Good afternoon. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch second quarter 2019 results conference call. 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 this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, you may press the pound key or hash 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.
Thank you, Julie. Hello, and welcome to Farfetch's second quarter 2019 conference call. Joining me today to discuss our results are José Neves, our founder, co-chair, and Chief Executive Officer, and Elliot Jordan, our Chief Financial Officer. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated statements. Forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For 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 recorded in accordance with IFRS on this call.
Find reconciliations of these non-IFRS financial measures, IFRS financial in our earnings press release and the slide presentation, both of which are available on our website at farfetchinvestors.com. Now I will turn the call over to José.
Thank you, Alice. Thank you all for joining us today for our earnings call and hear about the acquisition of New Guards Group that we have also announced. We are excited to update you on three important topics. First, our acquisition of New Guards Group or New Guards, a brand platform based in L.A. Second, to walk you through our second quarter financial results. Thirdly, to cover some of the big trends we are seeing in the market, including the tectonic shift of luxury brands' online distribution strategy. Let me start with the incredibly exciting acquisition of New Guards. As you know, this September marks one year since our IPO. We said then that it was our strategy to be the platform for the global luxury industry, connecting curators, creators, and consumers.
We believe this sector is going to grow $100 billion in incremental online sales in the next few years. The next 10 years are what we call our chapter two, are going to see a revolution in how consumers engage and shop for luxury fashion, online and offline. Our landmark acquisition of New Guards expands our platform vision from a platform enabling transaction to a platform enabling a global culture of fashion. Let me talk you through how this acquisition underlines our strategy. New Guards either owns or licenses, designs, manufactures, and distributes some of the most sought-after luxury brands, including Off-White, Heron Preston, Palm Angels, Marcelo Burlon, among others. With these brands, New Guards has demonstrated it is the ultimate brand platform of today, incubating and growing emerging talent into highly sought-after brands through a shared services model.
The group operates an asset-light model and strategically procures manufacturing based on order demands. In fact, inventory on hand in end of year fiscal 2018 was just 9% of revenues for the period, which provides for low working capital usage and a profitable business with positive cash flow. Strategically, New Guards brings a very exciting expansion of Farfetch's platform vision to connect the creators, curators, and consumers of fashion, which I believe will transform the luxury industry. On top of our three existing platforms, technology, data, and logistics, we now add a fourth, a brand platform. As a result, we can offer the creative visionaries in this industry best-in-class design studios, industrial capabilities, and global distribution channels. This is revolutionary for them. Farfetch has the technology, expertise, and vision to take their businesses to the next level and unleash the talent of the future.
We believe this combination of our businesses will create what we call brands of the future. What do I mean by that? In the past, luxury brands were built by a mix of investment in traditional media and significant CapEx investment in directly operated stores. Older brands use the traditional wholesale model, which is capital efficient but disconnects them completely from the customer and transaction data, and could lead to pricing discipline and brand dilution. I believe the brands of the future around this model, but rather be made of three ingredients. One, a creative tastemaker that is also able to build a community digitally around her or his vision. Two, best-in-class global e-commerce direct-to-consumer capabilities, both multi-brand via e-concessions and mono brand via brand.com, including critical capabilities to serve mainland China.
Three, amplify physical store presence via a new type of wholesale, connected wholesale, where supply and demand are matched in near real-time, avoiding discounting and gray market pitfalls. We believe Farfetch and New Guards combined are uniquely positioned to empower the most exciting talents to develop their existing brands or bring totally new concepts to life. I'd like to take a moment to talk you through how working with Farfetch, Off-White, one of New Guards' brands, has built its business and how it will continue to benefit significantly as part of this acquisition. Off-White is the brainchild of Virgil Abloh, an American fashion designer and entrepreneur, artist, and DJ who has been the artistic director of Louis Vuitton's menswear collection since March 2018. Off-White signed exclusively with New Guards founders and launched its first season in spring 2014.
That same season, it had its debut on farfetch.com via our community of boutiques. That quarter, it registered a tiny $1,000 in GMV, and it ranked number 1,360 among our best-selling brands. With Farfetch proprietary data and connections to all our boutiques around the world, we were immediately able to identify some customer intent in real time and alert boutiques to invest behind Off-White. In parallel, our machine learning bidding algorithm boosted our demand generation budget to efficiently drive Farfetch powered Off-White sales. The result, in just three years, Off-White made it to our top ten brand list, which has continued to be the case over the last eight consecutive quarters. The next step is to take Off-White from a majority wholesale brand, where direct-to-consumer online sales are less than 5% of the total mix, to becoming a direct-to-consumer brand online.
What does the new brand of the future strategy look like for Off-White after our acquisition? First, relaunching offwhite.com on Farfetch Platform Solutions in Q4 2019 globally, including China. Second, launching an e-concession on Farfetch Marketplace in H2, boosting the inventory available on the platform and its revenue and margins as a result. Three, evolve the wholesale model into connected wholesale, leveraging the network of more than 650 Farfetch-connected retailers and the Farfetch data to match supply and demand in near real time. By 2020, New Guards expects to have changed the model to a much quicker inventory cycle where accounts get to supply our data shows they need, avoiding pricing discipline or gray market activities. We believe this strategy will see Off-White's revenue grow considerably, as well as significant improvements in margins, while all along protecting the brand's positioning.
This Off-White case study was just one example of many brands we hope to foster with the other six brands of the New Guards showing incredible growth patterns in their short history, and New Guards already having exciting plans for new brands to be launched next year. The acquisition of New Guards will help to deliver our Brands of the Future strategy and will have significant benefits to other members of our community as well. Let me explain. For our valued boutique partners, access to the Brands of the Future original content offers them differentiation from large-scale retailers, and the data-driven supply model for much faster inventory turns, which affords them lower capital requirements and attractive economics, as there will be much fewer markdowns needed. For farfetch.com consumers, Brands of the Future further enrich our broad luxury offerings with more exclusive capsules and collaborations with existing brands.
