Farfetch Limited (FTCH) CEO Jose Neves on Q1 2019 Results - Earnings Call Transcript

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About: Farfetch (FTCH)
by: SA Transcripts
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Earning Call Audio

Farfetch Limited (NYSE:FTCH) Q1 2019 Earnings Conference Call May 15, 2019 4:30 PM ET

Company Participants

Alice Ryder - VP of IR

Jose Neves - Founder, Co-Chairman and CEO

Elliot Jordan - CFO

Conference Call Participants

Ike Boruchow - Wells Fargo

Louise Singlehurst - Goldman Sachs

John Blackledge - Cowen

Eric Sheridan - UBS

Jason Helfstein - Oppenheimer

Cory Carpenter - JPMorgan

Kunal Madhukar - Deutsche Bank AG

Stephen Ju - Credit Suisse

Ella Ji - China Renaissance

Operator

Good afternoon. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Fourth Quarter 2018 (sic) [First Quarter 2019] Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

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

Alice Ryder

Thank you, Julian. Hello and welcome to Farfetch's first quarter 2019 conference call. Joining me today to discuss our results are Jose 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 discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements may today speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. 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 would like to turn the call over to Jose.

Jose Neves

Thank you, Alice. It's great to be with all of you today. Thank you for joining in for our first quarter 2019 call. I’m pleased to report that we’ve an excellent Q1, where we continue to successfully execute on our plan. And we met and partnered milestones, which I will share with you today.

We not only surpassed our expectations in terms of our growth, and performed well across the financial KPIs, but we also made great progress operationally, and are even tracking ahead of schedule on some of our key initiatives.

In Q1, platform GMV grew 44% to $450 million. Adjusted for FX, these GMV growth was approximately 50%. The pace of growth, which is about 2.5x to projected 20% compounded annual growth rate of the online personal luxury goods market, shoe 2025. The pace of market share captured by Farfetch continues to be strong, demonstrating that our overall offer to consumers is extremely compelling.

Our continued strong top line growth in Q1, increased our GMV over the last 12 months period to $1.5 billion, which we believe makes Farfetch one of the largest -- if not the largest single destination for in-season, luxury fashion in the world. Both in valuable transactions and traffic. I’m very pleased with our ability to execute on our growth plan for 2019, while also making progress on strategic initiatives to drive growth in 2020, and beyond.

Today, I wanted to take the opportunity to review our progress against a number of strategic opportunities that we have undertaken in the past 18 months. We have in fact successfully executed against the corporate development strategy including Store of the Future at Chanel, Middle East joint venture with the Chalhoub Group, JD.com partnership including the Toplife acquisition, entering the resale market with Stadium Goods and Farfetch platform services or FPS expansions with the CuriosityChina acquisition and enterprise deal with Harrods.

One of the main themes that I want to close today is how we are successfully executing on the front. With respect to China, our most strategic market, we remain more enthusiastic than ever. There is a great opportunity ahead of us to create the Premier Luxury Gateway to China. According to Bain, China will represent about 46% of the luxury market by 2025, up from 33% in 2018, representing approximately $80 billion of incremental spend over the next six years. Bain, also estimates that half of those purchases will be made domestically in Mainland China.

As we scan the landscape, we believe the investments we’ve made over the past four years, our localized Tax Act, GST and operations, which were more recent -- recently bolstered by the acquisitions of CuriosityChina and Toplife will accelerate our China strategy and offer brands a one-stop integrated solution. All of these position Farfetch to be the partner of choice to help luxury brands develop and implement a digital strategy through crack China. To this end, the China team has hit the ground running, following the announcement of our on Toplife acquisition, working closely with JV on the Farfetch top line integration.

In fact, we are currently tracking ahead of our initial second half 2019 go-live date and are targeting a launch at the end of H1 2019. The incredible execution to date demonstrates the benefit from the technical investments, we’ve made in our API based technology platform. Our data center in China as well as the stellar local management and talent we’ve built on the ground.

By going live at the end of Q2, we will be able to leverage traffic from JVs and revert three fashionable celebration. While we don’t expect we have 100% of our catalog live by then, it will gives us more time to familiarize ourselves with the ecosystem and test and iterate on our merchandising strategy to start driving results from this initiatives in the back half of the year.

Another key benefit of being on the JV platform will come from the opportunity to grow brand awareness of Farfetch among Chinese consumers, who will see the Farfetch direct entry button in the level I position on the JD.com app homepage. Clearly, our partnership with JD.com and our strategic investment in China are working. We now have unrivalled, technical and logistics capabilities that are very difficult to replicate, and delivering an excellent customer experience to our Chinese customers.

At this time, I would like to outline the current progress of some of our other major strategic initiatives. It has been one-year since we launched into Middle East, in partnership with Chalhoub. So it's a good time to pause and evaluate the results with that JV. We were pleased to share that the Middle East is our fastest growing region. This is on the back of incredible execution from our teams with the backing of Chalhoub.

Farfetch in this time also opened the Dubai office , started with a full team from outstanding management to marketing, private client and customer service teams. And in the last 12 months, we’ve signed two regional department stores to the network and launched a number of two buy mall tenants on the Farfetch platform.

Turning to start of the future and our Augmented Retail strategy. In Q1, 2018 we were very proud to announce our exclusive partnership with Chanel whilst also became shareholders in Farfetch. 15 months later we're very happy to confirm that the Augmented retail pilot he is now live in Chanel's new flagship boutiques at 19 Rue Cambon Paris.

Currently, the pilot consist of a client boutique app and a fashion adviser app plus a number of connected devices such as digital feeding room. Here is NFC and RFID product sensors, which are designed to augment the client and fashion adviser relationship. It is already delivering a new retail experience to a small number of select Chanel sites. We are delighted that both Chanel and traffic are very heavy with the progress of this pilot so far. We have many years ahead in this exciting partnership and we will continue to expand and develop the current technology and its user base over the long-term.

Turning to our strategy of entering not just new catalyst, but new business models in luxury. We are delighted to update you on Stadium Goods. We’ve already started to combine operations and benefit from synergies. And the operational integration of the Full Stadium goods catalogue. He is tracking ahead of schedule and expected to be completed in the near future.

