Farfetch Limited (FTCH) Q1 2021 Earnings Call Transcript

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Farfetch Limited (FTCH 1.03%)
Q1 2021 Earnings Call
May 13, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Farfetch First Quarter 2021 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'll now turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.

Alice Ryder -- Vice President, Investor Relations

Hello, and welcome to Farfetch's first 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 Phair, our Chief Customer Officer.

Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them.

For a discussion of some of the important risk factors that could cause actual results to differ, please see the risk factors sections of our Form 20-F filed with the SEC on March 4, 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 farfetchinvestors.com.

And now, I'd like to turn the call over to Jose.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Thank you, Alice, and thank you all for joining us today. I am very pleased to report that the strong momentum we had exiting 2020 has accelerated into 2021 with a significant boost in both Digital Platform and Group GMV growth.

In Q1, Group GMV grew 50% year-on-year with Digital Platform GMV growing 60% to exceed our previously provided guidance. Based on the continued strong performance to date, we have also upgraded our full-year 2021 outlook to expect higher Digital Platform GMV growth and reiterated our expectation for positive adjusted EBITDA for the year.

We believe the strong momentum in our business is a reflection on the paradigm shift we had helped to drive over the past year, where we have seen accelerated online adoption by luxury consumers and digitization by luxury brands and retailers. We expect this will be sustained and continue to progress, which is why we are continuing to invest behind our proposition as a digital enabler for the entire global luxury industry.

As mentioned last quarter, we are focusing our 2021 strategic roadmap across five major themes of our Chapter 2 strategy. I will update you on our progress across the first three, strengthening our luxury partnerships, China and the Luxury New Retail or LNR platform. And I'll let Stephanie update you on the remaining two, the Farfetch brand and unrivaled global customer experience.

Starting with our luxury partnerships. We continued to build on our highly strategic relationships with our nearly 1,400 luxury brands and retailers. They are increasingly seeing Farfetch as a key partner, as evidenced by the fact that total listings on the marketplace accelerated to a record number of stock units in Q1, and they're selling faster.

Q1 GMV growth for our boutiques and for our brands each in aggregate, were both the highest since 2018. In fact, our top 20 e-concession brands enjoyed more than 150% year-on-year growth on average of high-margin direct-to-consumer sales during the quarter.

As a digital enabler, we are also continuing to advance enterprise solutions to support our luxury patterns. This includes our Farfetch Platform Solutions or FPS services, which powers more than 50% growth on average in Q1 in the brand.com e-commerce channels of our more mature FPS clients, those who have been on FPS for at least one year.

Last quarter, we also announced FPS' launch of e-concessions as a service, which enables brands to shift more of their distribution from wholesale to direct-to-consumer and allows multi-brand retailers to access a deeper and broader selection of concession supply in real time. Following the successful launch of Burberry's e-concession on Harrods.com in Q4 2020, we were delighted to further expand our e-concessions as a service on Harrods to also include Brunello Cucinelli and Zegna. With more and more brands actively prioritizing direct-to-consumer channels, we believe our unique e-concession solutions will enable this transformation, not only on the Farfetch Marketplace, but also by facilitating e-concessions for the broader industry.

Turning to China. We remain laser focused on continuing to build on our successes in this market. Our localized operations enabled us to attract valuable Chinese customers across a broad base of channels, where we engage luxury fashion consumers with our global supply from the best brands in luxury via our app, website and social commerce channels, such as WeChat, and demonstrate our fashion authority across our content, services and for our private clients via local stylists who engage with our clients on the latest fashion trends and provide access to exclusive products and events.

This robust proposition underpins our strong performance in Mainland China, which continues to grow faster than both the U.S., our largest market, and the overall marketplace in Q1. The fact that we have continued to deliver outsized growth in China, where consumers have heavy option of shopping in physical retail stores since spring 2020 when lockdown restrictions were lifted, further highlights the appeal of our services and offerings for luxury consumers and also demonstrates the sustained paradigm shift we have witnessed across the luxury industry.

On the back of our success in building a thriving China business, we were thrilled to boost our presence in this critical market with the launch of our storefront on Tmall's Luxury Pavilion, TLP, in March. I'd like to update you on the very early indications we're seeing from these exciting initiatives. For us, the Tmall opportunities are multifaceted partnerships with two key objectives being, one, boosting the Farfetch brand awareness in China by reaching a much wider audience, and two, driving incremental sales.

In terms of the first objective, we are very infused by the positive reaction from Chinese customers to our unique offering of more than 3,000 brands, almost 90% of which were not previously available on Tmall and which they now associate with Farfetch. What we have seen in the initial weeks is an opportunity that seems to be very complementary to our other channels in China.

Tmall customers have been particularly excited about these new brands and we were positively surprised when we saw that eight of the top 10 selling brands on our Tmall store have smaller brands that rank much lower on the Farfetch Marketplace. This is highly validating as it demonstrates that Farfetch's unique selling proposition of bringing an unrivaled global supply directly to the Chinese customer resonates with the wider public in China.

