotions, not price. Farfetch has now cemented its position as the leading technology platform for the global luxury fashion industry. In traffic and sales, we are now the largest single destination for in-season luxury, growing at twice the speed of the overall online market. This comes with a huge responsibility to do the right thing for the industry we love, but it also comes with thrill and excitement. We are reinventing the future. We're doing it for the love of fashion. Of course, the ready-to-wear model has an inherent mismatch between supply and demand. And the small level of markdowns and promotion could actually help the environment. It is when participants start to focus mainly on price, I believe the luxury ecosystem will suffer long-term harm.

After a long period of reflection and conversations with our execs, our Board and our community, I am incredibly excited with the evolution of our strategy. Our platform vision has now expanded, from a platform enabling transaction to a platform enabling a global culture of fashion. This means empowering individuality, not just for consumers and for curators, but also for the creators of fashion. This industry needs to go back to inspiration and move away from a [build up] of commoditization of luxury, where dozens of online shops sell the same product competing on price. We're past where the various online destination differentiates by inspiring customers and shaping culture in their own ways.

Our marriage to New Guards fits perfectly in this strategy. And I am thrilled that New Guards' Chairman and CEO, Davide de Giglio; and Chief Commercial Officer, Andrea Grilli, absolutely share my vision of transforming the way creators, curators and consumers interact over years to come.

We believe this will be revolutionary for existing and new creators of fashion, but it will benefit tremendously the entire ecosystem. As our global and growing consumer base comes to work organically for inspiration, original content and the unrivaled experiences, all with a significant benefit. Boutiques and brands will see their brand adjacencies elevated, and again, enjoying the full economic benefit of their creation. Our [high fashions] are also more excited than ever in how we are a leading as a positive force for this global industry for the love of fashion.

Thank you all. And I will now open for questions.


Questions and Answers


Operator [1]


(Operator Instructions) Louise Singlehurst with Goldman Sachs.


Louise Susan Singlehurst, Goldman Sachs Group Inc., Research Division - MD [2]


José, just in terms of the acquisition of New Guards Group, let's start with that. You talk about the new dimension of strategy. Can you just highlight what that actually means in principle? We're lucky to have you on the call, so if you could think about how we should consider the multiyear strategy, and what's really changed over the past kind of 12 months to really focus our attention on the first-party expansion?

And then just associated with that, if you could talk about the timing of the acquisition. So obviously, a lot going on in terms of the core business. Obviously the drive to really focus on the rollout of Access and the core platform. But if you could just talk about the platform and the timing of the acquisition.

And then thirdly, just in terms of Off-White and the other brand, is there a plan to have exclusive distribution? And I may have misheard this on the call in terms of the commentary, but did that have the brands exclusive to Farfetch plus the boutiques, i.e. it will not be on Net-a-Porter, MatchesFashion, et cetera, going forward?

And then my last question for Elliott, just in terms of guidance, I think we talk about that 50% GMV growth for the full year, but if you could just clarify what that would be excluding New Guards Group?


José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [3]


Louise, thanks for your question. So I think, first of all, our strategy has not changed, so we want to be the global platform for luxury. I think this acquisition expands the platform vision upstream. So this means that we, as a Brand Platform, while we're existing infrastructure, and the New Guards really works as a platform, and this is actually how they define themselves. And I think it's important to note that this is not a [1P] business. So they do not take -- for the majority of their business, they do not take inventory risks, so they close with 9% of inventory as a percentage of total revenues. Most of it was in transit to retailers that already saw this. So the risk is around 5% in terms of their 1P exposure. So this really doesn't change much the 1P exposure that we already had with Browns once you add all things up and take the ratio.

So it is a platform play that brings our capabilities upstream. And I think what's really exciting for us is this ability to elevate the Farfetch brand with exclusive collaborations, exclusive [collections] and in the future, with totally exclusive brands, smaller boutiques on the platform.