Ground will also bring Stadium Goods, physical presence to Europe for the first time. In an initiative that we duct Sneak a Beast, with many exclusive products and collaborations that Stadium Goods and Browns are bringing to London. And fire Farfetch to European as well as global sneak heads.

We are also like target about 1PO, first-party owed brand as a new business model. Stadium Goods have seen high demand for their own branded three player which has been a small limited production. Based on the strong traction, we will be investing behind the Stadium Goods brand and launch it as a streetwear brand in its own, right? These not only creates an exclusive offering for Farfetch, it is also very high margin, profitable, line of business for us, albeit obviously starting from a slow base.

Finally our continued investments in Farfetch platform solutions, which includes the previously named black and white, White label business, CuriosityChina, So the future and other B2B traffic is paying off. With Harrods on track as well as a very interesting pipeline of other enterprise deals being discussed, expanding our B2B platform business for 2020 and beyond.

I would now like to provide an update on our progress along our fourth strategic pillars. On our last call I mentioned that we were seeing attractive LTV over Metrics we payback of last and six months. Based on these indicators we continue to lean into our customer engagement efforts in Q1. These included our decision to invest in the next generation EBITDA, aims at introducing Farfetch for the first time customers as well as maintaining engagement with existing customers.

As a result, active consumers including Stadium Goods increased 64% in Q1 to drive a 44% platform GMV increase. Our approximately 50% of adjusted for FX which exceeded our guidance of 40% growth for the period. We are also pleased to report that we were able to deliver this top line outperformance while also maintaining adjusted EBITDA margin in line with our guidance.

Our GMV outperformance was driven by strong results across our regions, including U.S and China. Our two largest markets as well as the Middle East. The key market which I mentioned earlier. Our platform continues to develop as one of the world's only truly global luxury e-commerce platforms. We have recently whilst several localized sites in countries such as the Netherlands and Sweden. Our new website was launching them Mark in Q1, bringing our total 22 localized sites. If they were available in 15 different languages. These strategy has demonstrated strong return on investment through better economics in terms of demand generation and retention of customers.

Farfetch is committed to providing all customers around the entire world who love fashion with an unrivalled customer experience in their language, currency and indicate of 53 counties global supply with premium delivery services such as same-day delivery in 19 global cities. With respect to our strategic pillar on supply, during Q1, we continue to strengthen our guest in the proposition by bringing in additional supply from the best boutiques and brands in the industry. We have expanded our relationships for both brands and their supply and having the past year launched more than 100 brands on the margin please.

The top 10 brands by Farfetch marketplace GMV have increased their supply 160% year-on-year in terms of stock value. This clearly demonstrates the success of these industry-leading brands with our Farfetch e-confessions. And the fact that they now the Farfetch is one of the most strategic direct-to-consumer channels globally. We continue to develop our department store strategy and have signed on terror and jollies of the Lane Crawford Joyce Group in Greater China. They are, as you know a premier department store, brand management and distribution group with operations throughout Asia. This follows department store signings such as Harvey Nichols, Rubaiyat, and Tryano

Turning now to our technology and innovation initiative, I am happy to share that the Farfetch platform solutions and technology teams are off to a great start in building our Harrods newly e-commerce site. And we remain on track for our go live target in 2020.

As our first multibillion dollar department store client, it's no surprise that there are certain additional features and capabilities to be developed in order to support their operations as well as specific support for the beauty and fragrance categories and that process is well underway with our teams. One of the benefits of our Tax Act is our ability to make these investments at the API level on the Farfetch platform and then leverage them to enhance the experience for all other tenants including our own marketplace Browns and B2B clients.

These same services will also benefits 3.1 Phillip Lim, a fashion label now covered by SPS, following our launch of their new website during the quarter. As previously mentioned, we have also taken a massive step forward on the start of the future solution that we're developing through our ongoing innovation partnership with Chanel.

An area which has enormous potential and where we’ve seen great developments is Fulfillment by Farfetch or FPS. Farfetch offers a leading luxury logistics solution with fall 3PL warehouses in key regions including Italy, U.K, U.S and China and we’ve active plans to continue to expand this network this year. Next destination LA. Brands or boutiques can use actually -- to handle all that fulfillment closer to the customer. We are using our appropriate tariff data inside to predict where the product should be sitting, given 90% of our those across the customs.

All of these without losing global visibility and availability of inventory. These increases speed of delivery which is a key component of customer experience, allows for a better level of consolidation of others and significantly reduces fulfillment costs. Fulfillment by Farfetch Paves the way for significant cost savings and improvement of service for both consumers and sellers.

Also, as our sellers roll their inventory to meet the rapid growth of the Farfetch platform, Fulfillment by Farfetch is in place to decrease decretion for sellers who would otherwise need to increase their fulfillment investments. We are very excited by all of these developments and by the prospect of leveraging them to create a high margin recurring revenue business with increasing impact on the Farfetch Group in 2020 and beyond. We’ve also achieved major milestones towards our four strategic initiatives, building our brand. In March we launched Farfetch Communities, which showcases bespoke editorial content to inspire and help customers find the things they love.

We named initiative communities in celebration of our global Farfetch Community of fashion loving, creators, curators and consumers. And it's designed to be an ever-changing cavalry which features our influential pace collections and fashion viewpoints to have Farfetch become part of the discussion that helps customers discover what they want to buy.

Communities is an innovative approach to building our brand using a storytelling mechanic, which is really relevant to consumers and the way they use media today. It also enables us to highlight the vast Farfetch Community, which is made of fashion influences how our brands and boutiques who are all incredible storytellers. And also one access to our amazing luxury audience.

We're very pleased with the initial customer to communities and by the strong positive response from our brand partners, who are increasingly recognising the media benefit of participating on the Farfetch platform to display their products and brands to Farfetch's high income luxury shoppers. The appeal of Farfetch as a media platform for brands, continues to fuel strong year-on-year growth on our early-stage media solutions business.

The vision for Farfetch Communities is to create a perpetual fresh stream of content that we will be able to incorporate in our digital marketing campaigns. Farfetch Communities will enable us to add content engagement data to the product performance data, to help us make predictions about demand generation investments, which is really critical for making our flywheel spin faster. We expect this to become a competitive advantage as we have more products, which generate more content driving higher velocity of our data loop and better demand generation decisions that’s just added digital marketers.

