Farfetch acquires Off-White owner New Guards, Q2 revenue soars

We were all ready to write up Farfetch’s Q2 results late on Thursday when the company did what it often does, trumped its own hot results news with some even more sizzling news. And what was it this time? It’s buying Off-White owner New Guards Group for $675m in cash and Farfetch shares.


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The luxury retailer said the move “advances its strategy to be the global technology platform for the luxury fashion industry”.

It "adds a ‘brand platform’ layer to Farfetch’s existing technology, data and logistics platform layers, extending capabilities beyond technology solutions and global distribution into design, production and brand development.”

We’re also told it uniquely positions the firm “to leverage its global consumer base, large boutique network, significant data insights and now expert design capabilities to power the Brands of the Future.”

New Guards isn’t only about Off-White, of course, as it holds exclusive licenses for Palm Angels, Marcelo Burlon County of Milan, Heron Preston, Alanui, Unravel Project and Kirin Peggy Gou. It has made a massive impact in recent years with a track record of identifying and nurturing some of the most talked about emerging brands, designers and creative directors. And it “provides the resources and expertise to transform [such] early stage brands into profitable, high growth businesses, driving rapid, profitable growth for New Guards itself.”

Farfetch said the buy underscores its own commitment to making strategic investments in assets that enhance and accelerate its existing strategy and it thinks the transaction “will create significant value for shareholders, and deliver meaningful benefits to consumers, designers, retailers and manufacturers.”

SUCCESS STORY


At its simplest level, the purchase means Farfetch has bought a major success story. Off-White is already one of the top 10 most popular brands for Farfetch in terms of Gross Merchandise Value. And the New Guards portfolio delivered revenue for the 12 months to April 30 of $345m, with profits before tax of $95m in the same period. Its revenue grew 59% in H1.

The acquisition now provides the opportunity to develop and introduce other brands the new owner hopes will prove just as popular, along with exclusive capsule collections and collaborations “to further enrich the consumer experience and boost consumer engagement with the Farfetch brand.”

Farfetch plans to open new e-concessions on its Marketplace, and will power each brand’s own e-commerce site and digital platforms through its Farfetch Platform Solutions capabilities.

It also said the deal promotes additional alignment with boutique sellers via a new model of “connected wholesale”. It will leverage its existing tech, data and logistics infrastructure “to tap into near-real-time supply and demand data to match New Guards’ production in a much quicker cycle. This model will create meaningful productivity gains by minimising overstock and strengthening distribution, which should also reduce the need for markdowns.”

Farfetch CEO and Co-Chair José Neves said: “The addition of New Guards’ brand platform brings a creative and industrial dimension to our suite of capabilities which, combined with our community of more than 650 boutiques, enables us to power and promote both new and existing creative names in the luxury industry.”

EXECUTIVE CHANGES AND RESULTS

And the company’s results? Well, before we get to those, there was more news with Andrew Robb set to step down from his long-term COO role in six months’ time. And Farfetch also said that with the New Guards buy, it’s bringing responsibility for its brand, customers and consumer product under a new role – Chief Customer Officer, which will be filled by Stephanie Phair, its current Chief Strategy Officer.

Now for the results. The news news here wasn’t quite as spectacular as all the above because its losses in Q2 widened, although record Gross Merchandise Value (GMV) of $488m (up 44%) and record revenue of $209m (up 46%) were certainly figures to boast about. The growth came as it saw its active consumer numbers rising 56%.

Neves said: “Our unmatched proposition for luxury consumers drove growth beyond not only our expectations, but also the growth of the online personal luxury goods industry, as we continued to gain market share.” And he reiterated the plan “to take the lion’s share of the $100bn growth expected in the online luxury industry.”

But of course, the growth comes at a price and the company is investing heavily in driving its expansion, which means profits remain elusive. 
Its net loss in Q2 was $89.6m, up from $17.6m a year earlier. The adjusted Ebitda loss was $37.5m, worse than the prior year’s $25.4m deficit.

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