So to answer one of your questions regarding the current distribution of Off-White, we will respect these contracts, and this will be ultimately a decision by the NGG management. And of course, historically what we believe, we believe in direct-to-consumer, we believe in e-Concessions, we believe in connected wholesale, so wholesale that is truly omnichannel and with real-time capability of all transactions and data. This is the way the industry is going, this is the way the [big] groups are going, this is the way New Guards will be going as long as those patterns -- those historical commercial patterns of NGG follow that path. I think they are a tremendous amplifier for those brands, and therefore, I don't see any change to that.


Elliot Jordan, Farfetch Limited - CFO [4]


And Louise, just in terms of guidance. So the 50% year-on-year, including New Guards, this is a group GMV level to $2.1 billion. The New Guards is roughly $150 million. That's my estimate for the GMV that will come through after the consolidation period starts. So if I take that off, we're at around 39% year-on-year, excluding New Guards, and that ties into the Platform GMV growth. As I say, 37% to 40% is the updated guidance for the full year. Obviously, 44% over the first half and 30% to 35% growth across the second half. I should point out that's still well ahead all of our competitors.


Operator [5]


And our next question comes from Douglas Anmuth with JPMorgan.


Douglas Till Anmuth, JP Morgan Chase & Co, Research Division - MD [6]


Great. Elliott, can we stick with guidance? Just trying to understand the Platform GMV better, the 30% to 35% that you're talking about for 3Q and the 37% to 40% for '19, particularly when you have Stadium Goods and China earlier integration than expected in there as well. So just trying to understand the pressures that are there. And then you talked about it as being a managed -- probably a managed outcome as well -- or managing the growth. Help us understand that better.

And then just second, and maybe related, if you could help us understand the backdrop around the increased competitive pressure more, the geographies where you're seeing that and the types of retailers? Some more detail there would be helpful.


Elliot Jordan, Farfetch Limited - CFO [7]


Sure. Sure, Doug, let's start with that because that, I think, drives everything we're talking about. Really, over the June period, sort of the second half of the quarter, we saw a substantial step-up in the promotional environment from, I guess, traditional offline retailers and also online e-tailers. Traditional offline retailers, we suspect is because the traffic's not there, so they're having to promote, they're going earlier in terms of sale, they're going into mid-season sales. They're going quite deep in terms of discounting and basket-level promotions on a sort of blanket approach. That then flowed into the e-tailers. So our major competitors online, they're growing low-single digits. To prevent themselves guiding to negative growth, they've had to promote quite heavily to remain competitive, and that all flows into our business in some respects that we've got very valuable customers. As I said, those customers that have been with us for a few years now driving strong order contribution, we don't want them being tempted away by these competitors' promotion. So we decided to promote across the latter half of the quarter as well, and that's obviously what's taken the order contribution margin down.

So what we did sort of looking at Q3, Q4, given that we've been growing at 44% and everybody else is growing substantially lower than that, the view is, yes, we could keep growing faster than 40%, but that incremental growth would come at the cost of very, very heavy promotions. We don't think that's the right thing to do. We'd much rather work with our boutique partners to find a full-priced strategy. And so what we've decided to do is actively manage the P&L and the growth rates to 30% to 35% across the second half and take off that need to promote. That'll still be substantial market share gains, which obviously is the key point, but also allows us the breathing room to set up for next year and the year after that and the year after that with Stadium Goods, Toplife and New Guards now being integrated into the business. So very active decision, very intentional decision. We could keep growing if we wanted to, but we decided 30% to 35% is a much better place to be at.

And then in terms of the full year, obviously when you do the math, it's sort of 44% across Q1 and Q2, 30% to 35% across Q3 and Q4, that gets to 37% to 40% for the full year at the platform. And then as I said on the back of Louise's call, adding New Guards wholesale connected GMV gets us up to $2.1 billion, which is the 50% year-on-year.

Sorry. Sorry. Sorry. Doug asked about other parts of the market. I think in China, as José said, we're extremely pleased with how China's going. It accelerated from Q1 into Q2. So Q2 China growth was faster year-on-year than Q1. It's closing the gap on the U.S. as our #1 market. I think the key thing to point out, though, with Toplife is we've always said it's a 2020 and beyond opportunity. There's still opportunities or integration and aspects of tailoring the model fully, working with JD to target the right customer base. And so we're looking forward to that coming as a major part of the growth story next year rather than this year. And Stadium Goods, as we've always said, much smaller than the platform overall, contributing growth of course, but we're not breaking it out at this stage.