We plan to launch with New Guards some new concepts in the future that will be completely exclusive to Farfetch. We believe this creates a significant halo effect that will increase the engagement of our global customers around the Farfetch brand. This means that for our cherished brand partners, Farfetch will become an even more strategic direct-to-consumer channel, as we would expect to see even higher organic traffic, full-price sales mix, and a further elevation of brand adjacencies that are so key for luxury brands. However, it won't change the highly capital-efficient nature of our model, as we will remain, for the most part, an inventory-light model with the added profitability from the vertical integration of the new brand platform.
In summary, I believe the acquisition of New Guards is a game-changer for Farfetch, and I believe it is also a game-changer for the luxury industry. As part of this evolution of our strategy, there is a key change in how we organize our team. Focusing on developing our brand around an unrivaled customer experience, we're excited with our decision to create the new role of Chief Customer Officer. This new role aggregates all consumer-facing functions in our business, namely marketing, brand, consumer products, private clients, as well as Store of the Future. I am delighted to share that Stephanie Phair, our current Chief Strategy Officer, has accepted my invitation and will take this newly created role effective immediately. Stephanie will also be a named executive officer of Farfetch. Separately, Andrew Robb, our Chief Operating Officer, has decided to step down in early 2020.
Andrew has worked passionately alongside me over the past nine years, and I'm grateful for all he's done to help establish our market-defining position and for leaving us with an incredibly talented team he has built over the years, and we look forward to working with him to ensure a seamless transition. Turning now to our Q2 results. I am pleased to report that we again delivered strong performance in Q2. With platform GMV growth of 44%, exceeding the high end of our platform GMV growth target. Adjusted for FX, platform GMV increased approximately 49%, almost 2.5 times the projected 20% CAGR of the online personal luxury goods market through 2025, demonstrating the power of our marketplace model as we continue to take market share.
In fact, our strong top-line growth brings our GMV over the last 12-month period to approximately $1.7 billion, which we believe makes Farfetch the largest single destination for in-season luxury fashion in the world, both in value of transactions and in terms of traffic. In Q2, we observed an increasingly competitive environment, but we took advantage of our very healthy unit economics and attractive LTV to CAC dynamics, and we decided to continue investing in our consumers to drive growth. We were able to do so while also maintaining adjusted EBITDA margin within our guided range as a result of the strong operational leverage we continued to gain in Q2. Moving across our three geographic regions, Americas, APAC, and EMEA, we saw sequential acceleration in both APAC and EMEA, primarily driven by China and the Middle East.
U.S. grew in line with the overall marketplace, which is a strong performance given it is already our largest market, while our second largest market, China, grew even faster. Specifically on China, we were pleased to have launched our store on the JD platform towards the end of the quarter. What we observe at this early stage in our integration is that there is significant opportunity for further optimization. We are working closely with JD to boost both traffic and conversion, and as we have said on our last call, we remain focused on 2020 in terms of this new growth channel. Overall, we are extremely pleased with the performance of our China region. In addition to accelerating GMV growth, we continue to deliver to drive improvements to create a more localized experience on our native apps and website.
With China continuing to be on top of everyone's minds these days, I want to remind everyone that less than 5% of shipments into mainland China come from the West. We currently have no exports from mainland China, but we do have a growing luxury fashion supply within China to serve local customers from local suppliers. As such, the Farfetch model is extremely resilient to potential impacts of U.S.-China trade tariffs. During Q2, we also made great strides on our supply initiatives. We ended the quarter with more than 1,100 brands and retail partners, which includes an additional 45 boutique partners across 24 countries. Three of which are new geographies for our supply network, further increasing our ability to bring supply closer to our consumers.
With brands, we were excited to launch globally with Stella McCartney and signed Brunello Cucinelli, who made available an amazing collection to our global customer base, almost doubling our total SKU count of that collection. We now have about six times the number of Brunello Cucinelli SKUs as compared to our largest online competitor. We are also thrilled that Stadium Goods continues to reinforce their position as the luxury player in sneaker retail, like with the recent auction together with Sotheby's, where 100 pairs of rare sneakers were sold to a single customer for a record $1.3 million.
The same auction set another record, the 1972 Waffle Moon Shoe designed by Nike's co-founder Bill Bowerman, was sold for $437,500, which we believe makes it the single most expensive pair of sneakers ever sold. We are excited by the incredible potential of Stadium Goods, and we will continue our integration plan, including our ambitious international rollout of this brand. In summary, Q2 was an incredible quarter, and I would like to congratulate the Farfetch team for their amazing performance. Turning to the third key topic I wanted to cover today, tectonic shifts in luxury brands' attitudes to online wholesale. During H1, we saw increasing discounting and promotions from the wholesale channel, especially from large online retailers. For example, last season, the largest luxury retailer launched a 15% off new season promotion as early as March. Promotions from most other retailers followed, culminating in unprecedented promotional activities in June and July.
We believe this is happening because these players have not found a way to compete on range or match consumers' evolving expectations in terms of technology and customer experience, especially in China and other key growth markets. Faced with this challenge, wholesalers are forced to compete via pricing, and this takes the shape of, A, generalized non-adherence to geo-pricing, B, aggressive promotions, and C, early and higher markdowns. This phenomenon is leading to what we believe is a significant tectonic shift for online luxury that will reshape the industry over the next few seasons. We believe the luxury brands have begun to take notice of the fact that large-scale online wholesale leads to price volatility and adds little value in terms of building and preserving luxury brand image.
All our conversations with major brands indicate they are starting to implement strategies to more directly control their overall distribution away from online wholesale and towards e-concessions. Major luxury holders such as Kering and Prada, who are focused on the long-term health of their brands, have already publicly articulated plans to de-emphasize online retailers. At the same time, we have seen them doubling down on Farfetch. Prada Group's ambitious rollout on our marketplace has become Farfetch's most developed e-concession in terms of geographical distribution of its inventory points. They now have more than 70 group inventory locations available on the Farfetch Marketplace across Europe, U.S., Japan, and Hong Kong. While Prada has been reducing wholesale supply to global retailers, we have seen the inventory of Prada's e-concession grow 275% in Q2 on the Farfetch platform.