Over the course of Q1, we also continues with the rollout of access, our loyalty program. And I'm pleased to report that it has now been completed ahead of plan and its now available to 100% of our eligible customers. While the full implementation is relatively recent early indications of customer response are consistent with the increased engagement and frequency of shop -- that we observed from our initial test group. We are very excited about access and are focusing on further leveraging the program to increase retention and spent per customer to ultimately reduce the demand generation costs over the long-term.

Before I turn the call over to Elliot, I would like to mention one other initiative, which we are committed tool as we strive to drive long-term benefits to our people, places and products. As the company at the cross-section of an industry more than a 150 years old. and its rapid modernization into the digital era, I strongly believe Farfetch has a responsibility to be a pause of positive change in the luxury fashion industry.

I am very proud to say that we’ve made a big push on this front recently. Just last month we launched positively Farfetch. Positively Farfetch is a 350 degree strategy to aim at sustainability in everything we do to the extent we can. Our sustainability mission is to become the global platform for goods, intellectual fashion by empowering everyone we work with to sing, act and choose positively.

As an example of this, we have begun piloting second life which allows customers to trade in their pre-owned designer bags in exchange for Farfetch credit. We’ve also launched the partnership with Kiva to enable our Farfetch to support entrepreneurs in use across more than 80 countries with otherwise unattainable funding. Finally, we launched Dream Assembly for goods. Our technology accelerator, which dedicated its entire second start up cohorts through sustainability in partnership with Stella McCartney and Burberry.

I'll now turn to Elliot for his Q1 update.

Elliot Jordan

Thank you, Jose, and good evening, everyone. I’m delighted to present to you the first quarter 2019 financial results for Farfetch. We’ve had a strong start to 2019, continuing to execute on the plans we outlined when we last spoke, growing the business above our expectations investing in near-term customer acquisition and longer term platform development and delivery and profitability in line with guidance.

We’ve also made significant progress integrating the new businesses that now form part of the Farfetch's Group. Q1 GMV is growing 43% year-on-year to $419 million which was driven by strong momentum in platform GMV, up 44% year-on-year to $415 million, ahead of our stated guidance of 40% year-on-year. We estimate that on a constant currency basis, platform GMV grew 50% year-on-year. I’m particularly pleased by this performance as this growth sits on top of the 67% growth rate achieved in Q1 2018.

We now have a range of complimentary marketplaces and platform solutions that combine to drive this platform GMV. We are looking at the non-financial metrics we provide, I think it's more useful to spread out the AOV for the Farfetch marketplace and Stadium Goods. As they operated two different price points. And a blinked AOV would be meaningless. I think it's also helpful to provide you with total active customers across the group where we serve them directly on our platform. So with Farfetch. stadium goods. Browns fashion.com and associated ads. Orders on the Farfetch marketplace no longer provides a meaningful view of the business performance and so won't be provided moving forward.

So all those metrics in Q1, the Farfetch AOV with $601, which declined by 7% over the same period from last year, which is primarily due to the expected currency translation impact from non-US dollar baskets on the overall AOV. By comparison the AOP for Stadium Goods across Q1 was US$300. We now have 1.7 million active customers which is an increase of 64% year-on-year and active customers continued to March 2018. Including the underlying growth across the Farfetch marketplace and including those active on Stadium Goods.

As you know these customers are truly global with demands put roughly a third across each of EMEA, APAC and the Americas. We are proud to enable our sellers to trade internationally, 90% of our Q1 orders across the customers border and our bespoke order management system streamlines this trade, delivering a multi-language, multicurrency duties paid to customer proposition with optimized global logistics solutions.

Focusing on trade with China, a hot topic right now, I wanted to highlight that 90% of our shipments into Mainland China come from fashion boutiques and luxury brands from within Europe. We currently have no exports from Mainland China, but a growing luxury fashion supply within China to serve local customers from local suppliers. Dissecting platform GMV, our third-party business, we will provide an interim technology solution and act as a selling agent for retailers, continues to represent the bulk of our GMV with strong growth from more than 1,000 boutique brand and department store partners selling via the Farfetch marketplace, growth in the GMV been delivered by our 18 white label customers, utilizing our modular Farfetch platform solutions suite of products and the addition of GMV from the sneaker sellers operating via Stadium Goods.

Our third-party GMV, we purchase stock at wholesale and sell across our platform grew over 76% year-on-year, again, driven by an increase in our Browns streets party business and the inclusion of Stadium Goods first party sales for the first time. Browns' revenue has grown to become almost 10x the size from four years ago as it has leveraged both the Farfetch marketplace and now white label solutions to power its e-commerce presence, ensuring we are offering customers the best selection of merchandise across different channels. As a result, our first party business represents about 9% of our overall platform GMV.

Looking at revenues. Q1 group revenue grew 39% year-on-year to $174 million with growth in group adjusted revenue, which excludes performance revenue of 42% year-on-year to $146 million. Platform services revenue which is derived from our platform GMV and excludes our in-store revenue grew 43% year-on-year to $142 million as a result of the strong platform GMV growth, a slightly higher mix of first party GMV year-on-year, 100% of which dropped through to revenue and a slightly lower third-party take rate of 30% versus the 31.8% take rate from Q1 last year.

The take rate decline year-on-year was driven from the increasing mix of sellers that operate on a lower overall take rate, including sellers on Stadium Goods, which as some of you have already noted, is closer to 20%. Q1 platform order contribution of $50 million was 34.9% of platform revenue similar to that delivered in Q4 2018, as we continue to focus on delivering the right balance of absolute profitability to fund our business growth, whilst also reinvesting in growing the customer base at attractive economics.

Q1 demand generation cost of $31 million is 22% of adjusted platform revenue as compared to 20% in Q1 2018. As we mentioned on the last call, we are seeing some strong LTV over CAC metrics at a cohort by cohort level and are seeing payback on CAC spend within six months. Based on this, we’ve continued to invest in new customer acquisition and up weighted our paid media spin to support customer retention by focusing on second and third order activation to drive the lifetime values.