We are also very excited about the demographics of the Tmall audience with initial indications of incrementality to be gained from attracting more female luxury enthusiast customer base that is more regionally diverse across Tier 1, 2 and 3 cities than our core Farfetch China customers. Tmall also arranges numerous marketing events on this platform, our storefront launch during Tmall's International Women's Day event and we kicked off 300-degree marketing campaign to promote our brands with Tmall consumers. As a result, we have seen as many visitors to our Tmall store as we had to our China app, and gained 150,000 storefront fans in the first two months.

In terms of our objective to drive sales, we are building momentum and are very pleased to already see sales that are multiples of the comparable results from our launch on JV. As we continue to build our data pool and gain experience navigating the Tmall app[Phonetic] system and leveraging their marketing engine, we expected to become a meaningful channel for our China business in 2022 and beyond.

Overall, we are thrilled to have this fantastic opportunity for the Farfetch brands, with Farfetch representing one of only five [Indecipherable] on the TLP home screen, while also operating a dedicated storefront offering rich luxury fashion content within Tmall to entice luxury consumers to continue engaging with Farfetch whether on Tmall or directly on the Farfetch China app.

On to platform and Luxury New Retail or LNR, where we have also made significant progress. LNR represents our vision of delivering a global presence for brands and retailers by virtually unifying their customers' interactions across all channels, both on and offline.

With one single integration, the LNR offering enables luxury brands and retailers to leverage our full suite of FPS enterprise solutions, along with the Farfetch Marketplace and Tmall's Luxury Pavilion, all of which can be integrated with their own mono-brand online destinations, and FPS powers connected retail stores to achieve a full 360-degree view of the customer and to deliver a hyper-personalized and seamless journey for the luxury customer across all channels. LNR is a massive opportunity.

To transform the retail experience for the nearly $300 billion global luxury industry, just last week we hosted an event showcasing our LNR suite of technology solutions for more than 100 top executives of brands and retailers, which was met with great reaction. These solutions are also enabling the shopping journey as our new Browns Brook Street location where customers have also been very enthusiastic about the experience.

Finally, I'm also really pleased to see the incredible momentum of our vision being embraced by partners around the world. Upon this front, I would like to announce the following. In Monaco, a third CHANEL boutique went live with our LNR connected retail solutions earlier this month. In Doha, Qatar, I'm pleased to announce we have signed luxury department store and current Farfetch Marketplace seller, Printemps, to help design the in-store technology and connected retail experience for their new 300,000 square foot flagship. In Brazil, I can confirm we will be partnering with Cidade Matarazzo complex in development in the heart of Sao Paolo to implement our Connected Retail solution to create a technologically advanced luxury experience across the complex's entire 300,000 square foot retail village.

Finally, in China, I'd like to share an update on further LNR opportunities we will be exploring with our partner Alibaba. On the heels of our launch on Tmall's Luxury Pavilion, we have accelerated discussions and plan to launch a giant retail innovation lab in China to operate as an extension of the Alibaba and Farfetch LNR innovation teams. We have also decided to launch a physical luxury retail concept store in China to showcase the LNR retail experience.

I am tremendously excited that our Luxury New Retail vision is gaining traction and that luxury brands around the world are joining us in bringing to bear the latest technologies to revolutionize and personalize the customer journey.

I will now let Stephanie update you on the remaining two strategic pillars.

Stephanie Phair -- Chief Customer Officer

Thank you, Jose. Hello, everyone. I'm pleased to share an update for Q1 on our Chapter 2 customer initiatives captured under our brand and unrivaled customer experience pillars, which are aimed at growing and retaining our base of 3.3 million active consumers.

On the brands pillar, first, I believe that building brand goes way beyond investing in brand campaigns or more visible examples, such as our rebrand last year. It requires a fundamental change in mindset and ways of working where the organization needs to reflect the end-to-end customer journey. Along the way, we have brought teams together, hired in expertise to bring a more integrated view of marketing, and we have worked even more closely with the commercial teams to align our supply and demand while emphasizing Farfetch's unique proposition.

This was also enabled by a companywide program called creating customer culture, which aims to give every Farfetcher regardless of their department with a deep knowledge and understanding of our luxury customer and their preferences, ensuring that these pillars are truly woven into the fabric of the business. That said, brand campaigns are an important element and we have built on the successes of our new brand identity and full funnel brand marketing campaign introduced in 2020 with the launch of our second brand campaign in four key luxury markets.

The message highlights our global boutique offering, which is a key differentiator for Farfetch and one that extends our # SupportBoutiques movement initiated at the start of the pandemic a year ago. Brand building takes time and we look at a basket of measures to track our progress. Recent indications from our initial brand campaign last year open doors, show that our approach is yielding results on two key metrics; awareness and consideration.

Over the last 12 months, in other words pre and post campaign, we have seen an overall increase of luxury customers telling us that Farfetch is the first or one of the first places they would consider to shop. In China, one of the key markets where we have been investing in upper funnel marketing, we have seen awareness increase year-on-year and consideration in Q1 was higher than any other Western competitor in the market.

As we look at Western markets, Google share of search, which measures our portion of organic searches among our peer set, is a strong proxy for consideration. In Q1, we have seen our share of search in our largest market, the U.S., increase by 36% year-on-year, which in combination with our brand survey results demonstrate that our brand strategy is working.

