Farfetch Limited

Good afternoon. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch second quarter 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during the question and answer session, please press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. 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.

Hello, and welcome to Farfetch's second quarter 2021 conference call. Joining me today to discuss our results are Jose Neves, our founder, chairman, and chief executive officer, Elliot Jordan, our chief financial officer, and Stephanie Fair, our Chief Customer Officer. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the risk factors section of our Form 20F filed with the SEC on March 4th, 2021. 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 farfetchedinvestors.com. And now I'd like to turn the call over to Jose.

Thank you, Alice, and thank you all for joining us today. I'm delighted to speak with you about our results in Q2, which is the first quarter that fully lapsed the effects of store closures and travel restrictions brought on by the COVID-19 pandemic. Reflecting on the past year, I am very enthused by the extraordinary resilience of the luxury industry. Overall, luxury is seeing very strong demand, with many brands reporting sales in excess of their pre-pandemic levels. It suggests the industry is returning to a secular growth trend, which is even more remarkable given the restrictions that still remain in place globally. During the past year, the industry has also taken the opportunity to rebalance an overexposure to the wholesale channel towards curtailing promotional and markdown activity. And I take pride in the fact that Farfetch actively partners with brands to enable their migration to direct-to-consumer channels for greater control over their online sales, including with respect to pricing. Finally, I am tremendously excited by our significant market share capture on the most relevant two-year stack period where our digital platform, GMV, increased by nearly 90%. In fact, this 90% increase is the key highlight of our performance this quarter, where we delivered 40% year-on-year growth, along with more efficient demand generation and higher adjusted EBITDA profitability, which in itself is a reason to celebrate. This, in combination with another key result this quarter, demonstrates significant strength. Full-price sales on our marketplace grew 90% year-on-year, which allowed us to shrink the markdown activity in our business by double digits and still achieve our growth targets despite the reopening of physical stores. And on the two-year basis, full-price sales grew 140%. The reason why this is so important is that going forward, these stronger full-price customer cohorts, which have grown on the two-year stack at incredible pace, will underlie our future growth. On the back of strong performance by the marketplace, as well as our other business units across the group, Q2 GMV grew 40% year-on-year, exceeding $1 billion for the second time in the past three quarters, and more than doubling as compared to Q2 2019. This month, we also marked the second anniversary of our new gas acquisition. One of the core strategies behind the transaction was to create a pipeline of original content and exclusive collabs that would drive buzz and a significant halo effect to increase the engagement of our global customers around the 5H brand and ultimately drive more organic traffic. I'm pleased to say we have succeeded in spades. Newgas has propelled brands like Off-White and Palm Angels to become top 10 brands on the marketplace by GMV and Q2. And these brands' collabs draw customers to the Farfetch platform with little to no marketing expense. The strong momentum behind Newgas brands is also evident in the acceleration of hype-generating capsules they are producing. Recent collabs have included Off-White Lemonade Nike Air Force Ones, Palm Angels collabs with Missoni and Tim Wang, and Ambushes collabs with Nike Dunks, Gentle Monster Eyewear, and even a first-ever redesign of a Moet & Chandon champagne bottle. Off-White is going from strength to strength, driving continued growth on the back of brand-elevating collections and expanding categories. And given that Palm Angels is demonstrating a similar growth rate to Off-White at a similar stage of development, we are thrilled to have recently increased our investment in Palm Angels to now have full ownership of the Palm Angels operating company and a majority interest in its brand entity. Looking forward, we see tremendous opportunity for continued growth from new guards. We plan to rent Collabs and have more than 50 in total planned for 2021. We will also look to continue expanding our brands into new categories such as Beauty to enlarge our distribution with preferences on Tmall. and further enhance the shopping experiences by digitally connecting our directly operated stores via our luxury new retail or L&R capabilities. We also have plans to launch and grow many more brands, including the first brand jointly created by Passage and