As a result, within an increased share and orders from existing customers across the quarter, improved our retention metrics and witnessed a 4% increase in average order frequency by customers on the Farfetch marketplace versus Q1 2018. This level of investment continues to see ourselves up well for future growth and stronger order economics in future periods.

About half the reduction and order contribution margin year-on-year comes from the increased investment and demand generation. And the remainder from a reduction in gross profit margins as a result of our platform cost of sales growing faster than our platform fulfillment revenue and our platform services revenue. The latter a function of the reduced take rate.

As expected, we’ve continued to leverage our G&A expense, which is $62 million for Q1 2019, is 42% of adjusted revenue versus 50% in Q1 '18. G&A grew 20% year-on-year against the 42% of adjusted revenue growth. This reflects our ability to drive scale across the platform by benefiting from previous investment in our platform services, account management, customer service and corporate teams to deliver strong GMV growth from the existing resources.

We continue to make investments in technology with the Q1 P&L charge of technology spend growing in line with revenues year-on-year to $20 million. In addition, we incurred $19 million of capitalized product development costs. These reflect our investments into growing our product and engineering teams, that are delivering the platform developments critical to our success, including the integration of Farfetch on to JD.com's platform, building a new Harrods website, initiatives to enhance our database digital marketing demand generation capabilities and products to further enhance our customer engagement activities.

Adjusted EBITDA loss of Q1 of $30 million or negative 20.7% of adjusted revenues is in line with our expectations and reflects the reinvestment of efficiencies into growing the business. Of note, the low adjusted EBITDA is our Q1 share based payment charge of $39 million and Q1 depreciation and amortization charge of $14 million. The share based payment reflects two things. The quarterly charge of $18 million in relation to our stock-based compensation claims, including employee incentive awards following the Stadium Goods acquisition and the 2019 annual key contributor grounds as part of the Farfetch compensation plan, and $21 million of fair value remeasurement in relation to cash rewards and provision for associated employment-related taxes.

The step up in depreciation and amortization quarter-over-quarter to $14 million, reflects the increase in capitalized development costs in relation to the long-term infrastructure and assets we are developing. $2 million of amortization of acquired intangibles assets as well as a $4 million impact following the adoption of IFRS 16 on lease accounting. The results in loss after tax was $109.3 million and loss per share of $0.36.

Coming back to the impacts within the quarter as a result of the required implementation of IFRS 16, as I mentioned on the last call, this non-cash accounting change alters the treatment and presentation of our operating leases across the balance sheet, the P&L and the cash flow statement from January 1, 2019. It's important to note that our 2018 comparative information has not being restated. We now recognize the initial present value of the unavoidable future lease payments is right of use assets and future lease liabilities on our balance sheet.

You will see that as of March 31, 2019 we’ve reported right of use assets of $94 million and associated lease liabilities of $95 million. These amounts will now be depreciated over the remaining life of the leases. On the P&L, our operating losses and reported EPS are not materially impacted. However, the result of this accounting change is that adjusted EBITDA and adjusted EBITDA margins in 2019 will be more favorable than in 2018, all out to being equal. This is because we no longer record operating lease charges within our G&A expense, above adjusted EBITDA. But haven't still replaced these costs with the depreciation charge of broadly equal value, which sits below adjusted EBITDA.

As I’ve said, we have not restated the comparative figures. If we did restate the full-year 2018 P&L, $13.5 million of rent would move below adjusted EBITDA, making underlying adjusted EBITDA loss of $82.4 million and adjusted EBITDA margin negative 16.3%. For Q1 2018, adjusted EBITDA margin would have been negative 20.3% after $3 million of rent moves below adjusted EBITDA.

There's no impact to cash, but cash flow is associated with lease payments now form part of cash flows from financing activities, instead of being contained within cash flows from operating activities. Once you’ve digested all of these changes, you will see that they do not materially impact our economics, our financial position or the cash flows of our business. That has given my team something interesting to do over the last few months.

In terms of liquidity, we ended the quarter with $795 million in cash and cash equivalents, following the $150 million cash component of the Stadium Goods acquisition, which was completed in Q1. In terms of capital expenditure, as we think about our future business plans, we’ve decided to develop our own fit the purpose Farfetch compass. The bulk of that engineers and operation staff and our spiritual home of in the north of Portugal. In conjunction with these plans on April 8, we acquired 70,000 square meters of land at a greenfield site just north of the city for a total cost of $17 million. This new facility will be transformational for our portal based teams, bringing them together under one roof and allowing for future growth.

We believe these plans will deliver significant P&L benefits and positive net cash flow over the next 10 to 20 years and beyond. As part of positively Farfetch initiatives, we will be constructing the new facilities in accordance with lead standards, making our new home one of the most sustainable office developments in Europe. We expect an additional $5 million will be spent on preparing the site over the rest of 2019 before construction, which we expect to cost $70 million is completed in stages across 2020 to 2022.

Look ahead to Q2, then -- we are making good progress on the developments needed to add the full Stadium Goods catalogue to the Farfetch marketplace. And as José said, to launch Farfetch on JD, later in the quarter was the developments why have a material impact in Q2. The underlying momentum of the business is strong and a good response and with a good response from customers in relation to the new spring summer collection on offer. As such, we now expect Q2 platform GMV growth of 40% to 42% year-on-year. We expect currency will continue to depress Farfetch IOV for the quarter ahead.

At the adjusted EBITDA level, incorporating the effect of the P&L from Stadium Goods, strong G&A leverage, investment into technology and continuing to drive near-term customer investment, we are expecting an adjusted EBITDA loss in Q2 of negative 19% to 21% of adjusted revenues. While it's too early to be reflecting on the platform GMV position across H2, the higher than expected growth rates across the first half to be reflected in the full-year outlook for growth, which is now 41% year-on-year. Our full-year EBITDA margin guidance of negative 16% to 17% after the adjustments of course for IFRS 16 remains in place. Jose?

Jose Neves

Regard to Elliot. Wrapping up, the online luxury industry remains a fast growth opportunity. With the recent add of Rue Cambon pointing to a 20% average yearly growth through 2025. Farfetch has now established itself as one of the largest, if not the largest single destination in the in-season luxury market with over $1.5 billion in the last 12 months platform GMV and over $1.9 billion estimated in full-year 2019.