Our luxury brand partners have also taken notice of our success and applauded our approach to brand building from our rebrand to our choice of contributors, styling and talent in our content and brand campaigns. We believe that their increased admiration and confidence in Farfetch as a strategic partner has contributed to our growing number of engagements with brands to execute their own marketing strategies on the Farfetch Marketplace, which in turn has increased our year-on-year coverage in consumer press a key low-cost marketing channel.

In Q1, we launched 10 significant brand partnership campaigns on the marketplace. These partnerships are key component of our Only on Farfetch initiative, our strategy to differentiate our brand by playing to our unique strengths with an ongoing focus on our boutique proposition on leveraging our New Guards Group acquisition and delivering exclusive brand partnership while deploying all our capabilities from our global reach to our innovation features, all of which is crucial to offering our customers an unrivaled customer experience, which is our fifth strategic pillar.

Some key highlights here include: first is a four-part program with Gucci where we activated an immersive world centered around sustainability to celebrate their off-the-grid connection. This is our second multipart activation with Gucci, demonstrating the value we deliver as a strategic partner and long-term relationship with brands.

We leveraged our investment in New Guards Group by offering our customers exclusive capsules from sought after labels, such as Ambush and Palm Angels. Regional localization continues to be key, and in celebration of Ramadan, we curated an exclusive collection from 30 Middle Eastern and international designers.

Our Positively Farfetch ESG efforts to be a platform for good are also evidenced by partnerships, such as our recently curated edit for FKA twigs and our collaboration with Balmain[Phonetic] and Nataal for Black History Month.

As a platform, we also look to enhance the customer experience via our service offerings. And this quarter, we were delighted to offer the Farfetch Fix, a luxury restoration service, in partnership with one of our open innovation start-ups, The Restory, to encourage circularity. These brand partnerships and services can drive co-branded marketing revenue, but also enhance experience for our customers, and we believe ultimately contribute toward improved retention.

In Q1, we continued to see positive trends on retention with our existing cohorts outpacing historic trends, but we have also continued to see better retention from our earliest cohort of customers we acquired during the pandemic in Q2 2020 as compared to the Q2 2019 cohort. Thanks to our targeted demand generation efforts and our business strategy to reduce promotions, we are finding that these customers, a higher mix of whom were acquired by a full price sale, have higher repurchase rates.

Finally, in addition to our ESG initiatives with various brands and services, we were also thrilled to publish the first edition of our Conscious Luxury Trends report on Earth Day. The report harnesses numerous data insights across our platform, such as the fact that 88% of customers tell us they care about minimizing their environmental impact and the customers sold three times as many bags via our Second Life program in 2020 as they did in 2019. All of this to help inform the overall industry in incorporating more conscious practices and programs.

And now, I'll hand the call over to Elliot to discuss our financial results and outlook.

Elliot Jordan -- Chief Financial Officer

Thank you, Stephanie, and hello, everyone. The first quarter of 2021 demonstrates continued strong demand for products traded across the Farfetch platform. We delivered a year-on-year increase in GMV of 50% to $916 million with Digital Platform GMV growing 60% to $790 million. This has driven a 46% increase year-on-year in Group revenue to $485 million and a 54% year-on-year growth in Digital Platform Services revenue to $286 million.

Alongside this growth, we have achieved stronger unit economics, delivered further operating leverage and improved our profitability position with adjusted EBITDA of minus $19 million compared to minus $22 million in Q1 of 2020. As a result, the overall financial position of the Company is ahead of our own expectations and previous guidance, and we continue to remain very confident about the rest of 2021, raising guidance on GMV growth and reiterating our guidance around full-year profitability at the adjusted EBITDA level.

I'd like to run through some financial highlights by business segment, starting with the Digital Platform where GMV growth accelerated out of the previous quarter to 60% year-on-year in Q1. This is the second fastest growth within the Digital Platform over the last 12 quarters. This was underpinned by an acceleration in growth within the marketplace, in turn driven by stronger year-on-year growth in orders from existing customers, the addition of 480,000 new customers in the quarter and 8% increase in average order value as a result of consumers buying higher price point items and a higher full price mix year-on-year. This growth was geographically diverse with notably strong year-on-year performance within the U.K., the Middle East, the U.S., particularly across the final four weeks of the quarter, and Mainland China where we saw an acceleration of growth and further gain in share of overall demand relative to the marketplace.

Unit economics across the Digital Platform remained strong with Digital Platform order contribution margin up 100 basis points year-on-year to 33%. The key driver of this improvement to margin was an increase in the first-party gross margin from 25% last year to 35% this Q1. This is a result of a higher full price mix within Browns and increasing direct-to-consumer trade from New Guards brands.

We also reduced investment and promotions across the first-party and third-party proposition. Partially offsetting these improvements were the impact of higher cost of revenue. First, higher duties and other handling charges as a result of the U.K.'s withdrawal from the European Union, an impact from European Digital Services taxes and a COVID-19 linked increase in logistics cost per order.