Similarly, we've expanded our e-concessions with other major luxury groups, and total direct supply from Prada, Kering, and LVMH brands on the Farfetch Marketplace in Spring/Summer '19 grew 140% versus Spring/Summer '18. We are also very happy to have signed our third LVMH enterprise SPS deal with Nicholas Kirkwood after successful launches with Louis Vuitton and Berluti. Our brand partner count also continues to grow, now totaling more than 450. We've had 100% retention of our top 100 brand partners over the past three years. These actions demonstrate that the industry is seeing Farfetch as a key part of a strategy to promote brand image and quality, providing a solution to divert from large-scale e-tail into direct-to-consumer.
I would like to highlight the fact that whilst these significant industry developments benefit Farfetch in the medium to long term, it does mean that until the brands reduce the supply made available to online wholesalers, we expect competitors to continue to up the aggression of their pricing tactics, putting pressure on our marketplace trading. Here, Farfetch has two options. Given our LTV to CAC dynamics remain very favorable, and we still enjoy payback in less than three years, Farfetch could profitably react to those promotions symmetrically, which is what we have done in H1 to some extent. We could demonstrate our leadership in this industry and support the brands in their efforts to move away from promotions and realize the full value of their creations.
This means doubling down on e-concessions, reducing our promotional activities as we boost our full price mix via exciting collaborations with our brand partners, plus original content from New Guards. This also means accepting that we will often be more expensive compared to discounted prices from our competitors. We have decided to take the second option for the remainder of this year and implement it as a long-term strategy. As a leader in online luxury, we believe this is the right thing to do for the entire ecosystem. We are taking the long view, and while this may mean a deceleration of our aggressive market share capture in the short term. We believe it will cement our position as leaders in this industry and pay off in the medium to long term, translating into continuous sustainable growth.
Our acquisition of New Guards also fits squarely within this strategy, as it enables us to further elevate our brand, boost full price mix, reduce promotional activity, and offer original and exclusive offerings. In the long run, it reflects strong belief that in a world where brands move away from large-scale online wholesale, and the super brands move away from wholesale altogether, Farfetch wins faster. We are the only player offering a global e-concession model with a true omni-channel platform and global operations, including Mainland China. These capabilities have been built over 10 years through more than $1 billion investment. This is extremely hard to disrupt. As luxury embraces the e-concession vision, Farfetch stands as an enabler for an entire industry to return to full-price sales and protect the value of luxury. Turning now to Elliot to cover Q2 performance and outlook.
Thank you, José, Good evening, everyone. I will run through the results of Q2 and how we have continued to execute in line with our growth strategy. I will explain the impact of New Guards Group on the financials moving forward, Then provide an update on guidance for H2. I'm pleased to report that Q2 grew ahead of our previous guidance, That Farfetch continues to lead the growth of the online luxury industry. Q2 was our biggest quarter ever, with platform GMV of $484 million, up 44% year-on-year and 49% year-on-year on a constant currency basis. The key drivers to growth were the increasing number of active customers, higher orders per customer, and a stable $600 average order value on the Farfetch Marketplace.
Since our last call, we have added 34 direct brand e-concessions and 45 boutique partners to our Farfetch Marketplace, and we now service 18 clients from within our Farfetch Platform Solutions business. Third-party take rate was 31.4%, demonstrating the value of the platform proposition to our broad client base. Our first-party business grew at 108% year-on-year to 10% of the GMV mix, contributing to the platform services revenue of $177 million, up 53% year-on-year. This strong growth was achieved whilst leveraging the fixed cost base, which has allowed us to react to the changing promotional landscape within the industry, invest into our technology and data platforms, and deliver Q2 underlying adjusted EBITDA margin of -20.8%, which is in line with the guidance I provided on our previous call. Adjusted EPS loss of $0.15 per share is in line with consensus.
What stands out from the results of the quarter is the platform gross margin of 48% and order contribution margin of 28%, a decline year-on-year as a result of three things. First, a decision to promote across the latter half of the quarter to remain price competitive and to retain our valuable customer base. This accounts for approximately half of the year-on-year decline in order contribution margin. Secondly, investing in longer-term customer engagement strategies such as Access, our loyalty program, and Farfetch Communities, plus additional paid digital media spend to drive long-term retention. This accounts for approximately one-quarter of the year-on-year change in order contribution margin. Finally, a charge we have taken to write down and clear excess end-of-season inventory within the first-party business. We execute our strategy by constantly assessing the lifetime value and customer acquisition costs on a cohort-by-cohort basis.
These metrics are in a very strong position. The 2016 customer cohort lifetime value, now accumulated over 24 months, is three times the cohort's original customer acquisition spend, which is an increase over the lifetime value of the 2015 cohort, which was just under three times CAC at the 24-month point. The Q4 2018 cohort is now in positive lifetime value, with payback achieved within the initial six-month period, and the Q1 2019 cohort remains on track for payback within the first six months as well. Our more established customer cohorts continue to deliver stronger profitability. Orders from customers that first shopped on Farfetch five years ago in Q2 2014 achieved a 55% order contribution across the last quarter, which is approaching the 60% long-term order contribution target we have established despite the promotional environment.
This strong position means we have room to invest in our customers, driving loyalty and substantial lifetime values, and means we are well positioned to deliver profitable growth over the longer term. In light of the external environment, we have actively managed the growth of the fixed cost base with technology spend and G&A at 11% and 38% of group-adjusted revenue, respectively. This compares favorably to last year and demonstrates our ability to drive significant operational leverage from the fixed cost base. The investments of previous years are paying back, delivering higher revenue per employee, improved operational metrics in our production and customer service teams, and substantial increases in our capabilities across our technology infrastructure. As a result, our second quarter underlying adjusted EBITDA was -$38 million, and our operating cash outflow was -$28 million, reflecting the negative working capital profile of the marketplace.