And in fact of that scale, keeps capturing market share from competitors at incredible pace. Our platform GMV growth of 44%, which adjusted for FX was approximately 50% is comfortably evolved our previous expectations and demonstrates the strength of our business and consumer offering.

In the last 18 months, Farfetch has executed several strategic partnerships and acquisitions, be it in markets such as China and the Middle East entering new categories such as the Stadium Goods, Innovation with Chanel or expanding supply for example by adding department stores. I would like to congratulate all Farfetcher's for what has been an impressive execution on the strategic initiatives. All of them either on track or growing faster than anticipated with a number of them poised to fuel our growth in 2020 and beyond.

We demonstrated our ability to studiously evaluate where to invest and then deliver on our plans both to investment, all while staying focused on the core marketplace business, which is reinforced by these new initiatives in a virtual flywheel. We are very pleased with our progress across our strategic initiatives. Whenever we see opportunities to execute on our long-term mission, either in promising markets or in strategic categories that remain intact by Farfetch.

We will continue to explore opportunities with potential partners. While we remain focused on executing on previous such moves as well as on our core business. We are building on our incredible foundation to go after the lion's share of the online portion of an industry that we believe over the next decade will grow to be worth more than $500 billion. Over the next 10 years, online penetration of the $500 billion industry is expected to grow from 10% to 25%. And this means we have the opportunity to go after an incremental $100 billion of sales in the online luxury markets. We accelerated our opportunities with the strategic actions we took over the past 18 months and will now executing forwards realizing them for 2020 and beyond.

Thank you. And with that, I would now like to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Ike Boruchow from Wells Fargo. Your line is open.

Ike Boruchow

Hey, good afternoon, everyone. Congrats. Great start to the year. I guess, two questions. One -- the first for Jose. I'd love to kind of hear more about the relationships with your top brands. It seems like more the luxury brands are talking more openly about joining the digital world, especially in the marketplace model. So you talked about expanding your depth of supply. So just kind of curious about your brand relationships today. And then, Elliot, I'd kind of just love to get your perspective on contribution margins knowing that you’re reinvesting into customer growth today. But where would you like to see contribution margins over the next year or two and how do you balance that against scale -- at some point, kind of scaling this business and the profitability? Thank you.

Jose Neves

Thank you, Ike. In terms of the brands relationships we are extremely, extremely pleased. We added over 100 brands to the marketplace. Now counting with over 400 brands directly and using our marketplace to reach consumers globally. And specifically the top brands, the super brands, as some times I call it in this industry, they obviously focused on direct-to-consumer channels, such as Farfetch and the link down effect. So we -- we're very pleased to report more than 160% growth into supply in value from these top 10 brands. So that’s definitely strength in helping these relationships. And what for me is more important is the strategic angle with which we see brands approaching the Farfetch marketplace. For example just with the launch of communities, we will have some of the larger trend in the industry really reach out to us, they’re excited about a new way of leveraging, storytelling and wanting to be part of it. So we will have some of this super brands into next few weeks joining the Farfetch communities effort. So this shows that they’re seeing Farfetch as a direct-to-consumer channel, obviously an amplifier of their of that storytelling, in terms of the global fashion consumer from China and Japan all the way to the Middle East and U.S. And that is from a strategic perspective very, very powerful. So we will continue to do everything we can to align our strategies with our brand partners.

Elliot Jordan

Hi, Ike. Just on the contribution [indiscernible]. I think it's probably best to look through the headline contribution margin and look at sort of underlying economics that are in behind. And we’re still seeing fantastically strong economics -- unparalleled economics performance really with $600 AOV, 30% take rate, the LTV over 6-month period is paying back. As we’ve been seeing, the Q3 2018 cohorts are absolutely paying back within the 6-month period since then and the Q4 '18 cohort over 3- months is looking being in the same place. So first and foremost, the customer cohorts are super strong. And as we talked about in the past, the key here really is to focused on retention and frequency of shop to help continue to boost that LTV and historically we’ve seen 3x out to be over CAG on a two year basis as we disclose with the IPO, we are seeing those trains continues since then. So, for me focusing on those economics is the key price, look at and what else we’ve got significant growth opportunities ahead of us and as Jose I just talked about there is strategic support partners that are being board on board. I think it's right for us to continue to invest upfront on -- acquiring those customers, investing and locking in those customers in terms of retention. And then, of course, bringing on the strategic brand. So right now, there's kind of mid 30%, so we were just over 30% in Q4 -- sorry, 35% -- just over 35% in Q4, 35% here in Q1. I mean this mid 30s is a good price to be in the short-term. Over the longer term very confident we will be on the right path to getting better to 60% long-term order contribution margin target. We talked about, over luxury quarters and of course that being ultimately drives the profitability of the business from then on. So right now investing not too worried about the margin. Obviously, getting the right balance between cash being delivered from revenues, so we can invest in the business. And continue to deploy that into technology. And then longer term, the margins will rise and deliver the profitability.

Operator

Your next question comes from Louise Singlehurst from Goldman Sachs. Your line is open.

Louise Singlehurst

Hi. Good afternoon, Jose, Elliot. Thank you for taking my questions. Elliot, first just on the AOV, thanks for the color on that so far. I wonder if you could just give us a little bit more help in understanding the impact of FX. Is there any kind of underlying promotional activity of, say, in Q1 the FX, and obviously you’ve hinted at these taking good dilution in there as well. And then just more structurally with the messaging around, customer engagement. Should we structurally be thinking of a lower AOV going forward, i.e., much more constant customer engagement and more frequent order going through the system? So it's much more about building that cumulative that you’ve often been talking about during the call today. And then, secondly I wonder if you could just talk about the revenue, the GMV guidance for this year. Obviously, approximately 40%, you’ve nudged it up to 41% there or thereabouts in the same magnitude. Is it more granular than we think in terms of the forecasting? Is there an FX assumption in there as well in terms of the movement there? And then finally just on Chanel progress there, can you just talk about the rollout for Chanel and you are able to use some big initiatives with Chanel further abroad in terms of other brands going forward, presumably there's a period of time where they’re exclusive. If you could talk about, that will be very helpful. Thank you.