Newbats called There Was One, due to launch later this quarter. Born from our marketplace data insights, There was one is a sustainable line of luxury wardrobe classics, designed initially for women and offering a high quality to price ratio, which will be exclusively offered on the Farfetch digital platform. Finally, I'd also like to update you on our 2021 strategic pillars, which I'm pleased to share are all progressing extremely well. Starting with brand partnerships. Our execution on prioritizing full price and reducing promotions over the last two years has led to strong alignment with industry players, and our relationships have never been better. Top 10 third-party e-concession brands expanded available stock units more than 70% year-over-year and saw a more than doubling of sales over the same period. Our commercial relationships have also matured to a level where we are now seen as an essential strategic partner who provides valuable insights. As a result, now that brands are beginning to re-engage in advertising after taking a hiatus during the pandemic, they are also engaging in opportunities to tap into our large pure play luxury audience to achieve their marketing objectives. This has translated into our highest ever quarter of media solutions revenue in Q2, which Stephanie will discuss in more detail. Moving to L&R and FPS. We continue to have conversations with multiple large enterprise customers on a broad spectrum of capabilities from global e-commerce, to Logistics as a Service and L&R, among others, and continue to see existing partners take on additional FTS services. We have also made strides in cementing our connected retail strategy, where we have already equipped Chanel and our Brown's boutiques with our Retail Star technologies. Just this week, we also kicked off an exciting pilot of our newest solution, which expands the capabilities we have implemented in our own round store to our community of third-party retailers on the marketplace, our largest platform tenant. Farfetch Connected Retail will leverage the Farfetch app to act as an interface between our 3 million plus marketplace consumers and participating Farfetch retail partners around the world. Using our Farfetch app, consumers will be able to be notified if their wishlist item is available for try-on or purchase in a nearby store, identify themselves as a Farfetch customer when shopping at pattern boutiques, and pay for their purchases via our app, among other functionalities. On the other hand, boutiques will be able to use the app to deliver a more personalized and interactive service to Farfetch consumers, both in-store and remotely, while benefiting from the incremental food traffic Farfetch can deliver from our large luxury consumer base, which is even more crucial in the post-pandemic environment. And while we are initially rolling this out with retailers, we also have plans to extend this solution to brands to drive Farfetch consumers to flagship stores they would connect to our marketplaces. moving to China. In Q2, our China team continued to drive strong performance as GMV growth accelerated and continues to grow faster than the overall marketplace. The fashion authority we have built among high-end luxury consumers in China has drawn brands to see Farfetch as a media partner in China as well as globally. We have engaged our private clients in experiences with brands such as Burberry and created localized and culturally relevant content and campaigns for Loro Piana and Armani Beauty, to name a few. And we're thrilled to expand our relationship with Harrods, who recently signed a multi-year partnership with Curiosity China, focused on enhancing their marketing strategy in China and powering their communications with consumers across multiple channels, online and offline. I believe these are early signs that Tri-Fresh China will not only be a unique BTC channel for many luxury brands, that it will also be a very powerful marketing vehicle in this crucial market. This once again demonstrates the unique strengths and capabilities we have in that market. Q2 was also our first full-quarter operating hour storefront on T-Mobile's luxury pavilion, TLP, and we are very pleased by the month-over-month growth we have achieved. we continue to hone our learnings on the Tmall platform and improve our merchandising strategies. This has contributed to strong customer engagement across our very differentiated range of available luxury brands on TLP, 90% of which are exclusive to Farfetch on Tmall, as well as to building affinity for the Farfetch brand as our Tmall fan base grew to 250,000 followers. we continue to remain very excited about serving the luxury shopping demands of Chinese consumers. Our unrivaled brand partnerships and global supply position as well, particularly in light of recent guidance, which indicates travel restrictions may continue for another year, which we believe will further drive the perpetuation of luxury demand within China. I'll now let Stephanie update you on the remaining two strategic pillars. Stephanie.