We also took the decision to reinvest some of this margin improvement back into customer engagement, which is reflected in demand generation media spend of 21.6% of Digital Platform Service revenue versus 20.5% last Q1. This investment is on the back of growing demand for luxury online, which translated to the highest ever number of new Q1 marketplace customers, continued strong retention and demand from existing customers, payback of customer acquisition spend well within six months, a three-month LTV over CAC ratio for the Q2, Q3 and Q4 2020 cohorts above the respective cohorts for 2019 and 2018, and a clear opportunity to develop our engagement channels on the global marketplace, particularly in China.

Other key Q1 update on the Digital Platform include GMV growth year-on-year on a constant-currency basis of 54%, third-party take rate of 29.7%, and first-party GMV growth of 59% year-over-year to now represent 15% of Digital Platform GMV out of which 3% belonged to first-party original.

Turning now to the Brand Platform, where we continue to focus on partnering with brand enhancing retailers as we balance off between the wholesale channel and the higher margin direct-to-consumer proposition across the Digital Platform and our own retail locations. This means fewer highly strategic relationships, moderating growth on the Brand Platform and improving profitability.

As a result, the Brand Platform achieved GMV and revenue of $112 million, slightly ahead of the guidance provided last quarter. Importantly, gross margins expanded from 49% last year to 51% this year to deliver $58 million of gross profit.

Turning now to our operating expenses, where we continue to deliver overall operating leverage. This leverage is the result of cost growth from within our technology platform, our corporate functions and our production studios growing 28%, 25% and 23%, respectively compared to 36% year-on-year growth of adjusted revenue. This leverage is net of investment into our long-term strategic initiatives, including a new fulfillment by Farfetch facility in the Netherlands, which we believe will mitigate a significant proportion of Brexit-related cross-border charges, brand-building activities to drive upper funnel customer engagement and technology spend to develop our beauty offering. Q1 depreciation and amortization was $54 million and our share-based payment expense was $40 million.

A quick mention of the $660 million gain in items held at fair value. This is a direct result of the reduction in the Farfetch share price since December 31st as settlement of our convertible notes and JV in the Middle East is marked against the Farfetch share price. The gain reversed some of the charges we have seen on this line over recent quarters and has resulted in a Q1 2021 profit after tax of $517 million.

Let's now look ahead to the coming quarter and the upgraded outlook for the full year. Based on the strong momentum we have seen year-to-date, the positive leading indicators with regards to demand across the Digital Platform for Q2 and more confidence in the broader backdrop of global luxury consumption for the second half, we are upgrading our full-year Digital Platform GMV expectations to now be between 35% to 40% growth year-on-year. This would represent two-year growth of 91% to 98%. This additional growth allows us to continue to invest in the long-term opportunity, and we will be driving additional customer engagement and increasing investment in platform development with a focus on delivering long-term sustainable growth.

As such, there is no change to the expectations for profitability, where we reiterate the previous guidance of 1% to 2% margin at the adjusted EBITDA level. For Q2, our expectation for the Digital Platform GMV growth of 40% to 45% year-on-year. This takes into account the annualization of new customer growth last year and letting of Harrods.com and Off---White.com launches on FPS which are now like-for-like within the Digital Platform moving forward.

Digital Platform order contribution margin is expected to be between 34% to 36% of Digital Platform revenue as we continue to navigate the short-term challenges of Brexit and we continue to invest in media spend to build on the strong customer cohorts.

Brand platform GMV and revenue is now expected at $50 million to $60 million. This position reflects a shift for the full winter '21/'22 season toward in-season deliveries, which means shipments to our wholesale partners are now[Phonetic] closer to win these items will be worn by their customers.

Last year, fall/winter shipments and associated revenue were spread across Q2 and Q3, whereas this year, the majority of shipments are being shifted into Q3. Q2 Brand Platform gross profit margin is expected to be between 48% to 51%. And finally, Q2 adjusted EBITDA is expected at minus $23 million to minus $25 million. Jose?

Jose Neves -- Founder, Chairman & Chief Executive Officer

Thank you, Elliot. Let me close by reflecting on how these results clearly demonstrate superb execution against our long-term vision, which could not have been achieved without the continued dedication and efforts of our more than 5,000 Farfetchers.

We continue to leverage the platform infrastructure we have built to drive very strong growth for our partners, deepening our relationships within the luxury industry and enhancing the proposition to our consumers as a result, all of which puts us in a unique position to continue to gain share of the nearly $300 billion opportunity we see in the global platform for luxury.

Thank you. I will now ask the operator to open the call for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Stephen Ju from CS. Your line is open.

Stephen Ju -- Credit Suisse -- Analyst

Okay. Thank you. So, Jose, we wanted to ask you about the technology you were showing at the new luxury retail presentation of Browns. It does look like it will require retailers to invest in things like mirrors and some of the other stuff that was, I think, on the hangars. And clearly they're buying into this, given the announcements with CHANEL and Printemps. But what is the pitch to these retailers in terms of what return on investment they can expect to see?

And Elliot, should we assume that embedded within the second quarter guidance are assumptions of perhaps an ongoing marketing inefficiency in your demand acquisition expense as well as what may be brand campaigns in your G&A expenses, as you guys ramp up on Tmall and China? Thanks.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Thank you. Of course, it's early days in terms of measuring the return on investment. And the numbers we have from CHANEL are very, very encouraging. And on the back of that, CHANEL is expanding two more CHANEL boutiques, and we just launched the technology in Monaco. And of course, it's only a few weeks old, but we are already seeing double-digit sales -- increase our sales coming from the Connected Retail technology specifically.