Elliot Jordan

Sure. Hi, Louise. So just in terms of AOV, the 7% reduction year-on-year was pretty much all down to the translation of currency. So looking across the basket of currencies that we have in terms of customers been able to shop in the local currency. Sterling was down 6% or 7% versus the dollar, euro was 8% down quarter one versus this quarter one. Aussie dollar was down 9%, Rials was down 14%, ruble was down 14%. Across the board the U.S dollar has gotten so much stronger and that’s really just kind of flowing through to the reported number in terms of AOV, and that’s the main driver. There is a little bit of mix impact, not from Stadium Goods actually, though that’s why I split out AOV on the marketplace from Farfetch's marketplace from Stadium Goods. So $601 dollars doesn’t include what sold by Stadium Goods directly that’s in the $300 AOV number that I just talked about. But, of course, if this categories that are at a lower price point, childrenswear is a good example, good strong growth in childrenswear, that is bringing down the AOV mix effect. But there's more occupancy basket starting to compensate for that. So overall, the AOV is mostly currency. In terms of customer engagement, I think if customers are buying slightly smaller baskets, but buying more often, I think that’s a good thing. We've seen over Q1 results last Q1 very strong growth and now organic direct traffic, I think that’s being boosted by Farfetch Community. I think there's customers coming now to be inspired by Farfetch and if they comeback 7x and then buy, I’m very happy with that rather than going somewhere else. So that’s good to see. In terms of revenue guidance, so what I’ve done is taken the 44% growth across Q1. This is the 40% that I've previously guided and now 42% growth across Q2 versus the 40% previously guided. And that flow through the full-year number, and so the full-year number naturally moves up from 40% to 41%. For the second half, I’m leaving that 40% for the time being. I think it's too early to talk about Q3 and Q4. I prefer to talk about that when we speak again next quarter. And then as far as just coming back full circle to currency that depressed AOV, drives the depressed GMV, which things drives the constant currency number of 50%, that we just talked about. And I’m seeing currency the US dollar is continuing to be strong really across Q2 at least some of the currencies I’ve just talked about flow-through into Q3 with the U.S dollar being stronger. And then something like the Aussie dollar based on today’s spot rate, it could be the rest of the yea where we are seeing currency headwinds there because of the stronger dollar -- of the U.S dollar. So that’s a bit of a mix bag, but that where we land unfortunately. And on Chanel, Jose?

Jose Neves

Yes. Thanks, Louise, for the question around Chanel. This is a long-term play for

Chanel and for Farfetch. It's also an exclusive relationship for the time being. We’ve lost a pilot, and Chanel is very happy with it. So we and obviously as you look at fact, following these there will be a gradual rollout to other countries and then our global geographies over the years. Absolutely, both exclusivity, the technology we are developing which we are developing, that’s the thing we do as a true platform. So multi tenant, we’ve the ability to be customized and adapted to different maisons and their needs. It has always been the intension to [indiscernible] service of different tiring industry. And not just brands, but also department stores, boutiques, large scale retailers and we’ve had in fact lots of inbound interest and people asking it. So long-term play, I think we believe there is absolutely going to be a conversion of [indiscernible] and digital retail. And this in the long-term expands the Farfetch TAM to the full $500 billion that this industry is going to move in the next 10 years. And we -- as we are extremely excited that we are now servicing real customers in real shops and not just shops that the Chanel boutique and in that spiritual home and as you can borrow with real fashion assistance. So it's extremely heightened and very, very proud of the team.

Elliot Jordan

Louis, I should clarify, that Q2 guidance of course is 40 to 42% which is what flowing through the full-year number.

Operator

Your next question comes from John Blackledge from Cowen. Your line is open.

John Blackledge

Great. Thanks. A couple of questions. Could you discuss the GMV growth across kind of the main geos, America, EMEA, and APAC. Any further color on China? The growth there and perhaps kind of your expectations for consumer spending in the second quarter and the rest of the year? And then just on the CAG rate, probably maybe how do you see that trending over the rest of the year and then our time I think you said kind of a 30% take rate over the long-term. Just given the mix of Stadium Goods, should we expect that to be a bit lower as we go along here .Thank you.

Jose Neves

Hi, John. Just a bit of color on the sort of demand by region. It's been pretty solid across all the three major regions that we provided information on so, EMEA, APAC and the Americas. What's interesting is that Europe, Middle East and Africa is the biggest of those three being pushed along by Middle East, which is fantastic to see that partnership that we started with Chalhoub Group last year really starting to drive a lot of the growth in that region. And then, within the Americas, North America, the U.S is being particularly strong over the quarter and then inside Asia, I will let, Jose, talk maybe a little bit more about China more broadly. But Mainland China is very much driving the Asia-Pacific segment. So very pleased with growth across all of that markets. That's the beauty of Farfetch is that we our operating in a number of different markets and seeing good growth across those markets. I'll let Jose come back to China more broadly. On take rate I have talked in the past about a range of 29% to 32% relatively volatile within that range in the short-term. So you have seen last quarter was closely to 32%, this quarter its 30%. I'm expecting short-term that 29% to 32% range to be the guardrails. And then as you say, settling down at 30% over the longer term as we start offering on some of the higher margin businesses within Farfetch Platform Solutions that drive really good take rate and then of course offset some of the larger brands with strategic take rate that maybe slightly lower than that range. But still very confident on 29% to 32% short-term and 30% long-term.

Operator

Your next question comes from Eric Sheridan from UBS. Your line is open.

Eric Sheridan

Thanks so much for taking the question. Two if I can. On macro, and as you look region by region, was there any rules where you saw your consumer should outperforming or underperforming versus expectations we are kind of get that question a lot from investors for further granularity in a region by region basis. And turning to Access, what should we expect the output from the investment in Access to be? Is it greater retention, higher-order velocity? How are you thinking about what the return on Access will be in terms of what it will do for your consumer behavior as you look out over the long-term? Thanks everyone.