Depreciation and amortization was $14 million across Q2, in line with Q1 2019, although $9 million higher year-on-year, reflecting an additional $4 million of amortization of right-of-use assets, $2 million in relation to acquired intangibles, and $3 million extra amortization of capitalized development costs. The Q2 2019 share-based payments charge is $46 million, reflecting an ongoing quarterly charge of $40 million, which has increased from Q1 because of additional grants and a one-off charge within Q2. Loss after tax was $90 million, resulting in a loss per share of $0.29, or a loss of $0.15 per share at the adjusted level when reversing out the impact of share-based payments and the amortization of acquired intangibles that are fair valued.
Our cash and cash equivalents reduced by $116 million in the quarter, which reflects the operating cash outflow of $28 million and payments in relation to the acquisitions of Toplife and Curiosity China, which both completed in the quarter, and the purchase of land for our new Porto campus and various smaller investments in innovation projects under our Dream Assembly accelerator. Turning to the acquisition of New Guards Group for an enterprise value of $675 million. In addition to the strategic value to the group, New Guards will be immediately accretive to Farfetch revenue, profitability, and operating cash flow. As José was outlining, the New Guards business model has attractive financial characteristics similar to the Farfetch model, including minimal inventory holdings, low CapEx requirements, and strong operating cash flows. Revenues over the six months to April 30th, 2019, were $189 million, up 59% year-on-year.
Earnings before tax over the equivalent period was $57 million, and operational cash inflow was $48 million. Looking over the last 12 months to April 30th, 2019, New Guards revenue was $345 million, and earnings before tax was $95 million. With this new acquisition, in addition to the granular reporting on performance within our stores and on the platform, Farfetch will now report GMV, revenue, gross margins, and order contribution delivered from the brand platform, the connected wholesale business. Going forward, the Farfetch Group will have five revenue streams. First, the primary revenue stream of the group today, third-party transactions on the platform. Revenue is based on our take rate, the long-term target being 30%, including underlying commissions and fees for value-added services such as media solutions. We achieve a 60%-70% gross margin on this revenue today. Secondly, first-party sales on the platform and in our stores.
This revenue carries inventory risk, but we believe our wide-reaching data insight will enable us to deliver approximately 45% gross margins in the near term. Third, our connected wholesale revenue from the new brand platform. We expect to achieve approximately 40% gross margins from the wholesale revenue going forwards. Our brand platform and existing commercial teams will work together to tap into the rich data set of social media trends, search and demand indicators, inventory movements, and online and offline transactions to identify fashion trends, help forecast production levels, and pinpoint replenishment requirements across the Farfetch Communities. Revenue number 4, selling New Guards brands directly on the platform, which is our first-party original or 1PO business. This revenue carries inventory risk, but as the creator, producer, and retailer of this product, we can expect to deliver 70% gross margin from this revenue stream. Finally, third-party original.
This is the combination of brand platform revenue and take rate. When original product is produced by New Guards, sold to third-party retailers, who in turn sell this product on our platform. We expect this revenue stream to be a key aspect of the overall partnership with our boutique partners. As we look to H2, we will be consolidating less than five months of operations from New Guards, which we expect will add approximately $150 million-$160 million in group revenues and GMV, and approximately $30 million-$35 million in operating profits. On the marketplace, we believe the highly promotional stance taken across the industry is set to stay across the next two to four quarters. In assessing the short-term outlook and setting growth targets for Q3 and Q4, we have decided to focus on delivering solid, but not overly aggressive market share gains.
Remaining competitive, but stepping back from excessive use of promotions, stabilizing order contribution metrics, tailoring our customer engagement strategy, focusing on the LTV to CAC of cohorts, and creating enough bandwidth internally to integrate our newer businesses and to focus on executing on our long-term sustainable GMV growth targets. This means we will be actively managing our platform GMV growth to 30%-35% year-on-year for the rest of 2019. As a result, platform GMV for the year is now expected to be between $1.91 billion and $1.95 billion, which represents 37%-40% growth year-on-year, well ahead of the market overall. Group GMV is expected to be approximately $2.1 billion with the addition of brand platform GMV from New Guards.
In terms of underlying EBITDA, after reflecting the updated GMV growth across the second half and consolidating our new acquisition, we are now expecting a full year loss of $135 million-$145 million, which is expected to be approximately negative 15%-17% of adjusted revenue. For Q3, that means platform GMV growth of 30%-35% and EBITDA margin of negative 18%-20% of adjusted revenue. We would expect approximately $30 million of depreciation and amortization charges in Q3, including an increase in the amortization of acquired intangibles following the New Guards acquisition, and we expect the Q3 share-based payment charge will be approximately $45 million. Looking further afield, we remain focused on our medium to long-term sustainable growth strategy with group GMV growth above 30% per annum. Our path to profitability, which is boosted by the New Guards acquisition and our 30% long-term group EBITDA margin target.
This financial strategy is underpinned by our strong positioning within the industry, the rapidly growing direct brand e-concession business, the strong underlying customer cohort performance, the growing platform services business unit launching Harrods in H1 2020, our superior distribution network, and now our new brand platform, José.
Thank you, Elliot. This time one year ago, I remember writing my founder's letter, reflecting my love for this industry. How I saw it evolving and the role of Farfetch in its transformation. One year on, I am incredibly proud of what our team's achieved and the progress we've made in what I then called chapter two, the second decade of Farfetch ahead of us. Today, one year into chapter two, this beautiful industry faces incredible opportunities, but at the same time, some recent challenges. We've recently seen the difficulties of some brands, department stores, and retailers to adapt to what is an industry in flux. This is a huge global industry, growing resiliently and strongly. With the three secular trends of China, millennial consumers, and digitalization gaining speed and shaping it right in front of us. This industry is very special, very different.