So, I think the more important than that -- and obviously, if we deliver consistent double-digit boost to any retailer, that's transformational, right, so, in itself. But I think the key here is in a fully connected journey for the customer. So today, if you're a brand or if you're a retailer, you don't know the customers that are coming into the stores. Usually a luxury brand say that 70%, 75%, 80% of the customers that come into their stores are unrecognized. You don't know which products they pick off the shelf, you don't know which products they take to the fitting rooms, and that is what we are changing in the industry. That is absolutely revolutionary.

So with the combination of the consumer app, the shop/store app and the connected devices in the store, and the Farfetch smart tech, which is -- which is an R&D effort that is [Indecipherable]. We know we can identify the customer that comes in the store. We know [Indecipherable]. And as he walks in, as he browses the products in the store, the smart tech picks it up, so it knows that the product is being lifted, if it's a pair of shoes its being turned around, it's moving around the store, it knows exactly where it's moving and resulted few. So it triangulates between position in the store, product and consumer. That's completely unprecedented in terms of the data that you can get from that.

And then the possibility is higher, there are a myriad of possibilities right from CRM -- from the fact that you as a customer can get into a store, spend 20 minutes there, get out, and you know what, everything you touched on that store is in your wish list. And that is incredible because the customers we've piloted this, couldn't believe their own eyes, like they don't need to scan any product, they don't need to -- there is no RFID involved here and its impact of the data that can be derived from this and also the user experience. So we're very, very excited. We think this brings retail to another level, and is going to completely revolutionize the industry because it is a connected journey as you come into the store, the shop assistant knows what you have visited on the website, not just what you bought, but what you have in the wish list, what you have recently browsed. So that unified view of customer, unified view of products, unified view of journey across offline, online, mono-brand, multi-brands, it's, I call it sometimes, retail banner[Phonetic].

And I think that's what we're delivering and it's ready to go to market. And that's what's getting Printemps and Cidade Matarazzo to that 300,000 square feet develop -- luxury developments, each excited and we're going to have this working at very large scale as well, so watch the space because I think there is great traction here.

Elliot Jordan -- Chief Financial Officer

Hey, there. So for us at the moment, we're seeing fantastic growth and engagement with the customer cohorts. I mean 480,000 new customers in Q1, which is on the back of 500,000 customers thereabouts the last three quarters in a row shows that the environment is right to be capturing new customers as this paradigm shift to online continues. And the results that we're seeing from the customers that we acquired at Q2, Q3 last year is a fantastic lifetime value. So, as I said earlier on, the three-month LTV over CAC for these cohorts is much stronger than the equivalent cohorts from the previous two years. We've seen a faster payback on investment. So it's really the right thing to do to lean in on these opportunities.

We are seeing promo spend coming down. Elsewhere, we're seeing efficiencies coming through on the first-party business that's particularly around the growth in full price. And the fact that we are acquiring so many customers while full price mix is increasing, i.e., sales of full price are growing faster than promo sales or markdown sales means the quality of the customers we're acquiring is also very strong.

You might remember from our history that a customer quote on the promo is great moving forward in terms of LTV as a customer that's acquired during full price period. So we're actually seeing leaning in on this customer is the right thing to be doing right now. And as we see the momentum build in China, as Jose touched on it before, stronger growth out of the U.S. as we exited the quarter, it's really the right thing to do to capture and continue to engage with the customer base. So that's why you're seeing the sort of slight step up year-on-year on demand generation in Q1.

And as you say, in the Q2 numbers, we are reflecting that in the order contribution. It's staying relatively stable year-on-year. That's also managing some short-term challenges around cost due primarily to the U.K.'s withdrawal from the European Union. And our challenges around duties and handling costs that we're seeing across the coming weeks, that also reflects this investment in the customer.

And then in terms of brand, as Stephanie said earlier on, really good sort of early results coming through from the brand campaigns and the work that the team has done to refresh the Farfetch proposition with customers. So again, leaning into that as we move forward, which is in the SG&A numbers for Q2. And that's what sort of reflects the EBITDA position just being marginally here year-on-year as we move toward our full-year profitability over the coming three quarters.

Operator

Your next question comes from the line of Lauren Schenk from Morgan Stanley. Your line is open.

Lauren Schenk -- Morgan Stanley -- Analyst

Great, thanks so much. Elliot, the regional performance you gave in your prepared remarks was really helpful, sounded like the U.S. accelerated in the month of March. Curious if there's anything you can sort of comment on in terms of what you've seen regionally in April and early May, and then generally sort of performance in regions or areas where stores have reopened?

And then one sort of modeling question. Anyway to sort of help us quantify how much anniversarying that the Harrods.com and Off---White.com will have in terms of impact on the second quarter Digital Platform growth that would be great. Thanks so much.