Operator [8]


And our next question comes from Ike Boruchow with Wells Fargo.


Irwin Bernard Boruchow, Wells Fargo Securities, LLC, Research Division - MD and Senior Specialty Retail Analyst [9]


So first, just to piggyback off Doug's question, I understand kind of what played out at the end of the quarter and the commentary and the plan on the back half of the year. But Elliott, is there a reason why I think you said you expect the competitive pressures in the market to last the next 2 to 4 quarters? I'm just curious where the analysis came from and where the thought process on that is?

And then just on the acquisition of New Guards. How does that impact the long-term targets on profitability that you guys have talked about in the past? And does it impact the timing of your ability to scale or eventually hit breakeven?


Elliot Jordan, Farfetch Limited - CFO [10]


Great questions, Ike. So the 2 to 4 quarters -- as you know, the luxury industry works relatively slowly and is a season-over-season type sort of basis. And I'm sure you've heard the fashion houses, Prada, has said this publicly, Kering has said this publicly. They will be looking to pull back on the distribution in some of the traditional retailers and the e-tail model and focusing more on e-Concessions, which Farfetch is the only e-Concession. So we expect that will take a couple of seasons to work its way through.

In the meantime, those retailers are going to be overstocked versus the demand they're going to experience, and so they're going to presumably continue to mark down and promote to try and drive top line growth or at least stem the loss. So whilst the industry adjusts to the supply and demand and moves more towards Farfetch as an e-Concession model, we expect that, that promotional environment to stay for a few more quarters.

In terms of New Guards Group, it absolutely contributes to the overall 30% EBITDA margins. So the last 12 months to April, profit before tax was $95 million versus revenue of $345 million. There's opportunities, I believe, to continue to drive EBITDA margin in that business as we leverage the synergies of joining Farfetch. So very strong in terms of the margin targets. And in terms of route to profitability, obviously, a profitable business will help that path to profitability and the positive operating cash flows moving forward.


Operator [11]


Our next question comes from Eric Sheridan with UBS.


Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [12]


Yes. I think in continuing on with the current season, I want to stick to sort of the business mix and some of the back-and-forth that's going on. So I guess we're just trying to really understand why 2 to 4 quarters again is the right number? What do you think sort of breaks the temperature in the industry or fever in the industry, that that's the right way for investors to think about it? Because you can imagine investors are now trying to really understand what sort of growth they're underwriting in this business over the next couple of years, not just the next quarter.

And then now that we've got sort of 5 lines of revenue or 5 different buckets of revenue, maybe following up on the last question, can you walk through a little bit more what investors should expect either in terms of linearity or volatility with respect to growth and contribution margin structure for the business going forward? And how to think about that, not only just in the second half of this year, but into 2020 and 2021?


José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [13]


Eric, so I think, the -- as Elliott pointed out, looking further afield beyond Q3 and Q4, we are definitely extremely confident that looking at 30% growth rate, and we are absolutely managing the growth. As you have seen, we have been beating our growth estimates. And we could continue to accelerate market share capture. Given the promotional sense of the market, we could still do that profitably because as Elliott shared, our CAC-LTV ratios are extremely healthy, and we still have payback more than 6 months inside of the promotional environment. But we just don't think it's the right thing to do. We think it creates a vicious circle, and it's not what our cherished brand partners are asking us to help them do. And we think we are going to capture market share still very aggressively. But smoothing the curves that 30%-plus growth, which absolutely remains the target for many years to come. And obviously, the path to profitability and the 30% long-term EBITDA profitability that we are very confident we are going to have in the future.

So the 2 to 4 quarters is really an estimate. The industry, as Elliott pointed out, moves slowly. To be faster, we just want to temper -- like we -- it really depends on the brands and how fast they will [retreat] the volume of supply difference into wholesale. They had indicated that they are doing that. We know they're doing that. We don't know how fast. It's not in our hands. What we know and is in our hands is the expansion of supply on e-Concession which is absolutely remarkable as we see 275% growth of supply from Prada, triple-digit -- high triple-digit growth on the main luxury groups. And then if we looked at 450 brands that now operate direct e-Concessions on Farfetch, of which we've had 100% retention rate, by the way, in the last 3 years. It shows the industry is really moving to a direct-to-consumer model, of which, in the multi-brand realm, Farfetch is the only global e-Concession player.