Luxury has to revolve around emotions, not price. Farfetch has now cemented its position as the leading technology platform for the global luxury fashion industry. In traffic and sales, we are now the largest single destination for in-season luxury, growing at twice the speed of the overall online market. This comes with a huge responsibility to do the right thing for the industry we love. It also comes with thrill and excitement. We are reinventing the future. We're doing it for the love of fashion. Of course, the ready-to-wear model has an inherent mismatch between supply and demand. A small level of markdowns and promotions could actually help the environment. When participants start to focus mainly on price, I believe the luxury ecosystem will suffer long-term harm.
After a long period of reflection and conversations with our exec, our board, and our community, I am incredibly excited with the evolution of our strategy. Our platform vision has now extended from a platform enabling transactions to a platform enabling a global culture of fashion. This means empowering individuality, not just for consumers and for curators, but also for the creators of fashion. This industry needs to go back to inspiration and move away from a process of commoditization of luxury, where dozens of online shops sell the same products, competing on price, to a path where the various online destinations differentiate by inspiring customers and shaping culture in their own ways.
Our marriage to New Guards fits perfectly in this strategy, and I am thrilled that New Guards Chairman and CEO, Davide De Giglio, and Chief Commercial Officer, Andrea Grilli, absolutely share my vision of transforming the way creators, curators, and consumers interact over the years to come. We believe it will be revolutionary for existing and new creators of fashion, but it will benefit tremendously the entire ecosystem. As our global and growing consumer base comes to us organically for inspiration, original content, and unrivaled experiences, all our participants benefit. Boutiques and brands will see their brand adjacencies elevated and, again, enjoy the full economic benefits of their creations. Our Farfetchers are also more excited than ever in how we are leading as a positive force for this global industry, for the love of fashion. Thank you all, and I will now open for questions.
Thank you. We will now begin the question and answer session. If you have a question, please press star one on your telephone keypad. If your question has been answered, please press the pound or hash key to be removed. As a courtesy to all participants, please limit yourself to one question, and for any additional questions, please re-enter the queue by pressing star one. We will pause for a brief moment to compile the Q&A roster. Louise Singlehurst with Goldman Sachs, your line is open.
Hi, good evening, everyone. José, Elliot, thank you very much. José, just in terms of the acquisition of New Guards Group, let's start with that. You talk about the new dimension of strategy. Can you just highlight what that actually means in principle? We're lucky to have you on the call, so if you could think about how we should consider the multi-year strategy and what's really changed over the past 12 months to really focus our attention on the first-party expansion. Associated with that, if you could talk about the timing of the acquisition. There's obviously a lot going on in terms of the core business. Obviously, the drive to really focus on the rollout of Access and the core platform, but if you could just talk about the platform and the timing of that acquisition.
Thirdly, just in terms of Off-White and the other brands, is there a plan to have exclusive distribution? I may have misheard this on the call in terms of the commentary, but is that to have the brands exclusive to Farfetch plus the boutiques, i.e., it will not be on NET-A-PORTER, MATCHESFASHION, et cetera, going forward. My last question for Elliot, just in terms of guidance, I think we talked about that 50% GMV growth for the full year, but if you could just clarify what that would be excluding New Guards Group. Thank you.
Hi, Louise. Thank you for your questions. I think, first of all, our strategy has not changed. We want to be the global platform for luxury. I think this acquisition extends the platform vision upstream. This means that we add a brand platform to our existing infrastructure. The New Guards really works as a platform, and this is actually how they define themselves. I think it's important to note that this is not a 1PO business. For the majority of their business, they do not take inventory risk. They close with 90% of inventory as a percentage of total revenues, most of it was in transit to retailers that have already placed orders. The risk is around 5% in terms of their 1PO exposure.
This really doesn't change much the 1PO exposure that we already had with Brands once you add up all things up and take the ratio. It is a platform play. It is a platform play that brings our capabilities upstream. I think what's really exciting for us is this ability to elevate the Farfetch brand with exclusive collaborations, exclusive capsules, and in the future, with totally exclusive brands to our boutiques and the platform. To answer one of your questions regarding the current distribution of Off-White, we will respect these contracts, and this will be ultimately a decision by the NGG management. Of course, it's very clear what we believe. We believe in direct consumer, we believe in e-commerce. We believe in connected wholesale, so wholesale that is truly omni-channel and with real-time visibility of transactions and data.
This is the way the industry is going. This is the way the big groups are going. This is the way New Guards will be going. Those patterns, those historical commercial patterns of NGG follow that path, I think they are a tremendous amplifier for those brands. Therefore, I don't see any need to change that.
Louise, just in terms of guidance, the 50% year-over-year, including New Guards, that's at the group GMV level to $2.1 billion. The New Guards is roughly $150 million. That's my estimate for the GMV that will come through after the consolidation period starts. If I take that off, we're at around 39% year-over-year, excluding New Guards. That ties into the platform GMV growth, as I say, 37%-40% is the updated guidance for the full year. Obviously, 44% over the first half and 30%-35% growth across the second half.
Great. Thank you.
Our next question.
I should point out that's still well ahead of all of our competitors.
Our next question comes from Douglas Anmuth with JPMorgan. Your line is open.
Great. Thanks for taking questions. Elliot, can we stick with guidance? Just trying to understand the platform GMV better, the 30%-35% that you're talking about for 3Q and the 37%-40% for 2019, particularly when you have Stadium Goods and China earlier integration than expected in there as well. Just trying to understand the pressures that are there, and then you talked about as being partly a managed outcome as well or managing the growth. Help us understand that better. Just second, and it may be related, if you could help us understand the backdrop around the increased competitive pressure more, the geographies where you're seeing that and the types of retailers, some more detail there would be helpful. Thanks.