Elliot Jordan -- Chief Financial Officer

Sure. Hi, Lauren. Great question. So yeah, we're very encouraged by the regional data. So China accelerating out of Q4 into Q1, clearly, is a good sign. The U.K. was particularly strong all the way through Q1, obviously, starting to reopen in April, retail locations here in the U.K. So we continued to drive strong growth even after that reopening. And the U.S., it's sort of the last three or four weeks out of the quarter was particularly strong and that did carry through into the early parts of the quarter that we are now in.

So we're seeing really good strong growth continue into the quarter. Hence why the guidance of 40% to 45%, I think, is slightly better than most numbers in the street. And what I think is really key is that it's all about full price. So the full price offering, the spring/summer '21 collections that we have on the platform are doing superbly well. We --our sellers have leaned into, their offering there being rewarded with very, very strong growth. Their full price growth is up over the overall average. Year-on-year, our stock value is at something like 58%. So we've got a lot of stock going into the campaign over the coming quarter.

And so we're very pleased with what that means, plus also the backdrop is much stronger. We are definitely getting a sense from customers that although retail locations have reopened, they are still shopping online. This paradigm shift to online is here to stay. They're enjoying the convenience, the selection and the speed of service that our logistics team is able to offer to customers. And so we're seeing continued online demand, even though store options are there now for customers.

The same in the Middle East. We're seeing good strong demand across the quarter for Middle East, even though stores have been open there. So I think, overall, there is plenty of share to go around as luxury really starts to grow across the rest of the year.

In terms of the question about modeling that is, broadly the step down from 60% to the 40s from Q1 to Q2 is by and large the annualization of Harrods and Off---White.com. I'm very confident how the marketplace is performing, and the other FPS clients that are on a like-for-like basis, as Jose said, are continuing to deliver very, very strong growth. So that sort of step down that we are seeing from Q1 to Q2 is all about now becoming more like-for-like.

Operator

Your next question comes from the line of Oliver Chen from Cowen. Your line is open.

Oliver Chen -- Cowen -- Analyst

Hi, thank you. The Tmall early reads are very encouraging. But what are your thoughts in terms of how you'll think about the assortment from these learnings, you're loyalty approach to this customer base and also the manifestation of the Farfetch app relative to accessing Farfetch through Tmall?

And Elliot, I would also just love your take on AOV going forward and how that dynamic may be impacted by both the attractive new customers and as you think about apparel and product mix. Thank you.

Stephanie Phair -- Chief Customer Officer

Hi, Oliver. It's Stephanie. Thanks for your question. Yes, we are very encouraged by the TLP results. And while it's early days, I think we have some good indicators to be positive. I think, going back, what we have to think about is really that we have a very strong stand-alone business in China. The Farfetch app stand-alone in China is a really compelling proposition. We have all of the luxury brands on there. And so the way we're thinking about the Tmall app is really as a complementary business.

So I think as you pointed out, the idea is how can we really build the sort of pipeline of loyalty and the sort of virtuous circle between these two channels. And I think this is this standard practice in China, the Chinese consumer functions on multiple channels and the -- our team is used to working through multiple channels and thinking about how to attribute. So it really is about looking at results, learning how to play that game, it's -- as Jose mentioned, and he scripted truly about learning how to build our business on TLP. But we're also thinking about, very consciously, how do we segment that customer base, how can we speak to different audiences.

So we should really think about our own Chinese app and how this can really be upside and complementarity from a customer standpoint.

Elliot Jordan -- Chief Financial Officer

And just on AOV, I'm very sort of optimistic about AOV, if that's the right word as we move forward, as I said earlier on the full price mix coming through very strong and customers clearly buying into categories that have a higher average selling price. I mean you know, Oliver, this time last year, people were in sort of stay-at-home casualwear, relaxed fit style of clothing, which obviously comes at a lower average selling price. We are seeing customers buy into the more sort of going out, having driven, fine tailor-in dresses and most of the higher price point categories within clothing, which is up above the overall average in terms of growth.

What is leading our growth or the highest category was actually watches and jewelry. So we again had triple-digit growth within watches and jewelry, which obviously helps push the AOV up as well, particularly in the fine jewelry fiction. And then children's wear growing very strong and accessories also growing very strong. So we're very optimistic that AOV should be positive as we travel through the rest of the year.

Operator

Your next question comes from the line of Douglas Anmuth from J.P. Morgan. Your line is open.

Katie -- J.P. Morgan -- Analyst

Hi, this is Katie on for Doug. Thanks for taking the question. Following up on Farfetch launch on Tmall Luxury Pavilion, just curious what are the areas that will strengthen to make this a meaningful channel in 2022? And do you have a view of longer term on which will be the bigger channel? Thanks.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Yeah, I think we are really, really excited, first of all, China, in general. As you know, China will be absolutely critical for luxury and Chinese customers [Indecipherable] 50% of this industry. It is the engine of growth of the industry today already. And we are winning in China, we are growing very fast. So China is growing faster than U.S., our largest market, faster than the average of the marketplace, primarily through our own channels. But we see this as a multi-channel approach, right? So WeChat -- we are very successful on WeChat. We will continue to launch innovation -- innovative products there. And that brings us to Tmall, and we are really, really excited about these early results. Two months after we launched, we're seeing -- really -- a real engagement from customers. So the number of customers that visited out TLP storefronts was the same that visited our app, so the traffic is definitely there.