The secular trend is definitely strongly, strongly in our favor. We just think that right now, we will help the brand in the transition, and we will ease on the response to the aggressive promotional spend and slightly moderate what is a very, very aggressive market share capture. But long term, this 30% growth is something we always have in our model and something that we are actually increasingly bullish about.


Elliot Jordan, Farfetch Limited - CFO [14]


Just in terms of the 5 revenue streams, so obviously we're very confident on the 30% GMV growth moving forward over the long term that we've already -- always said that from the outset of the IPO that, that's the target for us. And if you break that out and look at the new revenue streams, clearly, the third-party business is growing very strongly with new clients within the Platform Solutions business coming onstream next year. That will help drive that growth next year.

If I look at what we've purchased in terms of New Guards, the connected wholesale revenue grew 59% year-on-year across the first half. That's at 40% gross margins and should continue to seek to grow at good levels as we bring on new brands. It's not just about the brands that are currently in existence with the New Guards. It's a factory of brands and can achieve more growth from new brands coming onstream next year. The 1P business and the 1PO business are obviously 10% of our revenue at the moment. With 1PO coming onboard, we can expect that probably to go to 13% to 15%. But of course, a third-party business, with e-Concessions growing, will be hard to match even with the first-party business that we've acquired through New Guards.

And then lastly, the third-party original, that's really just a combination of what we're already seeing with third-party sales already on the platform, but obviously adding in the fact that the wholesale margin will also be captured for brands bought and sold on the platform by our third-party boutiques.


Operator [15]


Your next question comes from the line of Luca Solca of Bernstein.


Luca Giuseppe Solca, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [16]


I wonder what is prompting you from a strategic viewpoint to be so actively engaged on M&A? You've been laying up a very long list of acquisitions, starting with Stadium Goods, Toplife, New Guards Group and others, CuriosityChina. And this is making your business model more complicated. And the original idea building an Uber of luxury and fashion, digital distribution. Is it possibly the case that you're seeing that this original model is not working and not producing enough of a profitability so that you have to complement it with other activities? Or where is this logic coming from? If you could explain us, that would be great.


José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [17]


Absolutely, Luca. Thank you. So I think we always said that our strategy was to be the global partner for luxury. That has not changed. If you look at the acquisition, Stadium Goods is a category that we had already they were -- that was actually not on the marketplace, and a category that is very much a strong part of growth in the industry and especially in the luxury realm. The China acquisitions, it's written in the initial statement, the global platform for luxury from China obviously being a key, key market for us. And New Guards Group brings another dimension, a brand dimension to the platform. We always said M&A was only one of the tools in the toolbox. We were very fortunate to be trusted partners in with all these companies. I think it reflects, in fact, the extraordinary execution. We're talking in terms of New Guards, a company with give or take USD 500 million in annualized sales and almost 30% profitability, no debt. In terms of cash in the bank, they don't need -- they were not looking for a financial transaction. They were looking for a strategic partner that would really elevate their business.

So the result of the success of our model is precisely why these very, very successful companies want to partner with us. And when we see opportunities for making progress on our platform vision, we will seize them. We will seize them studiously, cautiously. And as you may imagine, there are hundreds of opportunities that every single day are put in front of us. But when they are absolutely world-class companies, such as New Guards, these are opportunities that absolutely make sense and fit well in our strategy, and we will take them.


Operator [18]


Your next question comes from the line of John Blackledge of Cowen.


John Ryan Blackledge, Cowen and Company, LLC, Research Division - Head of Internet Research, MD and Senior Research Analyst [19]


Great. Great. Just a couple questions. I've been hopping between calls, so I apologize. On the guidance, the lower Platform GMV guide, was it just promotions? Just curious if you saw maybe a slowdown or something as the quarter progressed, which maybe led to the little bit of a lower guide in the back half of the year.