Jose Neves

Hi, Eric. So on macro I think obviously lots of conversation going on publicly in the market and media about U.S China tariff and all of that. And I think from trade perspective, 90% of our sales in China are coming from Europe. Then there are other markets that are also not affected by these like Middle East supply going to China, Austrian supply going to China, so U.S is really a tiny fraction of our supply into China. And from China to the U.S is zero literally. So we have domestic supply in China, but that is just for the domestic market in Mainland China. So from a pure trading perspective immaterial exposure I would say and then I believe -- I personally believe that it's a very resilient market and that remain. And there are two secular trends. One is the migration of off-line, online in China very low penetration of luxury online at the moment. And then the other secular trend is millennials and generations that as a huge and new cohort in luxury, in particular in China. And obviously we discuss some of that are digital first. I think those tailwinds are far, far stronger in our industry and in our business model than any macro win. So I remain a very, very confident on China. On Access, what we have seen in the pilots, so we have A/B tested it in Q2, Q3 last year in some markets. And what we have seen and that you can see sense what we have seen now that we have rolled out to present the public customers and if that engagement of customers goes up, so the times they return to the site or the app and the time and the frequency of shop goes up as well as the basket. So very, very strong results which make is very confident that we should continue to enhance in the program and in the benefit that we passed through the Access customers and we will see in the medium to long-term strong return on investment on those investments we are making today.

Operator

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

Jason Helfstein

Thanks. One on the fulfillment side, maybe talk about long-term strategy around, I guess that 90 minute and how close ultimately do you want have inventory move to the customers and then obviously how that plays into the relationship with the bigger retailers? And then, secondly, can you talk about Stadium Goods as far as the resale business versus kind of working with brands like Nike and Adidas who may not necessarily be on your platform today, but can open up a much bigger market and the price point even at the kind of more expensive items they sell. Is that he ultimately lead to a new kind of vertical for you, right? The $175 sneaker and bring those customers on your platform. Thanks.

Elliot Jordan

Yes. So I think on fulfillment by Farfetch we are very, very excited about our capabilities of keeping third-party logistics. So typically we're not fielding warehouses and we're not having fulfillment staff. We're partnering with great three PL businesses. So for example in China it's on top of the JD Luxury logistics. And then we essentially keep those 3PL warehouses with our software, with our operations, and that is extremely scalable and that's why we now have more warehouses scattered around the world than any of our competitors. And that will continue to be the case, and we will continue to roll out depending on the demand that we have in each city. What's great about fulfillment is that it enables an increasing level of service to customers, so faster delivery. Farfetch sometimes people don't realize, but we have a unique model that already offer same-day delivery in 19 global cities. It is something that you don't see often in e-commerce in general and I think it's fine tuned in the online luxury space. With fulfillment by Farfetch a can do extra services such as consolidation of orders from different merchants and obviously save costs because with 90% of the orders crossing the border, if our data scientists can predict when the orders are going to be we can ask our European supplier for example to have the product and already closer to the customer, be it in China or LA or New York or wherever we may open in the future. So advantage is all around for consumers, for fulfillment costs on the Farfetch side. But also remove friction from the growth of supply as our sellers, as you can see were growing over 40% and 44% in terms of GMV, 50% at constant rates, as this fast growth could create some pressure in terms of fulfillment for our sellers, that is then completely removed by fulfillment by Farfetch where they can use our warehouses tool to expand the fulfillment capability. So I think it is going to be really important for future growth. And on Stadium Goods, absolutely we are very, very excited. We -- just to be clear we have over 700 boutiques and many of them they add Tier 0, Tier 1 boutiques for Nike and Adidas shops. So when do you sneak a company, if they have the collaborations etcetera. Many of our boutiques including Browns are part of that network of premium drops. So we do have access to the first hand new products flowing into our customers that’s what gave us confidence that is what an incredible category. Obviously, some of these products they completely run out of stock in minutes as you know. And then resold at a multiple to the original RRP and in that space Stadium Goods is the luxury company. In the sneaker refill category and a very, very cool brand for sneaker heads. So that's what we are excited about is serving the sneaker head community with the drops and when they are not fast enough with their clicks, then coming back to them with the Stadium Goods offering.

Operator

Your next question comes from the line of Doug Anmuth from JPMorgan. Your line is open.

Cory Carpenter

Hi. This is Cory Carpenter on for Doug. Two questions, if I may. This following up on the resale market in addition to Stadium Goods, you recently announced second live pilot. Could you talk about your broader ambitions, opportunities in resale across new different categories? And then on the platform business, it seems like this has been a good in road for relationship with clients. So could you talk about how you think about the platform opportunity longer-term and is the ultimate goal to move these partners onto the marketplace, or is this a business in and of itself that we could see scale meaningfully? Thank you.

Jose Neves

Hi. So on the resale category, yes, sneakers category where we are going to invest and aggressively post-acquisition with Stadium Goods. We think it's the most premium brand in the space. It has huge international potential. In China, in particular, but in other territories such as Europe, hence the collaboration with Brown in London, where we're going to launch first time in the physical presence of Stadium Goods in Europe and Japan and other countries. More broadly in terms of resale, we have had vintage which is essentially resale in our portfolio for a number of years, quite successfully and what we have done is expanded our model which was until now essentially vetting the best, most luxurious vintage boutiques from around the world -- and in fact, I met sellers on our marketplace -- expanded to our customers. And this was really a sustainability angle. We had many customers in our studies, in our research around sustainability. One of the main concerns is the life cycle of products and the circular economy. So we thought it was really interesting to start experimenting. We've providing our customers with an ability to trade in their products and to Farfetch and obviously helped that circular economy in terms of our sustainability credentials. So it's something that we are monitoring. It's not -- we are not making any predictions of statements in terms of its potential, but we are certainly monitoring and let's see how -- what consumer recession we get on this.

Operator

Your next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.

Kunal Madhukar

Thanks for taking the questions. This is Kunal for Lloyd. Question on China, trying to understand or frame the time and how that is changing with the acquisition of Toplife. Wonder to understand one, where you're in terms of revenue and one of the things you pointed out earlier in this call is that China is the second-largest market behind the U.S. so that's probably with WeChat integration that you have. How does that change with the JD Toplife acquisition? And what does the comparative landscape right now especially in terms of the brands having a direct presence within China?