We see complementarity into demographics and male, female Tier 2, Tier 3 customer. And what's very exciting, the customers are engaging with brands that are only on package in China. So I can tell you, for example, brands like Check & Use [Phonetic], Marine Serre, Thom Browne, they are in our top 10 in -- on Tmall, which is very, very encouraging because it's not [Technical Issues] to open operations in China and now it's not easy to be on Tmall, we need a Chinese entity, we need a team. Take NGG, right? NGG has much larger brands than the brands that I am talking about.

And they weren't -- as you know they are not, on Tmall directly or in China, they will be by this week. And so I think this is really, really exciting because it shows complementarity, one of our big goals was to build a brand in China. Chinese customers, they don't touch products. When they are shopping on Baidu, primarily they search for fashion in the fashion category, primarily they search on Taobao, which is Taobao Tmall is looking at.

And so in terms of brand awareness, it's critical and we're seeing very, very encouraging signs. And in terms of sales, as we always say, we're going to continue to build momentum to make this meaningful channel for our partner China business in 2022 and beyond. We're already seeing multiple times the sales that we saw in similar storefronts we have with another player in China last year. And we're -- it's all on track. So very, very happy.

And on the back of that, Alibaba is also accelerating our partnership with just a week to launch an innovation lab for the acceleration of Luxury New Retail in China, which is very, very encouraging. So, incredible news coming from China all around.

Operator

Your next question comes from the line of Eric Sheridan [Phonetic] [Technical Issues]. Your line is open.

Eric Sheridan -- Analyst

Hey, thanks everyone. Elliot, just two questions. On the Brand Platform revenue guide for this quarter, I understand the shift to fall/winter. Can you maybe just help us understand, could you quantify the shift or maybe let us know what you're planning for Brand Platform GMV in the third quarter, just to help us kind of understand and smooth that out?

And then could you just talk real quick about the fully diluted share count and the uptick in Q1? Is that from the converts? Just trying to understand what happened there. Thanks.

Elliot Jordan -- Chief Financial Officer

Yeah, it's really high. I mean broadly what we're seeing is -- let me just talk to you sort of what's happening with the Brand Platform. So effectively, we're able to, with our supply chain now, deliver product to our retail partners in-season, which means that the prior season has a longer selling window. The stock is sort of backing up to -- into the stores and therefore there is a longer period for the businesses to sell-through products and not markdown as early as they previously had done. This is something that we're seeing more broadly across the industry, and we're really pleased that New Guards Group has able to really adopt this with the customers.

And it means that the product is fresh for the year. In consumers, in-season the drops are really landing and ready for sale, and again that's allowing the retailers to drive the full price mix and ultimately strengthen the -- so, what we're seeing is compared to last peak to be moving into Q3. So we would normally expect, as we saw in Q1, a slight increase year-on-year in terms of sales, so sort of 3% to 5% across the whole season. Clearly with the number that I've shared for Q2, the bulk of it will move into Q3. So that would be the number that you need to put in your models for Q3 is to make sure that the overall two quarters drive a sort of up to 3%, 4%, 5% sort of year-on-year growth.

In terms of the dilution on the share count, so in the -- for the first time, obviously, we are sharing this because of the profitable position. We're seeing the weighted average number of basic shares at 355 million, that goes up to 452 million on diluted basis. And the rig between that is effectively [Indecipherable] three convertible notes, so the February notes $20 million there, the May 2020 notes is $25 million of dilution, the November notes $18.5 million of dilution. And then on top of that, we've also got the aggregated dilution from employee share option schemes, which is roughly $31 million, $32 million. So that's the reconciliation there.

And those options gain, as I said, cumulative, I think over the last sort of three years or so of grants being made to colleagues in the Farfetch for all long-term incentive plan, which obviously aligns motivations of the team to shareholders.

Operator

We have time for one more question. The final question will come from Louise Singlehurst from Goldman Sachs. Louise, your line is open.

Louise Singlehurst -- Goldman Sachs -- Analyst

Hi, good evening, everyone. Thanks for taking my questions. I'm going to have a stab at guidance, if I can. I think, if you look at the customer base, it had lots of very encouraging trends about obviously the run rate. If you look at the numbers, you've got a big increase of 3.3 million versus 2 million a year ago. I guess what can you tell us about the cohort and maybe insights from access?

The guide, I guess, even though it's been increased tonight, still looks quite conservative if we think about that run rate and the new pace of active [Technical Issues] with each quarter. So I'm just wondering if we're not thinking correctly about average borders, the levels of returns in that.

And the second question I had was just on China for JV, if I may. We talk a lot about the big brands and access to mega brands in the inventory levels. Are we missing a [Indecipherable] is bigger opportunity about that long tail of the private brands is really mix distribution in China? I think, Jose, you alluded to some of the smaller brands, having a disproportionate impact on Pavilion on the early read. Thank you.

