Farfetch buys luxury platform New Guards Group for $675M

Dive Brief:

Farfetch Limited and Italian luxury design, production and distribution platform New Guards Group on Thursday said they've reached an agreement for the luxury marketplace to buy 100% of New Guards' shares for $675 million, split evenly between cash and Farfetch shares.
The move will expand Farfetch's capabilities and adds New Guards brands — which include Virgil Abloh's Off-White, Marcelo Burlon County of Milan and Palm Angels, among others — to the Farfetch portfolio, according to a press release from the companies.
The acquisition follows Farfetch's purchase in December last year of sneaker platform Stadium Goods for $250 million.

Dive Insight:

Farfetch and New Guards Group both focus on luxury and leverage digital capabilities to forge holistic operations.

The luxury marketplace, which went public last year, said in its release that New Guards will help it "support new creative talent to unlock their vision and potential, deliver superior distribution and ensure consumers are served with the best new designer labels, to enable the 'Brands of the Future.'"

Founded in Milan four years ago, and operating mostly as a wholesaler (direct-to-consumer sales deliver just 5% of its revenue), New Guards has enjoyed a swift expansion and "strong profitable growth." The platform produces made-to-order merchandise, taking paid deposits before production. It sells mostly through boutiques and many of its brands are already sold through Farfetch's marketplace. In fact, Off-White is one of Farfetch's top 10 brands in terms of Gross Merchandise Value (GMV), the companies said.

In his statement Thursday, Farfetch CEO and founder José Neves said that brands of the future require three elements: a "creative tastemaker" who can "engage a global community;" top-notch design, planning and manufacturing; and, finally, direct-to-consumer global online sales, complemented by wholesale distribution "in the most prestigious physical boutiques."

"This is what the combination of Farfetch and New Guards brings to the industry," he said. "Together, we can not only continue to develop New Guards' current portfolio, but will also be uniquely positioned to bring many new talents to life with the combined layers of the Farfetch platform."

The news came as Farfetch reported that second quarter revenue rose 42.7% or $62.6 million year over year to $209.3 million as GMV rose 44.3% or $149.9 million to $488.5 million. Adjusted EBITDA loss widened by $12.2 million, or 47.8%, year over year to $37.6 million, as loss after tax increased by $71.9 million, or 406.9% year over year to $89.6 million. That was "largely driven by a year-over-year increase in the operating loss from $36.8 million to $95.8 million," according to a company press release.

Shares remained down some 40% Friday morning after taking a dive late Thursday on the earnings report.

Acquisitions like Stadium Goods and now New Guards have been integral to Farfetch's growth, and the company now must prove its mettle, according to UBS analysts. "Looking long term, we remain convinced in our original thesis that [Farfetch] (as a technology eCommerce platform) will play a meaningful role in the shift of the global luxury market online — but with a more complicated story (via M&A) and headwinds from competitive dynamics likely to persist," the UBS team led by Eric Sheridan said in emailed comments. "[W]e expect the long term bull case will need to be rebuilt through [management] execution and credibility."