Second would be, if you could talk about the Stadium Goods integration, and maybe -- I don't know if you can call out the impact of it or what it added to the Platform GMV growth in the second quarter?

And then the third question would be, the JD integration. Sorry, if you've talked about this already in the Q&A. Just any color on kind of traffic differences you're seeing in browsing and/or purchasing with the Farfetch store on JD versus consumers using the local app and/or the web page?


Elliot Jordan, Farfetch Limited - CFO [20]


John, good questions. So in terms of the quarter that exited, as we were saying, it's -- it was the promotional environment, really, that it's across the board. And to sort of follow-up on one of the earlier questions, it wasn't in one particular market. It was pretty much global. The U.S., Europe, within Asia as well, we saw very, very heavy promotions. And obviously we wanted to go toe to toe to be competitive for our customers. So it's very hard to unpack within that anything other than the -- so the competitors are really feeling it. With Farfetch growing at 44%, we're obviously stealing significant market share from the e-tailers. And obviously, the shift from off-line to online, we are helping drive that because we've got one of the best propositions out there and the broadest range of products for the customer. So I think what we were seeing was a retaliation on Farfetch's position, and that's what we're seeing.

My view and shared by the Board, as we discuss the second half, was, let's moderate that growth, let's focus on long-term sustainable growth, let's not carry on down the road, which could lead much further down in terms of profitability of that whole industry by continuing to promote and much better to focus on long-term customer value and drive that view rather than promote. But that's really the view on the guidance and why we've decided to go for 30% to 35% versus higher than that.

In terms of Stadium Goods, we're not really breaking it out. It is a small part of the overall platform, and it obviously helps over the longer term, but really isn't worth breaking out of the numbers. We're talking overall platform growth, and that's what we're guiding towards.

In terms of JD, we're seeing interest from customers on the JD platform. Clearly, China is an environment where you need to learn as you go what suits for customers on various channels. The team has done a absolutely fantastic job driving faster growth across Q2 than across Q1. That has come from not only JD's go-live, but more importantly, from the core product out in China being the app (inaudible) on WeChat and the portal itself more broadly, the website more broadly. So we're very pleased with China overall.

We think we're well setup as the luxury gateway for China to be able to help the brand, more brands as we've been saying and now with us as an e-Concession model, so we've now got over 450 brands e-Concession, and China, obviously, is open to them via Farfetch. So a huge opportunity and a huge opportunity for Stadium Goods to go-live with their own app in China as well. So very excited about where that opportunity could be. JD will be a part of that from 2020.


Operator [21]


Your next question comes from the line of Jason Helfstein with Oppenheimer.


Anthony Joseph Liberto, Oppenheimer & Co. Inc., Research Division - Research Analyst [22]


Anthony on for Jason. Just a quick question. Does owning brands through New Guards put you in conflict with any of the 3P customer brands?


José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [23]


It's José here. Thank you for your question. So this is something that I have actually personally [socialized,] obviously, in a very confidential way and without naming the targets. We have key partners and got a very, very strong level of confidence. I think -- on the contrary, I think, luxury brand wants to be on Farfetch because Farfetch has amazing brand adjacencies, amazing other luxury brands and other products that they want to be seen next to. Put into perspective, we have 3,000 designers represented in the platform, 450 are direct. The others are represented by boutique. And this is what attracts the likes of Gucci and Prada and others to our platforms is the incredible level of luxury and brand adjacencies. This move elevates that even further. So I am entirely, entirely confident that this will bring forth and elevate the interest of our brand partners, creates a competitive halo effect that builds around original content, and that will -- it will benefit all participants.


Operator [24]


Your next question comes from the line of Ed Yruma with KeyBanc Capital Markets.


Edward James Yruma, KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst [25]


I guess first, given this very difficult trading conditions in luxury, what is the overall health do you think of the boutique partners that you have? Are you seeing maybe potentially higher rates acquiring a business, given some of the discounting?

And then two, as it relates to kind of overall industry inventory levels, is your expectation that the luxury house are able to kind of pull back on inventory? Do you think the demand improves? And kind of what underpins maybe some of the improvement you're hoping for longer term?