Stephanie Phair -- Chief Customer Officer

Hi, Louise. And it's, Stephanie. I will take the first part of your question and then I'll hand over to Elliot on guidance. But, yes, you're right, we have the largest number of active customers, 3.3 million. We have grown 0.5 million over the last sort of three successive quarter. So we're really seeing momentum there. And as always, it's a balance between acquisition and retention. But the good news is that our retention efforts are aided by the fact that this is a high-quality customer. This is a customer that we've acquired to full price sales, we've acquired them often to high-value products, and we're really seeing those results.

And so in terms of our retention efforts, we think about sort of a number of measures, of which access is one of them. We have many, many approaches to retention, but access is probably the most sort of visible and sign-posted for the customer. And then, since you specifically asked about access, we are seeing improvements there. One measure we look at it, order of customer. And actually, year-on-year, we've seen a 13% increase from access members -- year-on-year on their orders per customer, so a good way to drive sales from that same customer base.

We're also seeing other efforts, such as push notifications, and customer who have essentially opted in with us to access through the app are leaning into this value exchange that we're giving. So now we are very confident and I think that is built in. And we see this momentum continuing both on new customer and on a really good metrics around retention, repurchase rate, long-term value, very strong LTV to CAC ratio.

Elliot Jordan -- Chief Financial Officer

And then in terms of sort of looking forward, Louise, I think we are building in what we're seeing is a mix of obviously those large cohorts from last year. And as I explained on the last time we met, the dropout rate that historically all e-commerce business see in terms of sort of 12-month drop out from first order to retained is definitely -- we're seeing that retention is greater than previous cohorts looking back. But we still have to annualize those fairly large numbers.

And now that we're going to be like-for-like 500,000 new customers per quarter, yes, the number is impressive. And we are absolutely delighted to be continuing to capture these numbers, but that will need to offset the drop out that we're seeing and really become more like for like. So the number of 40% to 45% year-on-year growth for this quarter reflects all of those sort of annualizations, it reflects, as I was saying to Oliver, an increase in AOV, and obviously strong order growth from what will be existing customers as we now go into Q2 and annualize and all those customers become like-for-like.

And then, obviously, as I said earlier on the FPS clients, continuing to drive good like-for-like growth. But as we've not talked about any new FPS clients, there is no incremental growth in the Q2 numbers from a new FPS client to talk about today.

Jose Neves -- Founder, Chairman & Chief Executive Officer

And we've -- on China, I think your question is a great question around supply and supply differentiation, fewer brands versus smaller brands. So let me try to give you the lay of the land in terms of our unique advantage in terms of supply in China. So we're bringing to China over 3,500 brands on our app. To be clear, the brands that you see in the U.K., assuming you're calling us from the U.K., are those coming from the U.S., are the same brands that our Chinese customers see. So, when we do a deal with the brand, it's a global deal. So the 550 direct e-concessions we have from the likes of Gucci to the [Indecipherable] etc., all those brands are available on the Farfetch China app.

But what we bring is a unique assortment of those super brands. So we've done a SKU count on Tmall, and we extend the SKU count in another of 7.5 on average for those brands that have a preference on Tmall, right? So what we're bringing in terms of the super brands for the Chinese customer is this incredible assortment that they wouldn't sign in China -- even in physical stores, even online, and the Chinese customers that were used to travel and go to Milan, Paris, New York, they now can find these very unique products from the super brands and that is the incredible value proposition for the consumer.

And you then have the smaller brands, and we're very attractive because this is really our role of connecting the creators and the curators and the consumers of fashion all around the world. It is our mission. And so these small brands, you can imagine how transformational this is. With one single integration on Farfetch, they are exposed to 3.3 million active shoppers, spot on in full price luxury at $600 plus average sales[Phonetic] in Chinese even higher and they are exposed to China, not just on Farfetch but also one on Tmall.

90% of the brands we're exposing on Tmall, don't have a Tmall store. And we knew those brands have traction in China because we knew it from our Farfetch China app. We didn't know how they will fare on Tmall, right? So that was a question mark we didn't locate 800 million customers, a much, much broader audience, how the customer is going to be engaged with our longer tail offering. And they are -- and they are actually incredibly engaged. As I said, our top 10 brands on Tmall, many of those are cool, small more [Phonetic] brands. And as part as an analyst and the investors on that side of the line, would like to know also that our take rate is higher on those smaller brands, so they're more profitable for us. They're above the 30% average take rate. And I think it's all about this curated offer. And we saw also -- all about is the complementarity, right. So it is a complementary channel for us, which is showing tremendous incrementality.

I know everyone is focused on sales, so are we. But we're also focused on that complementarity of channels and targeting different audiences. And we're extremely, extremely happy with the results so far.

Stephanie Phair -- Chief Customer Officer

Terrific. Well, thanks everyone for dialing in. We look forward to speaking with you in a few months. Have a good night.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Alice Ryder -- Vice President, Investor Relations

Jose Neves -- Founder, Chairman & Chief Executive Officer

Stephanie Phair -- Chief Customer Officer

Elliot Jordan -- Chief Financial Officer

Stephen Ju -- Credit Suisse -- Analyst

Lauren Schenk -- Morgan Stanley -- Analyst

Oliver Chen -- Cowen -- Analyst

Katie -- J.P. Morgan -- Analyst

Eric Sheridan -- Analyst

Louise Singlehurst -- Goldman Sachs -- Analyst

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