Jose Neves

Yes, thank you for touching on the topic. I think China remains an absolutely strategic priority for all the brands in the industry. It is the fastest growing luxury goods market accounting, I believe for something like 85% of the of the growth in the industry last year. And as such, brands know that they need to crack China and they need to crack China digitally. As we all know, the Chinese consumer that has actually [indiscernible] in terms of digital payments and mobile payments is well ahead of the West. So the question here is how can we help brands crack China and this is what we've been investing very, very intensively in the past four years. So we currently have data centre and completely connected and enacted to architecture. Two all that were our infrastructure and globally and we have a local engineering team, local data science team, product management team, 300 in fact in three offices in Shanghai Beijing and Hong Kong with an unrivalled logistics capabilities able to both cross border in a record lead times consistently and also domestic delivery. We've acquired CuriosityChina which is powering. The WeChat channel for 80 luxury brands and of course the marketplace and now the new Toplife channel. So I think this is a 360 degree Gateway to China and the beauty of it is that it's a turnkey solution. So once you have one integration with Farfetch, you are live in China. So that's the case for the 3000 brands we have on the marketplace. They are now able to The Chinese customer directly through Farfetch. And very, very shortly sharply through our exclusive luxury channel on JV which I think these are exciting.

Operator

Your next question comes from the line of Stephen Ju from Credit Suisse. Your line is open.

Stephen Ju

Great. Thank you. So as you say, given us more color on your Middle Eastern operations, the behavior of the consumers there, where the AOVs and order velocities and the rate of returns and all that stuff may lie and adjustments you may have to have made in order to take down friction in the region. And digging a little bit deeper into the China opportunity do you anticipate any sort of logistics related investments that you might have to make in the region or JD be handling most not all of that for you? Thanks.

Elliot Jordan

So in terms of the Middle East customer, it's -- we are very, very excited. It's a very -- it's a young customer, but with actually a higher AOV compared with the average. Very, very sophisticated as we all know. And it is however and if you [indiscernible] huge opportunity, a market where online penetration of luxury is very low. So customers while shopping in malls. As we all know, the Dubai mall is the largest, most luxurious mall in the world, so there is a strong mall culture. But there hasn't been a strong focus from our main competitors in localizing, in the complete and thorough way for these markets. And this is not just UAE. We're talking about Saudi Arabia, obviously all the other countries in the Gulf as well. So what we have done through the partnership with Chalhoub was obviously Farfetch higher, an amazing team. It's all about people, so the team we have on the ground is absolutely with talent. And then start a heavy program of localization with obviously Arabic language and a number of features on both the website and app, which make these an incredible experience for the local customer. We also have a local private client which is our VIP team. As we all know they’re high -- they are at high standards in the territory it's important to have this incredible level of attention to detail for these customers. So we think we are only scratching the surface, but we are seeing already very strong results. So your question around logistics in China we are not planning any CapEx. So we do this in partnership with logistics companies. Obviously, JD being shareholder and a partner in the territory, we will be leveraging, they’re incredible logistics capabilities into territory. And we've [technical difficulty] to enable integrated customs clearance in record time, so we now have a very consistent cross border delivery service in China. And what is I think very unique, and the fulfillment my Farfetch,. Warehouse in Shanghai where brands can consign with us and we will take care of the rest, which our brands is an incredible event. So obviously we are going to continue to double down on our customer experience in China along those lines.

Operator

We have time for one more question. The final question will come from Ella Ji from China Renaissance. Your line is open.

Ella Ji

Great. Thank you so much for taking my questions. I have two. First it's also about the China opportunities. You mentioned that you will participate in JD's June 18 anniversary sales event, which is great. Shall we expect that you will launch on JD on all its 300 million users or is it going to be a gradual step-by-step launch to its users? And then how should we think about the user behavior in China. For example, the average order size or the order frequency things like that could you just give us some more color? Second question is relating to your active customers which had a great net add this quarter. Could you just provide more color what are the main drivers, who are the new consumers that sign up to your platforms? And what are the main reasons that you think that at least to this much higher acceleration of user growth? Thank you very much.

Jose Neves

Hi. Thank you. So the JD channel essentially is a level one button. So Farfetch will have a level one button. Plus, obviously, all the JD app users if they’re searching for a particular brand that we have, we will be available to the entire population of users, all the 300 million users. The level one button we have requested with JD to be shown to customers that the data science engines that JD has have high propensity to buy luxury. So we want to elevate the channel, obviously, very mindful of the positioning of our brands and in the industry. And we thought it will be the most powerful solution. So absolutely available to all 300 million users with a button visible to when that we know likely to be luxury and shoppers. Our Chinese consumers very sophisticated and actually the AOV is higher in China. The age is younger, which is really interesting. So last time I checked, I believe, around 29 years old on average, so we are appealing to -- we are clearly on the millennial and even generation Z cohort of customers. And this is incredibly powerful, because this is exactly the customers that brands must capture, and so I’m very happy that we -- we're being seen by our brand partners as a great media channel and obviously sales channel to penetrate the new Chinese luxury customer.

Elliot Jordan

Hi, Ella. Just in terms of active customer numbers, so the numbers now the 1.7 million. This is the 1.4 million last quarter and now includes Stadium Goods, obviously. So that explains part of the step up, but if we were to strip that out, actually we have seen very strong new customer growth as I was saying earlier on with the economics and really strong place. We’ve leaned into -- continue to grow the customer number that actually what has help drive the boost within Farfetcher is lift dropouts from previous cohorts. So we’ve been able to retain customers in great numbers than we’ve previous quarters. So that help drive the net new customer up. And you can kind of [indiscernible] over -- I gave you the little nugget that we had an average order frequency increase of 4% Q1 this year over Q1 last year. And so, you can sort of see that the customer numbers on an underlying basis grown to a very strong place. I’m very pleased to say by cohorts on the payback and the LTV that we're expecting over the customers that we added. So, yes, good place.

Operator

There are no further questions at this time. I turn the call back over to the presenters.

Alice Ryder

Great. Thank you so much for joining us today. We look forward to speaking to you next quarter.

Operator

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