José Neves, Farfetch Limited - Founder, Co-Chairman & CEO [26]


So in terms of the boutiques, actually, we have seen a lot of health coming from small multi-brand luxury boutiques that have embraced an omnichannel vision. We have extremely high retention, figures that are close to 100% on our boutique network. And I think that actually is in contrast with the department stores who unfortunately have had a much harder time. And in general, I think the smaller format is in good health. It's really the large-scale format, both department store or large-scale e-tail, that is obviously much more demanding in terms of the sheer amount of dollars to drive the necessary investments in working capital, technology, infrastructure to stay relevant. And this is where we've seen most of the same in the industry.

I think the channel dynamics, the brands have been very clear, some very publicly such as the one on the capital markets day. They've added privately (inaudible) clothing in private from other brands. The brands have been very clear. The more they can move direct-to-consumer, direct-to-consumer being their own brand dot-com, obviously, but also move to brand e-Concession. So we all understand that a consumer shops multi-brands, the consumers are still in the physical world and in the online world even more in that space. So nobody's going to download 200 apps on their phone. So the brands are clearly trying as fast as they can to move from less wholesale and less online wholesale into more direct-to-consumer models, of which Farfetch is the only global e-Concession model. How fast will they be able to make the transition? It's a question I don't have the answer for, and hence, we estimate this to be in the 2 to 4 quarters' time frame.

On our side, we will do everything to accelerate it. And as you've seen, with e-Concessions, we're adding every quarter, this past quarter, we added over 40, 4-0, e-Concessions to the platform. The main ones are going to supply in triple digits. So we're now part of the equation, which is welcome the brands and provide the result and ease the integration, so that they can move as fast as possible to our model. Then the brands will have through their sites in terms of taking a little bit of a hit on their wholesale revenues and that is actually on their channel, so that's something that it's another part of the equation.


Operator [27]


The final question will come from Marvin Fong of BTIG.


Marvin Milton Fong, BTIG, LLC, Research Division - Director & E-commerce Analyst [28]


Just a question on demand generation expense. Given the promotional environment, is that something that you're going to dial up to generate business? Or is that something you might dial back down just to maintain good return on your spending?

And then second question, just to give us some additional comfort that this is mainly a promotional phenomenon, could you maybe comment on how orders or growth in active consumers is behaving? It was very good in the second quarter. Could you maybe give us some update on how it's trending thus far in the third quarter?


Elliot Jordan, Farfetch Limited - CFO [29]


Marvin, so just in terms of demand generation, you'll see, actually, from Q1 to Q2, as a percentage of GMV, the demand generation dropped back a little bit. So we were able to pull back on the demand generation as we targeted the right level of customers, less reliance on paid search, moving more towards lower-cost channels such as social media and retargeting display, of course, and affiliates and then into our more organic channels, including what's coming through from the loyalty program, Access, in terms of organic engagement. And we saw quite a lot of organic traffic build on the back of the Farfetch Communities initiatives. So we are seeing a lot more customers on the website or predominantly through the app, actually, on a more organic fashion as they start to engaged by the content that we're now putting through on a day-to-day basis. So that's a significant opportunity for us. At 7.1% of GMV, that's roughly 19.5% of our revenues. And so still opportunities to bring that down even further as we build that organic engagement.

At the moment, we are making sure we focus on new customers and bringing them into second-, third- and fourth-time orders. So we are pinging them a little bit more in terms of media spend, particularly on that retargeting, to drive that sort of flip between new customers into existing. As I said earlier on, once you get to a mature state, we're retaining 55% of the revenue from an overall contribution basis, so very strong profitability from a total-by-total basis, and in particular, payback within 6 months. So we're always tailoring the spend, the promotion, the organic, inorganic traffic to make sure that it's the right cost to service versus the sort of revenue per visit, and those are all in a very good place.


Operator [30]


There are no further questions in the queue. I turn the call back over to the presenters.


Alice Ryder, Farfetch Limited - VP of IR [31]


Great. Well, thank you all for joining us. We look forward to speaking with you on the call next quarter.


Operator [32]


This concludes today's conference call. You may now disconnect.