Sure. Hi, Doug. Let's start with that because that, I think, drives everything we're talking about really over the June period, sort of the second half of the quarter, we saw a substantial step-up in the promotional environment from, I guess, traditional offline retailers and also online e-tailers. Traditional offline retailers, we suspect it's because the traffic's not there, so they're having to promote. They're going earlier in terms of sale. They're going into mid-season sale. They're going quite deep in terms of discounting and basket level promotions on a sort of blanket approach. That then flowed into the e-tailers. Our major competitors online, they're growing low single digits. To prevent themselves going into negative growth, they've had to promote quite heavily to remain competitive. That all flows into our business in some respects that we've got very valuable customers.
As I said, those customers that have been with us for a few years now driving strong order contribution, we don't want them being tempted away by these competitors' promotions. We decided to promote across the latter half of the quarter as well, and that's obviously what's taken the order contribution margin down. What we did sort of looking at Q3, Q4, given that we've been growing at 44% and everybody else is growing substantially lower than that, the view is, yes, we could keep growing faster than 40%, but that incremental growth would come at the cost of very, very heavy promotions. We don't think that's the right thing to do. We'd much rather work with our boutique partners to find a full price strategy.
What we've decided to do is actively manage the P&L and the growth rates to 30%-35% across the second half and take off that need to promote. That'll still be substantial market share gains, which obviously is the key point, but also allows us the breathing room to set up for next year and the year after that and the year after that with Stadium Goods, Toplife and New Guards now being integrated into the business. Very active decision, very intentional decision. We could keep growing if we wanted to, but we decided 30%-35% is a much better place to be at. In terms of the full year, obviously, when you do the math, it's sort of 44% across Q1 and Q2, 30%-35% across Q3 and Q4.
That gets to 37%-40% for the full year at the platform. Then, as I said, on the back of Louise's call, adding New Guards wholesale connected GMV gets us up to $2.1 billion, which is the 50% year-on-year.
Our next-
Sorry. Doug asked about other parts of the market. I think in China, as José said, we're extremely pleased with how China's going. It accelerated from Q1 into Q2. Q2 China growth was faster year-over-year than Q1. It's closing the gap on the U.S. as our number 1 market. I think the key thing to point out, though, with Toplife is we've always said it's a 2020 and beyond opportunity. There's still opportunities or integration and aspects of tailoring the model fully, working with JD.com to target the right customer base. We're looking forward to that coming as a major part of the growth story next year rather than this year. Stadium Goods, as we've always said, are much smaller than the platform overall, contributing growth, of course, but we're not breaking it out at this stage.
Our next question comes from Ike Boruchow with Wells Fargo. Your line is open.
Hey, good afternoon, everyone. First, just to piggyback off Doug's question. I understand what played out at the end of the quarter and the commentary on the plan the back half of the year. Elliot, is there a reason why I think you said you expect the competitive pressures in the market to last the next two to four quarters? I'm just curious where the analysis came from and where the thought process on that is. Then just on the acquisition of New Guards, how does that impact the long-term targets on profitability that you guys have talked about in the past? Does it impact the timing of your ability to scale or eventually hit breakeven?
Great questions. Hi, Ike. The two to four quarters, as you know, the luxury industry works relatively slowly and is season over season type basis. I'm sure you've heard the fashion houses, Prada have said this publicly, Kering have said this publicly. They will be looking to pull back on the distribution in some of the traditional retailers and the e-tail model and focusing more on e-concessions, which Farfetch is the only e-concession. We expect that will take a couple of seasons to work its way through. In the meantime, those retailers are going to be overstocked versus the demand they're going to experience. They're going to presumably continue to mark down and promote to try and drive top-line growth or at least stem the loss.
Whilst the industry adjusts to the supply and demand and moves more towards Farfetch as an e-concession model, we expect that promotional environment to stay for a few more quarters. In terms of New Guards Group, it absolutely contributes to the overall 30% EBITDA margins. The last 12 months to April, profit before tax was $95 million versus revenue of $345 million. There's opportunities, I believe, to continue to drive EBITDA margin in that business as we leverage the synergies of joining Farfetch. Very strong in terms of the margin targets. In terms of route to profitability, obviously a profitable business will help that path to profitability and the positive operating cash flows moving forward.
Thanks.
Our next question comes from Eric Sheridan with UBS. Your line is open.
Yeah, I think in continuing a recurring theme, I want to stick to sort of the business mix and some of the back and forth that's going on. I guess we're just trying to really understand why 2-4 quarters again is the right number. What do you think sort of breaks the temperature in the industry or fever in the industry, that that's the right way for investors to think about it? You can imagine investors are now trying to really understand what sort of growth they're underwriting in this business over the next couple of years, not just the next quarter.
Now that we've got sort of five lines of revenue or five different buckets of revenue, maybe following up on the last question, can you walk through a little bit more what investors should expect either in terms of linearity or volatility with respect to gross and contribution margin structure for the business going forward and how to think about that not only just in the second half of this year, but into 2020 and 2021? Thanks, guys.
Hi, Eric. I think as Elliot pointed out, looking further afield beyond Q3 and Q4, we are definitely extremely confident that we are looking at 30% growth rates. We are absolutely managing the growth. As you have seen, we have been beating our growth estimates. We could continue to accelerate market share capture. Given the promotional stance of the market, we could still do that profitably because as Elliot shared, our cash conversion ratios are extremely healthy, and we still have paybacks more than six months inside of the promotional environment. We just don't think it's the right thing to do. We think it creates a vicious circle. It's not what our cherished brand partners are asking us to help them do. We think we are going to capture market share still very aggressively.
Smoothing the curve so that 30%+ growth, which absolutely remains the target for many years to come, and obviously the path to profitability and the 30% long-term EBITDA profitability that we are very confident we are going to have in future. The two to four quarters is really an estimate. The industry, as Elliot pointed out, moves slowly. Could be faster. We just want to temper. It really depends on the brands and how fast they will retreat the volume of supply they planned into wholesale. They have indicated that they are doing that. We know they're doing that. We don't know how fast. It's not in our hands. What we know, and is in our hands, is the expansion of the supply on e-concessions, which is absolutely remarkable. As you could see, 275% growth of supply from Prada, high triple-digit growth from the main luxury groups.
If we look at the 450 brands that now operate direct in concessions on Farfetch, of which we've had 100% retention rate, by the way, in the last three years, it shows the industry is really moving to a direct-to-consumer model, of which in the multi-brand realm, Farfetch is the only global concession player. The secular trend is definitely strongly in our favor. We just think that right now, we will help the brands in this transition, and we will ease on the response to the aggressive promotional spend, and slightly modulate what is a very aggressive type of share capture. Long term, this 30% plus growth is something we always had in our model and something that we are actually increasingly bullish about.
Just in terms of the five revenue streams. Obviously, we're very confident on the 30% GMV growth moving forward over the long term, that we've already always said that from the outset of the IPO, that that's the target for us. If you break that out, and look at the new revenue streams, clearly the third-party business is growing very strongly with new clients within the Platform Solutions business coming on stream next year. That will help drive that growth, next year. If I look at what we've purchased in terms of New Guards, the connected wholesale revenue grew 59% year-on-year across the first half. That's at 40% gross margins. It should continue to set to grow at good levels as we bring on new brands. It's not just about the brands that are currently in existence within New Guards.
It's a factory of brands and can achieve more growth from new brands coming on stream next year. The 1P business and the 1PO business, obviously 10% of our revenue at the moment. With 1PO coming on board, we can expect that probably to go to sort of 10%-15%. Of course, the third-party business with e-concessions growing, will be hard to match, even with the first-party business that we've acquired through New Guards. Lastly, the third-party original. That's really just a combination of what we're already seeing with third-party sales already on the platform, but obviously adding in the fact that the wholesale margin will also be captured for brands bought and sold on the platform by our third-party boutiques.
Your next question comes from the line of Luca Solca of Bernstein. Your line is open.
Yes. Good afternoon. Thank you very much for taking my question. I wonder what is prompting you, from a strategic viewpoint, to be so actively engaged on M&A. You've been lining up a very long list of acquisitions, starting with Stadium Goods, Toplife, New Guards Group, and others, Curiosity China. This is making your business model more complicated. The original idea of building an Uber of luxury and fashion digital distribution, is it possibly the case that you're seeing that this original model is not working and not producing enough of a profitability so that you have to complement it with other activities? Where is this logic coming from? If you could explain us, that would be great. Thank you.
Absolutely, Luca. Thank you. I think we always said that our strategy was to be the global platform for luxury. That has not changed. If you look at the acquisitions, Stadium Goods is a category that we had already. They were a seller actually on the marketplace, and a category that is very much a strong source of growth in this industry, and it's definitely in the luxury realm. The China acquisitions, it's written in the initial statement, the global platform for luxury. China, obviously being a key market for us. New Guards Group brings another dimension, a brand dimension to the platform. We always said M&A was going to be one of the tools in the toolbox. We were very fortunate to be trusted partners for these companies. I think it reflects, in fact, the extraordinary execution.
We're talking in terms of New Guards, a company with give or take $500 million in annualized sales and almost 30% profitability, no debt, tons of cash in the bank. They were not looking for a financial transaction. They were looking for a strategic partner that could really elevate their business. The result of the success of our model is precisely why these very successful companies want to partner with us. When we see opportunities for making progress on our platform vision, we will seize them. We will seize them studiously, cautiously. As you may imagine, there are hundreds of opportunities that every single day are put in front of us. When they are absolutely world-class companies such as New Guards, these are opportunities that absolutely make sense and fit squarely in our strategy, and we will take them.
Your next question comes from the line of John Blackledge of Cowen. Your line is open.
Great. Thank you. Just a couple of questions. I've been hopping between calls, so I apologize. On the guide and the lower platform GMV guide, was it just promotions? Just curious if you saw maybe a slowdown or something as the quarter progressed, which maybe led to the little bit of a lower guide in the back half of the year. Second would be, if you could talk about the Stadium Goods integration and maybe, I don't know if you can call out the impact or what it added to the platform GMV growth in the second quarter. The third question would be the JD.com integration. Sorry if you talked about this already in the Q&A. Just any color on kind of traffic differences you're seeing in browsing and/or purchasing with the Farfetch store on JD.com versus your consumers using the local app and/or the webpage.
Thank you.
Hey, John. Good question. In terms of the quarter as it exited, as we were saying, it was the promotional environment, really, that it's across the board. To sort of follow up on one of the earlier questions, it wasn't in one particular market, it was pretty much global. The U.S., Europe, within Asia as well, we saw very heavy promotions. Obviously, we wanted to go toe to toe to be competitive for our customers. It's very hard to unpick within that anything other than the sort of competitors are really feeling it. With Farfetch growing at 44%, we're obviously stealing significant market share from the e-tailers. Obviously, the shift from offline to online, we are helping drive that because we've got one of the best propositions out there and the broadest range of products for the customer.
I think what we were seeing was a retaliation on Farfetch's position, and that's what we're seeing. My view, and shared by the board as we discussed the second half, was, let's moderate the growth. Let's focus on long-term sustainable growth. Let's not carry on down the road, which could lead much further down in terms of profitability of the whole industry by continuing to promote, and much better to focus on long-term customer value and drive that view rather than promote. That's really the view on the guidance and why we've decided to go for 30% to 35% versus higher than that. In terms of Stadium Goods, we're not really breaking it out. It is a small part of the overall platform, and obviously helps over the longer term, but really isn't worth breaking out of the numbers.
We're talking overall platform growth, and that's what we're guiding towards. In terms of JD.com, we're seeing interest from customers on the JD.com platform. Clearly, China is an environment where you need to learn as you go what suits for customers on various channels. The team have done an absolutely fantastic job driving faster growth across Q2 than across Q1. That has come from not only JD.com's go live, but more importantly from the core product out in China being the app, our stores on WeChat, and the portal itself more broadly, the website more broadly. We're very pleased with China overall. We think we're well set up as the luxury gateway for China to be able to help the brands. More brands, as we've been saying, are now with us as an e-concession model.
We've now got over 450 brands e-concession, and China obviously is open to them via Farfetch. A huge opportunity, and a huge opportunity for Stadium Goods to go live with their own app in China as well. Very excited about what that opportunity could be. JD.com will be a part of that from 2020.
Your next question comes from the line of Jason Helfstein with Oppenheimer. Your line is open.
Hi, Anthony on for Jason. Just a quick question. Does owning brands through New Guards put you in conflict with any of the 3P customer brands?
José here. Thank you for your question. This is something that I have actually personally socialized, obviously in a very confidential way and without naming the targets. With key partners and got a very strong level of confidence. I think it's on the contrary. I think luxury brands want to be on Farfetch because Farfetch has amazing brand adjacencies, amazing other luxury brands and other products that they want to be seen next to. To put it into perspective, we have 3,000 designers represented in the platform. 450 are direct. The others are represented by a boutique. This is what attracts the likes of Gucci and Prada and others to our platform, is the incredible level of luxury and brand adjacencies. This move elevates that even further.
I am entirely confident that this will reinforce and elevate the interest of our best brand partners, create a fantastic halo effect, it does around original content, that will benefit all participants.
Your next question comes from the line of Edward Yruma with KeyBanc Capital Markets. Your line is open.
Hey, good afternoon. Thanks for taking the questions. I guess first, given this very difficult trading conditions in luxury, what is the overall health, do you think, of the boutique partners that you have? Are you seeing maybe potentially higher rates of go out of business given some of the discounting? Then two, as it relates to kind of overall industry inventory levels, is your expectation that the luxury houses are able to kind of pull back on inventory? Do you think that demand improves? Kind of what underpins maybe some of the improvement you're hoping for longer term? Thank you.
In terms of the boutiques, actually, we have seen a lot of health. A lot of health coming from small multi-brand luxury boutiques that have embraced an omnichannel vision. We have extremely high retention, figure very close to 100% on our boutique network. I think that actually is in contrast with department stores who unfortunately have had a much harder time. In general, I think the smaller formats in good health. It's really the large-scale format, both department store or large-scale retail, that is obviously much more demanding in terms of the sheer amount of dollars to drive the necessary investments in working capital, technology, infrastructure to stay relevant. This is where we've seen most of the pain in the industry.
I think the general dynamics, the brands have been very clear, some very publicly in earnings calls such as this one or capital markets day. They've advertised it for sure. You've heard it in private from other brands. The brands have been very clear. The more they can move the direct to consumer, direct to consumer being their own brand.com, obviously, but also multi-brand e-concessions, because we all understand that the consumer shops multi-brand. The consumer doesn't go in the physical world, and in the online world it's even more exacerbated because no one's going to download 200 apps on a phone. The brands are clearly trying as hard as they can move from less wholesale and less online wholesale into more direct to consumer models, of which Farfetch is the only globally concession model. How fast will they be able to make the transition?
It's a question I don't have the answer for. Hence, we estimate this to be a two to four quarter time frame. On our side, we will do everything to accelerate it. As you've seen in e-concessions, we're adding every quarter. This last quarter, we added over 40, 4-0, e-concessions to the platform. The main ones are growing their supply in triple digits. We're doing our part of the equation, which is welcome the brands and provide the resources and the teams and the integrations so that they can move as fast as possible to our model. The brands will have to do their side in terms of taking a little bit of a hit on their wholesale revenue and divert from that channel. That's something that it's on their side of the equation.
The final question will come from Marvin Fong of BTIG. BTIG, I apologize.
Great. Thank you for taking my question.
Just a question on demand generation expense. Given the promotional environment, is that something you're either going to dial up to generate business? Is that something you might dial back down just to maintain a good return on your spending? Second question, just to give us some additional comfort that this is mainly a promotional phenomenon, could you maybe comment on how orders or growth in active consumers is behaving? It was very good in the second quarter. Could you maybe give us some update on how it's trending thus far in the third quarter? Thank you.
Hey, Marvin. Just in terms of demand generation, you'll see actually from Q1 to Q2 as a percentage of GMV, the demand generation dropped back a little bit. We were able to pull back on the demand generation as we target it to the right level of customers, less reliance on paid search, moving more towards lower cost channels such as social media and retargeting display of course, and affiliates, and then into our more organic channels, including what's coming through from the loyalty program Farfetch Access, in terms of organic engagement. We saw quite a lot of organic traffic build on the back of the Farfetch Communities initiative.
We are seeing a lot more customers on the website or predominantly through the app, actually, on a more organic session, as they start to be inspired and engaged by the content that we're now putting through on a day-to-day basis. That's a significant opportunity for us. At 7.1% of GMV, that's roughly 19.5% of our revenues. Still opportunities to bring that down even further as we build that organic engagement. At the moment, we are making sure we focus on new customers and bringing them into second, third, and fourth-time orders. We are pinging them a little bit more in terms of media spend, particularly on that retargeting, to drive that sort of flick between new customers into existing.
As I said earlier on, once you get to a mature state, we're retaining 55% of the revenue from an order contribution basis, very strong profitability from a cohort-by-cohort basis, and as I said, pay back within six months. We're always tailoring the spend, the promotion, the organic and inorganic traffic to make sure that it's the right cost to serve, versus the sort of revenue per visit, and those are all in a very good place.
There are no further questions in the queue. I turn the call back over to the presenters.
Great. Well, thank you all for joining us. We look forward to speaking to you on the call next quarter.
This concludes today's conference call. You may now disconnect.